Using your credit card wisely

There are more than 8.8 million credit cards in issue, and more than 38 types of credit cards available, in South Africa. South Africans have on average one credit card. So, there’s a good chance that you are one of those South Africans. Question is, are you using your credit card wisely?

“While credit bureaus are reporting an improvement in debt levels amongst South Africans there are still thousands of people living with severe debt, some of which is due to the mis-use of credit cards,” says Neil Thompson, Head of Product at African Bank.

He warns that you should never use credit to fund consumption. “Do not live on the available balance on your credit card.  Make sure to pay the outstanding balance on your credit card every month.” He also suggests looking into credit offers from banks that include long interest-free credit periods of up to 60 days. “You can use the interest-free period for purchases and settle the balance in full every month, without paying interest.”

Avoid using credit to pay off debt. “Unfortunately, by doing this you can easily find yourself in a cycle of debt. Rather stop and reassess your financial situation and research to check what your options are. It may mean some cutting back on expenses but it will be worth it when you reduce your debt,” he says.

Thompson adds that if used properly a credit card can work in your favour. “From a credit perspective, interest rates on credit cards are relatively lower than interest rates on personal loans.” According to the National Credit Regulator, the maximum interest rate on credit cards is 20.5% and the maximum interest rate on personal loans is 27.5%. Interest rates offered are dependent on the individual’s risk profile. “A credit card may come at a lower interest rate than a personal loan if you need to apply for credit.”

“The instalment facility on a credit card can be useful if you need to buy high-value items on credit and pay it off over a period of time,” explains Thompson. “A credit card offers a revolving facility. This means that if you buy a high-value item on a credit card and pay it off, the available facility will remain available without needing to apply for credit again.”

Most banks offer free self-service banking and free point of sale transactions on credit cards. “Rather use self-service banking to manage your credit card. Avoid, if possible, going into a branch for service or to transact which can attract high servicing fees.”

Lastly Thompsons says it is safer to use a card than carrying cash. “South Africa’s population is still very cash driven. It puts many people at risk. However, there are also risks associated with credit card fraud that users need to be aware of.”

The South African Banking Risk Information Centre (SABRIC) released its Card Fraud Stats for 2017 recently which showed a 1% increase in credit card fraud from R434.0m in 2016 to R436.7m in 2017.

It released the following security tips for credit card users:

  • Don’t disclose personal information such as passwords and PINs when asked to do so by anyone via telephone, fax or even email.
  • Don’t carry unnecessary personal information in your wallet or purse.
  • Don’t write down PINs and passwords and avoid obvious choices like birth dates and first names.
  • Don’t use any Personal Identifiable Information (PII) as a password, user ID or personal identification number (PIN).
  • Don’t use Internet Cafes or unsecure terminals (hotels, conference centres etc.) to do your banking.
  • Review your account statements on a timely basis and query disputed transactions with your bank immediately.
  • When shopping online, only place orders with your card on secure websites.
  • Do not send emails that quote your card number and expiry date.
  • Ensure that you get your own card back after every purchase.
  • Report lost and stolen cards immediately.
  • Destroy your credit card receipts before discarding them.
  • Never let the card out of your sight when making payments.
  • If you have a debit, cheque and credit card, don’t choose the same PIN for all of them. If you lose one, the others will still be safe.
  • Chipped credit cards also require a PIN for transactions at points of sale when paying for goods or services.
  • Protect your cards as if they were cash. Never let them out of your sight and ensure that you get them back after every purchase.
  • While transacting always keep an eye on the ATM card slot to ensure that your card is not taken out, skimmed and replaced without your knowledge.
  • Should your card be retained by an ATM, contact your bank and block your card before you leave the ATM.
  • Subscribe to your bank’s SMS notification services to inform you of any transactional activity on your account.

 

“Let’s make an effort to become more credit card wise,” concludes Thompson.