How to choose a credit card that suits you
Covered in this guide...
Consider the card’s purpose
It might be to build your credit, pay a lower rate for balance transfers and purchases or get cash back, travel rewards or other perks. Be honest with yourself about how you use credit cards: Do you consistently pay off your credit card balance every month or do you sometimes pay off a big-ticket item over several months? Identify your priorities and understand the factors to think about when choosing a credit card.
Know your credit rating
Credit card issuers will look at your credit rating when deciding whether to approve your application for a card. Knowing the state of your credit rating will help you apply for cards which fit your credit profile. Whether your credit score is exceptional or just average, it pays to know where you stand, because when you know your rating, you can apply for the type of card you’re most likely to get approved for. This will help you avoid the possibility of being rejected, which could hurt your credit rating in the future.
It’s possible to be declined for a credit card even when you have a history of making payments on time. Bear in mind, factors like having too much debt, not enough income or having too short a credit history can prevent you from being approved for a new credit card, even if your credit is good.
You can read about credit ratings at this government site.
Decide whether you will pay off your card every month or carry a balance
If you normally carry a balance or plan to carry one on your new card, your top priority should be a low Annual Percentage Rate (APR).
You may be offered a 0% introductory APR with a new card, as an incentive to get you to choose a certain provider. Be aware the introductory APR offer will expire after a set time period. There could be different APRs for purchases and balance transfers or a higher penalty APR triggered by late payments. Pay close attention to which APR applies and for how long.
View our low interest cards here.
Know whether you’ll be wanting to transfer a balance
If you plan to transfer a balance from a card you already have, you should compare balance transfer options for different cards. If you’re looking to transfer a balance from one card to a new credit card with a promotional 0% APR, don’t forget to think about balance transfer fees.
Some factors to consider when choosing a balance transfer card include:
- The rate you’re currently paying
- Whether the new card has an introductory APR offer
- The rate you’ll pay after the intro APR offer expires
- Any fee you’ll have to pay to transfer all or a portion of your balance to the new card
View our balance transfer cards here.
Choose which type of rewards you want
If you don’t need to build your credit with a secured card and don’t plan to carry or transfer a balance, you may choose to prioritise rewards programs or other perks. However, check your approval chances before you apply. Rewards cards usually require you to have good to excellent credit. If you have less than five years of credit history, you may need to lower your expectations of what you’ll get in terms of rewards. You might also be required to pay an annual fee.
Cards with cashback rewards can help you earn money back from your daily purchases. Otherwise, there are many options for earning travel rewards or points. When applying for a rewards card, be aware of how much value you’ll get per dollar or point and read the terms of the rewards which interest you. Even if you only carry a balance occasionally, the interest you pay will be more important than whatever rewards you earn.
Questions to ask when considering a card with rewards:
- How are rewards earned? Most will reward every purchase, with bonus rewards on certain purchases.
- How can rewards be redeemed?
- Is there a limit to the rewards you can earn? Do they expire?
The most common reason customers deviate from popular all-inclusive rewards cards is to gain Airpoints. If you frequently fly a certain airline, the perks for having that airline’s loyalty credit cards, such as free checked bags or priority boarding, may be worth the card’s annual fee.
View our rewards cards here.
View our Airpoints cards here.
The best way to use a credit card is to pay it off in full each month so that you pay no purchase interest charges but get the benefits of any reward schemes associated with the card.
Choosing the right credit card comes down to knowing what your needs are and what type of card will work best for you.
Statistically, if you choose a rewards credit card, you’ll earn, on average, 1.5% back in cash or travel rewards on your annual purchases. It’s possible to find cards which increase that to 2%, either by paying an annual fee or choosing a card which rewards a particular kind of spending.
If you need to transfer a balance or pay off a new purchase over time, find a credit card with the lowest APR and forget about the rewards. When you’re sure that you will pay off your balance every month, an option is to switch to a card with rewards, because the interest rate won’t matter.