How to compare credit cards to select the best card

 

The choice of credit cards is vast with around 300 credit cards to choose from, navigating through these choices can be daunting so here we provide a guide to compare credit cards to find the best credit card for your circumstances. To narrow the choice of cards down to a more manageable number step one in your comparison should be focused on identifying the credit card type which best fits your current needs. The major credit card types are briefly considered here:

 

Balance Transfer Credit Card

If you are carrying a debt on your current credit card these cards should be on your comparison list, as they are designed to help you pay down this debt and save you interest charges.

 

Low Rate Credit Card

If you tend not to repay your monthly balance in full each month these cards are worth including in your comparison as they offer some of the lowest purchase rates in the market which will ensure that your interest charges are minimized.

 

Frequent Flyer Credit Card

These credit cards are popular with members of frequent flyer programs who are looking to add to their points by earning frequent flyer points in return for using their credit card.

 

Rewards Credit Card

As these cards are not tied to an airline like the Frequent Flyer Credit Cards they reward cardholders with Points which have greater flexibility at the point of redemptions so for example they may offer the ability to buy flights from a number of Airlines.

 

Low Fee Credit Card

Where keeping the cost of holding a credit card is important these Low Fee credit cards hit the spot and are popular with cardholders who are infrequent card users but like to hold a card for emergencies.

 

Business Credit Card

Specifically designed for business use these cards include features whish help business manage their expenses and improve their cash flow.

 

Having selected the card type that fits your needs it’s now time to dig deeper to understand these card types so you can commence your comparison.

 

Balance Transfer Credit Card

Over 50% of new credit card applications are for credit cards that offer a balance transfer offer, with cardholders seeking better terms for their credit card debt. These cards work by simply offering a promotional balance transfer rate that is applied to the debt that you transfer from your current credit card. This switch can see the interest rate applied to your debt move from a rate of 20% p.a. + to 0% p.a. which will deliver significant savings in interest. To calculate the savings you could make by switching to a balance transfer credit card try our Balance Transfer Savings Calculator.

Whilst the debt that you owe remains the same, the interest savings you can potentially make are significant as your debt will be subject to the promotional balance transfer rate of interest that can be as low as 0% p.a.. This low interest rate will be applied to the balance transferred for the period of the balance transfer which can range from 6 to 24 months, at the end of this period, if you have not repaid the debt in full the interest rate applied to the debt will revert to a higher rate, which is generally either the cards purchase or cash advance rate.

Factors to include in your Balance Transfer Comparison.

Balance Transfer Interest Rate - This is the promotional interest rate that will be applied to the debt transferred to the balance transfer credit card. For any balance transfer to make financial sense the balance transfer rate needs to be significantly below the purchase interest rate you are currently being charged by your current card provider. Typically Balance Transfer rates are below 2% p.a. with many deals offering balance transfer rates as low as 0% p.a.

Balance Transfer Period - The number of months that the balance transfer rate applies to the transferred debt, this will generally be in the range of 6 to 24 months.

Balance Transfer Fees - This fee covers the administration costs of the card provider and is generally charged as a % of the debt you are transferring, with fee levels averaging at around 2% though balance transfer deals can be found that charge no transfer fee.

Revert Rate - This is the interest rate which will applied to any debt which is unpaid at the end of the balance transfer period, these revert rates will be significantly higher than the balance transfer rates.

In conjunction with these cost related criteria your comparison should also consider a couple of points regarding the application process and eligibility:

1. Each credit card provider has strict rules concerning which credit card providers it will accept balance transfer from, as a general rule you will not for example be able to make a balance transfer to a balance transfer credit card offered by your current card provider.
2. To be accepted for Balance Transfer Credit Card you will need a clean credit report, so prior to making any card applications be sure to check your report and rectify any issues.

 

Rewards Credit Card

Rewards credit cards are designed to reward cardholders for paying for transactions with their credit card. The more you spend on your card the more reward points you earn, and in turn, the more valuable the rewards you are able to acquire through the redemption of the points.

 

Factors to include in your Rewards Credit Card Comparison.

Earning Reward Points - Reward Points are earned each time you make an eligible purchase with your credit card. Each reward credit card will have a “point earn rate” which defines how many Reward Points you earn for each dollar spent. As a benchmark 1 point per $1 spent is in the mid range of the point earn rates, though be aware that the card providers are able to change these point earn rates at anytime.

