🎂 Turned 31 this year? Get health insurance before your price rises.
Get cover
woman-card-glasses-250x250

Credit card guide for dummies and beginners

Understand how credit cards work, what they cost and how to choose the right one for you.

Maybe you’ve never had a credit card or maybe you don’t fully understand how they work. If this is the case, you can use this guide to understand the key features and standard costs of a credit card so you can find the right one for your budget and spending habits. You can also discover which types of credit cards are best suited to beginners and the mistakes you should avoid to get your credit card history off to a good start.

How does a credit card work?

A credit card works as an unsecured revolving line of credit. You make purchases using the card and at the end of your billing cycle, you receive a statement and that tells you the total amount you owe for that period.

Based on your perceived ability to make repayments, credit card companies assign a credit limit, which is the maximum amount of money you can borrow. Unlike a debit card that uses your own money to make purchases, you are borrowing the bank's money when you use a credit card and if you don't pay that money back on time you are charged interest.

How credit card interest works

As you spend on your credit card, your debts will begin to collect interest if you don't pay the whole balance back by the end of the statement or interest-free period. Depending on the card, your purchases will collect an interest rate usually between 9.99% and 21%.

If you’ve used your card for an ATM withdrawal or any other transaction that’s considered a cash advance, you’ll accrue interest at the cash advance rate of up to around 22%. If you decide to balance transfer your debt down the track, you’ll also accrue a balance transfer interest rate (which is usually the same as the cash advance rate). Some cards do offer 0% promotional periods on purchases and balance transfers, so this is something to keep in mind during your comparison.

Each month, you’ll receive a statement that will detail the transactions you’ve made, the total outstanding balance you have and any interest you’re accruing. While you’re only required to pay a minimum repayment each month (2-3% of your total balance), it’s best to pay as much as you can. If you pay your entire balance in full, you can usually take advantage of up to 55 interest-free days in the next statement period. If you don’t pay your entire balance in full, the remainder will start to collect interest. If you miss the minimum repayment, you could be charged late payment fees.

What are the features of a credit card?

  • Credit limit. This is the maximum amount of money you can borrow using your credit card, this can be as low as $500 for a student credit card.
  • Interest-free days. Interest is the cost to borrow money using a credit card. Interest varies depending on whether you’re using your credit card for a purchase or cash advance and is charged as a percentage per annum. Pay your balance in full by the statement due date and you get up to a number of interest-free days on purchases in the next statement period. Up to 55 days is the typical interest-free period.
  • Balance transfers. If you're struggling to pay off an existing debt because of interest costs, you can transfer the debt to a credit card with a different provider and get a promotional interest rate on the balance transfer for an introductory period. Many card issuers offer 0% on balance transfers and the promotional periods can last up to 24 months or more. This will give you time to pay down your debt while paying a low or no interest rate on the balance.
  • Cash advances. Using your credit card to get cash from an ATM, for gambling purchases and paying some bills are considered cash advance transactions. Cash advances attract a cash advance fee and the higher cash advance rate.
  • Rewards programs. You can reward your spending by opting for a card that earns rewards or frequent flyer points when you make eligible purchases. Many of these cards also offer thousands of bonus points when you meet a spend requirement after signing up. However, these cards often come with higher annual fees and purchase rates.
  • Contactless payments. For purchases under $100, tap your credit card or mobile-pay compatible device against a contactless reader to complete a purchase in seconds.
  • Insurance covers. Most platinum and black-tier cards offer some form of complimentary insurance. This can include everything from purchase protection insurance and extended warranty cover to overseas medical travel insurance and transit accident insurance.
  • Extra features. Some credit cards come with extras such airport lounge access, concierge services, invitations to exclusive events, discounts with partnered retailers and much more.

What are the costs of a credit card?

  • Repayments. Although you're required to make the minimum repayment when your statement is issued, you're free to repay as much as you like and as often as you like beyond this minimum. The minimum repayment is usually only 2% or 3% of your outstanding balance, so it's best to pay your account in full (or as much as you can) each statement period to reduce your interest costs. You will pay a late payment fee if you don’t make the minimum repayment by the statement due date.
  • Annual fee. This is the cost to own a credit card. The annual fee ranges from $0 to hundreds of dollars depending on the type credit card. The credit card annual fee is deducted from your available credit and accrues interest at the purchase rate if it isn’t paid in the first statement period.
  • Interest rates. Interest is the price you pay to borrow money. Credit card interest rates are much higher than other types of finance because credit cards are an unsecured product; financial institutions have no recourse to take your assets if you default on your repayments. This is why it's so important to pay your balance in full each statement period.
  • Other fees. Other fees you may run into include late payment fees, overlimit fees (a fee for spending past your credit limit), rewards program membership fees and cash advance fees.

pile of colorful credit cards

What types of credit cards are suitable for beginners?

