CardWatch: Credit Card Ratings Update
CardWatch: Credit Card Ratings Update
Cardholders using the 2.36 million credit cards issued in New Zealand could potentially save themselves hundreds of millions of dollars a year by choosing the right credit card for their needs – something that has become a lot easier in the last year thanks to CardWatch’s credit card star ratings.
Today CardWatch updates those ratings to reflect the changes in the cards available in the market, and also how our spending and debt patterns have changed over the last year.
CardWatch aims to allow consumers to view the best cards for their circumstances at a glance.
“New Zealanders don’t appear to have realised how much their card choices are costing them, and how much they could benefit by choosing the best card for their circumstances.” says Laura Somers-Edgar, FundSource Business Development Manager. “The financial impact annually is often considerable, and over a lifetime of credit card could add up to staggering amounts.”
CardWatch rates all major credit cards issued in New Zealand by measuring their relative benefits and costs. Even the worth or otherwise of rewards programmes attached to cards are incorporated into the rankings, as are fees, interest rates, interest free periods and the card’s currency conversion rate for overseas transactions.
CardWatch calculates ratings for two different usage patterns, one for the person who pays off their card in full each month and another for those who carry forward an outstanding balance.
And the results? They can be viewed for free at www.cardwatch.co.nz
Where can we make savings on our credit cards?
- Interest charges alone could be reduced by more than $200 million a year if the interest bearing balances in the market were shifted to low interest cards. Currently interest bearing balances are charged 18.7% on average.
- At 30th June, currency conversion fees ranged from 1.10% to 3.05%. With $2.7 billion of overseas billings in the year to the end of June 2005, a saving of just 0.25% across all cards would save us nearly $7 million a year.
- Annual fees range from $15 to $325 per annum. If every credit card was charged fees $10 per annum lower, the difference would be nearly $24 million each year.
- The value of the points earned in rewards programs varies considerably, as do the fees charged for them.
- Interest-free days or billing cycle are important to both Debtors and Transactor. For a Transactor, 11 extra days each month translates into over 4 months of interest that could be earned on their monthly spending.
CardWatch Rating Process Description
CardWatch ratings are based on the financial cost or benefit of using a credit card for three years. FundSource recognises that there are different types of credit card users, so FundSource calculates ratings for two primary types of consumer behaviour, the Debtor and the Transactor. The Debtor spends regularly and carries an outstanding card balance from month to month, while the Transactor also spends regularly, but pays their card balance off in full each month.
FundSource includes the following factors in our calculations where relevant:
- annual fees and rewards program fees
- interest rates
- the value of any rewards programs
- currency conversion fees
- the number of interest free days
These are used to estimate the financial cost or benefit for the average credit card user over three years, the result being different depending on whether you are a Debtor or a Transactor.
When the total net cost or benefit of using each card for three years is calculated, FundSource ranks all the cards relative to each another and allocates
CardWatch Star Ratings.
Within each user group the top ranking 10% get a five-star rating, the next 20% four stars, the next 40% three stars, the next 20% obtain two stars, and the last 10% achieve one star.
Definitions and Assumptions
All credit card users are assumed to be rewards members, and use those rewards in full
A regular credit card user that retains a debit balance on their credit card account every month
A regular credit card user that pays off their credit card balance in full every month