Credit Cards 101, Australia Edition
February 16, 2019 4:38 PM Subscribe
Teach me about responsible use of credit cards, as they apply to Australia!
I'm looking into getting a credit card in the future. This is mainly because there are some professional & creative development opportunities in my field (arts/media/creative industries) that would be important to my career but which involve costs that I wouldn't necessarily be able to pay upfront or where payment plans aren't an option (course fees, travel, events, materials). I can pay for my regular expenses plus some extra with the income that I have but would like a little more flexibility to invest in my career this way. I owe a friend money that I'm saving money to pay off (he's very flexible about it because he earns way more than me and doesn't want me to worry about it) but other than that I have no other debt.
In Australia, from what I understand, banks won't give you a credit card until you have a more stable source of income. I'm a freelancer who is currently in the interview/application process for regular work, so getting a credit card itself is not going to be an immediate concern, but I would like to be more prepared if I do decide to take that route. Information about credit cards seem very confusing though, especially since a lot of it comes from the US (esp around credit scores) which isn't applicable!
What sort of card would be best for me starting out? How should I manage my budget best to account for fees and interest? It would be cool if the card offers airline points (I travel a lot) but I understand that those cards can get pretty expensive for not much in return.
Alternatively, are there other things that would serve this function better? I know AfterPay is a thing but the sort of things I'm looking at paying for aren't covered by it.
I'm looking into getting a credit card in the future. This is mainly because there are some professional & creative development opportunities in my field (arts/media/creative industries) that would be important to my career but which involve costs that I wouldn't necessarily be able to pay upfront or where payment plans aren't an option (course fees, travel, events, materials). I can pay for my regular expenses plus some extra with the income that I have but would like a little more flexibility to invest in my career this way. I owe a friend money that I'm saving money to pay off (he's very flexible about it because he earns way more than me and doesn't want me to worry about it) but other than that I have no other debt.
In Australia, from what I understand, banks won't give you a credit card until you have a more stable source of income. I'm a freelancer who is currently in the interview/application process for regular work, so getting a credit card itself is not going to be an immediate concern, but I would like to be more prepared if I do decide to take that route. Information about credit cards seem very confusing though, especially since a lot of it comes from the US (esp around credit scores) which isn't applicable!
What sort of card would be best for me starting out? How should I manage my budget best to account for fees and interest? It would be cool if the card offers airline points (I travel a lot) but I understand that those cards can get pretty expensive for not much in return.
Alternatively, are there other things that would serve this function better? I know AfterPay is a thing but the sort of things I'm looking at paying for aren't covered by it.
Thella is exactly right - low interest rate and low annual fee are basically what you need to look out for, and I would also add that you should ensure - both for your own financial security and the likelihood of then granting you the card - that you start out with a relatively low credit limit.
Credit scores aren't really a thing in Australia - their main concern will be whether or not you'll have the capacity to pay the balance of the card based on your income and current liabilities.
Be aware as well that when you apply for anything in the future as well that most credit providers will consider the total credit limit of a card as a liability not just the balance of your spending on it. Another reason why, particularly if you work freelance, that it's pretty important you keep the credit limit low.
Echoing Thella again, definitely don't worry about points earning cards at this point - they are generally have higher annual fees, and higher interest rates. They can work for people in a specific financial situation (high card expenditure, ability to pay off quickly), but from what I can tell from your situation, it's unlikely to provide you any benefit.
posted by ryanbryan at 5:03 PM on February 16, 2019 [1 favorite]
Credit scores aren't really a thing in Australia - their main concern will be whether or not you'll have the capacity to pay the balance of the card based on your income and current liabilities.
Be aware as well that when you apply for anything in the future as well that most credit providers will consider the total credit limit of a card as a liability not just the balance of your spending on it. Another reason why, particularly if you work freelance, that it's pretty important you keep the credit limit low.
Echoing Thella again, definitely don't worry about points earning cards at this point - they are generally have higher annual fees, and higher interest rates. They can work for people in a specific financial situation (high card expenditure, ability to pay off quickly), but from what I can tell from your situation, it's unlikely to provide you any benefit.
posted by ryanbryan at 5:03 PM on February 16, 2019 [1 favorite]
Low interest rate is relevant if you don't intend to pay off the full amount each month. If you do, you can sometimes get a card with other good features that has a high interest rate. But you need to be able to honestly confront whether you really will pay everything off all the time before going this route.
