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Bringing credit to yourself decent

Your spending habits will determine the type of credit card that best meets your needs and gives you value for money, Ed Charles reports

HOW good a deal are you getting from your credit card? While there are some rules of thumb in choosing a card based on your individual spending habits, the competition is so intense and the terms and conditions for individual cards so different it is almost impossible to make direct comparisons between cards.

And nearly one month since the second of this year's two 0.25 per cent interest rate hikes, the fallout has not settled.

Some issuers, such as Virgin, have absorbed the interest rate increases, it sticking with its 12.65 per cent rate.

Others such as the GE Money Low-Rate Mastercard are expected to soon increase from 10.99 per cent.

Garfield Wright, credit card analyst at financial information group Cannex, says that the market is so competitive at the low-rate end that many banks may not increase rates.

"It's really competitive there. It's a fickle group of customers that are attracted to those cards so if you start raising your rates, you just might lose those," Wright says.

Cannex's analysis of the market breaks credit-card spenders into four types.

The "habitual spender" consistently spends more than can be afforded and revolves the outstanding balance and the lowest interest rate is important.

Similarly, the "impulse spender" may borrow on a card although they will eventually pay off the outstanding balance.

For this type of person, the annual cost of the card is an important part of the equation

The "everyday spender" puts everything on the credit card but is disciplined and pays it off each month.

While collecting rewards matters more than low rates, low fees are also important.

For the big spender, fees and interest rates matter less than the ability to accrue lots of rewards points.

To attract these different types of spenders, the market is polarising between the low-rate, low-fee cards offering zero per cent balance transfer deals, to high-end rewards-based cards that offer high rewards-point-earning abilities plus a raft of other benefits.

Wright says there is a trend among banks to bring out rewards cards that offer greater value.

"Over the last 12 months there has been a lot of emphasis on those types of cards," he says. The core of many top platinum and gold cards are frequent-flyer rewards points plus free travel insurance, purchase-protection, guarantee pricing schemes and concierge services.

Even the low-rate cards are trying to offer greater value through rewards.

There are more than 20 cards with interest rates from 8.99 to 11 per cent.

"How do you pick between 21 cards in that space?" Wright says.

"What they are going to be doing is offering simple rewards programs to differentiate themselves."

Virgin does this with Mates Rates discounts of up to 5 per cent, for example, with selected retailers such as Rebel Sport.

The NAB mini card offers cash back, capped at $10 a month.

If you spend $1000 a month, with an annual fee of $19, you can still be $101 better off at the end of the year.

In the US, some 40 per cent of credit cards offer some form of cash back once a credit balance is paid down.

Now these cards have arrived in Australia through, for example, the BP Citibank Mastercard.

Roy Gori, director of credit cards at Citibank, says that the market is no longer "one size fits all".

The consumer is demanding both low-rate and rewards cards and those customers are demanding different kinds of rewards, he says. "From our perspective, we spend a lot of time understanding what mattered most to customers.

"Fuel had become a very important item in terms of consumers overall household spend."

With a $79 annual fee, the BP Citibank card offers a cash-back discount of 5 per cent on fuel and one per cent on everything else.

A $50 fuel voucher is offered as a signing bonus together with a six-month balance-transfer rate of 6.9 per cent.

The standard interest rate is, however, 17.95 per cent.

It competes with the Coles Myer Source card with a nil annual fee, a zero per cent balance transfer and a standard interest rate of 18.99 per cent.

Up to 8c a litre of fuel can be saved by combining the 4c voucher offered for shopping at Coles and buying fuel from Shell with the credit card.

The thing to remember is that many of these cash-back offers are capped. The BP Citibank card limits fuel discounts to $300 per statement period, working out at $15 a month. And it limits its 1 per cent discount to the first $60,000 spent, equal to $600 cash back in a year.

Life is more complicated at the top end of the spectrum.

Indira Naidoo, spokesperson for the ACA, warns that not all rewards are equal.

"We do find that the best cards or the best benefits for cards tend to be for frequent-flyer points rather than gifts or other rewards."

Mike Cutter, GE Money Direct managing director, says there are clear differences between the desires of the top-end market segment and the middle market: "I guess what we've seen is that there are very different and distinct groups.

"So, at the top end of town people are still very interested in collecting Qantas frequent flyer points.

"The mass market are looking for a broader range of everyday rewards that they earn quickly and redeem instantly. Things like petrol discounts are obviously very topical."

The Westpac Altitude Platinum rewards American Express card offers three rewards points for every dollar spent.

American Express itself offers three cards offering from 1.25 to 1.5 points per dollar spent.

And the NAB Ant card offers 1.5 points for every dollar spent.

Yet, when translated into Qantas Frequent Flyer points - at a rate of two to one for the Westpac product - the schemes are almost equal.

According to Cannex, spending $10,666.67 on these cards will earn enough points for a return Sydney-to-Melbourne flight (excluding taxes).

Holders of the American Express Platinum Card, which costs $395 a year plus $80 to join its membership awards scheme, also benefit from one return flight between any east coast capital city - including taxes.

At the other end of the spectrum, the ANZ Gold Rewards Visa takes $35,998.20 of spending to earn a similar trip.

Commonwealth Bank general manager of consumer finance Scott Hendricks says his research has identified cynicism and frustration among consumers who can't redeem frequent flyer points when they want to.

To meet this customer need, the bank launched it's Travel Plus option - similar to American Express's Travel key - where travel rewards could be redeemed through a travel agent, all handled by the bank.

Points and cash can be mixed and matched, Hendricks says. And, if part of a trip is paid for using the credit card, four points are awarded for every dollar spent.

Finally, consumers have to equate the benefits of an American Express card versus a Mastercard, or Visa.

On one hand, American Express does offer high rewards compared with most other cards.

But on the other hand, retailers are increasingly charging shoppers a surcharge for using American Express because it charges them (the retailers) higher fees.

Westpac provides a neat but complicated solution to this.

Its three variations of the Altitude card - plain, gold, and platinum - and its two versions of Earth - plain and plus - come as a package of an American Express and a Mastercard.

If a retailer wants to surcharge, you can decide to pay with the Mastercard but earn fewer rewards points.

Confused? Welcome to the world of credit cards.