Credit cards are a flexible tool that lets you spend money and repay it over time.
You get charged interest if you don't pay off your balance in full, and most cards charge an annual fee.
Credit cards are risky if you spend a lot and aren't disciplined about paying it back.
How credit cards work: the basics
A credit card is a form of borrowed money (called credit). Your card issuer (usually a bank) approves your card with a credit limit. That's the maximum amount you can spend (borrow) on the card.
In technical terms a credit card is an unsecured revolving line of credit: unsecured because you don't provide any asset as security, revolving because you can use the card on an ongoing basis.
You use your credit card to buy stuff, just like you would with a debit card that comes with your bank account. The difference is: it's not your money, it's the bank or card company's money.
The money you spend on your credit card is added to your balance. You get a credit card statement each month that lists your total spending, how much you have to repay.
The minimum repayment. This is the smallest amount you have to repay. If you don't pay the minimum you might get hit with a fee and eventually have your card cancelled.
The closing balance. This is the total amount you owe. If you pay this all off then you have no card debt.
If you pay your card spending off in full each month then you don't get charged interest. If you don't pay it all off, then you'll get charged interest.
Are credit cards risky?
Yes and no. The biggest risk with a credit card is that it allows you to spend money you don't have and then avoid repaying it in full for a long time.
Many people make the mistake of getting a credit card, spending thousands of dollars and then taking months or years to pay it off. This hurts your credit score and costs you hundreds or even thousands of dollars in interest.
But if you have a regular income and you're financially responsible, a credit card isn't a bad thing. It helps you build positive credit history and gives you a flexible way to spend money.
Credit card features explained
That's the simple stuff explained. But credit cards are a little more complicated.
Here are the main features or components of a credit card.
The purchase rate. The purchase rate is the interest rate that covers most card spending.
The annual fee. Most cards charge a yearly fee. It can be under $100 or up to $400 for some cards. The higher the annual fee the more perks and benefits you get with the card.
The credit limit. The maximum amount of money you can borrow on your credit card. This limit is determined by your income and credit history.
Interest-free days. Most credit cards offer up to 44 or 55 days interest-free. The interest-free period gives you a bit of extra time to pay off your card spending before interest charges kick in.
Cash advances. Using your credit card to withdraw cash from an ATM, make gambling purchases, buy foreign currency or pay some bills are considered cash advance transactions. These transactions incur a fee and a higher rate (the cash advance rate).
Rewards and points. A rewards credit card gives you a way to get rewards when you pay by card. There are also cards that let you earn frequent flyer points, which is great for people who like to travel.
Complimentary insurance. Some credit cards give you insurance cover on purchases or travel insurance.
Balance transfers. If you've never had a credit card before, don't worry about this. A balance transfer offer is for people struggling with existing credit card debt. A balance transfer gives you an opportunity to pay off a card balance with a low or 0% rate.
How does credit card interest work?
The money you spend on a credit card attracts interest charges. But if you pay the full balance off before the interest kicks in you can avoid it completely.
Most credit card companies calculate interest on a daily basis and then add the charges to your account at the end of each statement period (month).
Example: How to repay $1,500 credit card debt
Let's say you have a $1,500 outstanding balance on your credit card, which has an average interest rate of 19.94%.
Pay off the entire balance: If you pay off your entire $1,500 balance, you will have no outstanding debt and not get charged interest.
Make the minimum repayments: If you make the minimum payments on your card (paying $30 in the first month) it would take you 19 years to repay and you would be charged $3,612 in interest. And that's assuming you don't continue to spend with your card during that time.
Increase your regular repayments. If you increase your monthly repayment to $100, you'd have your entire debt repaid in 1.5 years and be charged $207 in interest. Increase your repayments even more to $150 a month and you repay your debt in 11 months and only pay $124 in interest.
What types of credit cards are suitable for beginners?
If you're new to credit cards and want to get used to having one, it's worth considering a low-cost or no-frills credit card before upgrading to one with bells and whistles (like rewards and platinum credit cards which have higher rates and fees).
Low interest credit cards
Low interest rate credit cards make it cheaper to pay off a debt over time. These credit cards can also offer a low or 0% interest rate on purchases for a promotional period.
No annual fee credit cards
This type of credit card costs nothing to own upfront. However, the rates of interest can be higher than low rate credit cards. A no annual fee credit card can sit in your wallet, never come out and it won't cost you a thing.
These types of credit cards are suited to beginners who are looking to build their credit history but don't want to go all-out on a credit card with loads of features.
