Buying on credit
Credit cards are easy to get and easy to use. They let you carry
less cash and buy things over the phone or online. But keep track
of your spending and make sure you can pay off what you owe.
How credit cards work
Credit cards allow you to borrow money up to a certain limit as
long as you make regular minimum repayments. Most credit cards have
an annual fee.
Credit cards tend to have higher interest rates than other forms
of credit, and the rate can vary depending on what features the
card offers. You are charged interest on all
outstanding transactions if you don't pay your full balance each
If you have a card without an interest-free period, you pay interest
either from the day you make a purchase or from the day your
monthly statement is issued.
Unless you use a card that is interest-free and fee-free, buying
items with a credit card will always cost you more than if you pay
If you make only the minimum repayment each month, you will pay
more in interest and it will take longer to pay off your balance.
From 1 July 2012, your monthly statement must give you information
about how long it will take to pay off the entire balance by making
Credit card calculator
You could also end up spending more than you can repay if you
get a higher credit limit than you need.
Video: Changes affecting all credit cards from 1 July 2012
Australian Banking Reforms 2012 video Scott
Pape explains how new information on your credit card statement and
a ban on unsolicited credit increase offers can help you control
your credit card.
Read the key facts sheet
When you apply for a credit card after 1 July 2012, you must be
given a 'key facts sheet'. If you don't receive one, ask your
credit card issuer.
The facts sheet contains:
- Minimum repayment (or how it will be calculated)
- Interest rate that applies to purchases and cash advances
- Interest rate that applies to balance transfers (and for how
- Promotional interest rate (if any)
- Length of the interest-free period (if any)
- Annual and late payment fees (if any)
Video: Rules for new credit cards from 1 July 2012
Australian Banking Reforms 2012 video Scott
Pape explains the new key fact sheets for credit cards and what
happens if you exceed your credit limit under the new rules.
Choosing a credit card
The kind of card you should get depends on how you want to pay
off your debt.
If you always pay off your credit card in full each month, look
for one that offers interest-free days. This means you pay no
interest for a certain number of days after making a purchase (for
example, 55 days).
These cards may charge higher interest rates and annual fees,
but if you pay off your debt within the interest-free period,
you'll avoid paying interest altogether, so the higher annual fee
may be worth it.
No interest-free days
If you know you won't be paying your debt in full straight away,
consider a card with no interest-free days. You'll usually pay
lower annual fees and less interest, either from the day of
purchase or the day your monthly statement is issued.
Fees and charges
Fees add a lot to the cost of your card and can include:
- Annual account fees
- Fees for reward programs
- Fees for late payments
- Fees for exceeding your credit limit (a
card issuer must seek your consent before they can charge you for
Some credit cards attract a surcharge that 'merchants' such as
retailers may pass on to you when you make a transaction.
Fees and charges may change at any time, so make sure you read
any updates you get from your credit card provider. If you're
paying too much in fees, see getting the best credit
deal for guidance.
If you're comparing the features and fees of credit cards online
see our guidance on using comparison
Interest rate and fee limits
By law credit providers must not charge more than 48% in
interest annually on credit cards (this includes all fixed fees).
Australian Deposit-taking Institutions (ADIs) such as banks,
building societies and credit unions are exempt from these fee
Case study: Ricky always pays off his credit card
landed his first job after finishing uni and decided to get a
credit card for those times when he's caught without cash. After
comparing a few credit cards, he chose one that offers
interest-free days. He vowed to pay off the balance within the
"I'm still paying off my HECS fees from uni so I don't want to
get into more debt."
Watch out for these credit offers as they can be debt traps.
Credit limit increase invitations
From 1 July 2012, credit card issuers are not allowed to send
you invitations to increase your credit limit without first getting
your agreement. This applies to both new and existing credit
You can contact your card issuer at any time and ask them not to
send you credit limit increase invitations. Even if you do agree to
receive credit limit increase invitations, you can change your mind
later by contacting your card issuer.
Whether you decide to opt in or out of receiving credit limit
increase invitations, you can ask your card issuer for an increase
to your credit limit at any time.
If you can't afford to pay off your balance in full each month,
don't increase your credit limit. A higher credit limit makes it
very easy to get into more debt - and you'll end up paying a lot
more in interest too.
If you need extra money to make a special purchase, aim to pay
the debt down quickly. Then lower your limit back to a more
Think carefully before getting a credit limit increase and don't
live beyond your means. If you only make the minimum repayments on
your card each month, you will pay more in interest and it will
take longer to pay off your balance. See making
repayments for more information.
Sometimes cards offer an introductory or 'honeymoon' interest rate. Check how much
the interest rate will rise at the end of the honeymoon period, and
what fees and charges come with the offer. A card with higher fees
might wipe out your honeymoon savings before long. The same
principle applies to offers of 'no fees for 12 months'.