In Australia, Visa, Mastercard and American Express issue credit cards with banks, financial institutions and even supermarkets. There are many types of credit cards on the market to suit different cardholders' needs. Low rate credit cards feature a low purchase interest rate and often a lower annual fee, whereas rewards and platinum credit cards often charge high rates of interest and a higher annual fee. It can be wise to begin with a no-frills credit card so you can get a grip on how credit cards work before upgrading to a product with bells and whistles.

These types of credit cards are suitable if you’re just starting out:

  • Low interest credit cards. Low interest rate credit cards typically feature a low purchase rate of interest. This is beneficial if you don’t pay back your balance in full by the statement due date. These credit cards can also offer a low or 0% interest rate on purchases for a promotional period. Low interest credit cards are suited to beginners still finding their feet making repayments. Paying off a debt over a couple of months is far cheaper with a low rate credit card compared to a rewards or premium credit card.
  • No annual fee credit cards. This type of credit card costs nothing to own up front. However, the rates of interest can be higher than low rate credit cards.
    A no annual fee credit card can sit in your wallet, never come out and it won’t cost you a thing. These types of credit cards are suited to beginners who are looking to build their credit history but don’t want to go all-out on a credit card with loads of features.
  • Low income credit cards. Low minimum income credit cards have a low credit limit. Typically your annual income must be about $15,000 or greater to service the minimum credit limit of $500. Low income credit cards are typically either low rate or low fee credit cards. Low minimum income credit cards are suited to beginners who either have a low income or want a low credit limit to avoid the temptation to overspend.
  • Student credit cards. Students looking to avoid paying a high annual fee and high rates of interest look towards student credit cards when comparing products.

Compare No Annual Fee, Low Interest Rate and Student Credit Cards

Rates last updated June 25th, 2018
Name Product Purchase rate (p.a.) Interest Free Period Annual fee Balance transfer rate (p.a.) Product Description
NAB Low Rate Platinum Card
0% p.a. for 9 months (reverts to 13.99% p.a.)
Up to 55 days on purchases
$100 p.a.
0% p.a. for 6 months with 2% balance transfer fee
A platinum card that offers 0% p.a. for 9 months on purchases. Plus 0% p.a. on balance transfers for 6 months.
Westpac Low Rate Card
13.49% p.a.
Up to 55 days on purchases
$0 p.a. annual fee for the first year ($59 p.a. thereafter)
0% p.a. for 24 months with 1% balance transfer fee
Offers a 0% for 24 month balance transfer option, first year annual fee waiver and a competitive purchase rate.
St.George Vertigo Platinum - Online Offer
12.74% p.a.
Up to 55 days on purchases
$0 p.a. annual fee for the first year ($99 p.a. thereafter)
0% p.a. for 24 months with 1% balance transfer fee
Platinum card benefits including complimentary insurance, plus first year annual fee waiver and 0% p.a. for 24 months on balance transfers.
HSBC Low Rate Credit Card
13.25% p.a.
Up to 55 days on purchases
$79 p.a.
0% p.a. for 20 months with 2% balance transfer fee
Add additional cardholders for $0 and pay using Apple Pay. Also enjoy exclusive offers with the home&Away Privilege Program.
Virgin Money Low Rate Credit Card
11.99% p.a.
Up to 44 days on purchases
$49 p.a.
0% p.a. for 14 months
Offers a discounted annual fee, $100 cashback when you meet the spend requirement and 0% p.a. for 14 months on balance transfers.

