A credit card can be an effective tool for making purchases, simplifying your finances and even smoothing out your cash flow. But before applying for one, it’s a good idea to understand how they work.
Types of cards
Broadly, there are four types of credit cards
Interest-free: This type of credit card may best suit people who are new to credit and want more control over their finances. Interest-free cards generally offer a simple monthly fee based on the card limit, so there's no complex fees and pricing structures.
Low Fee: These cards tend to be suited to people who want a credit card for the convenience, and are confident they’ll be able to pay back their balance in full each month. They attract a higher interest rate than some other card types.
Low Rate: Low-rate credit cards typically have a lower purchase interest rate than some other cards. These cards are suited to people who expect they’ll carry over a balance from month to month rather than paying it off in full, and would like to minimise the interest they’ll pay on this balance. Low-rate cards have a higher annual fee than some of our other card types.
Awards: These cards allow you to earn awards points as you spend. You can spend these points on travel, gifts or even choose to receive cash back. They have a higher annual fee and interest rate than some of our other card types.
Credit cards require you to make repayments each month while there is an amount owing. You can choose to make the minimum payment as shown on your statement, or pay your balance in full. You can also pay off any amount in between. Keep in mind that the more you pay off, the less interest you’ll pay.
Balance transfers and cash advances
From 1 December 2023, balance transfers will no longer be offered on our credit cards. Balances already transferred will continue on the promotional rate until the amount is fully repaid or the balance transfer period ends, whichever comes first.
A balance transfer allows you to transfer a balance from an existing card (say, with another credit card provider, or a store card) onto a new credit card. With a new card you’ll typically be offered an introductory period with a low initial interest rate, which can help you save interest. When the introductory rate finishes, the outstanding balance (including any related interest) will be treated as a cash advance and charged interest at the cash advance interest rates.
You can also withdraw money from some credit cards. This is known as a cash advance1. Bear in mind that you’ll be charged a fee for cash advances, as well as higher interest on the cash advance amount you withdraw.
Credit cards have a number of associated fees associated, including annual fees, monthly fees, cash advance fees, late payment fees and international transaction fees. Before applying for any card, make sure you’re across all of the fees that may apply and have budgeted for any fees you may incur.
Credit card benefits
A credit card provides access to funds up to an agreed limit. Provided you pay the minimum repayment amount by the due date each month, you'll always have access to this limit.
Credit cards can save you carrying cash and can be used to buy online or over the phone. They can be useful if, for example, you have to make a purchase before payday.
Credit card trade-offs
If you don’t repay your balance in full every month, you'll be charged interest in addition to any fees that may apply. Additionally, some cards don't allow for balance transfers or cash advances.
While credit cards can be convenient, remember that you'll have to repay any balance you accrue on your card.