Cash back offers
'Cash back' credit cards give you back some credit on your
account. But the benefits are quickly outweighed if the card has a
higher than usual interest rate. If you don't pay the whole balance
off each month, this kind of offer is not for you.
This is when you transfer outstanding balances from one credit
card to another, often at a lower interest rate for a certain time
(for example, 4.9% for 6 months).
You can get the full benefit of this by paying off the balance
transfer amount within the balance transfer period. Just make sure
you check the interest rate that will apply once the balance
transfer period is over.
If you use your new card to buy something, your purchase will
attract the full interest rate of the new card (not the special
balance transfer rate).
It is a good idea to check how different credit card features
may apply when you transfer your balance to a new card. For
example, you may be unable to take advantage of any interest-free
period on new purchases until the balance transfer amount is paid
When you make a payment on your new card, there are two ways it
can be applied:
- The credit card issuer will apply it to the balance with the
highest interest rate (for example, purchases you have made at the
standard interest rate or cash advances at the cash rate, whichever
has a higher interest rate)
- With the credit card issuer's agreement, you may request that
payments be applied in a different way (for example, that any
payments made during the balance transfer period will be applied to
the balance transfer amount, even if the interest rate is
When the balance transfer period is over, if you have not paid
off the full balance transfer amount, the amount remaining will be
charged at the standard interest rate or cash advance rate (which
may be higher).
Check the conditions of your card to see what rate applies.
Video: Choosing and using a credit card
compare credit cards video
Peter Kell from the Australian Securities and Investments
Commission talks about how you can choose the best credit card for
your circumstances, and gives tips on managing credit card
PIN only credit cards
From 1 August 2014 you will not be allowed to sign for credit
card and debit card purchases when you are buying
a product at a point of sale. You'll need to enter your PIN to
authorise the transaction.
This change will only affect transactions where you're
physically present at the point of sale and if the card you're
using has an embedded smart chip. You'll continue to sign when
using chip-less cards with a magnetic strip at the back.
This change won't impact
online shopping, telephone purchases or
contactless card transactions such as Visa's payWave and
MasterCard's PayPass where you wave your card or tap and go.
Overseas use of your card
Be aware that your PIN might not work when you use your credit
card overseas. Depending on the overseas merchant, you may still
need to use a signature to authorise purchases.
What you need to do
If you don't have a PIN or have forgotten it, contact your bank
or card issuer to organise a PIN before 1 August 2014. You'll need
a PIN that's difficult to guess and not associated with any known
information about you.
If you think you'll have difficulty remembering a PIN, contact
your card issuer to discuss your options.
If you have questions about the security of this new method of
transaction, speak to your card issuer.
unauthorised and mistaken transactions if you have purchases on
your card that you cannot account for.
Ask for a chargeback as soon as you realise something has gone
wrong as there are time limits.
You may have chargeback rights when you make a purchase using a
credit card and something goes wrong, such as you don't receive the
goods or what you get is not what was described.
You can make a request to your bank or card company to get your
money back from the merchant or shop where you bought the goods. To
find out when and how to request a chargeback, see the terms and
conditions of your credit card or ask your bank or card issuer.
There are some circumstances when chargebacks may not be
available, such as when you use your credit card to make a BPAY
Here is more information on unauthorised and
Unless you really need the second card, close the account.
Otherwise you are paying fees on a card you aren't even using.
A secondary card allows someone else to use your credit account.
You are responsible for any debts they run up, even if they misuse
the card without your knowledge.
If you want to cancel a secondary card, be aware that some
credit providers will not cancel the card until it is returned to
them. Check the conditions of use in your credit
If you can't return a card because your personal relationship
with the other cardholder has broken down, your credit provider may
still hold you liable for any transactions the other cardholder
makes and that it cannot stop through electronic or telephone
So think twice before getting a secondary card for someone else.
See loans involving family
Some large stores issue their own cards, which operate like
regular credit cards but with much higher interest rates. Store
cards can become an expensive way to shop.
Before signing up for a store card, compare the interest rate
with other types of credit. The
benefits may not be worth paying a higher interest rate.
Be careful when you get a store card as part of an interest-free deal. You might pay
more in interest than a regular credit card.
Also see reward schemes for more information on
whether they really deliver rewards.
Read your statements
Check your credit card statements to make sure you are being
charged correctly. Contact your credit provider immediately if you
find any transactions you didn't make. You may be able to reverse
the transaction. See unauthorised
transactions on your accounts for more details.
Saving money on your credit
See saving money on credit
cards for tips on how to make your credit card work better for
you and avoid costly fees and interest.
If you're worried about spending too much, a debit card
might suit you better.
Shop around for a credit card that's right for
you, and remember to check the fine print.
Last updated: 26 Feb 2014
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