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A credit card is a card that gives the cardholder access to a revolving line of credit. The cardholder can make purchases up to a specified limit. The “spent” credit can be repaid by the cardholder to the bank by the due date in full or in part. If the credit is only repaid in part, the remaining balance is taken as extended credit and interest will be charged on that amount until the cardholder repays it. For some cards, interest is charged on all purchases and transactions – not just extended credit – from the day of the transaction.
Credit cards can be a fantastic spending and reconciliation tool for consumers who use them properly. However, a credit card can present a higher personal risk to customers financially. It can make it all too easy to spend on impulse if you’re not disciplined on how and when you use the card.
A line of credit connected to a credit card might be easier to obtain than other forms of credit such as a personal loan or a home loan, but it doesn’t come cheaply.
Credit cards typically have high interest rates because they are an unsecured debt. Unlike other loans or lines of credit, interest rates on credit cards appear to remain high, no matter how the Reserve Bank of New Zealand (RBNZ) increases or decreases the official cash rate. By comparison, home loans and term deposit accounts tend to reflect any movement in the cash rate within a short time of the official announcement.
It’s important to compare products before making that big decision. Money saved is money earned.
Some credit cards also charge an annual fee in exchange for some extra rewards and services. It’s important to weigh up the value of these rewards and assess whether or not they would be useful to you. Some cards let you pay the annual fee with rewards points you have earned, but if you only earn enough points in the year to pay the fee, then choosing a card without a fee makes more sense financially.
Credit cards can also charge high fees for late payment of a bill or certain types of transactions. It’s important to read your terms and conditions and pay your bill on time every month.
If you are currently finding dealing with money stressful, a credit card is not a good option for you, for many reasons. Credit cards can increase impulse spending and make it harder to remember what you’ve spent so far in a month – which makes it very difficult to stick within your budget. Try our best tips for budgeting and saving money until you are financially fit and living within your means.
Credit cards can be useful for a variety of reasons if used responsibly.
When you need to apply for a loan, you need to have accumulated a positive credit history of dealing responsibly with a line of credit. If you pay off the full balance of your credit card every month, this can provide you with that positive credit rating. Just remember to be careful, as any missed payments can negatively affect your credit rating.
Credit cards have anti-fraud protections that can make them safer than debit cards when shopping online. If someone defrauds your debit card, they can spend all of your hard-earned cash and leave you broke. If someone defrauds your credit card, they can max it out, but you still have access to your own cash while the bank investigates the fraud. Always check that you recognise every transaction listed on your statement, and call the bank immediately if you suspect someone has stolen your details and is using your card.
Many credit cards have great reward programmes. Credit card rewards are useful for cardholders who already use their card enough to build up points and justify paying an annual fee for it. These are not useful if you would need to overspend, buy things you don’t need just to acquire points, or if the annual fee is higher than the benefits you would use. Think about the type of rewards on offer and consider whether you would use them. You might not even need a credit card with an extensive rewards programme.
Paying for a large-ticket item or a large purchase such as overseas flights, it can be easier to use a credit card because it doesn’t have a small daily limit like your debit card. Before you buy, check that there aren’t any merchant fees for using your credit card to make the purchase. It might be worth asking the bank to increase the daily limit on your debit card instead.
When you’re travelling overseas, having a credit card can be a convenient and safe way to travel, eat out and buy souvenirs. Debit cards aren’t accepted at as many places as credit cards. Many places in the world still operate using cash, so you should also have some of the local currency with you at all times. It can also be helpful to take a backup card with you just in case.
Bankcard, New Zealand’s first credit card, was launched in 1979. It came here after the successful Australian launch five years earlier (1974) proved that electronic data processing and communications technology had become advanced enough to handle clearing payments across the nation.
Bankcard was operated by Charge Card Services Ltd, a service company that allowed multiple banks to use its computers and communications networks through a shared facility. Each member bank issued their own variant of the Bankcard credit card with their own terms and conditions.
