Credit cards

Understand how credit cards work

Credit cards let you carry less cash and buy things over the phone or online. But this convenience comes at a cost if you spend more than you can repay.

This page helps you understand how credit cards work so you can make better decisions when choosing or using a credit card.

How do 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 card interest rates explained

Credit cards tend to have higher interest rates than other types of credit, and the rate can vary depending on what features the card offers. You will be charged interest on all outstanding transactions if you don't repay the amount you owe (the balance) each month (or within an interest-free period). 

If you have a credit 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. (Check the card's terms and conditions to find out which one applies.)

The interest rate is often higher if you use the card for cash advances. Interest is also charged on cash advances straight away, so it will always cost you more than if you pay with cash. 

From 1 January 2019, your credit card provider cannot impose retrospective interest charges. This means they can't backdate interest on a balance that has had the benefit of an interest-free period.

Credit card minimum repayments

If you make only the minimum repayment on your credit card each month, you will pay more in interest and it will take longer to pay off your balance. Your monthly statement must give you information about how long it will take to pay off the entire balance by making minimum repayments.

Find out how much you can save by paying more than the minimum repayments.

Credit card calculator

From 1 January 2019, when you apply for a credit card the provider must assess your ability to repay the full credit limit within three years.

Credit card limit increases

Credit card providers can't contact you in any way to offer to increase your credit limit - even if you previously opted to receive these offers. This applies to both new and existing credit cards.

You can ask your card provider to increase your limit at any time.

From 1 January 2019, your credit card provider must assess your ability to repay the increased limit within three years. For cards provided from 1 January 2019, cards providers must also allow you to reduce your credit limit or cancel your card online. 

Video: Scott Pape's credit card challenge

Video about dealing with credit card debt.

Take up Scott Pape's money challenge to help you pay off credit card debt.

Dual network cards (credit and debit)

Some credit cards can also be linked to your deposit accounts and used as a debit card.

If you want to pay by debit you should insert your card into the EFTPOS machine at the checkout and select 'SAV' or 'CHQ'.

If you want to pay by credit you can either tap or wave your card over the payment terminal (if you have a contactless card) or you can insert your card into the EFTPOS machine and select 'CR'.

If you use your card on a contactless terminal (PayPass or payWave) you will always be paying by credit.

Using your credit card PIN

You must enter a PIN to authorise transactions on credit card and debit card purchases when you buy a product at a point of sale.

This doesn't apply to 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.

Your signature is no longer accepted as authorisation for point of sale purchases in Australia 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 (such as some pre-paid cards and gift cards).

Using a credit card overseas

Be aware that your PIN might not work when you use your credit card overseas. Depending on the overseas merchant, you may need to use a signature to authorise purchases.

Problems with your credit card PIN

If you forget your PIN, contact your bank or card issuer to organise a new one. Your PIN should be difficult to guess and not associated with any known information about you.

Using a credit card with a disability

If you have problems remembering a PIN or have a disability that makes signing your credit card difficult, contact your card issuer to discuss your options.

If you have questions about the security of using a PIN, speak to your card issuer.

See unauthorised and mistaken transactions if you have purchases on your card that you cannot account for.

Managing your credit card

Remember to check your credit card statements carefully to make sure you are being charged correctly. Contact your credit provider immediately if you find any transactions you didn't make. See  unauthorised and mistaken transactions for more details.

We also have lots of other tips to help you avoid costly fees and interest when using a credit card:

Video: Take control of your money with the credit card calculator

Video about credit card calculator

Work out how much time and money you'll save by making higher repayments on your credit card using our credit card calculator.

A credit card can be handy if used wisely but they can also lead to trouble with debt if you don't pay the balance off each month.

Related links

Last updated: 31 Jan 2019