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Getting Good Credit Rates
There are three types of finance cards that are available in Australia :
- Credit Cards
- Charge Cards and;
- Debit Cards.
Each of them attracts different terms, conditions and interest rates. Much of the confusion comes from the actual credit that sits behind the card itself.
Typically with a debit card you use the card to access your own savings, therefore you are paying with your own money - the interest rates of these cards are generally lower than on the credit and charge cards. A charge card or a credit card is a convenient way to pay for items you need or want without having to carry cash money with you.
Unlike the debit card where you are using your own funds, with a credit or charge card you are using the financial institution's money to make your purchases and therefore you have to eventually pay it back. The financial institutions in turn charge you a higher rate of interest to cover the cost of allowing you to use their funds. And particularly, if you choose not to pay the whole amount owing on your credit card, then your financial institution will charge this rate of interest on a daily balance.
The key to using credit cards and charge cards is to minimize the interest rate implication as much as possible. Firstly, take advantage of the interest free period. Most financial intuitions offer 55 days interest free which represents an almost 20% reduction in the time you allowed to pay back the money without incurring interest.
But the interests rates themselves are the key to determining which one to apply for. Many providers offer low interest rates for the first six months followed by a hefty increase at month 7. While this might seem like a honeymoon in the beginning, it is exactly that - a honeymoon. What you should be looking out for an interest rate which is conservative and consistent. A credit card of around 14% with benefits such rewards and loyalty points are good value.
