What Are The Benefits of Credit Cards?

Hi all.

Thanks to debit cards, I've never had the need for a credit card. I have been curious though, about what the benefits of credit cards. Apart from having the option to 'buy now, pay later', what are some of benefits of using a credit card? Are there special offers or terms that make paying with credit a better option than just paying with savings? Some examples would be great (I know the Mastercard 28 degrees card is pretty popular here).

Comments

  • +12
    • Better in circumstances of fraud (ie, you don't have to pay for the disputed transaction while it is resolved, whereas debit card they already have taken your money).

    • Allows you to earn more interest on your funds (or reducing interest paid on loans) by delaying actual payment of expenses.

    • You can earn points. Note that the points aren't worth it if you're paying credit card interest. You can avoid interest by paying on time.

    • Some merchants won't take a debit card (eg, accomodation providers sometimes want credit cards, not debit cards, for incidentals).

    • I often have a heap of cash in my offset/transaction account and would not feel comfortable having that cash accessible if my debit card was skimmed.

    • -1

      What is the point of this exactly (other than ripping the customer off)?

      It isn't a safer transaction or anything like this from the vendors perspective.

      • +2

        It isn't a safer transaction or anything like this from the vendors perspective.

        Yes it is. Clearly you don't know how the system works.

  • +1

    They allow you to gain a credit rating which is very useful when it comes to going for a home loan.

    The bank may not look kindly on someone with no credit history or you'll get slapped with a higher interest rate as a risk premium.

    • Do they reduce your borrowing power? Ie can a 20k unused credit card work against you?

      • +1

        Broker here:

        Yes they reduce your borrowing power.

        And yes unused credit credit reduce your borrowing power.

    • +3

      Speaking as credit advisers, we can say that it is a somewhat dangerous myth that credit cards help your chances of gaining home loan approval or improve your credit score (ceteris paribus).

      We'll start with credit score calculations, if you want a high credit score you need a stable history of official place of residence, infrequent numbers of credit applications, stable employment with increasing income reported over time, consistently positive (i.e. not overdrawn) and growing primary bank balance and no penalties or late fees on any of your accounts that are reporting positive credit data (to name some of the most important factors). All of this is then ranked against your age & location.

      Making repayments on debt forms one part of a very large pie that is the current Australian credit scoring system. As such, taking on credit or credit approvals purely to increase one's credit score is generally not a wise move and will likely negatively impact your debt servicing capabilities for more critical loans like mortgages & business loans (if you're self employed).

      For home loan approvals, lenders are far more interested in your net assets and net income and how this will meet the requirements of the proposed transaction than they are your history with credit cards. In fact, speaking from the experience of having over 100 lenders on our panel, most lenders view people with multiple credit cards and a history of unsecured debt as being more risky (as opposed to less so).

      Obviously there are some overriding factors, if you personally have a very high income ($150,000+ p.a.) and a $15,000 credit card limit that is cleared each cycle, the presence of that card is probably not material unless you have significant other debt. Similarly, if you are making $250,000+ p.a. and have a $25,000 credit card limit, it won't be a major red flag. If you are making considerably less than those kinds of income levels and have such large credit card limits, the lender will take a very close look at why this is so. They will also look to see if you are clearing the debt each cycle and whether you have any late fees or rejections for being overdrawn. If you do, regardless of income, it is often taken as a sign of risk.

      Lastly, playing the system for points and zero interest offers is not a fatal flaw to a home loan application. Lenders can see what you are doing and if you're otherwise a good credit risk they won't automatically decline you due to a large limit, they'll probably ask you to reduce your limits. That being said, if you were a grey territory approval in the first place, having a history of consistent swaps between card providers doesn't give the lender much confidence in you being a good customer. Also, depending on how frequently you may have switched, your score may be artificially low by virtue of the frequent swaps and credit applications.

      Hope this helps.

  • That's correct. They take your limit of your card as debt.

  • +4

    Free travel insurance.

    Convenience and safety.

    And I like to convert my points at the years end to Myer/David Jones gift cards and hit the Boxing Day sales :)

    With just normal spending you can easily collect gift cards worth $200-300 at the years end with no cost extra to you (if you pay on time).

