Factsheet: Credit cards and store cards
ONLINE TEXT VERSION - August 2011
Credit cards are a convenient form of short-term
finance. Store cards are credit cards issued by particular retail
Both types of card are easy to get and easy to use. With a
credit card, you can carry less cash and buy things easily over the
phone or online.
But if you have trouble controlling your spending on credit, you
may end up owing more than you can pay off.
That's when credit cards can lead you into a dangerous debt
Ricky always pays off the balance
I sometimes use my credit card when I'm shopping or caught
without cash. But I'm 100% committed to paying off the balance
within the interest-free period. I'm already paying off my HECS
debt from uni, so I don't want to get into more debt.
How do credit cards work?
- Credit cards allow you to borrow up to a maximum
spending limit. You can keep borrowing as long as you make
regular minimum repayments and stay below the
- You usually pay an annual fee and are charged interest on all
transactions if you don't pay your full balance each month. If you
use a card without an interest-free period, you
are charged interest from the date of your transaction.
- Unless you use a card that is interest-free and fee-free,
buying on credit will always cost you more than if
you pay for something upfront with cash.
TIP: How to save money on your credit cards
- Try to pay off the balance within the interest-free
period to avoid paying interest. If you regularly pay off
your credit card balance in full, shop around for a card with no
annual fee or a low annual fee, rather than a lower interest
- Even if you can't pay all you owe in full, try to pay off
more than the minimum repayment to reduce the
amount of interest you pay. Shop around for a low-interest credit
card if you know you usually have difficulty paying the credit card
balance in full each month.
- Avoid cash advances - they have no
interest-free period, charge ATM fees and often incur higher
- Limit the number of credit cards you have, especially if you
can't pay them off within the interest-free period. Be aware that
store cards usually charge higher interest than
standard credit cards.
- Make sure your credit card limit reflects the amount of debt
you can manage. If you need to lower your limit,
contact your credit provider and ask them to do this.
- Read your statements carefully to check that
you are charged correctly. You may be able to reverse a transaction
if you did not get the goods you paid for. Contact your credit
provider immediately if you discover any transactions on your
statement that you did not authorise.
Choosing a credit card
||How it works
||What to watch out for
The most common type of debit card is an ATM or
EFTPOS card. You can use this type of card to withdraw money at
ATMs and make purchases.
Some debit cards, such as Visa Debit or Debit MasterCard, can be
used exactly like a credit card - so you can make purchases on the
internet and while overseas.
The difference is that a debit card uses money already in your
bank account instead of credit, so you won't pay any interest
(unless you have an overdraft).
Make sure you have enough money in your account to cover your
Some debit cards also have a credit facility,
but can charge high interest if you use it. Make sure you don't end
up getting into debt without planning to.
Be very careful when using debit cards on the internet or
overseas where there is a higher risk of fraud.
Unlike with credit card fraud, any amount stolen comes directly
from your own funds and it may take some time to get the money back
into your account.
Consider limiting the amount of money available
in your debit card account and make sure you always have access to
You pay no interest for a certain number of days after making a
That's good if you always pay off your credit card in full
within the interest-free period.
But if you don't, you could end up paying a higher interest rate
and higher fees than you would with a card with no interest-free
There are no interest-free days for cash
You will be charged interest either from the day you make a
purchase or from the statement date, unless you repay in full
within the interest-free period.
No interest free days
You pay interest either from the day you make a purchase or from
the day your monthly statement is issued. For cash advances,
interest is usually charged from the date of withdrawal.
This kind of card usually has lower annual fees and a
lower interest rate than a card with an
This kind of card is a good choice if you know you won't be
paying your card off in full straight away.
Read the conditions of use before you apply for
a card to check when interest will be applied.
As with all credit cards, watch for fees such as annual account
fees, payment dishonour fees and fees for going over your credit
You receive reward points for each dollar you
spend on your card. Afterwards, you can redeem your points for
goods or airline flights.
Awards cards work best if you use your card a lot and pay the
balance off in full within the interest-free period, avoiding
Before getting one of these cards, check that you will use it
enough to qualify for the rewards. There's no point buying things
you don't need to earn rewards; you'll only spend more.
Awards cards tend to have higher interest rates and fees. You
may be charged a fee to use the awards.
The program may discourage you from shopping around for the best
priced goods and services.
If you carry over a significant balance on your card each month,
you'll probably lose more in fees and charges than you gain in
You may also have to redeem rewards points
within a certain time.
Some large stores or retail groups issue their own cards that
operate like regular credit cards but usually charge much higher
Watch out: using store cards can be an
expensive way to shop.
The interest rates for store cards are usually much higher than
for other credit cards.
Before signing up for a store card, compare the interest rate
with other forms of borrowing. 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 where you buy now and pay later
(see our factsheet Interest-free deals).
New purchases on the card are unlikely to be interest-free. In
fact, you'll pay more in interest than you would using a regular
Turn $3,000 on your credit card into a 19-year loan and double
Imagine you've run up $3,000 worth of debt on your credit card.
It's a typical card: you must make minimum monthly repayments of
2.5% of the outstanding amount, or $10 (whichever is more). You've
decided to stop using the card so you can pay off what you owe.
You are charged interest at 16% per annum from the date of
purchase, unless you pay everything off each month. There are no
fees on the account.
Of your first 2.5% minimum repayment ($75), about $40 pays
interest. Only $35 comes off your debt. This means if you pay only
the minimum repayment each month it will take you more than 19
years to pay off the debt.