Compare up to 4 providers

Rates last updated June 25th, 2018
Name Product Annual fee Purchase rate (p.a.) Balance transfer rate (p.a.) Product Description
Qantas Premier Everyday
$0 p.a. annual fee for the first year ($49 p.a. thereafter)
19.99% p.a.
4.9% p.a. for 24 months
Take advantage of up to 40,000 bonus Qantas Points, a $0 first year annual fee plus complimentary overseas travel insurance.
Westpac Low Rate Card
$0 p.a. annual fee for the first year ($59 p.a. thereafter)
13.49% p.a.
0% p.a. for 24 months with 1% balance transfer fee
Offers a 0% for 24 month balance transfer option, first year annual fee waiver and a competitive purchase rate.
HSBC Platinum Credit Card
$0 p.a. annual fee for the first year ($129 p.a. thereafter)
19.99% p.a.
0% p.a. for 22 months with 2% balance transfer fee
Offers a 0% p.a. for 22 months balance transfer, $0 annual fee for the first year and an annual fee refund each year when you spend $6,000.
Citi Simplicity Card
$0 p.a.
19.99% p.a.
0% p.a. for 15 months with 1.5% balance transfer fee
Save with 5% cashback on eligible purchases (capped at $50 per month) for the first 90 days from approval. Plus, a 15 month balance transfer offer.
Bendigo Bank Low Rate Mastercard
$0 p.a. annual fee for the first year ($45 p.a. thereafter)
11.99% p.a.
A no-frills card with a first year annual fee waiver, a low variable purchase interest rate of 11.99% p.a. and up to 55 interest-free days on purchases.

Compare up to 4 providers

Rates last updated June 25th, 2018
Name Product Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee Min credit limit Max credit limit Minimum Income Product Description
Westpac Low Rate Card
13.49% p.a.
0% p.a. for 24 months with 1% balance transfer fee
$0 p.a. annual fee for the first year ($59 p.a. thereafter)
$1,000
$25,000
$15,000
Offers a 0% for 24 month balance transfer option, first year annual fee waiver and a competitive purchase rate.
ANZ Low Rate
12.49% p.a.
0% p.a. for 15 months
$58 p.a.
$1,000
$15,000
Save with a 0% p.a. introductory rate on balance transfers for 15 months with no BT fee. Plus a low 12.49% p.a. interest rate on purchases.
HSBC Low Rate Credit Card
13.25% p.a.
0% p.a. for 20 months with 2% balance transfer fee
$79 p.a.
$1,000
$20,000
Receive up to 20 months interest-free on balance transfers with a 2% BT fee. Also enjoy exclusive offers with the home&Away Privilege Program.
ANZ First Visa Credit Card
19.74% p.a.
0% p.a. for 18 months with 2% balance transfer fee
$30 p.a.
$1,000
$15,000
Get up to 18 months interest-free on balance transfers and save with a low $30 annual fee. Plus, up to 44 days interest-free on purchases.

Compare up to 4 providers

Rates last updated June 25th, 2018
Name Product Purchase rate (p.a.) Interest Free Period Annual fee Balance transfer rate (p.a.) Product Description
ANZ First Student Card
19.74% p.a.
Up to 44 days on purchases
$0 p.a. annual fee for the first year ($30 p.a. thereafter)
An ideal, low limit credit card for full-time tertiary students with up to 44 days interest-free on purchases and a $0 annual fee for the first year.
NAB Low Rate Credit Card
0% p.a. for 6 months (reverts to 13.99% p.a.)
Up to 55 days on purchases
$59 p.a.
0% p.a. for 6 months with 2% balance transfer fee
Receive an introductory 0% p.a. interest rate for 6 months on purchases, Visa Entertainment offers and a competitive $59 ongoing annual fee.
Citi Simplicity Card
19.99% p.a.
Up to 55 days on purchases
$0 p.a.
0% p.a. for 15 months with 1.5% balance transfer fee
Save with 5% cashback on eligible purchases (capped at $50 per month) for the first 90 days from approval. Plus, a 15 month balance transfer offer.
ANZ Low Rate
12.49% p.a.
Up to 55 days on purchases
$58 p.a.
0% p.a. for 15 months
Save with a 0% p.a. introductory rate on balance transfers for 15 months with no BT fee. Plus a low 12.49% p.a. interest rate on purchases.
Citi Clear Platinum
14.99% p.a.
Up to 55 days on purchases
$99 p.a.
Offers a low 14.99% p.a. rate and up to 55 interest-free days on purchases. Plus, insurance covers and access to the Citibank Dining Program.

Compare up to 4 providers

How to apply for your first credit card

Applying for a credit card is as simple as figuring out which card you want, making sure you meet the eligibility requirements, gathering the necessary documents and submitting an online application form. You will be asked about your income, assets and liabilities, and will need to prove your identity. Most banks and providers will give you a response within 60 seconds and if you've been approved, you will receive your card in the mail about 10 days later.

