Financial Fitness Challenge Week 3: How to get the most out of a credit card
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For Week 3, let's look at how to get the most out of a credit card, including how to save on interest charges and earn rewards.
THIS WEEK'S GOAL: If you're looking for a credit card, learn how to choose one that works for you. Plus easy ways to increase your chance of approval.
Not everyone will want or need a credit card. So if you're on the fence about getting one, weigh up the pros and cons first.
Are you paying too much for your credit card?
If you've already got a credit card, the Finder app will show you a breakdown of your spending, the card's costs and what you could save by switching to other options on the market.
(Don't have a credit card? Skip to this section on how to find one that works for you).
If you haven't got the Finder app yet, you can get it here, then add any credit cards you have by following these simple steps:
How you can use a balance transfer to pay off your debts
If you have credit card debt on one or more cards, moving it to a new card with a low or 0% interest rate offer will help you save on interest as you pay it off. This is known as a balance transfer, and the introductory rate typically lasts between 6 and 26 months (or sometimes longer).
You can usually balance transfer debt from between one and three credit cards or store cards. Some balance transfer cards also accept debt from personal loans.
This gives you a way to move a few debts onto one account (known as debt consolidation), which helps cut down on different account fees and interest charges. It also means you
If you've never done a balance transfer before, the process is easy: you apply for your credit card and request the balance transfer as part of the application (including details of the accounts and amount of debt you want to transfer). If the application is approved, your new credit card provider will move the balance to your new card.
A couple of key details to note with balance transfers:
- The amount you can balance transfer depends on your approved credit limit for the new card. Typically you can transfer up to 80% or 100% of your available limit.
- If you're still paying off the debt at the end of the introductory period, the low or 0% interest rate will change to an ongoing balance transfer rate that could be as high as 25.99% p.a.
Bottom line? If you have debt that you can pay off during the introductory period, a balance transfer card could help you pay it off and save money on interest in the process.
If you think your debt will take longer to pay off, take a look at how balance transfer offers compare to other debt consolidation options.
How can I choose a credit card that will work for me?
The first step is to take a look at the different types of credit cards that are around, then think about if any of them would help you with your money goals.
As a snapshot, some of the most popular types of credit cards include:
- 0% purchase rate credit cards that offer an interest-free period on your shopping for up to 17 months.
- Rewards and frequent flyer credit cards that give you a way to earn points, cashback or other rewards as you spend.
- Low rate credit cards that offer an ongoing interest rate that typically ranges from 8.99% p.a. to 14% p.a.
- Balance transfer credit cards that you can use to pay off existing debt with a low or 0% interest rate for the introductory period.
The Finder app has a quick quiz that helps you find cards with the features you want. What's really cool about it is that the app also uses data to give you an idea of how likely you are to get approved.
Planning to apply for a personal loan in the future? You can check out your chance of approval for those in the Finder app as well. We'll also be adding more types of loans in the future, so watch this space.
Other ways to improve your chances of approval for a credit card
When you know what credit card you want, it's easy to apply online and usually takes around 15–20 minutes.
While there's no guarantee you'll get the credit card you want until you're notified of approval, there are a few steps you can take to help improve your chances of success. These include:
- Checking the eligibility criteria. All credit cards list a few conditions you need to meet to be eligible to apply. These range from a minimum age of 18 (which is a legal requirement) to Australian residency status and even minimum income limits for some cards.
- Providing identification. Credit card providers need a valid form of ID to help them confirm you are who you say you are (to avoid identity theft, among other things). Your driver's licence is an easy option, which can also help them run a credit check. If you don't offer valid ID on the application, you might need to visit a branch or email details to the provider, potentially adding days to the application process.
- Submitting plenty of supporting documents. Recent payslips, a financial year payment summary or even your latest tax assessment notice from the ATO can help back up details of your income. Bank statements can also help with income details, plus show details of your regular expenses and/or savings. These documents help credit card providers assess your application.
- Double-checking everything. Read over the application as you go through it to make sure all the details you've typed in are correct. This is simple but could save a lot of time if there is a mistake somewhere.
Keep in mind that every application you make for a credit card will leave an enquiry on your credit report (even if you're not approved). This could impact your credit score, which is why it's important to think about how likely you are to get approved for any card.
You've made it to the end of Week 3. By now, you know about keeping track of your money, the value of your credit score and – as of this week – how to get a credit card that works for you. You also have a way to make sure your credit card doesn't cost you more than it should, thanks to the Finder app.
The next step is about flexing your new skills to save more money, and learning about different ways to invest all the cash you've freed up over the past few weeks.
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