Why You Shouldn't be Scared of Credit Cards
Less than half of millennials use a credit card. Here's what you're missing out on.
Ignore what your parents said about credit cards
What’s the one piece of advice you remember most clearly from your childhood? For most of us, it’ll be something along the lines of debt being bad news. “If you need to borrow it, you can’t afford it,” was the mantra of an entire generation of parents. They may have done things tough in many ways, but the lower cost of housing, education and living expenses meant that borrowing money was perhaps less necessary.
For one, credit cards weren’t even properly introduced in Australia until 1974, and back then it was a very simple system with a credit limit as low as $300 (although admittedly that was a reasonable amount of money back in the day), and so yes, most could probably do without one. But the world has changed, and the very concept of credit has changed right along with it.
There is now not only a whole heap of competition, but also a long list of perks on offer to those who use their credit cards wisely. Here’s why there's no need to be scared of credit any more.
The perks are out of this world
One of the biggest selling points in using a credit card is that they can unlock a secret world of perks that simply aren’t available when paying in cash. And we do mean 'world' of perks; from frequent flyer points to airport lounge access, or cooking classes. Just consider whether you’re able to take full advantage of the perks offered, to make sure the costs don’t outweigh the benefits.
Take the Latitude Infinity Rewards Visa, for example, you’ll earn one reward point for every dollar spent*. For every $5,000 you spend on your card, you can choose a $50 gift card from places like Myer, David Jones, Woolworths or even Caltex. And remember, that’s $5,000 you were going to spend anyway, be it on bills, travel or any other expenses. But just by using a credit card (that you can immediately pay off), you’ll be given a reward for doing it.
Literally something for nothing. Then, and providing you pay your credit card balance off in full within the 55 days from purchase, you’ll pay zero in interest on your purchases^.
Money when you need it, no matter what
The very definition of unexpected is something you didn’t see coming, and you better believe there will be times when a cost comes up (car repairs, emergency travel, you name it) that you weren’t planning for, but will have to find a way to pay for nonetheless.
So you can suddenly find yourself left with two options if you haven’t got an emergency savings fund: to source a same-day loan, and expect to pay a huge amount of interest...
Or alternatively, you can dip into your wallet or purse, pull out your credit card, and pay for this expense which may have access up to 55 days interest free^. If you don’t pay your balance in full then you will be charged interest at your card’s standard interest rate from that point forward.
It feels like the kind of thing that won’t happen to you, but if the proliferation of same-day lenders tells us anything at all, it’s that it does happen to lots and lots of people. So, you best be prepared.
You’re building a credit profile
Financial institutions are a lot like employers - they want to see you have a proven ability to do what you say you’re capable of.
Simply having a credit card, even if you use it sparingly, and paying it off on time creates a credit history and a credit score that shows lenders your willingness to repay debt. And the score is important. According to the government's Money Smart website, how you rank won't just determine whether you're approved for a loan, but for how much they'll be willing to lend you, and even what interest rate you'll be able to secure.
The rules have changed in recent years, with lenders reporting the type of credit you’ve had in the past, how much you repay, and whether you make those payments by the due date. Even if you have already accrued a less-than-stellar score, you can improve it by lowering your credit card limits, making future repayments on time, setting up direct debits for your home bills, or paying off your credit card balance in full at the end of each month.
*Does not include cash transactions, cash equivalent transactions, extended interest free promotional purchases, balance transfers, insurance premiums and interest, fees and charges.
^To take advantage of up to 55 days interest free on everyday credit card purchases, you need to pay the full closing balance (excluding un-expiring 0% Interest Payment Plans) on each statement of account by the applicable due date.