What you need to know before comparing credit cards

Updated 01/12/2021

Finding the right credit card for you can be tricky business, especially with so many different cards available. Here’s what to consider when you compare credit cards – so you can choose and apply for one with confidence.

A Guide to comparing credit cards

Low-fee, annual fee, no-fee – the world of credit cards can be pretty confusing.

So, if you’re looking to apply for a new card but you need a little help, this guide can help you get a better understanding of what to look out for.

Find out what to consider and which features to look at, so you can play your cards right.

Key Points

  • Pay attention to Interest rates, fees and rewards when comparing credit cards.

  • Knowing when repayments are due is essential to keep your costs down.

  • Your credit score and history can impact your application outcome.

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What are some features and costs you should use to compare credit cards?

The truth is there isn’t a single feature that is essential for everyone.

Instead, to find the most suitable card, you need to look at a number of factors.

For example:

1. How you use your card

The best way to start the process of comparing credit cards is by looking at your own financial habits.

You can then use these to think about what you want from a credit card.

Big spenders who use their card regularly for small and bigger purchases may want to take advantage of credit cards with rewards programs or a higher credit limit.

But people who only use their card once in a while or for emergencies may be better off with a card without annual fees and a low interest rate.

And if you’re looking to consolidate your credit cards, you may benefit from a 0% balance transfer offer.

The possibilities are endless and any decision should fit your finances, rather than leaping into an attractive introductory offer.

2. Rewards and extras

When comparing credit cards, you’ll quickly learn that the more you’re willing to spend, the better the rewards.

There are two common types of credit card rewards: cashback and points.

Credit cards on the lower end of the spectrum usually offer a small percentage, often around 1%, of cashback or basic points on purchases.

Cards on the higher end of the scale tend to offer a higher percentage on cashback and specialised point benefits, including specific categories for travel, dining and entertainment.

These cards typically come with a higher annual fee, so make sure these are features you’re definitely looking for and you can afford the fee.

3. Credit card fees

Annual fees are a set once-a-year payment covering the maintenance of your account.

Some credit cards don’t charge a fee, but others can charge as much as $450* or more annually.

Ideally, your card benefits and rewards should make up for the annual fee of your card.

If that’s not the case, a lower or no-fee card may serve you better.

There are other fees to keep an eye on with credit cards, including:

  • Balance transfers fees

  • Cash advances fees

  • Overseas transaction fees

  • Late fees

  • Returned payment fees

If you don’t plan on using some of those services, then you may be less concerned by a high annual fee.

Alternatively, if you know that you can occasionally miss a payment or travel a lot, you might want to look for a card with lower penalties.

4. Interest rates

The most common credit card interest rate is applied to your purchases.

However, credit cards usually have more than one interest rate.

Cash advances or balance transfers come with their own interest rate, so it’s important to know what type of transactions you’re going to make before deciding on a card.

If you’re planning on paying off the full balance each month, a higher interest rate on purchases might not concern you.

If you tend to pay off your balance over a longer period of time, a lower interest rate may benefit you more, as you incur fewer additional fees.

Remember: even big credit card rewards won’t compensate for a high interest rate.

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What’s a good first credit card?

If you’re interested in getting a credit card for the first time, your options may be more limited than for people who have carried credit cards for many years.

That’s because you still need to build a credit history and score, which your creditors use to determine whether you’re credit-worthy – and to what extent.

So starting with a no annual fee credit card can be a good way to get the ball rolling.

It can also be a good idea to apply for a lower credit limit (e.g. $500 or $1000) until you’ve built confidence handling your card and repayments each month.

Missing repayments can negatively impact your credit score and future credit and loan applications.

Once you have a better credit history, applying for a higher limit on your card should be pretty straightforward.

What is the best way to use credit card points?

The ideal way to use your credit card points is to be on a rewards system that complements your needs – this way, you’re more likely to actually use them.

Everyone is different, but if you’re getting a lot out of the rewards system and it’s saving you money elsewhere, you’re probably on the right credit card for you.

However, when talking dollars for point value, there are clear winners and losers.

That’s because there are some credit card rewards points that have better value than others.

The Points Whisperer Stephen Hui, founder of iflyflat.com.au told the Australian Financial Review that points spent on flight fares often represent the best point value.

“Take a Sydney-to-Los Angeles return, which is 192,000 Qantas points (classic rewards, not points and pay) for business class or 90,000 in economy.”

“A business class ticket is worth more than $6000 and the economy ticket is only worth around $1500, so you’re getting four times more value for only double the points,” says Hui.

Among the worst value items, Hui counts items like gift cards and household items, as the required spend to reach these points often doesn’t justify the value of the reward.

But if you don’t tend to fly much, a new blender might do just fine.

What are some examples of credit card rewards?

Although you might earn rewards through cashback, the points system is where some credit card users can really feel like they’re getting value for money.

With gift cards, airline miles, experiences and more, there’s plenty of rewards for you to choose from.

Some credit card lenders have other benefits on offer, such as:

  • Rental car insurance

  • Airport lounge access

  • Roadside assistance

  • 0% interest over 16 months or more for certain purchases

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How can I use two credit cards effectively?

While it’s not unusual to own more than one credit card, it’s important to keep on top of your repayments to avoid messing up your credit score.

Using two credit cards effectively can be done - it just comes down to knowing what card will benefit what situation you’re in.

For example, if one card offers complimentary travel insurance, it makes sense to use it to book your next holiday.

If you have a card that offers lower-rate international transactions than the other, remember to use that one next time you purchase something from overseas.

It can help to keep a list of all your cards and their features, including:

  • When the next annual fee is due (if any)

  • Interest rates

  • Payment due dates

  • Current balance (if carried over)

  • Any details on your rewards programs and other benefits

If you have trouble remembering different payment due dates, you can also talk to your credit card provider and request to change your current dates to sync up on a day that suits you – this way, you only have to remember one due date instead of two (or more).

Alternatively, most providers also allow you to sign up for payment notifications/reminders on your smartphone as well as setting up a direct debit to your savings account – just make sure you have sufficient funds available when it matters.

Understanding how you want to use a credit card is essential when comparing different offers.

Our experts at Compare Club can help you find the right one for you by comparing over a range credit cards* in a matter of minutes.

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This guide is opinion only and should not be taken as financial advice. Check with a financial professional before making any decisions.

^Compare Club compares over a range credit cards from Big Banks, Specialist finance providers and directly from payment issuers. Compare Club doesn't compare all cards on the market and not all cards are available to all people. Our panel continues to change over time. Customers should consider their personal circumstances before applying for credit.

*American Express, 7 factors to consider when comparing credit cards, accessed 12 November 2021

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