Credit cards can be categorised into five different types:
Basic credit cards with low interest rates are better suited to those that don’t always pay off the balance at the end of every statement period. Because of their no-frills design, these cards are less likely to come with ‘premium’ features like rewards programs or complimentary insurances.
These are basic no-frills cards with little to no annual fees, suitable for those who regularly pay off the balance every statement period and simply want a credit card for the convenience – they’re not interested in rewards programs or other premium features.
Rewards cards are designed to optimise user’s spending by gifting them rewards points, which can be redeemed for cash, vouchers, flights, merchandise, entertainment tickets, etc.
Premium cards are those that offer extensive benefits to customers, like a concierge service, complimentary insurances (e.g., travel insurance), price protection, airport lounge access and more. These cards tend to come with higher rates and fees.
Frequent flyer cards are for those that want to accrue rewards for their spend that can be redeemed for flights and other travel costs through a particular frequent flyer scheme.
Credit cards should not be confused with bank debit cards – the cards you use to access existing funds in your bank account.
Credit card rewards allow you to earn ‘points’ for every eligible $ you spend, which can later be redeemed for:
Rewards sound great on paper, and they can be if you use them correctly; a card’s rewards program might perfectly align with your spending habits and you could rack up the points fairly quickly. The catch is that one rewards point might actually be worth extremely little, and even earning thousands of points might not be enough to cover the card’s fees and potential interest charges. Rewards cards are more likely to charge higher fees and interest rates, so it can be easy to actually lose money on them if you’re not suited to one.
As a general rule, one reward point is equal to roughly one cent, give or take a little bit, so try not to be swayed by huge points offers because they might not actually be worth that much.
It’s not just the ease of spending and rewards points that make credit cards worth using. There are a host of cool features your card might come with that can come in handy during your everyday life. Some of the more common features include:
A balance transfer offer on a credit card allows you to transfer credit card debt from a previous card and be charged little to no interest on that debt for several months. With a good balance transfer offer, you can erase your old debt at your own pace without being charged interest. But be warned: if you don’t pay off the debt before the end of the balance transfer period, any leftover balance will be hit with sky-high revert rates.
Your card might come with a travel insurance policy attached, which can be more convenient than having to buy one separately. Be sure to read our article on credit card travel insurance to assess whether it’s worth using.
Airport lounge access: keeping with the travel theme, you could also gain access to some fancy airport lounges. This is sometimes limited to two to four visits per year, and might only cover the cardholder and a maximum of one guest.
“Say Jeeves? Be a good chap and book my flights for me, would you?” This type of service may be available on cards that offer a ‘free’ concierge service, making it easy to make arrangements for travel, dining, entertainment and holiday activities. Some of these services are highly personalised and have people available 24/7, either in-person or over the phone.
Price protection cover allows you to claim the difference in price between two items you’ve bought with the credit card, while purchase protection covers items that are lost, stolen or damaged. These two combined can give you a real peace of mind when making larger purchases.
This feature protects cardholders against fraudulent transactions made using their own credit card and can alert them when suspicious transactions are made.
Excesses for rental car insurance can be thousands of dollars, so if you do have an accident with a rental car, this feature might have you covered.
Each of these different features vary, sometimes significantly, between the different cards, and each one has different terms and conditions as to when you can and can’t use them. This is why you should read your card’s PDS (product disclosure statement) and note what you’re eligible for because you never know when they might come in handy.
As with rewards programs, cards that carry these features are more likely to carry higher fees and a less appealing interest rate, so consider whether a card with any of these features is worth the extra cost over one without them.
There are plenty of things you should think about before settling on a credit card. The interest rate, the fees, the features and potential rewards programs are just a start – you should also probably look into things like how much you’re likely to spend each month, the support offered by the provider themselves, how easy it is to open and cancel the card, bonuses they offer for new customers and more.
But what you should really consider above all is your ability to be a responsible credit card user. Debt can sneak up on you, and picking an unsuitable card can increase your interest repayments quickly. It might be a better idea to not get a credit card at all, especially if you’re already paying too much.