    • +6

      We put absolutely everything on credit card (as long as there is no surcharge). I estimate we get $800p/yr back in gift vouchers.

    • I don't get it? Do they reward you because you paid on time or because of money you spent? Btw. $300 gift card. How much do you spent annual to earn that?

      • We of course pay all out on time so we don't pay interest. Other wise it wouldn't make financial sense :)

        Credit card companies earn from every transaction certain percentage from the seller's and shops.

        They let you earn points so you would only use only their credit cards and not others :)

  • +9

    Use it to cut lines of coke

  • +4

    I put everything on the credit card to avoid being slugged fees for the savings account I have. The bank account I have used to provide only 8 free eftpos transactions per month, although it has since raised this to 15.

    I also pay it off in full every fortnight to avoid being charged any interest.

    Plus I've had to cancel/re-issue 2 credit cards now thanks to dodgy transactions. In both instances the fraudulent transactions were reversed promptly. I feel far more comfortable handing over my credit card details (banks money) than my debit card details (my money)

    • Most banks have unlimited free transactions that i didn't think limited transactions was a thing… prob should switch banks…

  • +1

    If you book a hotel room, they'll lock in a certain amount of your credit for deposit. It would be real inconvenient if you ran out of "actual" money versus just credit while out on a trip.

  • 1 bill a month, so you don't need to leave much earning 0.0001% in a tx account. Mind you its now only getting 2.5% in Ubank,RAMS etc.

    • -1

      Ubank is 3.37%

      • After tax that's about 2.5%.
        After inflation, probably just standing still or going backwards a little less than paying with cash.

  • +1

    I know the Mastercard 28 degrees card is pretty popular here

    The advantage of this card is that it's totally fee-free. There is no annual fee, which some credit cards have and none of the overseas transaction rort fees which most other cards charge, such as "overseas transaction fee" or "currency conversion fee". Even if you never travel overseas, it's still good for making overseas online purchases from the plethora of Asian merchants on the internet these days, or from overseas sellers on ebay.

    • Good to know! Didn't know these existed (without overseas fees). Thanks for the info….Will pass on.

  • -1

    I have an AMEX Centurion card. It has a big list of benefits.
    One free flight per year.
    High rate of air miles
    Concierge service 24X7 to look after your every need.
    Special events.
    Priority tickets at all sorts of events
    Nice shiny mag
    Wine club
    Very distinctive black titanium card that one produced causes staff to fall over themselves to look after you.
    VIP membership of airline lounges, car hire, hotel chains etc.etc.

    • +2

      Very impressive.

      …and the annual fee?

      • Further to that, a quote from creditcardfinder:

        As an invitation-only card, American Express hasn’t made the eligibility criteria available to the public. An ideal way to start would be to develop a history with American Express by using other premium services. It is also useful to note that the average household income for cardholders was $1.3 million with assets of $16.3 million in 2011.

      • -1

        $5,000

        • Yeah and $1,000,000 a year annual spend just to get invited.

        • -1

          @thorton82: Hey it's only money!

    • +2

      Ninjastud, you have not mentioned that the Centurion Card is invitation only for high rollers, and has the largest annual fee of all cards. Very few will ever have one. If you are spending 50k plus a month using your Platinum Charge Card, then you may receive an invitation, the next time invitations are offered. I am ex Amex staff. I consider that boasting about having a Centurion Card is off topic, and out of place in a bargain hunters forum page. OP the real advantage of having a credit card is that you develop a credit rating, which makes loans such as home loans easier for you. The credit card limit is regarded as a debt by the bank, and they usually offer you the bank's own credit card. The non bank credit card can be "cancelled or suspended", and reactivated again after the loan process. There are also other advantages as well that have been listed already, it is safer to use your credit card with fraud protection online than a debit card linked to your offset bank account with real money in it. Interest can be avoided by paying in full each month, and the points used properly are a profit sharing scheme advantage. If you cannot afford to pay the account in full each month, then a credit card is a bad idea due to the interest rates. Balance transfers are a scam, as the offer is made on the assumption that you will not be able to pay off the debt during the offer period, and then the interest rate jacks up, which was the intention all along.

