Credit cards are not always bad, but you have to make sure you get the right one that fits you and your lifestyle. It’s important to read the fine print before you decide on a credit card. Avoid getting enticed by rewards and low interest periods, and take the time to understand what you can afford so you can choose the card that is right for you. That’s the key point to avoid bad credit history through credit card debt and make credit work for you.
By Graham Doessel, Founder and CEO of MyCRA Credit Rating Repair and www.fixmybadcredit.com.au
Choosing the right credit card is essential to your finances – in the end it can be the difference between good and bad credit history.
Money saving website, Savingsguide Australia have 5 tips for choosing the right credit card.
1. At The End Of The Month. If you’re unable to pay off your credit card at the end of the month, Yahoo! Personal Finance suggests looking for cards with 45 days of interest free and then cards that have the lowest interest on purchases. I would also suggest keeping credit use to a minimum until you’re able to pay it off at the end of the month.
2. Fee. If you’re planning on using your credit card frequently and for rewards programs, then an annual fee might be a worthwhile spend. You could be looking at anywhere between $50 to $250 a year, but if you’re redeeming your points for money-saving purchases like flights or accommodation, it might be a worthwhile investment. If, however, you’ve got the card as an emergency back up when you go overseas, you may as well just get a card that doesn’t have an annual fee.
3. Interest Rate. When getting a credit card, it’s essential to weigh up whether any outlay on the card is a worthwhile investment. The same is as true of interest as it is of the annual fee. The card might have a high interest rate but if you can be certain you’re going to be able to pay it off at the end of every month, then those cards can also offer great rewards. Often, it’s stipulated you have to be earning over a certain amount to qualify to use the card.
4. Use It Everywhere. People look dismayed when they come to my work and pull out an Amex or Diners. Sure, we can transfer it. At the cost of a 3% surcharge, which usually precludes anyone from wanting to use it. Amex and Diners come with great rewards but a lot of businesses, at least in my town, have no interest in processing them so you have to rely on two cards. Recently, however, cards have been released where they are two cards in one (an Amex and Visa, or an Amex and Mastercard). So if you’re keen for the reward points, it could be worth investigating that option.
5. Bonuses. Credit cards are big business, and they want to make sure that they keep yours. Hence, the amazing world of bonuses for your credit cards. The most obvious, and the most commonly used, is the protection should you be a victim of fraud. If it happens on your credit card, the bank will usually cover you as part of your credit card contract. If the same thing happens on your debit card, you’re not always as lucky. Other bonuses can include short-term insurance on items bought on your credit card or little luxuries like privileged access to concert tickets when they go on sale and the best seats. If a credit card fulfils all your other criteria, a bonus scheme could be a great way for you to save a bit of money throughout the year.
Some great advice there on choosing credit cards. One important point is to not be sucked in by promises of rewards or other special deals when choosing credit cards – concentrate on the fees, interest and repayments. If you can afford all of that, then look at the possible benefits rewards can bring.
Here is my advice to prevent bad credit history from credit card debt:
Create your own credit limit.
Set yourself a limit based on what you can comfortably afford to repay. It’s important to realise that you will pay at some point for the credit you use. Make sure at worst case scenario you can afford to repay it. You will then have confidence in your spending without the temptation to overspend.
Don’t exceed the credit limit.
This will just mean you incur hefty charges.
Pay off the balance each month.
Ideally, pay off the entire card balance within the interest free period. If you don’t, you will be charged interest right back to the date you purchased each item. You not only lose the interest-free period on those past purchases, but until you pay off the balance there will be no interest free period on anything you spend in the future.
Or, choose a low interest card, but still pay more than the minimum repayment amount each month.
If you have debt which carries over on your card month to month you should look at a card that has a lower interest rate. It may not offer an interest free period, or hefty rewards points, but the lower interest rate should mean the carried over debt is more manageable for you, and will prevent you from getting into trouble with credit and ending up with defaults or late payment notations on your credit file (bad credit history).
Avoid cash advances.
Interest usually applies immediately on any cash advances from credit cards – whether the withdrawal is within the interest free period or not.
You can also visit ASIC’s MoneySmart website for further information on how to choose the right credit card or watch this youtube video featuring ASIC Commissioner Peter Kell.
For help repairing bad credit history, or more information on your credit rating, visit our website www.mycra.com.au or call MyCRA Credit Rating Repairs tollfree on 1300 667 218.
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