No interest flat fee credit cards
First launched in Australia in 2020, these cards don't ever charge interest on your balance. Instead, there is a monthly fee of around $10-$22 when you use the card (as well as minimum repayments).
Not sure about the differences between a credit and debit card?
You're not alone. 14% of people surveyed incorrectly thought credit payments were payments withdrawn directly from your bank account, according to our consumer sentiment tracker. Gen Z were the least informed. 17% of those surveyed weren't sure of the differences.
How much will a credit card cost?
Interest. If you pay off your card spending each month fully there's no interest. But if you carry a balance, you'll get charged interest.
Fees. Most cards charge an annual fee. Some don't, or offer a fee waiver for the first year. As a general rule, the benefits you get from the card should outweigh the annual fee.
Other costs. Credit cards charge fees for cash advance transactions (like getting cash out of an ATM with your card), and fees if you go over your credit limit.
So should I get a credit card?
Only you can answer this question. But here are some ways to think about it:
Do you want to improve your credit score? Getting a low rate credit card with a low credit limit and making sure you pay it off each month is a good way to build credit history.
Are you a disciplined or financially responsible person? If you're someone who is bad at keeping track of your money and forgets to pay bills, a credit card will probably get you into a bit of trouble. You need to be disciplined in checking each month and paying it off. Having all your cards and bank accounts with one bank, with one app, makes this a bit easier.
Do you have really reckless spending habits? If you have poor impulse control and a history of bad buy now pay later decisions a credit card is probably a bad idea.
Do you have a regular income and good financial habits? A credit card should be no trouble for you, and could be a good way to earn rewards or points.
Pros and cons of credit cards
Pros
You can avoid interest charges. You can avoid paying interest if you pay your balance in full each statement period. Most credit cards also offer up to 55 interest-free days too.
Emergency expenses. Credit cards may give you access to large sums of money on demand which can be useful if unexpected expenses come up that you don't have in your bank account, such as car repairs or broken appliances.
Travel perks. Many credit cards come with travel perks, such as frequent flyer and reward points, airport lounge pass access, complimentary travel insurance and even free flights or travel credits. These cards do have higher rates and annual fees though.
Secure shopping. Credit cards offer a secure way to shop online and in-store. Some offer purchase protection insurance as part of the card benefits and also extended warranty for your purchases.
Cons
Interest costs while carrying debt. Credit cards don't require you to repay your debt in full, as long as you make minimum repayments. You can end up paying large amounts of interest while you carry debt on your card.
High costs for certain transactions. While you can use credit cards for most types of transactions, keep in mind that higher costs apply to some. For example, a cash advance interest rate will apply if you withdraw cash from your credit card and this can be as high as 25% p.a.
Potential negative credit score impacts. Getting a credit card does not impact your credit score negatively, but applying for multiple cards in a short space of time or defaulting on your repayments can.
Easier to get into trouble. If you're not diligent in keeping on top of your card payments you can rack up thousands of dollars in debt.
Finder survey: Which of these credit card features would Australians of different ages like to understand better?
Response
Gen Z
Gen Y
Gen X
Baby Boomers
Rewards programs
47.19%
47.28%
40.13%
20.74%
Interest-free days
43.82%
29.89%
27.96%
11.08%
Balance transfers
33.71%
27.17%
19.41%
10.23%
Cash advance
32.58%
26.09%
15.46%
6.25%
Purchase rate
23.6%
23.91%
17.76%
6.82%
Statement period
22.47%
16.85%
10.86%
7.67%
None of the above
19.1%
24.73%
39.8%
65.06%
Minimum payment
17.98%
18.75%
14.14%
4.83%
Other
1.12%
1.14%
Source: Finder survey by Pure Profile of 1113 Australians, December 2023
How to apply for a credit card
You can apply for a credit card in minutes. The first step is making sure you're eligible.
Income. Some credit cards list a minimum income requirement. Other cards require you to be employed, and some say you need to earn a regular income.
Age. You must be over the age of 18 to apply for any credit card in Australia.
Credit score. If you have a good or excellent credit history, you'll be eligible to apply for most credit cards. But if you have defaults, late payments, bankruptcy or other negative listings on your credit report, you usually won't be able to get a credit card.
What documents do you need to apply?
Personal details such as your name, date of birth and address
A valid form of ID, such as your driver's licence
Employment and income details including recent payslips
Other financial details such as information regarding assets, debts and liabilities
Frequently asked questions about credit cards
Many Australians choose to get a credit card to use in emergencies, to make big purchases or to collect rewards. However, whether it's worth getting will depend entirely on your own circumstances and what you would want to use the card for.
