Credit cards are easily the most desired, controversial and varied forms of credit in the financial world but, they’re also the most misunderstood, misused and abused form of credit.
They offer us so much yet, very few of us actually understand the way they work, how to really benefit from using one and the risks associated with owning one. The best way to get to know this highly illusive revolving credit product is to start from the basics and work our way to the lesser known facts, tips and information.
What is a Credit Card and how does it work?
A credit card offers consumers a revolving line of credit that can be used to make everyday purchases, book flights, hotels, rent a car, withdraw cash and shop online. It is called a revolving line of credit because you can use a set amount of money, called a credit limit, over and over again.
Credit cards are not only issued by large banks like Absa, Nedbank and FNB but, also by alternative credit card providers and major international brands like Barclays, American Express and Avios. While a debit card only allows the holder to use money that they actually have in their account a credit card allows a holder to use money that they don’t necessarily have and, pay it back later.
A great way of looking at this is to think of your card as an instant cash loan provider – there for you whenever you need it whether you’re looking to buy groceries or rent a hotel for your family holiday.
Credit Card Branding, Rewards and Interest Free Periods
Most credit cards will either be branded by Visa or MasterCard and it’s important for you to note that both of these are equally accepted throughout South Africa. Visa and MasterCard are independent of your credit card provider and essentially provide them with the service of transaction processing. American Express is a credit card provider that has its own processing system and uses neither Visa nor MasterCard but, is not as widely accepted in stores and online.
Most credit card providers in South Africa offer co-branded credit cards which are offered by a financial provider in partnership with an airline like British Airways or Kulula, a sports team or retailer. These cards are ideal for people who do all of their shopping at a particular store, travel often or want to show support for their team. Many cards in South Africa offer eBucks rewards schemes, cash backs and a variety of different rewards programmes.
Finally, most credit cards will offer consumers an interest free period which means that you can spend money by paying for goods and services without being charged any interest on your outstanding balance. This interest free period is usually very brief – about 2 months, and once it’s over, interest will be immediately charged on any outstanding balance.
What you need to Know About using a Credit Card
Every time that you use a credit card you are essentially taking out a loan from your provider. This personal loan will have a predetermined limit which is called you credit limit and, you cannot exceed the limit. Every month you will be required to make a minimum payment on the outstanding balance of your credit card.
This minimum payment is usually expressed as a percentage and can be a very small amount. It is important to note that credit cards that offer many rewards will likely also carry a higher interest than basic credit cards that are not co-branded and offer few or no rewards.
If you’re likely to miss you minimum payments than it is very important that you consider the interest rate above the rewards that you will be receiving. Many people are lured in to taking out a specific credit card because of these rewards programmes but, with high interest and many terms and conditions including expiry dates that can snatch up all your rewards, it’s not always worth it.
The Benefits to Owning a Credit Card
Many car rental companies will prefer and even insist that a customer provides their credit card details since it will indicate that you have good credit and will offer them a simple way to keep (and return) a deposit. Shopping online is also easier when you use a credit card and you can benefit from a range of benefits including purchase protection, extended warranty and dedicated support staff there to assist you with all of your needs 24 hours a day.
In addition, you can always use your credit card when you’ve run short of cash and you won’t have to make a loan application or take out a payday loan which can prove to be very expensive. Credit cards can also help you manage debt and earn some decent rewards on things that you purchase on a regular basis.
Is it Hard to get a Credit Card?
In the eyes of South African consumers credit cards are one of the most prestigious and “hard to get” forms of credit but, this isn’t necessarily the case. There are many credit cards designed for students and people with low to medium income that want to build up a good credit history. These credit cards are very basic, offer low credit limits, very few (if any) rewards but, are easy to qualify for and can certainly help you get the credit score you need to get a home or car loan.
The criteria that you will have to meet to get a particular card varies wildly from one provider to the next but, you will have to be at least 18 years or older, have a stable monthly income and be a permanent resident or citizen of South. Some credit cards are indeed difficult to qualify for since they require the applicant to have an above average annual income and a good credit score but, there are many which do not have these requirements and are easy to get.
Comparing Credit Card Provider and Products
Loans South Africa have collected and listed all the credit card providers in the country and made a summary of their companies and products available to you easy selection. If you’re looking for a credit card and want to know what options are available to you, this list of lenders will provide you with all the information you need. When comparing credit cards the first thing you need to look for is a credit card that is available for your specific income bracket.
You can then choose to compare cards based on which ones offer you rewards that you will benefit from, a low interest rate, a longer interest free period or even lower annual fees. There also a handful of credit card comparison websites in South Africa that can show you exactly what credit cards are available, what the qualification criteria for each card is, the interest charged, the annual fees and what rewards you could benefit from in simple, easy to compare tables and lists. Using these as a guide is a great place to start when looking to find and compare credit cards.