Guide to credit cards in New Zealand

Author: Kevin McHugh, Head of Publishing at Banked.

What is a credit card?

A credit card is a way of paying for something straight away without using your own money. When you pay for something with a credit card, the card issuer is essentially lending you the money and you have to pay it back later.

A credit card lets you spread the cost of purchases over time. You will be charged interest on the money you owe, unless you pay off your card within a specified period of time (usually 44 to 55 days, depending on the credit card provider).

Credit card interest explained

We explain what kind of transactions you will be charged interest on, how you will be charged, and what interest-free days are.

The types of credit card interest

There are three types of interest you can be charged for using a credit card:

• Purchase interest: The interest charged on any purchase you make on the card. Depending on the card, this can range from 10% to 28% per year, or ‘per annum’ (p.a.).
• Cash advance interest: The interest charged when you either draw money out from an ATM, buy a cash substitute (such as a gift card), or use your card for gambling. This is usually higher than a card’s purchase interest rate and can vary from 10% to 29% per year.
• Balance transfer interest: The interest charged on any balance transferred over to the card. Note that not all credit cards let you transfer a balance from another card. Balance transfer interest rates vary from 0% for a limited time, up to around 1.99% for 2 years.

How interest is charged on your credit card

Interest on transactions you make accumulate (but is not charged) on a daily basis. This means that you will accumulate a little more interest on a purchase made at the start of your statement period than one made towards the end.

But remember: If you pay the outstanding balance of your credit card in full each month, you won’t pay any interest — no matter when your transitions were made. This is because you paid off within the interest-free period available to you.

Interest-free days

All credit cards have an interest-free period for transactions which will be either up to 44 or 55 days, depending on the card provider. This doesn’t include special interest-free credit cards which can have much longer periods.

The ‘up to’ part is very important as the exact number of interest-free days you have will depend on when you make the transaction within your statement period.

Here’s an example of how it works with a credit card that offers 55 interest-free days:

• 1 September — the start of your statement period: You make a purchase.
• 30 September: Your credit card statement for the month is created. Your statement explains how much you owe and the due date.
• 25 October — the end of your statement period: Your payment due date.

If you paid the full amount owing on your card by the due date, you would take advantage of all 55 interest-free days and would have no interest to pay. If you only made a minimum payment, the full interest accumulating during that 55-day period would be charged.

Credit card fees explained

While credit cards may have lots of possible fees, depending on how you use your credit card, you may not be charged many (or any) of them.

These are some of the most common credit card fees:

• Annual fee: Many credit cards include an annual fee for the use of the card. Annual fees can range from $20 to over $1,000 (see the American Express Platinum card). They are either charged in one go when you sign up for the card (and each year thereafter), or they’re broken down into 2 payments, 6 months apart.
• Joint account fee: Most credit card companies will charge a fee for sharing the credit card account with another cardholder. This fee will range from $10 to $30 each year per extra cardholder.
• Cash advance fee: As well as attracting a higher rate of interest, some credit card companies will charge a fee for withdrawing cash or similar from your credit card. Banks will often charge more for withdrawing from a teller instead of using an ATM. Fees can range from less than $1 to $3.
• Currency conversion fee: Nearly all credit cards will charge you a fee if you use your card abroad or if you buy something online in another currency. These fees fluctuate, but they are typically around 1-2% of the value of the transaction. 
  If you’re looking you use your card while you’re abroad, you will likely be better off with a travel money card.
• Late payment fee: If you don’t make at least the minimum payment by your credit card’s due date, you will be hit with this charge. Late payment fees range from $5 to $10.

Are you eligible for a credit card?

Credit card companies have their own criteria for deciding who they will give a credit card to, but there are some standard requirements most applicants will have to meet.

• You must be 18 or over.
• You must be a New Zealand citizen or a permanent resident: American Express and ANZ will also accept applications from temporary residents with relevant visas.
• You must meet a minimum credit history requirement: This minimum requirement will vary from bank to bank and card to card. Unlike in some other countries, New Zealand banks don’t publicise the minimum credit score required to be granted a card.
• You must meet a minimum income requirement: Again, most credit card companies sadly don’t advertise what this requirement is.

How credit cards companies are regulated in New Zealand

Credit cards fall under the Credit Contracts and Consumer Finance Act (CCCFA).
The law aims to protect people in a number of ways, including by ensuring:

• consumers are aware of what they are signing up for
• consumers can request changes to a credit contract if they’re suffering financial hardship
• that interest rates and fees are not excessive.

What to do if you have a problem with your credit card company

If you think your credit card company has acted unfairly or unlawfully, these are the steps you can take.

1. Try to resolve it with your credit card company

Your first step is attempting to come to some kind of resolution directly with your credit card company.

2. Complain to the relevant dispute resolution scheme

All credit card companies in New Zealand must legally be members of a dispute resolution scheme. These schemes are fair and independent and can help you resolve the problem with your credit card company.

Not all credit card companies are members of the same scheme. Each credit card issuer and the dispute resolution scheme they are a part of can be found below.

3. Make a report to the Commerce Commission

The Commerce Commission enforces the CCCFA and investigates companies that don’t comply.

However, the Commerce Commission is concerned with the best outcome for all New Zealanders and so won’t fight for you specifically. It may not even investigate your case in particular if they don’t feel it’s part of a wider problem.

Alternatives to a credit card

A credit card can be a very useful financial tool for everyday spending, paying off some forms of debt, earning rewards and more. But depending on your needs, there may be an alternative that saves you money.

Buy now, pay later

Services like Afterpay, Laybuy and Humm have exploded in popularity in New Zealand. They provide easy access to credit and let users pay off small-to-medium purchases, interest free, over a period of weeks or months.

These buy now pay later (BNPL) services are accessible and easy to use, but they carry late fees that can be substantial relative to the amount of money spent. This makes them a problematic credit option and that must be used wisely.

Personal loan

A personal loan can be a strong choice if you need to fund a bigger expenditure. Whether you want to buy a new car, renovate your kitchen, or something else, you will likely get a better interest rate with a personal loan than a credit card.

It’s also more likely that you will be able to borrow more from a bank or other lender than what’s available on your credit card.

> Find out more and compare loans in our guide.

Debt consolidation loan

Using a loan to consolidate debt can be a good idea if you are struggling to manage other debts with higher interest rates.

But if your debt is only on credit cards, a balance transfer credit card is likely a better option. The interest rate on a balance transfer credit card is likely to beat that of any debt consolidation loan, especially if you get a 0% deal for a period of time in which you can pay off the debt.

> Learn more about debt consolidation loans and compare options.