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How do credit cards work?

How do credit cards work?

Knowing about the different types of credit cards available and how they work will help you pick the right one for your lifestyle and budget.

A credit card can be an effective tool for making purchases, simplifying your finances and even smoothing out your cash flow. But before signing up to one, it’s a good idea to get familiar with just how they work.

Here is a quick guide to some of the main features of a typical credit card.

The advantage of credit cards

A credit card provides access to funds up to a certain limit, so long as you make regular minimum repayments. Credit cards let you carry less cash and buy things over the phone or online, and can be useful if, for example, you have to make a purchase before pay day.

Credit cards can also come in handy in a whole bunch of different ways. Whether you’re buying something online, travelling in a remote part of the world or just heading to the supermarket, having a credit card on hand can be a very convenient way to purchase.

Types of cards

There are three main types of CommBank credit cards. Depending on your situation, one may suit you more than the others.

Low Fee: Low-fee credit cards have no annual fee in the first year and a low annual fee after that. These tend to be suited to those who are wanting 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 rate of interest than some of our other card types.

Low Rate: Low-rate credit cards have a lower purchase interest rate than others. These cards are suited to those 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. They have a higher annual fee than some of our other card types.

Awards: Awards cards allow you to earn awards points as you spend. These cards are suited to those who are looking to make the most of their credit card spending. You can earn points to spend on travel, gifts and even get 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 an amount somewhere in between those two amounts. Keep in mind that the more you pay off, the less interest you’ll pay.

Balance transfers and cash advances

Credit cards have other benefits in addition to enabling you to make purchases. A balance transfer allows you to transfer a balance from an existing card with another issuer onto a new credit card. With a new card you’ll typically be offered an introductory period with a low interest rate, which can help you save interest. When the introductory balance transfer rate finishes, the outstanding balance (including any related interest) will be treated as a cash advance.

You can also withdraw money from your credit card; this is known as a cash advance. You’ll be charged a fee for cash advances as well as interest at the cash advance rate on the amount you withdraw.


Credit cards have a number of fees associated with them, including annual fees, balance transfer fees, cash advance fees and international transaction fees. Before taking out any card, make sure you’re across all of these fees that may apply and have budgeted for any you may incur.

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial advice. Applications for credit cards are subject to approval. Full terms and conditions will be in our Letter of Offer. Fees and charges apply.