      • -1

        bambooculm The poster asked what benefit various cards have so I answered, as did others, including the next poster who mentioned his Amex Diamond.
        I was not boasting, I was proving information as requested.

        • +1

          Ninjastud, the OP would be applying for his very first credit card, and wanted to know about whether there was an advantage to having one. You seized upon this forum subject as an excuse to boast about having an American Express Centurion Card and some of the benefits. You neglected to state that it is invitation only and way beyond the reach of anyone applying for their very first credit card. The OP was not asking for information about the benefits of the Centurion card, which is invitation only, has a very large annual card fee and is only offered to big spenders. Can you give my one example of the Centurion card being someone's very first credit card? Of course, you were boasting, bragging, up yourself etc.

        • -2

          @bambooculm: It sounds as if you are judging me by your standards. I don't boast or brag. Get off your high horse and take a look in the mirror.

    • That is the top of the line AMEX card, you must be rich.

  • -1

    I have an Amex Diamond Awards card. I use it for 99% of my purchases and its amazing. I get free travel insurance, free extended warranties and all the usual other benefits like airport lounge access, but I think the best part is the rewards program. It get 3 points for every dollar spent, which works out at about 3%. You can take that as cash or as vouchers, and if you buy the right vouchers you can be way ahead. (As an example you can get $220 worth of cinema tickets for $100 points). Its a nice reward every sixth months or so; last time around I got $600 off my Macbook Pro at Myer (you can use the points directly); this time Im deciding between an Apple Watch and A GoPro Black.

  • Almost all car rental companies accept credit cards only (no debit card, no cash).

    • Sorry for late reply, but I've rented through Hertz, Budget and Redspot, and all happily took a debit card. Perhaps they have adapted their policies in line with increased debit card usage.

  • +1

    Unless you get one of those deals (eg Citibank Signature for life) you're likely to have to pay an annual fee if you want a card that gives you points/insurance/extended warranty.

    Depending on who you have the card with, mine's Westpac Black ($299/yr) and the fees do vary depending greatly. And depending on how much you spend each year, don't forget you can always negotiate to lower/waive the annual fee.

    I have had a Westpac CC for 13 years and been on an annual fee payable card for 11 of those, and have had the fee waived every single year. With exception of this year where I got it down to $75. Which still works out in my favour.

    • Hi minty,

      The Westpac black is $395/yr isn't it? Can you share how do you get it waived/reduced? Thank you in advance.

      • You need to first of all spend enough, I average $45-$70k/yr, at end of the year I accumulate $200-$350 in petrol vouchers.

        In Westpac's words they're quite happily give offer me $150/yr, I explain that's not much of a point in getting average of $100 for the entire year. Adding a mild that I've been with them for a long time now and has never been late for any payment. I would like to stay with them but not for the fees they're imposing.

        For every one of the past years they've offered to waive it completely. Only the passing year I got through to cancellation department with some young guys who don't really care to try to keep me, thus $75.

        It's all rather short of a conversation, but spending is pivotal in the negotiation.

        • Great…. I probably have more than $100k on the card in the past year and no late payment.

          How far out do you ring them? 2 weeks before the annual fee is due? or 1 month ahead?

        • @lilkid28:

          I have a recurring calendar entry to call them 3 weeks from due date. You ring through to black card priority service then request to be put through to cancellations.

          From experience the ones that'll waive are the elderly customer service people, who seem to have more intention of keeping you on the line to convince you to stay with them.

          I would call at 3 week point, sus it out, if I get it waived at that point then sweet. If not I'll be hanging at the point where they're asking "so would you like me to cancel your account?", I'll make up something about needing to check to see no auto deduction is currently set up on the CC and will get back to them to cancel it.

          Then I try again in a few days, rinse and repeat until you get it waived. I left it rather late last year and didn't have too much time to make repeat attempts, $75 is not good imo as I've had it free for 10+ years (well before whatever was before the black), but it's better than nothing.

          I have tried to call after the fee's been charged, then ring up and kindly explain the same thing, and they've waived it afterwards, so it's just a matter of who you speak to.

        • @minty: Many thanks for the useful info

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