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A credit card also comes with rewards, such as money back on fuel purchases. Credit card options vary, so ensure you choose the best option. Here are four things to watch out for if you’re thinking of getting one.
1 REWARDS AND BENEFITS
Make sure this really benefits you. Find out what you get, how much you get and what the limits are. Such rewards usually attract a fee.
- What you get
It can be a percentage of your purchases in the form of points, rands or discounts. When you know the rand value of rewards, it’s usually easier to understand and use.
Rewards that don’t fit your lifestyle, for example discounts on air tickets if you never fly, aren’t worth it – especially when you’re charged a fee for it.
Check if rewards can be earned and spent on services and products you use, such as data, airtime, groceries, petrol and electricity.
- How much you get
Many rewards programmes operate on various levels – the higher your income or credit rating, the more attractive your benefits. Being in the top level means you get the most points.
If you check the fine print, you may discover you don’t qualify at all for the 15% back on all purchases as advertised, but maybe only a meagre 1%.
- Conditions and limits
This is critical because often the benefits are linked to your behaviour. In other words, you only get something back when you choose particular stores and products, and you can only achieve a better reward level by using certain service providers.
Check if your benefits expire if you don’t use them within a certain period. For example you’ve accumulated all the cash-back benefits available on your petrol purchases, but it expires after 12 months if not used.
Find out where your rewards can be redeemed – you might earn rewards on various purchases but then be restricted in terms of where it can be spent.
- The fees
Ask if any fees apply and how much it is. Just a handful of bank rewards programmes don’t charge fees. If you don’t earn enough rewards to at least cover the fees, it really isn’t worth your while. It’s also not worth it if you’re paying fees for benefits you won’t use.
2 INTEREST RATES
Banks grant personalised interest rates to individual clients based on the client’s risk profile, which means the amount of risk involved for the bank when lending you money.
This is why interest ratescan vary for both banks and clients. Often favourable interest rates are advertised, like a low rate when your credit card is overdrawn, or a very high rate when there’s money in your credit card account, but ask the following questions:
- To whom do the advertised rates apply?
It might only be available to people above a certain income level.
- Are the rates applicable for only a certain period?
You must know under what circumstances interest rates on your account can be increased, with the exception of when the SA Reserve Bank adjusts the repo rate and all banks in any event change their interest rates.
Don’t be blinded by the offer of interest-free days. It’s only interest-free when you pay back the outstanding amount in full in a specified time, say 55 days.
The interest-free days generally also only apply to over-the-counter purchases. Fuel purchases and cash withdrawals or transfers from your credit account usually attract interest immediately.
3 WHAT HAPPENS IF YOU MISS A PAYMENT OR PAY LATE
If you’re in the red on your credit card and don’t pay the amount owed in full, you have to pay a minimum amount monthly. If you miss this payment, additional interest can be charged as well as a late penalty.
All of this could negatively impact your credit bureau profile because you then get listed as a bad payer.
4 THE FEES
A monthly administration fee usually applies and this amount is determined by the type of account you have and who your bank is. However, there are often hidden fees, like an annual fee, fees for foreign transactions and transfer fees.
You could also pay a joining fee. It’s often also far more expensive to withdraw cash at an ATM from your credit card account than from an ordinary debit card account.
Check your agreement and ask for an example of all fees that could apply. A card may not have a joining fee, but the monthly fee could be steep.
TIP
Don’t use your credit card like a general transaction account. Unless you’ve paid money into it, the purchases are made with money you don’t have. Interest on credit card debt is high.
The maximum interest that may be charged currently on credit cards in terms of the National Credit Act is the repo rate (currently 3,5%) + 14% = 17,5%. This means for every R1 000 credit you get you could pay R175 in interest.
Credit providers are allowed to charge a lower interest rate but not a higher one.
GET HELP HERE
- Compare credit card options on websites such as hippo.co.za or justmoney.co.za
