70% of Australians have poor credit card habits

From minimum repayments to cash advances, most Aussies engage in 3 out of 7 bad credit behaviours.

70% of Australians harbour poor credit habits, according to new research from ME. The bank surveyed 1,000 credit card customers across 7 negative credit behaviours and found 70% of Aussies are guilty of at least 3. This number is worryingly high considering 90% of participants said they know how credit cards work. Let's look at what the most common behaviours are and what we can do to improve how we manage our plastic.

Repayments and interest costs

According to the study, 27% of Aussies admitted to not paying their credit card balance off in full each statement period. This is how cardholders accrue interest and fall into debt. 32% of participants also said they only pay the minimum amount on their credit card limit. Considering these minimum repayment requirements are usually only 2% or 3% of your owing balance, this leaves the vast remainder of your debt to collect interest. Instead, you should aim to pay as much as you can (if not your balance in full) each month to limit your interest charges.

44% of Australians also didn't know which credit card to pay off first when faced with multiple cards charging different interest rates. To limit your interest costs, you should always aim to pay off your credit card debt that charges the highest interest rate first.

Also linked to paying bills in full and on time, 75% haven't set up an automatic transfer to pay their credit card balance in full each month. As well as automatic transfers, you could set up calendar reminders to prompt you to pay your bill each month. You can use Finder's credit card repayment and interest calculator to see how much you should be paying off on your credit card each month.

31% of Australians also admitted to using their cards to purchase an item that takes them over 6 months to pay off, again leading to additional interest costs.

Cash advances and balance transfers

The same number of Australians also use their credit card to withdraw cash from an ATM. Cash withdrawals are considered a cash advance, which means they immediately collect a higher interest rate (which is usually around 21% p.a.) Most cards also charge customers a cash advance fee when they make cash equivalent transactions such as ATM withdrawals. Considering the widespread availability of EFTPOS terminals in Australia, you should stick to paying with your credit card and using your debit card to withdraw cash.

Balance transfers can be a useful way to consolidate your debts and pay them off with no interest for a promotional period of up to 24 months or more. However, 19% of Australians keep their old credit card active after accepting a balance transfer offer. Not only does this mean they'll continue to pay any account fees (such as annual fees), but it could also lead to continued spending on a card with a presumably higher interest rate. If you've conducted a balance transfer, it's best practice to close your account to concentrate on paying off your debt before interest applies.

Finally, 42% of Australians simultaneously have savings (outside of an offset account) and credit card debt. In other words, many credit card customers aren't using their savings to pay off their debt and are collecting interest on their credit card instead.

Is financial literacy the answer?

ME commissioned the study to demonstrate that card issuers need to do a better job educating customers and helping them avoid negative credit card habits. Despite the vast majority of Australians saying they know how credit cards work, it would appear that further education is the key. 38% of study participants answered 6 general knowledge questions in a credit card literacy test incorrectly. This number rose to 44% among women and 51% for young Aussies aged 18–24.

Many participants also didn't know how their credit card history impacted their overall credit history and future loans. For example, 35% didn't know that missing a credit card repayment can affect your ability to get a home loan and 9% didn't realise that credit scores apply in Australia. If you don't know what your credit score is, you can get a free copy of your report and score through Finder.

Credit cards can be complicated and most of us don't want to sort through dense product disclosure statements to understand how they work. In fact, 40% of Australians find it difficult to understand the information provided by banks regarding their credit card products.

However, there are plenty of resources online for Aussies to understand how you should (and shouldn't) use them to develop good credit card behaviours. You can use Finder's in-depth guide about how credit cards work to get started.
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