Three Australian banks that had a presence in New Zealand were the ones to introduce Bankcard first: ANZ, BNSW and the Commercial Bank of New Zealand.
As Bankcard showed people liked using cards, the Bank of New Zealand started issuing EFTPOS debit cards in 1985 as an alternative to using cheques or cash.
Electronic card payments have increased rapidly since then. Total credit card billings for November 2021 topped $4 billion. The average amount that people spend per card transaction is also getting smaller with an average of about $50 per transaction, as people start using cards for small amounts instead of cash.
In the 1990s, the Bank of New Zealand launched the first card in the country to offer a direct-earning loyalty programme. Their GlobalPlus credit card allowed you to earn AirPoints DollarsTM dollars that you could spend with Air New Zealand.
Bankcard stopped operating in New Zealand in 2005, when it was clear that it was no longer needed, because our banks were effectively handling clearing credit payments in-house.
Technology for credit cards has come a long way since the first credit card:
There are three main types of credit cards available in New Zealand through banks and building societies:
MasterCard was formed in 1966 when 17 banks joined together to form the Interbank Card Association. Today, MasterCard provides an umbrella for thousands of financial institutions to share a brand recognised by customers and merchants.
MasterCard claims to have many advantages, including:
MasterCard boasts a number of industry world firsts for credit cards:
Visa was formed in 1958 as the Bank of America’s BankAmericard, the first consumer credit card program available to middle-class consumers and small to medium-sized merchants. It was a simple paper card with a $300 credit limit. In 1976, BankAmericard became independent and united many different banks under the new global brand of Visa.
Visa claims to have many advantages, including:
Visa boasts a number of world industry firsts for credit cards:
American Express Company was founded in 1850 by Henry Wells, William G. Fargo and John Butterfield as an express delivery business during the westward expansion. Its biggest clients were banks who needed to transport small but valuable items such as stock certificates, deeds, bank notes and currency.
In 1882, American Express launched its money order business with almost instant success. They issued their first credit card in 1958, with Elvis Presley being one of the first cardholders of the ‘American Express Card’. The American Express Gold Card was launched in 1966.
American Express has also been a travel provider since WWI, when it helped to provide emergency travel help for 150,000 American tourists left stranded in Europe in 1914. Today, they operate one of the world’s largest travel networks, and many of their credit card rewards programs focus on travel benefits.
American Express claims to have many advantages:
American Express boasts some industry firsts for credit cards:
There are a number of fees that may apply to your credit card. See your bank’s PDS for detail on all fees that may apply to your credit card but here are some of the common credit card fees are:
There are many different features that may be attached to your credit card. These can include:
A summary of features that we look for in an outstanding value credit card are contained in the Methodology attached to our annual Credit Card Star Ratings reports.
There are many possible rewards that can be attached to a rewards credit card. You can use our credit card rewards star ratings to search for cards offering your favourite type of reward.
Common rewards included in these programs include:
The “best” credit card rewards program comes down to how much you spend per year on your card, what type of reward you are most likely to use, and whether the annual fee or other costs for the program would be worth it. Canstar rates rewards programs for three different levels of annual spending on your credit card – $12,000, $24,000, and $60,000.
What is a balance transfer?
A balance transfer involves transferring your credit card debt to a new credit card with a low interest rate, often a promotional rate, and paying off the debt before the end of the low-rate or promotional period. Rates range from 0.00% to 8.95%, considerably less than your average credit card. Note, though, that some balance transfer deals have a “honeymoon” period at this lower rate, after which the amount owing on the card reverts to a higher interest rate. The low interest rate may also only apply to the initial balance transferred and not to any purchases you make. Check the terms and conditions carefully!
Balance transfers are a good idea if you choose a 0% interest deal with a transfer period longer than 12 months. You also need to avoid temptation by cancelling your previous credit card and not making any new purchases with the balance transfer card.
