Credit Card Basics

Welcome to the credit card guide where you will learn everything you need to know about credit card basics. You will find out about prepaid debit cards, charge cards, credit cards and how to maintain a good credit rating.

Credit card guide

Most Australians will end up getting a credit card at some point in their life and it is important to at least know the credit card basics before getting one. If used correctly, credit cards can be a lifesaver. If used inappropriately, credit cards can lead to a lifetime of debt.

Credit cards explained

A credit card is a small plastic card that financial institutions and banks issue to their customers. This card is linked to an account and the customer can use it to purchase almost anything including home entertainment equipment, clothing, gas and more. You’re not using any of your own money when you use a credit card since the money is loaned to you for a small amount of time.

You will be charged interest on the balance in your account if you’re not able to pay off your statement when you receive it. Interest is calculated based on a percentage of your current balance in the account. You must pay interest for the privilege of borrowing money from the card issuer. Interest will not be charged if you pay back the money you have borrowed by the due date.

Credit card benefits

A credit card can take the place of cash in many instances and it is a lot safer and convenient then paying with physical money. They’re especially convenient if you take a holiday, or if you run out of cash due to an emergency. As long as you make sure that you pay off your balance every month it is like getting a short-term loan for free.

Credit cards also allow you to build up a credit history and you will need one if you ever want to purchase a home or a car in the future. You can build up a positive credit history by always paying at least the minimum amount required every month.

Obtaining a credit card

You will need to fill out an application to get a credit card. You will be asked for some basic personal information and the lender will check your credit rating to find out if you qualify for a card. If you have a full-time job and a credit score of at least 650 you can usually get an unsecured credit card. The fastest way to apply for a credit card is on the Internet, but you can also make an application over the phone, by mail or at a local bank branch. You will be able to use the helpful information in this credit card guide to help you.

Credit card types

There are three different kinds of cards: debit cards, credit cards and charge cards. American Express is an example of a charge card. Credit is only extended for one month and then the balance has to be fully paid off.

Debit cards do not offer any type of credit since they are linked up to either a transaction or savings account that you have at a bank. Every time you make a purchase using a debit card the money is pulled directly out of your bank account. You never have to worry about going into debt with this type of card since you are not taking out any type of loan when using it.

Credit cards do give you credit for making purchases and you will be given a credit limit according to how much money you earn, how many other debts you have and your credit history. MasterCard and Visa issue credit cards in Australia and you can carry over a balance from one month to another as long as you continue to pay the minimum amount required every month. The minimum is usually 2% to 5% of the balance. As long as you use your credit responsibly, credit cards are very convenient to have and use.

Prepaid cards use money that has been deposited into a savings account that counts towards your credit If you deposit $600 into your savings account, you would then receive $600 worth of credit.

Maintaining good credit

When you first get a credit card you will be very tempted to go out and spend, spend spend. It can often seem unreal that the plastic card actually represents cash and that is where a lot of people get into trouble. The best thing to do before getting a card is to decide what you really need it for and how it will be used. You will then have to use strict self-discipline to stay focused with the card to avoid debt.

In order to keep your credit history in good shape you are going to have to make at least the minimum payments every month. If you miss one it will reflect badly on your credit score. Even if you are late on a payment it can show up in your credit record. Here is a basic checklist of certain things that must be maintained in order to keep your credit history healthy.

• Always pay on time.
• Always pay the minimum amount at the very least.
• Report your card as lost as soon as it becomes lost.
• Report any suspicious activity on your card immediately.
• Never go past your credit limit.
• Never give out your personal identification number or card to anyone else.

Choosing the right credit card

Now that you know some of the credit card basics with this credit card guide you can learn how to choose the right credit card. Here are some features that will be offered on credit cards you compare, and you should know them so that you can make a proper comparison.

Annual fee

This is a fee charged by the credit card issuer for using the card. You will see when you start comparing cards that there is a wide range of annual fees being charged, and some cards don’t charge any. You need to watch for the cards that don’t have an annual fee since their interest rate is usually much higher.

Balance transfer

Some cards give you the opportunity to transfer over a balance from an existing credit card. If this is your first credit card then you will not have to worry about that feature at all since it will not apply to your situation.

Interest rates

There will be a wide range of interest rates being charged by different cards. The interest rate is a yearly rate, and you should look for a card that charges a low rate if you plan on carrying a balance forward from time to time.

Rewards programs

Some cards give you the chance to earn points by spending money on your card that you can then redeem for valuable merchandise or other rewards. Some cards are linked up to Frequent Flyer programs so that you can redeem your points for free travel. You should be spending a lot of money on your card to choose one of them, otherwise it is not worth it.

Cash advances

These are withdrawals you can make for cash at an ATM machine. There is usually an additional fee attached to this type of transaction and you usually have to pay a higher interest rate.

When you are comparing credit cards you should always read the small print once you have narrowed your selection down to a few cards. Never sign up for a card without first understanding everything about it. You want this card to work for you, not against you.

The credit card basics you have learned in this credit card guide will make you more prepared to do a good card comparison. Just remember to follow the helpful advice given so that you get the right card and use it to your advantage.