70% have 'poor' credit card habits

Seventy per cent of Australian credit card holders have ‘poor’ habits when it comes to credit card use despite 90% saying they know how credit cards work, according to a new ME study.

ME surveyed 1,000 credit card holders across seven negative credit behaviours and found 70% engage in at least three, putting them in the ‘poor’ category which can lead to higher credit card costs and an increased risk of ongoing indebtedness.

The proportion in the ‘poor’ category rose to 75% among women and 85% among Millennials (aged 25-39).

ME commissioned the study to highlight how banks can do a better job helping credit card customers manage poor credit card habits.

Poor credit card habits

1. Typically not paying a credit card off in full each month (27% admitted to this). While not entirely bad if serving a short-term credit need, not paying off your card in full over an extended period will incur more interest charges.
2. Only paying the minimum on a credit card statement (32% admitted to this). While not entirely bad if serving a short-term credit need, only paying the minimum over a longer period of time will incur more interest charges.
3. Buying an item that takes over six months to pay off, excluding special promotions (31% admitted to this).
4. Withdrawing cash from an ATM with a credit card (31% admitted to this).
5. Accepting a ‘balance transfer’ offer while keeping an old credit card active (19% admitted to this).
6. Concurrently having savings (outside an offset account) and credit card debt (42% admitted to this).
7. Not setting up an automatic transfer to pay a credit card balance in full each month (75% admitted to this).

ME General Manager of Cards and Payments Michael Hendricks said credit cards are an important financial tool, but come with risks and costs if not managed well.

“Credit cards can help people manage cash flow, earn rewards for everyday purchases, and make purchases online, all of which helps them get ahead. It’s when people use them unwisely that problems can occur.

ME’s study also confirmed a lack of credit card literacy with 38% incorrectly answering six general knowledge questions about credit cards rising to 44% among women and 51% among Gen Zs (aged 18-24).

Top credit card misunderstandings

1. 44% did not know which credit card to pay off first when faced with multiple cards at different rates
2. 41% thought all credit cards had an annual fee
3. 35% did not realise missing a credit card repayment may affect their ability to get a home loan
4. 33% thought having a credit card means they’re always in debt
5. 27% thought credit card rates are set by the Reserve Bank of Australia
6. 9% did not realise credit scores apply in Australia

“Another key finding was the inability of many people to choose the right credit card based on their current circumstances” said Mr Hendricks.

“While 82% thought they had the right credit card for their particular needs, the survey highlighted that most would not select the credit card most appropriate for a given scenario. For example, selecting a rewards card (which typically charges higher interest rates) for a cardholder that normally doesn’t pay off their card in full each month.

“Banks could be doing more to educate credit card customers on how to choose and how to use credit cards.

“Only 60% said they find it easy to understand the information banks provide about their credit card products – this should be a lot higher given the risks and costs if not managed well.”

-ends-