This depends on a few factors including your income and what you're planning to use the card for. As it's your first credit card, requesting a credit limit on the lower end of what you're able to get may be a good idea while you get used to making regular repayments and keeping your spending in check. You can always apply to increase the limit later on.
As long as you have no annual or monthly fees on your credit card, you shouldn't need to do anything. If you are being charged regular fees you will still need to make minimum payments to keep your card in good standing.
A pending transaction is any transaction that is still being processed. For example, you could buy something right now and see it listed on your account as "pending". Then, once the merchant and payment processors have finalised the payment, it will show up as a transaction.
A pre-authorisation is a temporary transaction where a set amount of funds from your credit card or debit card is put on hold. This is either as a form of security (as with hotels) or for companies to confirm your card is valid and can be charged.
As a pre-authorisation is not technically a charge, you will only see it in your "pending" transactions. In most cases, the funds from a pre-authorisation will be released within 1-14 days. However, an authorisation hold can technically last up to 30 days if it is not cancelled or completed before that time.
Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification. See full bio
Richard's expertise
Richard has written 554 Finder guides across topics including:
Rebecca Pike is Finder's senior writer for money. She joined Finder after almost four years writing for business publications in the mortgage and finance industry, including three years as editor of Mortgage Professional Australia. She regularly appears as a money expert on programs like Sunrise and Today, as well as across radio and newspapers. She also holds ASIC-recognised certifications in Tier 1 Generic Knowledge and Tier 2 General Advice Deposit Products. See full bio
Rebecca's expertise
Rebecca has written 197 Finder guides across topics including:
Calculate how much you're paying in interest based on your current credit card repayments and discover how much you should pay each month to meet your financial goal.
I am a new immigrant to Australian and do not have any credit history. I am considering building up a good one because I might need it for a car loan and/or mortgage sometime in the future.
Your article was helpful, but I do have some questions:
Does the credit history system work like that of the US, and what is the credit score range?
What would be ideal cards for a beginner that has no annual fees, with good rewards? The interest rate may not matter because I intend to pay my bill in full every cycle.
Thanks.
Ekene.
Finder
RenchAugust 13, 2017Finder
Hi Ekene,
Thanks for reaching out to us.
With regards to your query about the credit history, yes you need to have it for you to be able to apply for a credit card for your future use.
A credit score is a numerical representation of your credit history. Please feel free to learn more about how to improve your credit score and increase your chance of getting approved for any future credit applications you may make.
If this interests you, please consider requesting your credit report for free.
Simply add your phone number to get our Finder app and start requesting your credit score.
Alternatively, you can click on the “Continue on web” if you wish not to get your score through the app.
A pop-up window would appear. Click on the “Log in” tab if you already have a Finder account. Click on the “Register” tab if you wish to create a new account.
Once you’re in, you can then request your credit score.Hope this helps.
Best regards,
Rench
EmilyJuly 23, 2017
I am looking into applying for a credit card in Australia. I am currently receiving roughly 24k in welfare and am unemployed. I’ve never had a credit card before, nor have I known anyone who had one while I knew them.
I’d like to ask a couple of questions. First, about the interest. Does the interest accrue at a certain time in the month (or statement period), or does it accrue all the time except for specifically no-interest periods? For example, if I only made small purchases using it and could pay the entire balance back upon receiving the bill, would I have to pay the interest?
I would only want a small limit, so as to limit my spending and have it as a back-up in case my welfare for some reason doesn’t come in or is reduced temporarily. Are there any fees or penalties for not using it for a certain period of time?
Thank you :)
Finder
RenchJuly 24, 2017Finder
Hi Emily,
Thanks for reaching out to us.
Most low-income cards offer interest-free days on purchases, though the number of days (such as up to 55 days) would vary from card to card. To take advantage of these interest-free days, you have to pay your account’s closing balance completely every month. Please read more about what interest free period means for credit cards. After that, you can also explore low income credit cards and see which one would best fit your needs.
I hope this helps.
Cheers,
Rench
JJSeptember 9, 2016
Alright… Really stupid here, don’t know anything about credit cards. And when I’m applying for them it asks for my card limit. I’m trying to find articles that explain it for a first-time user. Help?
Finder
YsaSeptember 16, 2016Finder
Hi JJ,
Thanks for reaching out.
You may wish to check our guide about credit cards for beginners. This guide will tell you all you need to know about how credit cards work.
I hope this helps.
Cheers,
Ysa
SamJuly 7, 2016
Hi I need a credit card to hire a car in Spain what card would you recommend as I would only need to use it 2-3 times a year
Finder
MayJuly 7, 2016Finder
Hi Sam,
Thanks for your inquiry.
