Credit cards

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
• Read the key facts sheet
• Choosing a credit card
• Credit offers
• PIN only credit cards
• Chargebacks
• Secondary cards
• Store cards
• Read your statements
• Saving money on your credit card

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 month.

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 with cash.

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 minimum repayments.

Credit card calculator

You could also end up spending more than you can repay if you get a higher credit limit than you need.

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 long)
• Promotional interest rate (if any)
• Length of the interest-free period (if any)
• Annual and late payment fees (if any)

Choosing a credit card

The kind of card you should get depends on how you want to pay off your debt.

Interest-free days

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 this)

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 websites.

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 caps.

Credit offers

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 cards.

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 manageable amount.

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.

Honeymoon rates

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.

Balance transfers

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 in full.

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 lower)

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.

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.

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

Chargebacks

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 payment.

Here is more information on unauthorised and mistaken transactions.

Secondary cards

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 contract.

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 approval.

So think twice before getting a secondary card for someone else. See loans involving family and friends.

Store cards

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 card

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.

Related links

• Credit cards and store cards factsheet 
• Making repayments
• Online shopping
• Credit card scams
• Trouble with debt
• Other types of credit
• Prepaid cards
• Gift cards

Last updated: 26 Feb 2014