Credit cards should be straightforward, right? You apply for a card and enjoy the convenience of cashless payments. Then, you pay the borrowed amount on time so you don't incur interest and penalties. How hard can it be, right?
While it may seem like a simple process, owning a credit card is a challenge. You have to deal with credit limits, rewards, interest rates, maintenance fees, among others. Plus, you have to select the right one from a pool of credit card deals, such as no annual fees, transfer balance, low-interest rates, and more.
To get started, let's get you asking the right questions. Check out these 15 most commonly asked questions about credit cards in New Zealand, and start from there.
A credit card lets you borrow money from a card issuer — usually a bank. They let you borrow money, granted that you agree to pay the amount plus the additional interest at an agreed time — usually at the end of each billing cycle. Other terms and conditions apply, that's why it's important to always read the fine print, and read reviews about a particular card you're eyeing.
Basically, the bank lends you a line of credit to finance your purchases and you pay the amount due on your billing statement. If you miss the due date or fail to pay the full amount, you'll have to pay the set interest and charges.
Unlike a credit card, a debit card charges money directly from your account. This means you don’t acquire debt in your purchases as well as penalties, as you're spending your own money.
And because you're using your money for purchases, this is a good choice for people who are budget constrained. You can see the deductions in your account real-time. Not going over budget is easy, if you're more mindful of your spending.
A credit score is the rating that creditors give you to show how creditworthy you are. It indicates that banks and other financial institutions can trust you with their money and that you can pay for your debt, including the interest, on or before the agreed time.
Credit score in New Zealand is rated from 0-1000, and the higher the number, the better the score. Most New Zealanders score anywhere between 300 and 850. Most banks consider anywhere above 500 to be a good credit score.
While you can still snag good deals if your credit score is below 500, there are usually reservations to the amount, interest rate, and billing period depending on your score.
To apply for a personal credit card in New Zealand, you have to be at least 18 years old. Aside from being an adult, you also have to be a citizen or permanent resident in the country. Of course, your employment details and income also come into play.
While you can still get a credit card even if you’re under 18, it’s not under your name. You can only be an additional cardholder from your parents’ account. Some banks offer this feature as early as 14 years old, but it may still vary per lender.
Banks usually charge your interest daily and bill them monthly. For example, you made a purchase of $5,000 with a 12.9% interest rate. If you pay it off within a month, you’ll have to pay $53.75 interest on top of the $5,000 credit.
As interest is calculated per day, it’s recommended that you settle your credit as soon as possible. This is to not incur higher interest charges by the end of the month. Of course, the calculation of your interest varies per bank and type of account.
You can! Here are some options you can take advantage of.
If your credit card doesn’t fall within these categories, then you’ll pay the interest charges even when you don't pay for the full amount within the agreed date.
You can use it to pay for almost everything, including your rent! However, for finances considered as debt like mortgage, loans, among others, it may not be your best choice. It may lead to more financial hardships for you later on.
For everything else like groceries, maintenance fees, subscriptions, utilities, and more, you can pay using your credit card without worries.
Technically, you can, but it’s not recommended. It’s like paying off your debt with another debt. Plus, some banks don’t accept credit card payments using a credit card because it creates an infinite loop of debt.
If you really want to consolidate your credit card debt and are ready to see it through, you can do it through a balance transfer credit card.
Yes, an inactive credit card may affect your credit score. Although it varies per bank and account type, payment history makes up to 35% of your credit score. The second most important factor is credit utilisation, totalling up to 30%.
If you don’t make any payments or don’t use your credit limit to its full potential, then your score will be zero. Sure, it doesn’t have negative effects on your credit score, but it doesn’t return positive results, either.
You can still make up for another 15% if you have good credit history. However, it’s not enough to increase your credit score.
Of course — but the question is, will it have any positive effect for you? Instead of getting more credit cards under your name, you may be better off utilising what you already have. If you have plenty of credit cards but are not using them actively, they won’t benefit your credit score.
As mentioned, it’s more important to have good payment history, credit utilisation, and credit history. It's best to focus on maintaining these, before getting more credit cards under your name.
But if you're really up for getting more than one credit card, there’s no stopping you! You can even get another credit card from a different bank!
Credit limit is the maximum amount your bank can put on your credit line. It’s directly tied to your credit score. The higher your credit score, the higher your credit limit. Consequently, the lower your credit score, the lower your credit limit.
The great thing about lower credit limits is, you can easily utilise it fully. As you have a smaller amount of credit to work with every month, you can easily reach 30% criteria for your credit score. On the other hand, a higher credit limit can work to your advantage if you are a big spender and can pay within the agreed date.
There are different types of credit cards such as no annual fees, low-interest rate, balance transfer, reward, credit builder, purchase, travel credit, money transfer, and the list goes on.
In a glimpse, here are the functions of the different credit card types in New Zealand.
Yes, you can have a good credit score without a credit card. This is possible through loans and mortgages. Reporting rental payments as well as paying for your utilities on time can help you increase your credit score. Having a consistent job can affect your credit score too.
Although, paying using your credit card is still the best option to build a good credit score. It’s also the easiest way as you can use it for your every purchase — whether small or big.
There are several methods to pay for your credit card bill. Here are the quickest and easiest ways to do it.
Make sure you pay for your current debt first before borrowing from the bank again. It may be a simple hack, but it’s easier said than done. You have to be more disciplined with your spending habits.
Most of all, it’s important that you have the right credit card for you. To get the best credit card type for your lifestyle, use glimp’s comparison tool. We compare the best deals from the leading banks in NZ, and give you tailored results in just a few clicks.
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