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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.

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How does credit card interest work?

Knowing how your credit card interest is calculated and when it's charged can help you manage your repayements and avoid paying unnecessary interest.

A credit card lets you borrow up to a set limit and repay it later, giving you flexibility with everyday purchases and unexpected costs
Paying your full balance on time can help you avoid interest, while fees or interest may apply if you carry a balance or miss a payment
Different cards suit different needs, from low-fee or interest-free to rewards cards. Choosing the right one depends on how you like to manage your money

A credit card can be an effective tool for making purchases, simplifying your finances and even smoothing out your cash flow.

Before applying for one, it can be a good idea to understand how they work. Knowing about interest, fees and repayments can help you get the most out of your card and avoid any surprises.

Types of credit cards

Broadly, there are four types of credit cards that suit different spending styles. Choosing one that fits your needs can help you manage costs and stay on track.

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.

Rewards: May best suit those who intend to pay off their balance in full each month and who want to make the most of their credit card spending by earning points on rewards programs they are eligible for or through additional benefits like travel and dining credits, airport lounge passes or insurances. Rewards cards can attract higher interest rates and annual fees than other card types.

Repayments: How to stay in control

Credit cards require you to make repayments each month while there is an amount owing. Your monthly statement includes your closing balance, minimum repayment and due date.

Paying your balance in full

Paying the full balance by the due date usually means you won't pay interest on new purchases.

Pay more than the minimum

This reduces your balance faster and the more you pay off, the less interest you'll pay.

Pay only the minimum

This keeps your account in good standing, but interest will normally apply to the remaining balance, and it can take much longer to pay off.

Understanding credit card fees

Credit cards can 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.

Interest-free Low Fee Credit Card

Here’s our simplest credit card yet. Say goodbye to interest, late fees and hidden charges – Just a $10 monthly fee.

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.

Choosing the right CommBank credit card

Choosing the right card depends on how you use it. Whether you're looking for a low-fee card for simple everyday purchases or a rewards card, understanding how they work can help you make a confident choice.

Go to credit cards

Check out all our current credit card offers here

Compare our latest credit card offers to find the offer that best suits your needs.

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Things you should know

Disclaimer: Commonwealth Bank of Australia ABN 48 123 123 124 and Australian credit licence 234945.

This article provides 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 personal financial product advice. The views expressed by contributors are their own and don’t necessarily reflect the views of CBA. As the information has been provided without considering your objectives, financial situation or needs, you should, before acting on this information, consider the relevant Product Disclosure Statement and Terms and Conditions, and whether the product is appropriate to your circumstances. You should also consider whether seeking independent professional legal, tax and financial advice is necessary. Every effort has been taken to ensure the information was correct as at the time of printing but it may be subject to change. No part of the editorial contents may be reproduced or copied in any form without the prior permission and acknowledgement of CBA.

For more information about the available products and services mentioned in this publication – including Product Disclosure Statements, Terms and Conditions, Target Market Determinations and Financial Services Guides that are currently available electronically – as well as information about interest rates and any fees and charges that may apply, go to commbank.com.au.

The advice on this website has been prepared without considering your objectives, financial situation or needs. You should, before acting on the advice, consider its appropriateness to your circumstances.  Applications for credit cards are subject to credit approval. Full terms and conditions will be included in our Letter of Offer. Bank fees and charges apply.