APR’ means Annual Percentage Rate. Interest on carried-over credit card balances, and on new purchases if you already have a carried-over balance, is actually calculated daily and charged monthly. The APR is the equivalent rate expressed as an annual figure.

Will the interest rate on my credit card always stay the same?

No. Credit card interest rates are variable and can change at any time. And special introductory interest rates on balance transfers and purchases always have an expiry date, at which point the revert rate (the standard rate for purchases or cash advances) comes into play.

What’s the best way to compare credit cards?

First of all, decide which type of credit card would work best in your current circumstances, based on your income, lifestyle and spending pattern. For example, if you don’t expect to regularly pay off your purchases balance in full, it wouldn’t make sense to choose an expensive rewards card with a high interest rate, because the annual fee and interest costs will be far higher than the value of any rewards you could earn. But if you travel a lot and intend to clear your balance every month, a frequent flyer points card with free travel insurance and airport lounge passes might work well for you. So narrow your choices down by deciding on which card features are most important for you. Your ideal card may have one or more of the following features: 0% purchase introductory offer period Balance transfer introductory offer period Rewards points Frequent flyer points Sign-up or first purchase bonus points Ongoing low interest rate No or low annual fee No foregn transaction fees Complimentary benefits for travellers and/or shoppers Available with Google Pay, Apple Pay or Samsung Pay Once you’ve narrowed your choice by deciding which type, or types, of card will suit you best, you can compare their interest rates, annual fee, points earning rates (if any) and complimentary benefits (if any), to see which one is offering the best deal.

What if I have a low credit score, or no credit score?

If you have a low credit score, or no score because you’re a recent arrival in Australia, or a student, or someone starting their first job, you’re not going to qualify for the best credit card deals. Your choice may be limited, and you may be offered a low credit limit and a high interest rate. But there are credit cards specially designed for beginners and low credit scores. By using one of these ‘starter’ cards responsibly (i.e. always repaying your purchases balance in full and trying to avoid maxing out your credit limit), you will build up your credit score over time and become eligible for better deals.

Are there any penalties for missing a repayment, or paying late?

Yes. If you fail to make at least the minimum repayment (usually a small percentage of the balance owing, or a small fixed amount) on or before the payment due date, you may be hit with a penalty fee of between $5 and $35 per event. You could also risk having a promotional deal, such as an introductory interest rate, cancelled. Avoid this by setting up a direct debit for an amount that will at least cover the minimum repayment.

How can I apply for a credit card?

You can apply in person at a branch of the credit card provider (e.g. at a bank), by mail or by telephone. But the easiest and quickest way to apply is online, which you can do right here by clicking the ‘Application’ button next to your chosen card.

Credit Card Comparison | Compare Cards & Apply Online

Overview

A credit card is a small, rectangular piece of plastic that confers on its owner the ability to borrow money from a bank (or other lender) to use when paying for goods and services. (Even if you choose to pay with your mobile device, your bank still needs to send you that piece of plastic – for now.)

Repayment

On a due date specified by the bank, the credit card owner can choose whether to repay in full the accumulated balance of their purchases for the month, or make only a minimum repayment (typically 2% or 2.5% of the balance, or a fixed amount such as $5) and pay interest for continuing to borrow the remaining balance.

Payment due date

The due date for repayment usually falls between 14 and 25 days after the end of the monthly billing cycle. For this reason credit cards are often described as having ‘up to 44 days interest free’ or ‘up to 55 interest-free days’.

Interest charges

The money borrowed via the credit card, to make purchases, is free of interest charges from the date of the purchase transaction until the payment due date, provided the card account does not already have any carried-over debt from the previous month (such as an unpaid purchases balance or a balance transferred from another card).

If however, there is a debt carried over from the previous month, interest is charged on every purchase transaction, calculated from the transaction date until the repayment date. This applies unless there is an introductory offer in place which makes the purchases interest-free for a specified number of months, despite the carried-over debt – see ‘0% purchase credit cards’.

Clearly, the best way to use a credit card is to pay off the purchases balance in full every month, using the bank’s money totally free of interest charges for up to eight weeks after a purchase is made.

Interest rates

Credit card interest rates (charged on carried-over debt and also on new purchases where there is existing carried-over debt) are typically higher than the rates for other forms of borrowing, such as home loans and personal loans – in some cases very much higher. Credit card interest rates in Australia mostly fall in the range 10% p.a. to 22% p.a., although there are a few cards with rates lower and higher than this range.