Please check our credit card overseas use guide in comparing your options for credit cards that can be used overseas (or in Spain). Though I’m not sure if these cards we have listed will be accepted by your merchant (for car hire). It’s best to contact the car hire provider if they would accept these cards.
I hope this has helped.
Cheers,
May
JustinApril 11, 2015
If i bought a $3000 lawn mower what are some examples of what my payments would be
Random interest rates and min. Payments
Finder
JonathanApril 14, 2015Finder
Hi Justin,
Thanks for your inquiry.
Depending on whether the card has a promotional rate, you would be paying the purchase rate on the balance remaining. You can compare our range of 0% purchase credit cards to see your options. You can select the “Go to Site” button of your preferred credit card to proceed with your application. You can also contact the provider if you have specific questions. A gentle reminder, please ensure to read through the relevant product disclosure statement and terms and conditions to ensure that you got everything covered before you apply.
Cheers,
Jonathan
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I am a new immigrant to Australian and do not have any credit history. I am considering building up a good one because I might need it for a car loan and/or mortgage sometime in the future.
Your article was helpful, but I do have some questions:
Does the credit history system work like that of the US, and what is the credit score range?
What would be ideal cards for a beginner that has no annual fees, with good rewards? The interest rate may not matter because I intend to pay my bill in full every cycle.
Thanks.
Ekene.
Hi Ekene,
Thanks for reaching out to us.
With regards to your query about the credit history, yes you need to have it for you to be able to apply for a credit card for your future use.
A credit score is a numerical representation of your credit history. Please feel free to learn more about how to improve your credit score and increase your chance of getting approved for any future credit applications you may make.
If this interests you, please consider requesting your credit report for free.
Simply add your phone number to get our Finder app and start requesting your credit score.
Alternatively, you can click on the “Continue on web” if you wish not to get your score through the app.
A pop-up window would appear. Click on the “Log in” tab if you already have a Finder account. Click on the “Register” tab if you wish to create a new account.
Once you’re in, you can then request your credit score.Hope this helps.
Best regards,
Rench
I am looking into applying for a credit card in Australia. I am currently receiving roughly 24k in welfare and am unemployed. I’ve never had a credit card before, nor have I known anyone who had one while I knew them.
I’d like to ask a couple of questions. First, about the interest. Does the interest accrue at a certain time in the month (or statement period), or does it accrue all the time except for specifically no-interest periods? For example, if I only made small purchases using it and could pay the entire balance back upon receiving the bill, would I have to pay the interest?
I would only want a small limit, so as to limit my spending and have it as a back-up in case my welfare for some reason doesn’t come in or is reduced temporarily. Are there any fees or penalties for not using it for a certain period of time?
Thank you :)
Hi Emily,
Thanks for reaching out to us.
Most low-income cards offer interest-free days on purchases, though the number of days (such as up to 55 days) would vary from card to card. To take advantage of these interest-free days, you have to pay your account’s closing balance completely every month. Please read more about what interest free period means for credit cards. After that, you can also explore low income credit cards and see which one would best fit your needs.
I hope this helps.
Cheers,
Rench
Alright… Really stupid here, don’t know anything about credit cards. And when I’m applying for them it asks for my card limit. I’m trying to find articles that explain it for a first-time user. Help?
Hi JJ,
Thanks for reaching out.
You may wish to check our guide about credit cards for beginners. This guide will tell you all you need to know about how credit cards work.
I hope this helps.
Cheers,
Ysa
Hi I need a credit card to hire a car in Spain what card would you recommend as I would only need to use it 2-3 times a year
Hi Sam,
Thanks for your inquiry.
Please check our credit card overseas use guide in comparing your options for credit cards that can be used overseas (or in Spain). Though I’m not sure if these cards we have listed will be accepted by your merchant (for car hire). It’s best to contact the car hire provider if they would accept these cards.
I hope this has helped.
Cheers,
May
If i bought a $3000 lawn mower what are some examples of what my payments would be
Random interest rates and min. Payments
Hi Justin,
Thanks for your inquiry.
Depending on whether the card has a promotional rate, you would be paying the purchase rate on the balance remaining. You can compare our range of 0% purchase credit cards to see your options. You can select the “Go to Site” button of your preferred credit card to proceed with your application. You can also contact the provider if you have specific questions. A gentle reminder, please ensure to read through the relevant product disclosure statement and terms and conditions to ensure that you got everything covered before you apply.
Cheers,
Jonathan