Alongside this standard point earn rate the majority of reward credit cards also feature higher point earn rates when you make purchases with your credit card at certain “reward partners” , these purchases can often attract point earn rates double that of the standard point earn rate.

As the popularity of Reward Credit Cards has increased the credit card providers have evolved their offering to help cardholders to maximize their point earning opportunities. The latest innovation has been the offering of “companion credit cards” which sees you have 2 credit cards (usually and American Express Card and either a Visa or MasterCard) on a single account, with the sole objective of optimizing all reward point earning opportunities.

Redeeming Credit Card Reward Points - all Rewards Credit Cards work on the presumption that at some point in the future you will wish to redeem your points for a Reward. When making your comparison of Reward Credit Cards you should ensure that the redemption opportunities match your interests and requirements and represent value. The rewards offered by each of the credit card reward programs are very similar and broadly fall into 5 categories:

1. Travel - a wide range of travel services including airline tickets, hotel bookings, flight upgrades, travel insurance and package holidays.
2. Gift Cards - from many of Australia leading retailers including Myer, Westfield, JB Hi Fi and Harvey Norman.
3. Cash Back - enables you to redeem reward points for cash that is generally credited back to your credit card. The option to redeem your reward points for cash only kicks in once you reach a minimum points balance, this minimum level varies by card provider
4. Merchandise - The range offered by Credit Card Reward programs are extensive with thousands of goods offered in the leading reward programs run by, Westpac, St George, CommBank and ANZ. These Reward stores include Technology, Home and Garden, Baby and Kids, Beauty and Fashion, Sports and Wine offerings comparable with your local shopping center.
5. Charity Donations - Reward points can be donated to a range of charities who partner with the Reward Point programs.

The Points Redemption Rate of the points you can vary significantly by program and require careful comparison, so for example one reward program may offer a Myer $50 gift card for 5,000 points while another Reward Program may require 8,000 points for the same $50 gift card.

 

Frequent Flyer Credit Card

Frequent Flyer Credit Cards are a form of rewards credit card that are designed to reward cardholders with points that can be added to a nominated frequent flyer account. The Frequent Flyer programs in Australian have millions of members who earn reward points for flying with their preferred airline, many of these frequent flyer members have also chosen to use a Frequent Flyer credit card aligned with their chosen Airline to provide an additional means of accumulating Frequent Flyer points.

Points can then be redeemed through the Airlines Frequent Flyer stores that offer flights, hotels, experiences and a wide range of merchandise. The 3 most popular Frequent Flyer Programs in Australia are Qantas Rewards, Velocity Rewards and KrisFlyer Miles, all of which offer have alliances with credit card providers in Australia.

 

Factors to include in your Frequent Flyer Credit Card Comparison.

Frequent Flyer Credit Cards focus on rewarding cardholders with points of a single airline partner, so prior to making any comparison of specific frequent flyer credit card you’ll need to decide on your preferred airline, this maybe an easy choice if you are already a member of a frequent flyer program

If you are not a member of any Frequent Flyer Program you will need to select a preferred airline with who you see value in accumulating points with. This selection will be eased, by answering a couple of questions:

1. Does the airline I normally choose to fly with have a frequent flyer program?
2. Does this Frequent Flyer Program offer the types of rewards that are attractive to me?
3. I fly on a regular basis but I am not loyal to any single airline - are frequent flyer credit cards relevant to me?

 

Many frequent travellers select and book their flights based on the price of the ticket offered, this often results in several airlines being used to fulfill their travel itineraries. Where no single Airline is being used on a frequent basis the value of a frequent flyer credit card diminishes as the ability to accumulate a points total worthy of redeeming becomes difficult. The good news is that the card providers have recognized that some frequent travellers want greater flexibility when earning frequent flyer points from their credit card spend, and have responded by offering Reward Credit Cards that are aligned to a number of Airline partners, as opposed to just one.

This flexibility means that any points earned on credit card purchases may be transferred to a number of the airline partners who participate in the Reward Program A  popular example of this type of program is the Altitude Reward Program, operated by Westpac, that allows you to transfer your Altitude Reward Points to any of their 10 airline partners.

Point Earn rate - this defines the number of frequent flyer points you will earn for each $1 spent using your credit card.

