Australians love to flash their credit cards around – as a nation, we have accumulated almost $32 billion in credit card debt to date. While many people use their credit cards to pay for expensive things like financing an overseas holiday, big ticket items like a new television, or when an emergency strikes and the washing machine breaks down, there is mounting evidence that Aussies are starting to use plastic to pay for more of their everyday transactions.
Canstar has examined credit card data from the Reserve Bank of Australia to work out the average purchase amounts on credit cards as well as the percentage of credit limits hit in 2017.
Average purchase amounts on credit cards
Since the widespread introduction of contactless payment technology on credit cards in 2012, Australians have been making more purchases on their card and for smaller amounts, according to the RBA’s credit and charge card statistics. The graph below shows this.
As you can see, the beginning of this graph in January 2010 shows the average value of a credit card purchase was $139, with the average Australian making eight purchases a month with their credit card. Fast forward to July 2017, Australians are making 13 purchases per month for a lower value of $116 on average.
As mentioned above, contactless payment technology (tap n’ pay) was introduced from various providers in 2012. You can see a clear change in both the number of purchases and the amounts starting from July 2012, where each of these values was 10 and $142 respectively.
Contactless payments are an efficient and convenient way to purchase goods and services, and it appears consumers and merchants alike are making the most of these services in their day-to-day business.
Digital wallets such as Apple Pay and Android Pay are already starting to make cash obsolete among younger spenders, and this is likely to become more prevalent. According to US firm Research and Markets, the global digital wallet market is expected to increase by 35% from now to the year 2021.
So while the future is never set in stone, Canstar expects the number of payments made each month with credit cards to continue to increase and the purchase size to decrease, as paying with credit cards becomes easier and more convenient.
Are we hitting our credit limits?
Based on total credit card limits and total credit card balances taken from the latest RBA credit card statistics, Australians appear to be using a smaller percentage of their approved credit limits. The graph below shows that the percentage of people’s credit limits used each month has been steadily declining over recent times.
This hints at better spending habits being practised. Generally, experts recommend spending no more than 30% of your credit limit in any given month. Spending less than your credit limit could reduce your chances of being charged fees or having transactions declined that may be charged if you exceed your credit limit.
This data fits with the figures reported above, which show Australians are making larger amounts of smaller purchases on their credit cards. So while more may be being spent in smaller purchases on each account, the data suggests Australians are gradually paying off their credit card debt more than before, and are carrying a smaller revolving debt in to the next month, even with the increase in spend per account.
How reaching your credit limit can harm your credit score
Going over your credit limit – or even hitting a certain percentage of it – could put you at risk of harming your credit score in both the short and long term. A high utilisation rate (the % of your credit limit you spend) may indicate to your provider that you are unreliable with spending and debt repayments, and as a consequence, you can have a harder time applying for other loan or credit products in the future.
In addition to affecting your credit score, going over your credit limit can result in being hit with declined transactions and over-the-limit transaction fees..
With this in mind, here are three tips that could help prevent you from going over your credit limit and help you achieve a better credit score:
- Don’t have too many cards: too many enquiries from lenders can hurt your credit score, and having multiple cards can tempt you to overspend. Try to consolidate your accounts by closing the cards you don’t need and keeping just the one.
- Pay bills more than once a month: Submitting payments more often can reduce your credit card bill. Today, this is very easy to do online, as you can set up direct debits to help make these repayments. If you’re falling behind on your repayments, contact your provider to set up a repayment plan.
- Budget: try to negotiate a credit limit that suits your spending habits. For example, if you spend $2,000 on your credit card each month, then you may only need a limit of $7,500 or so. You can ask your provider to decrease or increase your credit limit as you see fit, but they are not required to accept this request.
If you’re currently comparing credit cards, the comparison table below displays some of the low interest credit cards currently available on Canstar’s database for Australians looking to spend around $2,000 per month. Please note that this table features links direct to the provider’s website, and is sorted by Star Rating (highest to lowest), followed by provider name (alphabetical). Use Canstar’s credit card comparison selector to view a wider range of credit cards.