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
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
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
Find out how much you can save by paying more than the minimum
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
You can ask your card provider to increase your limit at any
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
Dual network cards (credit and
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
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
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:
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.
Last updated: 10 Dec 2018