The majority of frequent flyer credit cards offer a base point earn rate that applies to the majority of purchases, and then a second that is higher than the base, by rewarding you for spending with a range of “bonus partners”. Increasingly a third tier earn rate is also available where the point earn rates are again increased for spend on travel products offered by your preferred airline, so for example purchasing a holiday via Qantas holidays with your NAB Qantas Rewards Credit Card.

Eligible purchases - The definition of eligible purchases for which you will earn points varies by credit card provider, so check the terms & conditions of the frequent flyer credit cards you are comparing. As a general rule eligible purchases are everyday purchases, with non-eligible purchases being balance transfers, utility bill payments, ATO payments and council related payments. Some Platinum and Black level cards include ATO and Utility bills in their eligible list.

Introductory Bonus Points - Introductory offers range from 5,000 to 60,000 bonus points. When making a comparison of these introductory offer you should pay close attention to any terms and conditions associated with receiving the bonus points as increasingly these offers include spend tiers which must be met, in a specified time period, for the bonus points to be awarded.

Point capping - A points cap on your frequent flyer credit card means that your ability to earn points from your spend will be limited relative to this cap. These caps generally operate at a statement period level, stating that X number of points can be earned within this period, and once this points level is reached any further spend will not earn points.

 

Credit cards with uncapped point earning do exist, but are few in numbers, Qantas Credit Cards with no points cap and Velocity Credit Cards with no points cap should be considered if you are seeking to be rewarded for every dollar of spend on your frequent flyer credit card.

 

No Annual Fee Credit Card

No Annual Fee Credit Cards used to be cards that where stripped of benefits in return for a $0 annual fee. As this no fee, no frills proposition gained popularity the Credit Card providers began to add benefits to the cards as a means of recruiting new cardholders.

 

How long does the $0 apply for? - This question which has recently become very relevant as a new tranche of no fee cards have been launched which offer a $0 card fee for an introductory period, usually 12 months, post which the annual card fee reverts to the standard fee. The original No Annual Fee Credit Cards where the $0 fee is for the life of the card do still exist, though they are few in numbers.

 

Low Interest Rate Credit Cards

Low Rate Credit Cards are generally defined as featuring a Purchase Interest Rate below 15% p.a. When making a comparison of these Low Rate Cards it is important to understand that the low interest rate which these cards promote is the Purchase Interest Rate, with the other interest rates for Cash Advances and Balance Transfers often buried in the small print,  but certainly worthy of inclusion in any comparison of low rate credit cards.

 

Business Credit Card Comparison

A comparison of Business Credit Cards should commence with the costs of using the card, followed by an appraisal of the cards features to ensure it satisfies the businesses needs and how they wish to use it. These requirements may include issuing of cards to multiple cardholders, different credit limits for cardholders and the importing of card statements into a particular book keeping system, such as Xero or MYOB.

 

Purchase Interest Rate - If credit balances are going to be carried on the card each month it is critical the Purchase Interest Rate is competitive, as this will determine the amount of interest which will be payable on these outstanding balances.

Cash Advances - If the Business Credit Card is going to be used to acquire cash the Cash Advance rate will need to be compared as this is the interest charged for any cash advanced using the card. An important point to consider on Cash Advances is that the Interest Charge normally commences on the day on which the withdrawal was made and so no interest free days apply across cash advances.

Annual Fee - Business Credit Cards annual fees cover a very wide range as the cards include a varied spectrum of features. Cards do exist which attract annual fees below $100 p.a. but the majority feature fees in the $100- $200 range. It will also be important to compare the rate charged for including additional cardholders on the account if your plan is to issue cards to a number of employees.

Interest Free Days - The ability to delay paying the balance on the credit card may assist in cash flow so interest free days should certainly be considered in your Business Credit Card comparison. A point to look out for is that cards with lower interest free days tend to have lower annual fees, so be sure to balance the benefits to your business of each of these characteristics.

Rewards Program - Businesses are one of the most frequent users of credit cards and represent a large proportion of the dollars spent on Credit Cards so the opportunity to earn rewards points is significant. A number of Business Credit Cards do offer Rewards Programs, many with rewards that would be handy to businesses such as flights, hotel accommodation, Technology Products and gift vouchers for many of the high street retailers.