Concentrate on paying off as much of the debt as possible during the interest-free period. Check the reversionary interest rate and if it’s pretty high, transfer any balance left on the card at the end of the interest-free period to a low rate card.
What credit card is right for you?
Wondering what type of credit card you should get? This depends on what type of spender you are.
It comes down to two questions:
What type of credit card spender are you?
Canstar has identified four main types of credit card spender:
These cards are suited to someone who uses their credit card frequently every month, but struggles to pay it off in full. For example, the cardholder would typically spend $14,000 a year, while constantly revolving debt of $9,000 on their credit card.
If this sounds familiar, you should consider looking for cards with a low interest rate and a low annual fee. Rewards cards may not suit you as they usually have high monthly interest rates and large annual fees attached.
An Everyday Spender is someone who uses their card frequently every month, but is able to pay off the card in full each month.
With the Everyday Spender, it doesn’t matter what interest rate you get, since you don’t plan to pay interest! You might want to look for the maximum number of interest-free days, since the Everyday Spender tends to hold back on repaying until the eleventh hour.
Depending on your overall “spend” per year, it may also be worth looking into a few rewards offerings and other features – as long as the benefits outweigh the cost.
An Occasional Spender is someone who keeps a credit card in reserve for big ticket items, such as holidays, or in case of emergencies, and then pays off the balance over a few months.
You might want to check out the selection of cards with a low ongoing interest rate and a low, or no, fee.
Finding a credit card that works for you, not against you, is easy if you carefully examine what you spend and how you spend it. Interest-free days aren’t really going to benefit you all that much if you are carrying a balance over several bills.
Someone who spends a lot on their card, routinely puts around $5,000 or more through their card per month, and always pays in full before interest is charged.
The interest rate is no problem if you’re paying it off before interest is charged, so you can look for a card with no annual fee and/or a great rewards and services programme. You usually won’t get both, but if you use your card a lot, you may as well make it work for you.
Cards aimed at big spenders can have a high annual fee and high interest rates, so a few missed payments can write off any rewards you received. Make sure you pay it off like clockwork!
Beware of one potential trap: some cards offer a 0% deal for a certain number of months, but they charge a “balance transfer fee” of up to 3% of the amount being transferred. That’s a lot of money!
Purchase price protection insurance
Purchase price protection insurance is a special feature of some credit cards where the bank will pay you back the difference if you find a product on sale for a cheaper price than you paid for it. This insurance can be provided for free on your credit card, available as a paid option on its own, or included with other insurance options on some cards. Purchase price protection insurance usually only covers purchases made in New Zealand, with an annual limit on claims.
These insurance policies vary greatly between providers. For most cards with this feature, the price drop must be at the same retailer, but some will cover it if you see the item cheaper at any store.
A fee is charged for this insurance policy, usually a small percentage of the closing balance of your monthly credit card bill. So, if you pay off the entire balance of your card before your statement is issued, you can avoid having to pay a fee for the insurance.
Credit card debt is on the rise in New Zealand.
According to a recent report, 41% of Kiwis currently hold credit card debt. According to Commodity.com’s National Debt Clock, the national debt per Kiwi is over $32,000 and Kiwis pay an almighty $6.3bn every year in interest payments.
Are you struggling with debt?
The ABA’s Doing It Tough website lists the following as signs that you might be in debt to a stressful point:
Taking control of your debt:
If any of these signs apply or you know your debt is out of control, take control of it now:
Where to get extra help:
There’s nothing wrong with asking for help to get your debt under control, for the sake of your financial future.
NZ Federation of Family Budgeting Services: A great place to start. Provides free, confidential and personalised budgeting advice from trained budget advisers. They also provide around 1,800 community education courses each year – so find a budgeting service near you on their website.
