How many Credit Cards is enough?

Australians hold on average, 2.2 credit cards per person – this is low when compared with up to 5 credit cards held by US and UK residents . The difference is likely to be caused by the fact that most of us pay an annual fee on our cards.

With competition increasing between banks, Australians may end up holding more credit cards per person. Current market drivers are low interest rates on balances transferred between cards and new credit cards charging nil annual fees.

What this means is that there is more choice than ever for consumers. But with choice comes confusion about the various terms and conditions. According the annual report from the Ombudsman, problems with balance transfers accounted for 15.5 per cent of consumer credit complaints.

Part of the problem is that consumers rarely read the terms and conditions of cards.
Most banks offer a balance transfer at a reduced or zero interest rate for six months. Any new transaction (whether within the six-month period or not) is charged at a higher interest rate, usually in double figures.

Typically, monthly repayments are directed to reduce the balance charged at the lower rate. This means the balance at the higher interest rate remains in place.

It is just one year since the balance-transfer market took off in Australia with the launch of products by GE and ANZ.

Garfield Wright, financial analyst with information group Cannex, says that with the first applicants only just coming to the end of their low interest periods, it is too early to establish any trends.

He says he is not convinced that the balance-transfer trend will increase the average number of cards that consumers hold. But, because many no-frills cards come with an annual fee, many people will cancel cards once the low interest period is over. Generally speaking, customers should read and understand the detail of the offer to understand what the rate will rise to afterwards," Reed says.

There are more than a dozen cards in Australia that have no-fee offers, including various cards offered by National Australia Bank, Westpac and Commonwealth Bank. GE offers no-fee cards through Coles Myer, and Wizard Home Loans.

Commonwealth Bank's general manager retail products, Geoff Austin, says: "We don't want to get to the American phenomenon where everybody carries six or seven credit cards in their wallet."

He says Australians will inevitably hold more cards, but it is unlikely that we will see a doubling in the number. While he thinks balance transfers are here to stay, he says many of the most aggressively priced offers are unsustainable.