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Understanding credit cards

Understanding credit cards: what you need to know.

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Looking to get a credit card? Here’s some useful information to help you find a card that suits your lifestyle and budget.

However, credit cards do come with interest charges and other costs. Establishing good credit card habits from the start is important, because if you don’t your repayments may be more than you originally budgeted for and you may find yourself getting into debt. 

How does a credit card work?

The bank or lender extends a revolving line of credit to you via the credit card, known as the ‘credit limit’ – the maximum amount you’re allowed to spend.

At the end of each regular billing cycle, you receive a statement outlining any transactions that have occurred and any money that you owe. You will be required to make the minimum repayment by the due date or you may choose to pay the outstanding balance in full to avoid paying interest on your purchases – this is particularly handy if your card has an interest free period. However, if you do not pay the outstanding balance in full by the due date (that is, if you only pay the minimum repayment, or even if you pay more than the minimum but less than the entire amount owing), you will be charged interest.

What are the costs of a credit card?

Interest rates vary depending on your lender and the type of credit card you have. Credit card interest rates are usually higher than interest rates for other types of credit (such as personal loans and home loans).

When looking for a credit card, be aware of the applicable interest rate as well as other fees and charges you could incur in addition to interest charges. These also vary but can include annual fees, cash advance fees, balance transfer fees, foreign currency conversion fees, late payment fees and fees for exceeding your credit limit.

How easy is it to get a credit card?

While it’s relatively simple to apply for a credit card, it’s not always easy getting approved. Your income, existing debts and credit score are all used to assess your suitability for the credit card product and the credit limit you have requested. From 1 January 2019, your ability to repay the full credit limit within three years will also be assessed – this measure was introduced by ASIC to help avoid unmanageable credit card debt for consumers.   

It’s also worth being aware that every credit card application you make (whether approved or denied) may be recorded on your credit file, so applying for several cards at once may not be a great idea. Instead, do your research and apply for a card and credit limit that suits your budget and lifestyle, with repayments you can afford.

What types of credit cards are available?

Credit cards are not a one-size-fits all solution. There are a range of different credit cards on the market to consider, with different types to suit a range of different spending habits and needs. Some of the most common types include:

  • Low rate cards: Credit cards like our Value+ Credit card offer lower interest rates, which can help save you money on interest. However, these types of cards will usually involve an annual fee and generally don’t include the ‘extras’ like rewards or bonuses that premium credit cards may offer. 
  • No annual fee cards: A card with no annual fee, or even a low one, may reduce your costs up front, but be aware that interest rates on purchases (if you make any) could be higher with this type of card.
  • Low rate cards: Credit cards like our Value+ Credit card are offered with the aim of delivering lower interest rates than premium cards. They attempt to do this by not offering ‘extras’ such as rewards or bonuses – frequent flyer points for example – and they generally charge an annual fee. 
  • Rewards cards: These cards offer the opportunity to earn rewards or ‘points’ for every dollar you spend, which can be put towards buying items such as household appliances or flights. These types of cards typically incur higher fees and interest, so it’s wise to consider how these costs weigh up against the rewards. 
  • Platinum cards: A platinum credit card can offer extensive features and perks, including complimentary insurances and concierge services. These cards are designed for cardholders with high incomes, so be aware that these cards typically come with high annual fees and interest rates.

4 common credit card features 

Features on credit card offers can differ significantly. Here are a few common features you’ll come across in your research and what they mean:

  • Interest-free days: Many credit cards in Australia offer an interest-free period on purchases, such as ‘up to 44 days’ or ‘up to 55 days’. This means there is a period of 44 or 55 days, for example, where the credit card’s interest rate will not be added to the cost of your purchases. The interest-free period can be helpful in saving money, but remember it only applies when your balance is paid off in full by the statement due date. 
  • Promotional offers: Some cards may include introductory offers or sign up bonuses designed to provide additional benefits to new customers for a limited time. Offers may include bonus points or 0% interest on purchases or balance transfers, however it is important to be aware of fees and charges which may apply once the introductory period is over.   
  • Insurance cover: Many platinum credit cards bundle complimentary insurance into their offer. This might include purchase protection insurance, travel insurance or other types, but be aware the interest rates and annual fees on these cards could be higher.
  • Added value perks: Some cards will offer exclusive invitations to events, discounts for buying from retail partners, pre-sale ticket purchases or access to airport lounges. It is important to note, similar to cards offering insurances, these cards often attract higher interest rates and fees.

Understanding what you’ll use your card for, and carefully researching the features of each credit card, is a great first step to finding a credit card that’s right for you.

This article is intended to provide general information of an educational nature only. It does not have regard to your objectives, financial situation or needs and must not be relied upon as financial product advice. Before you act on this information, you should consider whether it is appropriate for your circumstances. Information in this article is current as at the date of publication. Applications subject to credit approval and fees and charges are payable. Terms and conditions apply and are available on request.

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