Credit cards can be an easy form of borrowing and the rewards on offer can often be enticing to those of us who don't mind spending the odd dollar or two.
But how do the banks benefit from selling you a credit card, and how can you improve your odds to maximise your gains?
What the banks gain from your credit card
Despite a general tightening of lending standards in the wake of the financial services Royal Commission, those with a stable income and decent credit score can generally find the application for credit cards quite straight forward.
While you may be wondering why the banks were so trigger happy with their credit card offerings to begin with, the truth is that your value as a customer goes far beyond what you spend on the credit card.
In signing up for a credit card you usually need to open up a bank account with your chosen provider, which adds to the "stickiness" of their services, so to speak.
Particularly for those Fools that are of the younger generation, this sign-up process is perhaps the best avenue for the banks to capture you as a long-term client, which brings with it the lucrative possibilities of customer deposits and particularly a big, juicy mortgage (and subsequent interest income) for the bank.
On top of this, while many cards will offer sign-up bonuses such as flight rewards points or similar perks, the spending of money through the bank has its benefits, while many can also capture you with the spreads offered on international currencies (if you spend internationally, of course).
So how do I make credit cards worth it?
I've found that the easiest way to get value from credit cards is to pre-plan whenever a big expense is coming up or use them to pay for an eligible, ongoing expense (for example, rent or bills).
In this way, your spending is as it would be, regardless of whether you had the card or not, and you don't fall into the trap of spending to reach your bonus points target, at which point you may well find you'd be better off to have just saved the money and purchased the flight (or equivalent) in cash, without the points.
Particularly regarding flights, it's useful to always calculate your cash value per point used to find the most efficient uses of your hard-earned rewards points and not waste your rewards on overpriced purchases.
In this way, you can easily control your spending and gain the rewards from your credit card, without overspending or losing out on the potential value that can be gained from this handy spending tool.
