Simplify your credit card search

Credit cards are a way of paying for goods and services without using your own cash. Your credit card essentially works like a debit card you have for your bank account. The credit card provider will issue you a statement at the end of the month showing the amount of money spent and the minimum amount owed. Your credit card will come with a credit limit. The credit limit is the amount of money you can spend on the card and is decided by the credit card provider based on their assessment of your application.

You can charge up to the credit limit, however, this isn’t recommended for a couple of reasons. Firstly, hitting your credit limit too soon after receiving your credit card may alert the provider. They can lower your credit limit moving forward or increase your interest rates if they feel you are at risk of being unable to repay. Secondly, using the maximum credit available may negatively impact your credit score, which could limit the future credit options you have available to you. It is recommended that you use around 20-30% of your credit limit on any given credit card. Many credit card providers also charge monthly fees, ranging between R0 and R62 in South Africa. Some card providers also charge an initiation fee to set up the service, which is typically much higher if there is no monthly fee involved.

There are several different types of credit cards available in South Africa. These include low rate cards, whose primary feature is their low ongoing cost to holders. There are also rewards cards, which offer a range of incentives for holders to spend more, including cash back offers on travel, fuel and other purchases, and frequent flyers points that allow users to fly more cheaply.

Other types of credit cards include premium cards that give holders a very high monthly limit and provide a range of luxury extras such as concierge services, travel assistance, and cash back or air miles rewards. Finally, there are credit builder cards for those who have poor, little or no credit history. These often provide holders with lower interest rate options or higher credit limits each time they pay the monthly balance on time.

Benefits of using a credit card

Credit card payments are accepted on the phone, online and in-stores. You can also use your card abroad (fees may apply), giving you access to money wherever you are.

A credit card can be used to purchase large ticket items, making manageable repayments each month. Using an interest-free credit card could mean it costs nothing to borrow the money if you repay before the interest period runs out.

Credit card use can help build up a credit history and improve your credit score. Having a good credit score will help in the future. For example, you when you apply for a mortgage or want to borrow money at a lower interest rate.

Credit cards can help monitor expenses by clearly showing what you are spending each month. This can help you towards your budgeting goals.

There is an added insurance purchasing goods using your credit card. You can arrange to withhold payment for faulty goods by contacting your card provider.

Potential pitfalls to using a credit card

Access to money can tempt users to overspend. Inability to repay will lead to additional charges and debt.  Too many credit cards can negatively affect your credit score.

Top Tip – A credit card is a very useful financial tool is used properly and repayments are made on time. Unfortunately, too many users fail to use credit cards responsibly and spiral into debt. To avoid this, we recommend you do not use your credit card to paying off existing debts as this is not a long-term solution and can lead to higher charges. Also, only use your credit card to live within your current means and budget. Buying things that aren’t in your budget or aren’t essential will increase your likelihood of becoming in debt.

What credit card should I choose?

There is such a range of credit card providers and offers on the market that it can be difficult to know which is best. To help your selection process, think about how you plan to use the credit card for and find a card that meets those requirements. This guide explains the different types of cards available and some of the features associated.

Also, review the eligibility criteria you need to meet to be accepted for the credit card. If this is your first time taking out any sort of finance, your credit score may not be good enough to be approved for a premium offer. Only apply for credit cards you have a chance of being accepted for and work your way up to the better offers by building your credit history over time.

Key credit card factors to consider, include:

1. What you will use it for: What you want to use your card for will impact all other decisions around interest rates and rewards. If you are likely to pay off the entire balance each month, the interest rate won’t matter so much, so you should look for a card with a low annual fee. If you are interested in incentives and rewards, you may want to select a card based on the type of rewards you will receive.
2. Initiation and monthly fee: You may prefer to pay a higher initiation fee in exchange for a lower ongoing monthly fee if you have the funds available when you apply for the card. This is a good idea if you think you will hold onto the card for a very long time.
3. Interest rates: If you’re unlikely to clear the balance each month, you should look for the lowest interest rate possible.
4. Credit limit: It’s important to only have access to an amount of money you know you can pay back, regardless of what the credit card issuer may offer you. You may want to decide what credit limit is right for you before you ask the provider what they are willing to give you.
5. Fees and penalties: You may need to pay a range of fees or penalties while using your card – checking your balance, paying late, or transferring a balance from one card to another, are a few examples. So it can be very important to understand the fees associated with different cards.
6. Rewards: If you think you will spend frequently, and regularly repay your balance each month, you may want to “cash in” this spending by choosing a card that earns you air mile points or other rewards that are of interest to you personally.

Can I get a credit card with a bad credit score?

Some credit cards are specifically designed for consumers with poor, little, or no credit history. These are perfect for people who have a bad credit rating because they allow you to build up a positive credit history if you repay your balance on time each month.

Regular credit cards may not be available to consumers with a bad credit rating, however, or they may only be available at a very low credit limit.