Christians Against Poverty New Zealand: Another organisation that provides free and independent financial help, from helping you consolidate debt to keeping debt collectors away. Anyone can call their debt helpline on 0508 227 111. They also run a free course called Cap Money, which will help you to learn how to budget and live within your means – find a Cap Money course near you.
Lifeline Aotearoa: If you are in an immediate crisis, call Lifeline’s 24-hour crisis support service on 0800 543 354, or text on HELP (4357).
Community Law Centres: If you feel like you might need some legal advice about your debt, you should go there for free legal advice instead of forking out hundreds of dollars to a private lawyer.
Don’t be fooled by other businesses offering services to help you get out of debt, as most of them charge fees and are little more than debt consolidation companies. Always find out up front how much a debt company will charge you for their services. You can often get the same help for free from a financial counsellor.
Please note that these are a general explanation of the meaning of terms used in relation to credit cards. Your bank or financial institution may use different terms, and you should read the terms and conditions of your credit card carefully to understand all fees, charges and interest rates that may apply.
Account-keeping fee / Ongoing fee: A monthly account-keeping fee that is charged by the lender to help cover the administration cost of maintaining the line of credit. Alternatively, you may be charged an annual fee rather than an ongoing account-keeping fee, especially for rewards credit cards.
Annual credit card fee: A fee charged annually for the use of the credit card. Usually applies to rewards credit cards.
Automatic transfer: A system that is set up to automatically transfer money from a one bank account into another account at a certain point in time to coincide with bills or payments.
Average daily balance: The balance of your card is determined by adding up all balances during the month and then dividing the total sum by the number of days in a given billing cycle. Most credit card providers calculate the daily balance based on the annual rate.
Cash card: Also known as gift cards. A prepaid card with a set balance. Can be used either at a specific retailer, or like a debit card that can be used with multiple merchants using EFTPOS.
Balance transfer: Transferring the outstanding balance on your credit card to another card, usually one with a better (lower) rate.
Balance transfer fee: A fee charged when you make a balance transfer. It may be a flat fee or a percentage of the amount you transfer.
Bankruptcy: This is when someone’s debt problems become so serious that they are unable to pay their existing debts and bills. When this happens, they can apply to a court to be declared ‘bankrupt’, and any assets or savings they have can be used to pay off their debts.
Big spender: Credit card users who spend a lot of money on their cards every month and always pay off the balance in full. For these cardholders, the best cards are those that provide adequate rewards programs and other services.
Cash advance: Withdrawing cash from a line of credit. Usually incurs additional fees or a higher rate of interest.
Cash advance fee: A fee charged when you make a cash withdrawal from an ATM using your credit card. The bank may charge a flat fee or a percentage of the amount of the cash advance.
Caveat emptor: Latin for “let the buyer beware”. In financial situations, this phrase means that a buyer should be careful to examine an item and the terms of conditions that apply to purchasing it, before making that purchase.
Charge card: Instead of having a revolving line of credit, the balance of this card must be paid off in full every month. Charge cards were the first historical versions of credit cards issued by merchants and banks.
Credit limit: The maximum amount you can spend with your credit card before having to pay off some of the balance.
Credit report or credit history: A report from a credit agency that contains a history of your previous loan and bill payments. Banks, lenders, creditors and financial institutions use this report to determine how likely you are to repay a future debt, and it helps them decide whether or not to lend money to you. Your credit score and credit report are also used by lenders and insurers to set your loan and insurance rates.
Credit score: Also known as your credit rating. It is an assessment of your credit-worthiness, based on your positive and negative borrowing and repayment history, which is listed as a numerical score. The score is based on whether you pay your bills on time, your current level of debt, the types of credit and loans you have, and the length of your credit history. Your credit score and credit report are used by lenders when deciding whether or not to lend to you, and they are sometimes also used by lenders and insurers to set your loan rates.
Creditor: A lending agency to whom you owe money.
Debit card: Also known as a bank card or a cheque card. Allows you to access the money in your savings or checking account electronically to make purchases. Requires a PIN number to confirm identity, and the funds are removed from your account almost immediately.