Cash advances

If you use your credit card to make a cash withdrawal from your credit card account (either over-the-counter or via an ATM), this transaction is called a ‘cash advance’ and is never interest free. Interest is charged from the withdrawal date until the repayment date, even if there is no carried-over debt on the account.

Additionally, many cards have a cash advance interest rate that is higher — often by as much as 2% p.a. – than the interest rate charged on purchases debt.

Credit limit

All credit cards come with a credit limit, typically anywhere between $1,000 and $100,000. The card’s limit is based on the cardholder’s annual income and the bank’s assessment of their creditworthiness and ability to repay the amounts borrowed.

Once the card’s credit limit is reached (that is, once the total amount owing on the card is equal to the credit limit, or when the difference between the credit limit and the amount owing is less than the amount of an attempted new purchase), no further purchases can be made with the card until some of the balance owing has been repaid.

If you think your credit limit is too low, you can apply to the bank to increase your credit limit once you have had the card for a while and managed it responsibly, by making at least the minimum repayment on time every month and paying off large parts of the balance on a regular basis.

Annual fee

Many credit cards, especially those awarding rewards points on purchases and/or conferring complimentary benefits (e.g. free travel insurance), charge an annual fee. The fee can be anywhere between $30 and $1,500 or more, depending on the points and benefits attached to the card. However, some cards have no annual fee.

Credit card types

There are credit cards to suit the lifestyle and spending patterns of a wide variety of cardholders. Some of the most common types are:

0% purchase credit cards: No interest is charged on purchases for an introductory period, so the carried-over balance is interest free until the introductory period is over.
Balance transfer credit cards: Special introductory interest rate (often 0%) for a specified period, on balances transferred from other cards.
Rewards credit cards: Loyalty points, redeemable for rewards, are earned when purchases are made.
Frequent flyer credit cards: Air miles, redeemable for flights or rewards, are earned when purchases are made.
Low interest credit cards: Cards whose interest rate on carried-over debt is at the lower end of the scale.
No annual fee credit cards: Cards with $0 annual fee.

Alternatives to credit cards

Although credit cards are very popular, and are the preferred payment method for online shopping in particular, they are not the only way to pay. Other ways to pay for purchases include:

Cash. Widely accepted, but can be a security risk to carry around, and no good for paying online.
Charge card. Similar to a credit card, but without the option to carry over a balance at the end of the month and pay interest on it. American Express offer several of these.
Debit card. Looks like a credit card, but linked to your bank transaction account so that you pay with your own money.
Prepaid card. A payment card used like a debit card, but preloaded with a fixed amount of cash rather than being linked to a bank account.
PayPal. Online payment service that can be linked to a credit card, debit card or bank account. Especially popular as a form of payment on marketplaces such as eBay and Facebook Marketplace.
Buy Now Pay Later (BNPL). Popularised by Afterpay and Zip in Australia, Buy Now Pay Later services offer payment by instalments, with no interest charges but high fees if you miss payments.
Personal loan. A good option for major purchases (furniture, appliances, technology, holiday) if you need time to pay, because the interest rate for a personal loan is usually lower than that of a credit card.

Credit cards vs debit cards

Both credit cards and debit cards have their advantages and disadvantages.

The benefits of a credit card are the possibility of using the bank’s money free of interest charges for 44 or 55 days (the length of time varies depending on the card), provided you always repay your account balance in full each month. Many credit cards also come with attached additional benefits, like rewards and frequent flyer points, free insurance, travel discounts and privileges, and other perks. Responsible use of a credit card can help improve your credit score. But credit card interest charges, if incurred, are mostly very high, and in the wrong hands a credit card is a temptation to overspend and end up in long-term debt.

Conversely, debit card users are far less likely to get into debt, simply because their spending is limited to the amount of money they have already earned and deposited in a bank account. They are not borrowing a bank’s money when they use their debit card (unless the debit card is attached to an overdraft account), but simply accessing their own funds in a bank account linked to the card. At the end of the month there is no bill to pay, and no interest charges to avoid. However, the vast majority of debit card users miss out on rewards points and other credit card benefits, and will not improve their credit score by using their card.