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Credit Cards: Understand the Terms

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The banks are constantly hitting us up with credit cards offers. With so many cards on the market, how do you compare credit card offers properly and find the best credit card offers available?

In order to compare credit cards you should understand the main features found in many credit cards.

Balance Transfer APR: APR stands for annualised percentage rate and is the equivalent annual interest rate. With a balance transfer the APR is the rate that applies for an introductory period on balances you bring across from existing store or credit cards with outstanding balances. Look out for transfer fees which are upfront fees calculated as a percentage of the balance transferred.

Introductory Purchase APR: This is the interest rate that you will pay on purchases for a promotional period once you take out the card. Don’t get caught out by these intro offers, check out the small print to see that you won’t get stung if you still have balances owing when the offer period expires.

Purchase APR: This is the standard credit card APR charged on purchases. If you don’t think you will pay your bills off in full each month then a low interest credit card rate will be important while if you will pay your bill in full each month then you may not pay any interest so the rate is less of an issue.

Interest free days / grace period: You may see claims such as ‘up to 44 days interest free’ advertised. This is the time period from making a payment until the bill is due. Look for cards with a long grace period as this will give you a longer period between making a purchase and the due date each month to avoid any interest charges. If there is no grace period the you’ll be paying interest from the day or purchase and you’ll be hit even if you pay your bill in full and on time each month.

Annual Fee: most cards have now dropped their annual fees but you may find that some premium cards do still charge an annual fee in exchange for extra features. Alwats ensure that the value to you of extra features such as insurances are greater than the annual card costs.

Rewards scheme: Rewards schemes come in all different shapes and sizes such as cash back, shopping rebates, points, airline rewards and much more. There is no point in applying for a credit card that will cost you more than it earns so work out of any rewards will earn you above and beyond what you pay the bank in interest and fees. If you want a card with rewards then make sure the rewards on offer are for things that you really want, ideally things that you would have had to pay for otherwise. Most rewards programs offer rewards that average around one cent in value per dollar spent so don’t spend up just to earn some extra points, it’s simply not worth it.

Now when you come to look for a new credit card you can cut straight through all that marketing hype appliead to card offers and pick a card that is right for your needs. It’s not possible to suggest a credit card that is right for everyone, the best credit card for you will depend on your needs.

Article by R Greenwood from The Click 4 Group – www.compareyourbank.com.au

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Understanding Credit Card Rewards

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Reward credit cards are essentially well-enhanced loyalty programs. You” earn the most rewards if you use your rewards card as your everyday credit card for as many transactions as possible.

Reward credit cards are packaged in several types, each one offering rewards programs calibrated to suit particular spending patterns. But they all have the same basic premise: the more purchases you charge to the reward credit cards the greater the rewards.

Understanding the different reward card varieties

Frequent flyer credit card. Points earned from a frequent flyer credit card normally go to the frequent flyer program of the airline you prefer. The points you earn is largely determined by the monthly spend made using the card. Aside from free flights, the frequent flyer credit card rewards may include free hotel stays, travel insurance, etc.

General reward credit cards. The credit card usually has partners in the program who provide the products offered for redemption under the rewards program. The items on offer could be anything although may include small applicances luggae, movie tickets, gift vouchers and more.

Cash-back reward credit cards. These cards offer a very simple program: your account is credited for a certain percentage of the amount spent on particular items. For example, you may get a 5 per cent rebate for fuel purchases.

Credit Cards with Instant Rewards. These programs are more straight forward. There are no points to accumulate; you will simply receive an instant reward from participating merchants. The offer could be a discount, rebate or a bonus with items such as mobile phones.

Getting the most from a rewards credit card

Your credit card should fit your spending behaviour. If you use charge often and prefer not to carry any balances, reward credit cards that allow you to accumulate points should work best for you.

If you cannot pay off the entire amount due each month, point-based reward credit cards will be irrelevant. Reward credit cards usually have higher interest rates; the card companies recover the cost of running the rewards program partly from higher interest charges. Unpaid balances carried into the next payment period will attract the high interest rate. The cost of the high interest charges is likely to far exceed the value of any rewards earnt.

Reward credit cards usually impose a membership fee. Their value to you therefore depends on whether the worth of benefits you receive exceeds the cost of being in the rewards program.

One quick way to measure that is to estimate how much you have to spend to get $1 of reward. Not all cards award equally, some might earn you one point per dollar spent while another could offer 1.5 points per $1. To get a reward item worth 6,000 points you thus need to spend $6,000 on the first card and only $4,000 on the other.

A further method is the point currency concept developed by Cannex. Knowing the point currency lets you work out the spending value of the points you earn. You simply divide the required number of points to redeem a reward item by its suggested retail price. The lower the number of points required the higher the points value are as you need less points for the same reward.

For example, one program may require 10,000 points to win an item worth $75 in retail, but another program may need 12,000 points. The point currency in the first program is 10,000 divided by $75 or 133.3 points per $1 for the first, and 12,000 points divided by $75 or 160 points per $1 for the other.

As far as the rewards item is concerned, the first program gives you better point currency. Note though that if you incorporate the first method and the example described above, you may need to spend $10,000 to accumulate the required points in one program (at 1 point earned per $1 spent) but only $8,000 in the other (at 1.5 points earned per $1 spent).

The point should be clear: you need to regularly evaluate your reward credit cards for the worth of their benefits to you.

Article by Richard Greenwood of the Click 4 Group.

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