For example, I was able to get a no-fee, free international transactions card, or a no fee, free-travel-insurance (when the trip is booked on the card) card, because I don't care about interest rate. I pay off the card immediately every time I use it. It's just for the convenience of having an extra way to pay online or if my main bank card doesn't work for some reason, etc.
One thing worth checking is how you can pay off the card. Some banks will only link the card to an everyday account at the same bank (super annoying), others will let you use any bank, but you still have to nominate the account you will pay from. With some banks you can pay off a purchase immediately, and with others you have to wait a few days for the purchase to show up, then the transfer also takes a few days to go through. This makes it easier to accidentally miss a payment, which is bad if you have a high interest card.
Also double check that they only charge interest from the end of the month, not immediately on a purchase.
posted by lollusc at 5:44 PM on February 16, 2019 [1 favorite]
For example, I was able to get a no-fee, free international transactions card, or a no fee, free-travel-insurance (when the trip is booked on the card) card, because I don't care about interest rate. I pay off the card immediately every time I use it. It's just for the convenience of having an extra way to pay online or if my main bank card doesn't work for some reason, etc.
One thing worth checking is how you can pay off the card. Some banks will only link the card to an everyday account at the same bank (super annoying), others will let you use any bank, but you still have to nominate the account you will pay from. With some banks you can pay off a purchase immediately, and with others you have to wait a few days for the purchase to show up, then the transfer also takes a few days to go through. This makes it easier to accidentally miss a payment, which is bad if you have a high interest card.
Also double check that they only charge interest from the end of the month, not immediately on a purchase.
posted by lollusc at 5:44 PM on February 16, 2019 [1 favorite]
involve costs that I wouldn't necessarily be able to pay upfront or where payment plans aren't an option... How should I manage my budget best to account for fees and interest?
The best way would be to plan to pay off the costs within a specific time period, and budget a regular amount each fortnight or whatever toward that. Don't put something on your credit card that you don't know how you are going to pay for within a specific period.
Some don'ts:
posted by Thella at 10:32 PM on February 16, 2019 [1 favorite]
The best way would be to plan to pay off the costs within a specific time period, and budget a regular amount each fortnight or whatever toward that. Don't put something on your credit card that you don't know how you are going to pay for within a specific period.
Some don'ts:
- Don't draw cash advances. Just don't. You'll be paying interest on your whole balance immediately rather than have any interest free days. And be careful what purchases might count as cash advances.
- Don't get caught out paying only the minimum monthly amount. You will be in debt forever if you do.
- Be aware that some businesses will charge you an additional cost percentage to put items on your credit card to cover their fees.
- Never miss a minimum payment. You'll be slugged a hefty penalty.
posted by Thella at 10:32 PM on February 16, 2019 [1 favorite]
Australia does have credit scores (see ASIC's MoneySmart explanation, they just don't tend to be discussed as explicitly as the US. Repeatedly applying for credit cards would impact your score - here's some tips on the sort of things that will see your application rejected so you might think about them before you apply.
Get a card that has no or low fees and low interest rates if you are going to carry a balance.
Don't bother with the airline points if you are not planning to put huge amounts of money through it, this Choice article is worth reading and says on average for spending $24k a year, you'll get $46 in rewards. The ones that offer the best deals tend to have higher fees and if you are not spending enough on them, you won't even make that back.
posted by AnnaRat at 12:56 PM on February 17, 2019 [1 favorite]
Get a card that has no or low fees and low interest rates if you are going to carry a balance.
Don't bother with the airline points if you are not planning to put huge amounts of money through it, this Choice article is worth reading and says on average for spending $24k a year, you'll get $46 in rewards. The ones that offer the best deals tend to have higher fees and if you are not spending enough on them, you won't even make that back.
posted by AnnaRat at 12:56 PM on February 17, 2019 [1 favorite]
I agree, it sounds like what you need is a low rate, low fee card. I understand that following on from the royal commission into banks, alot of banks have tightened up their lending practices. This may affect what limit you can get.
In terms of information the site Money Smart is great. It is run by the Australian Government's AISC and so has alot of reliable information.
posted by daffodil at 12:58 PM on February 17, 2019
In terms of information the site Money Smart is great. It is run by the Australian Government's AISC and so has alot of reliable information.
posted by daffodil at 12:58 PM on February 17, 2019
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Don't worry about airline points. Unless you specifically only fly with one airline and can't be flexible on flight times etc, you should be able to find better flight deals than your credit card points can provide.
posted by Thella at 4:52 PM on February 16, 2019 [2 favorites]