Default: When a cardholder fails to fulfil their obligation to make the minimum necessary payment on their credit card bill or other loan. Defaults are a serious black mark on your credit report and negatively affect your credit rating.
EFT: Electronic Funds Transfer. The transfer of money between accounts by electronic machines like ATMs, home computers, and EFTPOS machines.
EFTPOS: Electronic Funds Transfer at Point Of Sale. Usually refers to a small machine that merchants use to receive payments from customers’ credit and debit cards.
Everyday spender: Credit card users who use their credit cards for everyday purchases and pay off their balances each month. They need to be concerned less about interest rates and more about finding the right features.
Full balance: The entire amount owing on your card that month, including any purchases made that month, any amounts unpaid from previous month’s bills, and any interest or fees charged.
Habitual spender: Credit card users who keep a revolving credit card debt and don’t pay off their card each month. Typically need a low rate card with a low annual fee.
Impulse spender: Credit card users who only spend in splurges (holidays, emergencies) and then spend months paying the balance off. Typically need a low rate card with a low annual fee.
Interchange fee: Fees paid between your bank and a merchant’s bank to accept card-based transactions.
Interest rate: The rate at which your outstanding balance increases per month if your bill is not paid or not paid in full.
Interest-free days: The number of days you have to pay your bill in full before interest is charged on the balance. It is the period of time between the date of a purchase and when the payment is due. But be careful because if you do transfer money from your credit card to another account (known as the term ‘cash advance’), interest usually starts from that date.
Introductory rate: An interest rate charged when you first sign up for a credit card, offered to entice new cardholders. These rates are usually very low, but revert to the standard rates after 6 months or so.
Merchant: Someone who sells goods or services to customers for payment.
Minimum payment: The number listed on your bill as the minimum your bank requires you to pay off your credit card for that month.
Ombudsman: If you have a dispute with your bank and haven’t been able to resolve it through the bank’s internal complaints resolution process, you can contact the Banking Ombudsman of New Zealand. It is a free and independent service that helps people resolve disputes with their financial institution.
Overdraft: An overdraft occurs when you write a check, make an ATM transaction, use your debit card to make a purchase, or make an automatic bill payment or other electronic payment for an amount greater than the balance in your savings/debit/checking account. The bank extends credit up to a maximum amount (the overdraft limit) and you can make withdrawals up to that limit. Interest is charged on the fluctuating daily balance.
Over-the-Credit-Limit Fee: A penalty fee charged to you for exceeding your credit limit.
Penalty fees: Fees charged if you violate the terms of your cardholder agreement or other requirements related to your account. For example, your credit card company may charge a penalty fee if you make a late payment or if you exceed your credit limit.
Pre-approval: An initial approval notification that provides a customer with an estimate of the credit limit someone would be approved for if they applied for that type of credit card. This is based on information the bank has about their credit history. It is not a guarantee that the customer will actually be approved for the card if they make an application.
RBNZ cash rate: The overnight interest rate that the Reserve Bank of New Zealand offers financial institutions to settle-up on inter-bank transactions. This cash rate influences the interest rate that banks give each other.
Revolving account: An account in which there are not a scheduled number of payments and the full balance doesn’t have to be paid off monthly. Credit cards are the most common type of revolving account.
Rewards program: Benefits that come with the use of a credit card, often in proportion to the amount of money spent on it. Can come in the form of cash back, shopping vouchers, frequent flyer miles, and general rewards.
Switching: Changing from one product to another with the same financial institution, e.g. switching from a rewards credit card to a savings account with a debit card attached.
Universal default: When one financial institution treats a lender as if they had defaulted when the lender defaults with a different institution.
Articles and Guides
Choosing a credit card articles:
Getting out of credit card debt:
Read the Methodology document in our star ratings report to find out how we rate credit card providers.
Who offers credit cards in New Zealand?