I'm thinking of getting a credit card. What should I consider before I get one?
A credit card allows you to spend money that you borrow from the bank or finance company, with a quick swipe or tap, and pay it back later. You will usually be charged interest on any money owing if you don’t pay it off in full each month.
Because credit card interest rates can be high, it is best to pay off all the money owing on your credit card each month to avoid interest charges. If you need long term lending it’s worth investigating other options.
If you are thinking of getting a credit card, you should first consider the interest rate and other fees that your credit provider will charge. Some credit cards attract low or no interest but have high annual fees; others have low annual fees but high interest rates.
You can get an overview of the interest charges for the major credit card providers, on the interest.co.nz website.
There are several fees and charges that could also add to the cost of your credit card.
- Interest is charged on any money which you have not paid back before the due date (e.g. if you only make the minimum payments)
- You may be charged cash advance fees if you withdraw cash using your credit card (you'll also be charged interest from the day you withdraw the money)
- Late payment penalties may be charged if you don't make the minimum payment by the due date
- Over-limit fees may be charged if you spend more than your credit limit
- When you use your credit card to pay for things online you may be charged a fee for using your credit card.
- If you use your card while you are overseas you may be charged an international transaction fee and/or a currency conversion fee.
If you do get behind on your credit card debt it can have an effect on your credit history.
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?
If you only make the minimum payments each month your credit card debt can increase very quickly and it will take longer to pay off your debt.
When you incur credit card debt, interest is charged on the amount you owe every month (the payment period is approximately one calendar month but can vary depending on the credit provider).
Each time you make a minimum repayment, a large proportion of the repayment amount can go towards paying the interest for the month, and a relatively small portion will go towards the principal (the exact amount will vary depending on your credit provider’s repayment rules).
You’re also likely to be charged interest on any new purchases you put on your card and on any fees owing. On top of this, if you haven't paid off the debt in full, the interest on the unpaid amount can be added to the debt amount so that in effect you will be charged interest on interest.
Your credit card and finance card statements will carry a warning about the effect of only making minimum repayments (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).
Use this Sorted calculator to help you work out how long it will take to pay of your credit card debt depending on the interest rate and your regular repayment amount.
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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 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.
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 and try 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.
If you think the bank increased your credit irresponsibly and that this resulted in a debt problem for you, you can complain to your credit provider’s financial disputes resolution scheme on those grounds and may be able to get some of the debt written off. More information about complaint regarding lending decisions is on the Banking Ombudsman
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What should I do if my credit card is lost or stolen?
If your card is lost, stolen or you think someone has used it fraudulently, you will need to notify your credit card provider as soon as you are sure it is gone, so that the card can be cancelled. This means that the card cannot be used by anyone. You may automatically be sent a replacement card, or have to request one from the credit card provider. It may take a few days for your replacement card to arrive.
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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 credit card providers 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 have complied with your credit card terms and conditions. You will need to check your credit card terms and conditions to be sure.
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 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.
Retailers can use their store cards / finance 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.
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.Visit our Consumer credit contracts - general information page for more information about this.
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, 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 a standalone credit contract (what we used to call hire purchase), as you’ll be less tempted to spend just because you can.
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How do contactless credit cards work?
If you have a contactless credit or debit card (or a smartphone with the appropriate app), you can pay up to a certain maximum just by holding it next to a contactless payment terminal. There is no need to key in a PIN or sign anything to complete the transaction.
This feature is built into many credit cards (e.g. BNZ Visa and MasterCard) via a computer chip on the card and you generally can't opt out of it.
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 special 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).
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Can I cancel a credit card transaction if there’s a problem with the purchase?
It’s best to approach the retailer as your first step (read more about your consumer rights). If the retailer won’t resolve the problem you could try asking your credit card provider to perform a “chargeback”.
A chargeback is where a payment made by credit card is reversed. Generally your credit card provider will do this for you if the transaction was made fraudulently (eg if your card was stolen and used to make a purchase) or if you used your credit card to pay for something but there is a problem with the goods or services (eg it was never delivered or is not fit for purpose) and the retailer won’t cooperate.
You’ll need to make your request within a timeframe specified in the credit card terms and conditions.