I'm thinking of getting a credit card. What should I consider before I get one?
If you are thinking of getting a credit card, you should first consider the interest rate your credit provider is charging. If it is a variable interest rate, the interest charges can be adjusted from month to month, so you will need to pay attention to any changes in the interest rate you are being charged. You can get an overview of the interest charges for the major credit card providers, on the interest.co.nz website.
You may end up paying a lot more than you need to if you only make the minimum payment on your credit card. For this reason, it is best to pay off all the money owing on your credit card each month to avoid interest charges. There are several fees and charges that could also cost you money on your credit card.
Some of these are:
- Interest charged on any money which you have not paid back before the due date (e.g. if you only make the minimum payments)
- Cash advance fees which you can be charged if you withdraw cash using your credit card (you'll also be charged interest from the day you withdraw the money)
- Late payment penalties which you can be charged if you don't make the minimum payment by the due date
- Over-limit fees which you can be charged if you spend more than your credit limit
If you're worried about making repayments, you can take out credit card repayment insurance from most banks, but be aware that these insurance policies will only pay a percentage of your repayments, and may be expensive.
More advice on managing credit cards is on the Sorted website.
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What’s wrong with just making the minimum payment on my credit card debt?
When you incur credit card debt, interest is charged on the amount you owe every month (the payment period can vary depending on the credit provider). If you make only the minimum payment, your debt will increase by the amount of interest charged on the balance of the debt. If you do this for several months, you’ll probably find your debt amount increases very quickly. In other words, you’ll end up paying more interest and taking longer to pay off your debt.
Interest rates on credit cards are often relatively high, so if you need long term lending it’s worth investigating other options.
From 6 June 2015, a warning about only making minimum repayments must be on all of your credit card and finance card statements (unless the amount you owe is less than $100, there’s an interest-free period on that amount or you have an alternative payment arrangement in place).
If you want to pay off your credit card debt sooner use this Sorted calculator to help you work out how you can do so.
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My credit card provider has raised my credit limit but I didn't ask them to! Can they do this?
Credit card providers are allowed to increase or decrease a customer's credit limit on their card, but they should not increase your credit limit without your consent. If the provider offers to increase your limit, they should inform you that the higher limit is voluntary and that if you make use of the higher limit you’ll have more to repay, including potentially more interest to pay.
Your credit limit should be based on the provider’s (e.g. your bank) assessment of your ability to make repayments, and they should not set your credit limit at an amount that you cannot afford to pay back without suffering substantial hardship. If you think your credit limit is too high, you can ask the provider to lower it (you may be able to do so online).
If you have used some or all of the additional credit before you realised your limit had been increased, and think you'll have difficulty in paying it back, contact your credit provider as you may be able to negotiate more manageable payments.
If you are not happy with your credit provider's response to your requests, you can lodge a formal complaint with them. Your credit provider should have an established complaints process they have to follow when a customer lodges a complaint. If you are not happy with how your complaint is dealt with, you can take your complaint to your credit provider’s Financial Dispute Resolution Scheme. See our page on Financial Services Complaints
for more information.
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My credit card was stolen and by the time I had reported it to the credit card company, someone had already used it and spent hundreds of dollars. Will I have to pay back that money?
If you have done everything the credit card company or bank has required you to do to keep your credit card safe, and informed them as soon as you know that the card has gone missing, you should not have to pay the money back. A number of banks have a zero liability policy for their credit card customers (meaning you won't have to pay back any fraudulent spending) as long as you haven't participated or contributed to the loss or fraud in any way. If you have breached the terms of credit by not keeping the card or pin number safe you may be held liable.
If your credit provider is holding you liable for the money, you should get a copy of the agreement for your credit card sent to you by your bank or credit card provider and find out the exact terms of your agreement. If you have trouble understanding the agreement, you can take it to your local Community Law Centre or Citizens Advice Bureau.
If you are not happy with your credit provider's response to your requests, you can lodge a formal complaint with them. If you are not happy with how your complaint is dealt with, you can take your complaint to your credit provider’s Financial Dispute Resolution Scheme. See our page on Financial Services Complaints for more information.
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What is the difference between a store card, a finance card and a credit card?
Store cards, finance cards and credit cards all allow you to purchase goods on credit. In general, store cards are issued by retailers, finance cards are issued by finance companies, and credit cards are issued by banks.
Store cards are associated with particular retailers, for example Warehouse has a Red Card which you can use only at Warehouse and Warehouse Stationery shops or to buy online through their website. They are a form of finance card, and the credit contract is normally with either a finance company (as in the case of the Farmers Card) or the finance division of the store (as in the case of the Red Card).
Retailers often use their store cards to promote specials to cardholders, and some charge no annual fees or have interest-free periods – something that’s probably not available on your bank-issued credit card.
Finance cards can also be arranged directly through a finance company, and these can be used to purchase from a wide range of retailers e.g. Q Card and GE CreditLine.
Something to look out for when considering getting a store or finance card, is the term “security interest” in the terms and conditions. If you see this clause in your credit contract, then it’s possible that security may be taken over any goods you have bought with the card. This means that if you buy a sofa on the card and pay it off, then buy a television with the card and get behind on your payments, the store card operator can repossess both the television and the sofa.
From 6 June 2015, there are restrictions on what can be taken as security (see Consumer credit contracts – general information for more about this). If your card was issued on or after this date, the finance company can still use your purchases on the card as security interest over anything you buy using your finance card, but those items must be specifically identified e.g. on the purchase records (if essential household goods are listed as security then they can only be used as security for themselves i.e. they can’t be used as security for other items).
What makes bank-issued credit cards different from finance cards is that the former generally don’t require any security – though you would probably need to provide proof of income when you apply for one.
Before signing up to a credit card or a finance card, it’s really important to ensure you know what interest rates you’ll be charged (it could be 29% or more), what fees apply, whether security interest is required (if it's a finance card), and other terms and conditions of the credit contract.
If you are only buying the occasional big-ticket item on credit, you might find it easier to manage the debt by buying these items on hire purchase, as you’ll be less tempted to spend just because you can.
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Is it true that I can pay for goods with my credit card, without having to key in my PIN or sign anything?
Yes, you can do this if you have a contactless credit or debit card. You can pay up to $80 just by holding the card next to a contactless payment terminal.
This feature is built into many credit cards (e.g. BNZ Visa and MasterCard) and you may not be able to opt out of it. However, as long as you take reasonable care with your card (e.g. don’t give to someone else to use), you probably won’t be liable if someone else fraudulently uses your card.
If you are concerned about the security of your funds with a contactless card, contact your provider and ask them about their security measures. Some measures you can take are:
- If you are not using your contactless card, keep it in your wallet and ensure your wallet is at least 10cm from the EFTPOS terminal to prevent it from being inadvertently read as a payment transaction.
- Keep your contactless card in a wallet (an “anti-skimming” wallet) which prevents it from being read by a “skimmer” (a pickpocket who uses an electronic device to read the information stored on your card).