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Mitch Watson - Canstar Group Manager, Research and Ratings.
As Canstar’s Group Manager, Research and Ratings, Mitch Watson oversees the development and delivery of the company’s flagship Star Ratings across banking, insurances, wealth and other personal finance products.
With a large variety of credit cards available in Australia, there are a number of considerations that consumers can take into account when looking for one that is best suited to them. Canstar’s Group Manager, Research and Ratings, outlines for QSuper readers what they could consider when choosing a credit card.
By gaining an understanding of the market, your spending habits and the different types of credit cards out there, you can narrow your search to more easily decide which card offers the most value for you and your wallet.
To understand how different cards stack up against each other, it helps to know the range of rates and fees on offer in the market. That’s why Canstar has crunched the numbers on around 200 credit cards as part of the Star Ratings research, to help make it easier to compare what’s on offer.
Choosing a credit card is not necessarily as simple as selecting the one with the lowest interest rate or lowest annual fee. To assess the true value of a credit card to you, it's important to carefully consider how you will be using it and what features you are looking for.
Different people use credit cards in different ways. Getting a clear picture of your spending habits, what kind of purchases you are likely to make using the card and what features or attributes you value most highly in a credit card can go a long way towards helping you find a suitable card. For instance, it could be a good idea to ask yourself the following questions:
You may be someone who wants to earn rewards on their everyday spending, and is committed to repaying the balance on the card in full each month to avoid paying the higher interest rates that credit cards with rewards programs generally bring.
On the other hand, you might use a credit card to get yourself through expensive periods and may not be in a position to pay the balance off in full every month. If that describes you, choosing a card that has a high interest rate, whether it has rewards or not, can become expensive and therefore may not be the right choice for you.
For those who are looking to earn and redeem rewards points, it’s typically helpful to estimate how much you'll be spending on the credit card each month, in order to gauge which cards offer better rewards value per dollar spent, once you’ve taken into account any annual fees you may be charged. Rewards cards also often come with higher interest rates than their low-rate counterparts, so consider if you’ll be paying your debt off in full each month or if you’re likely to have to pay interest.
It's also important to consider what type of rewards you may likely redeem your points for. Is it for general shopping, lifestyle rewards or frequent flyer points? Some reward cards may offer you better value than others, depending on what you’ll be using the rewards points for.
People who travel regularly may choose to consider a card with features such as frequent flyer points or other relevant benefits including complimentary travel insurance or airport lounge access. There are a number of premium and frequent flyer cards available that offer these features. However, be sure to carefully consider the extent of the travel insurance included with the card and compare it to a standalone travel insurance policy when determining whether it offers the best value for your needs. Also consider the annual fee attached to the card.
For travellers heading overseas, currency conversion fees can be another important factor to consider. On Canstar's database at time of writing there are 15 credit cards that currently have a 0% currency conversion fee on purchases.
Perhaps you're someone who’ll only use the card occasionally, mainly to utilise perks such as price protection insurance or a concierge service. If so, and if you expect to pay the card in full each month, you may choose to place greater importance on the conditions of these features (e.g. the duration of the insurance coverage, the concierge services on offer, and so on).
While many premium and rewards cards feature such benefits, there are also some low fee and low rate cards on the market that offer them. It is a good idea to weigh up the fees and interest rates attached to these cards before making a decision.
Once you're armed with some knowledge of the market and your spending habits you may be able to get a better understanding about the type of credit card that best suits you. The graphic gives you an idea of the various categories.
It’s worth remembering that some credit cards will fall under multiple categories but may offer better value in one category than another. This means you may wish to compare cards from a number of categories to determine which may be best suited to your situation.
For its semi-annual Credit Card Star Ratings, Canstar researches and reviews credit cards across five different categories to help consumers compare.
Typically a card with a purchase rate of 12% or less. Usually suitable for people who don't pay their balance in full each month.
A card that comes with extensive benefits such as a concierge, travel insurance and price protection insurance. Typically has a higher annual fee and purchase rate.
Designed for people who want to earn points to redeem for international or domestic flights through a specific frequent flyer scheme. Can often have high annual fees and purchase rates.
Low or no fee
Typically a card with an annual fee between $0 and $30, but often with a higher purchase rate. Suitable for people who pay their balance off each month and aren't particularly interested in a rewards program or other premium features.
A card that typically offers customers an optimum rewards return on their spending. Can have varying rewards earn rates and fees.
Once you're armed with the knowledge of the market, your spending habits and your card credit type, you would have hopefully significantly narrowed your options to a handful of suitable cards.
Personal view disclaimer
The views of the author are not necessarily the views of QInvest Limited. We’ve put this information together as general information only and you should get professional advice before relying on this information.
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