Understanding Your Credit Card And How It Works
December 17th, 2009
Make understanding credit cards an easier task by knowing which are the main issues to be aware of.
Understanding credit cards is far more than knowing how to hand your credit card across to a merchant to make a purchase. However, it is not a complex issue, and once you know which are the key elements to grasp, you will be more confident in how you choose and use your credit card in the future.
Featured Credit Card
The ANZ Low Rate Mastercard is a good low interest credit card, you will on pay 13.24% on standard purchases plus any balances you transfer to the card when you apply will be charged at 0% p.a. for 6 months
- Purchase rate of 13.24% p.a.
- 0% p.a. for 6 months on balance transfers
- $58 annual fee
- 13.24% p.a. on purchases
- Up to 55 days interest free
Click here to read the ANZ Low Rate Mastercard terms and conditions
Cardholder agreement:
Provided you take the time to read the fine print – the Terms & Conditions – you cannot be taken by surprise by how a credit card’s rules affect you. There are no secret rules except those you make secret by not reading through them. Remember your credit card agreement is a legal contract and should be taken seriously.
Your rights:
Understanding credit cards means knowing your rights as a cardholder and what sort of protection or liability waivers the provider has in place. You should find out:
- What are the interest rates and what other charges or fees apply?
- How do I increase or reduce my card’s credit limit?
- What happens if my card is lost or stolen?
- Do I have protection on goods or services paid for with my card?
- Does my card provide any extra services when I am traveling overseas?
- Does my card offer insurance coverage when I travel?
Your responsibilities:
You should make sure you understand the following:
- Miscellaneous fees – Such as annual fees, late payment fees, cash advance fees, fees for exceeding your credit limit.
- Interest-free periods – The number of days the bank allows you to borrow interest-free. This is usually 55 days, but this is lost for the month if you do not clear your balance from the previous month.
- Cash advances – When you take a cash advance, interest begins to accrue immediately, and other fees may apply.
- Interest calculation – The bank charges interest if you do not repay your balance in full by the due date.
Interest:
Credit card interest rates are set as an Annual Percentage Rate (APR), but are calculated daily and charged monthly. For example, your card has an interest rate of 18%. If your total purchase is $100, it would cost you $18 in interest if you kept the debt for the whole year. That is then divided by 365 to find the daily rate, which is multiplied by however many days you owe interest on. This is a crucial part of understanding credit cards.
Budgeting;
The 20-10 rule is a good way of understanding credit card budgeting. This means you should never borrow more than 20 percent of your yearly net income, and your monthly payments should not exceed 10 percent of your monthly net income.
Editors Choice: Best Credit Card Deals
| Credit Card | Card Details | Interest Rate p.a. | Cash Advance Rate p.a. | Balance Transfer Rate p.a. | Annual Fee | Interest Free Days (Up To) | |
|---|---|---|---|---|---|---|---|
|
An excellent balance transfer offer of 1.9% p.a. for 12 months and a standard purchase rate of 12.24% |
12.24% | 17.99% | 1.9% for 12 months | $39 | 0 | |
|
Excellent credit card, with a 0% p.a. for 6 months balance transfer offer, and pay $0 for the life of the card |
16.99% | 20.75% | 0% for 6 months | $0 | 55 | |
|
Enjoy 1.9% p.a. for 12 months on balance transfers as well as earn 3 Skywards Miles for every dollar spent, plus all the benefits & privileges of a platinum card. |
20.74% | 20.74% | 1.9% for 12 months | $229 | 55 |