And, during that time, you'll pay over $3,100 interest on top of
the $3,000 you borrowed - that's over $6,100 in total.
On the other hand, if you pay $200 a month, you'll pay off the
balance in around 18 months, and pay only $370 in interest - a
saving of over $2,700!
Remember: if an offer seems too good to be true, it probably
Beware of credit offers
Uninvited credit increase offers
- Ever been offered a higher limit on your
credit card? If you can't afford to pay off your balance in full
each month, you'd be better off saying no to an increased credit
limit offer. A higher credit limit makes it possible for you to get
into more debt - and you'd end up paying a lot more in interest
- If you really do need an increase to make a purchase, try and
pay the debt off quickly so you can then reduce the limit to a more
Honeymoon rates and other incentives
- Sometimes cards offer an introductory or honeymoon
interest rate, typically for six months. 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 negate your honeymoon savings
before long. The same principle can apply to offers of no
fees for 12 months.
- Cashback credit card offers come with similar
pitfalls. Cashback benefits are quickly outweighed by extra
interest charges if the card offering the cashback has a higher
than usual interest rate.
- With credit card balance transfers, you
transfer outstanding balances from one credit card to another,
often at a lower interest rate, for a defined period (e.g. 4.9% for
six months). But before you make a balance transfer, read the fine
print. Some possible drawbacks are listed below:
- If you make a balance transfer, any purchases on the new card
attract the full interest rate for the new credit
card and will not have the benefit of any interest-free days.
- If you use your new card after making a balance transfer, the
potentially higher interest rate on new purchases and the loss of
interest-free days may mean that you won't save anything by
transferring your debt from one card to another.
- When the balance transfer period is over, any remaining balance
transfer amount will attract interest at the standard
interest rate - and sometimes a much higher cash advance
interest rate. Try to make sure you pay off the balance transfer
amount within the balance transfer period.
- Unless you have a real need to keep the second card,
close the account. Remember: if you don't do this,
you are likely to be paying fees on the card even if you aren't
Six steps to smarter borrowing
Work out if you can afford to borrow
- Before you get a credit card, use our budget
planner to help you see exactly where you spend your money
and how much you can afford in repayments.
- Allow for interest rate rises and anything that might affect
your future income (such as changing jobs).
- Our credit card calculator will
help you work out what you need to be paying in order to pay off
your credit card debt within 12 months.
Shop around for the best deal
- If you decide to get a credit card, take the time to compare
interest rates, product features, and fees and charges. Even a
small difference in the interest rate can make a big difference to
what you have to pay. See Choosing a credit card on pages
2-3, to decide which features will suit you best.
- Shop around online to compare products.
- Research published by the independent consumer group CHOICE can
also help you find the right product for your needs and budget -
Know who and what you're dealing with
- Check the terms and conditions of your credit
card, including interest rates and penalties for missed repayments,
before you sign.
- Anyone who wants to engage in credit activities
(including brokers) must be licensed with ASIC,
or be an authorised representative of someone who is
licensed. If they aren't, they are operating illegally.
- There is currently an exemption from licensing for credit
assistance provided through some businesses (for example,
retail stores and car yards). While the store may be exempt, the
actual credit provider must still be licensed. If you are unsure
who the credit provider is, ask the person you are dealing with to
point out the name in your credit contract.
- To find out if a credit provider is
licensed or call ASIC's Infoline on 1300 300
- Anyone engaging in credit activities (for example, by providing
credit or assistance to you) must give you either a credit
guide (with information such as their licence number, fees
and details of your right to complain) or a written notice with
details of your right to complain about their activities.
Keep up with your repayments
- Make at least the minimum repayment on your
credit card statement each month.
- Make extra payments where possible, to save on
- If you have more than one card, pay extra to the card with the
smallest balance so you can pay it off first and then use your
money to pay other debts. If your debts are similar in size, then
pay off the one with the highest interest rate first.
- Try to pay off the entire amount owing on your
credit card each month (or as much as possible).
- Check for fees or charges if you're thinking of transferring
your balance to another card.
Get help if you can't pay your debts
- Act quickly if you are having trouble making
repayments. It may be difficult to face the problem, but ignoring
it will only make things worse.
- If you can't make the full repayment, pay as much as you can.
If you can't keep up with the minimum repayments, contact your
credit provider without delay.
- If you are experiencing financial difficulties, you have the
right to apply to the credit provider for a hardship
variation. If the credit provider refuses, you can
complain to its independent dispute resolution scheme for a
variation on the grounds of hardship (see step 6 below).
- There are places you can go for help - visit
www.moneysmart.gov.au for sample letters and information about
support services such as financial counselling and legal
assistance, call the National Debt Helpline on 1800 007 007 or call
ASIC's Infoline on 1300 300 630.
- See our factsheet Can't pay your
Complain if things go wrong
- Try to resolve your problem with your credit provider
- If you aren't satisfied, take your complaint to your provider's
independent dispute resolution scheme, the Australian
Financial Complaints Authority (AFCA). You can call
them on 1800 931 678.
- If you think that a credit provider has acted unlawfully or in
a misleading way, you can complain to ASIC online at
www.asic.gov.au or call ASIC's Infoline on 1300 300 630.
ASIC Infoline: 1300 300 630
Disclaimer: Please note that this is a
summary giving you basic information about a particular topic. It
does not cover the whole of the relevant law regarding that topic,
and it is not a substitute for professional advice.
© Australian Securities and Investments Commission 2011
Last updated: 12 Nov 2018