Top tips and traps to watch for ...

Avoid cash advances

Use a credit card to buy something and you'll get up to 44 or 55 days' free credit (depending on the card). But use it to withdraw money and you'll be paying interest from that same day. It's a very expensive way to get cash.

If you want access to cash on the card for an overseas trip, deposit money on the card, and use another card for purchases. (Even if your card is in credit you'll probably be charged an overseas ATM fee. Check our Credit card comparison for fee details.)

Overseas purchase costs

With most bank-issued credit cards, every purchase you make overseas attracts two fees: the bank's currency conversion fee and the fee charged by Visa, Mastercard or American Express. The fees typically add up to 2-3 percent of the purchase price. So if you put $4000 of bills on the plastic during a big overseas trip, you'll pay $80-$120 in fees.

Some overseas merchants offer the option of paying in your home currency when using a credit card. The Office of the Banking Ombudsman has received a number of complaints that this costs more, as merchants may charge a higher currency conversion fee than that charged by New Zealand banks. The Ombudsman's advice is:

  • Find out what currency conversion fee your bank charges before you go (see our Credit card comparison).
  • Ask the overseas merchant what their conversion fee is before the transaction is processed.
  • If the overseas merchant’s conversion fee is higher, or they won’t tell you, ask to have your credit card charged in the country’s currency rather than NZD.
  • If the merchant insists on charging in NZD, then you have the right to decide whether you want to proceed with the purchase or shop around for a better deal.

Card payment surcharges

Consumers who pay by cash are effectively subsidising credit-card users. Stores pay a fee to the credit-card company whenever they accept a credit-card payment, but they charge the same price to all customers regardless of the payment method used.

Businesses can now add a surcharge for those paying by credit card. But the surcharge shouldn’t be any higher than what the retailer pays to the credit-card company. And the basic price for a product should be reduced when a retailer introduces a surcharge on credit-card payments.

Lodging security

Make reservations for some overseas hotels, and the sum may be charged on your card immediately, even if the time you'll be using the hotel is still months away. Hire a car, and the company may ask your card issuer to reserve an amount of credit to secure their payment. This can cause embarrassment if you don't realise it's happened.

If you're likely to have a big bill with a hotel or car hire firm and you give them your credit card details as security, ask them if they will be putting a hold on some of your credit, and if so, how much.

Report lost cards immediately

If you lose your card or something odd appears on your statement, contact the lost card centre immediately.

Keeping an eye on card security is another good idea. Don't leave your card lying around at home or work. You may also like to consider a card which displays your photograph.

Apply for charge-back

If you don't receive something you've paid for by credit card, you can get a refund. It's called a "charge-back".

The charge-back system is part of the conditions imposed by card companies on all traders offering credit card facilities. You can claim if mail-order goods do not arrive or are not what you expected, or you pay in advance for a good or service not supplied. You can't usually get a charge-back if you've bought unsatisfactory goods over the counter.

If you want to make a charge-back claim, contact your card's inquiries centre and ask them what to do. You'll have to make the claim in writing, usually within 60 days of the original statement's date.

Credit creep

"Dear Mr/Mrs Smith," the letter begins. "We have arranged to automatically increase your credit limit. If you do not want us to add $500 to your credit limit it is important you let us know right away..." The temptation for many people will be to use the extra money and, if they can't pay it all back within the month, pay the bank more in interest. It's a nasty form of inertia selling by the banks.

Our recommendation? Don't let your bank raise your limit beyond an amount you can repay without incurring interest.

Chip technology

Chip technology is fast becoming the global standard for card security. A microchip stores your account information in a coded format, rather than on the old magnetic strip on the back of the card. The chips make it harder for someone to fraudulently copy (“skim”) your card details, but it also takes a little longer to pay for your purchases.

Tap and go

“Tap and go” has reached our shores. Its attraction is the transaction speed – 2 seconds from the moment the card touches against the terminal. There’s no need for card-swiping, entering pin numbers or signing your name for payments of less than a set amount. See our Contactless credit cards article for more information.

If your credit card is out of control, seek help

Abuse a credit card, and you can end up bankrupt. If you find you can't control the debt, take prompt and serious action.

First, stop using the card. Cut it up if need be.

You should then speak to your bank about restructuring the debt. One option is to set up an automatic payment to pay it off. Another is to add it to your mortgage. If you do this, make sure you repay it as soon as possible, or your gains through a lower rate of interest will be undone by the longer time it takes to pay off the debt.

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