The requirements will vary from card to card, but you can browse some of the standards below:

Eligibility requirements

  • Minimum income. This is how much you need to earn every year to be eligible to apply. Low income credit cards usually require cardholders to earn at least $15,000 p.a.
  • Age. You must be over the age of 18.
  • Residential status. You must be a citizen or permanent Australian resident. Some financial institutions offer credit cards to applicants with a student or temporary resident visa.
  • Good credit history. You must have a good credit history to be eligible to apply. This includes no active defaults. If you do not have any credit history to date, you will not be penalised but you may only be eligible for a low credit limit. As you build credit history by using your credit card you can apply for a limit increase later on.

Necessary documents

  • Income information. You’ll need to provide copies of your most recent payslips to prove your income. If you’re self-employed, you can provide your tax return instead.
  • Identification. You will need to verify your identification with the credit card company before your application can be finalised. You can do this by providing your driver’s licence, passport or Medicare card number.

If you still have questions about how credit cards work after reading this guide, reach out to us using the form at the bottom of the page; a member of the finder.com.au team will be in touch.

Dos and don'ts of your first (or any) credit card

Here are some mistakes to avoid and good credit card habits to get into:

Do

  • Make regular repayments. Credit cards are not free money. You need to make at least the minimum repayment every month so you can avoid late payment fees, stop your account from going into default and maintain a good credit history. However, you should always aim to pay more than the minimum to avoid being sucked into debt.
  • Stay within your budget. Having a credit card means you can temporarily spend more money than you actually have. This can make it tempting to buy things you normally wouldn't. The best practice is to treat your credit card as if you were spending your own money, and if you need to spend more, to pay it off as soon as possible.
  • Educate yourself. It's important to understand how credit cards work. For example, remember that ATM withdrawals count as cash advances and will immediately charge a higher interest rate. Or even if you have a 0% purchase or balance transfer offer on your card, you'll still need to make repayments each month and you can only take advantage of interest-free days when you pay your balance in full. Understand the fees and charges that come with most credit cards before you apply or at least as soon as you get your card.

Don't

  • Make cash advances. When you use your credit card to get money from an ATM, gamble or to pay certain bills, you’ll be charged a cash advance fee of a couple of dollars as well as the cash advance interest rate, which can be as high as 29% p.a. Furthermore, interest-free days do not apply when you use your credit card for a cash advance.
  • Share your credit card information. Apart from directly logging into your online banking or your bank's official app, do not enter your credit card information or log-in details into any email, text message or third-party website, with the obvious exception of making purchases from a trusted source.
  • Apply for a credit card you can't really afford. For most people applying for their first credit card, this is a no annual fee or low rate credit card. Rewards credit cards can be a great way to get something for nothing, however, these products generally charge higher annual fees and interest rates.
Back to top

Pictures: Shutterstock

Was this content helpful to you? No  Yes

Related Posts

Credit Card Offers

Important Information*
Westpac Low Rate Card
Westpac Low Rate Card

Interest rate

13.49

Annual fee

59
HSBC Platinum Credit Card
HSBC Platinum Credit Card

Interest rate

19.99

Annual fee

129
St.George Vertigo Platinum - Online Offer
St.George Vertigo Platinum - Online Offer

Interest rate

12.74

Annual fee

99

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms and Conditions and Privacy Policy.

24 Responses

  1. Default Gravatar
    EkeneAugust 13, 2017

    I am a new immigrant to Australian and do not have any credit history. I am considering building up a good one because I might need it for a car loan and/or mortgage sometime in the future.
    Your article was helpful, but I do have some questions:
    Does the credit history system work like that of the US, and what is the credit score range?
    What would be ideal cards for a beginner that has no annual fees, with good rewards? The interest rate may not matter because I intend to pay my bill in full every cycle.

    Thanks.
    Ekene.

    • finder Customer Care
      RenchAugust 13, 2017Staff

      Hi Ekene,

      Thanks for reaching out to us. With regards to your query about the credit history, yes you need to have it for you to be able to apply for a credit card for your future use. A credit score is a numerical representation of your credit history. You may visit this page for you to be able to check on further details about credit score. For Credit Score application, you may visit this page and get your credit score.

      Hope this helps.

      Best regards,
      Rench

  2. Default Gravatar
    July 23, 2017

    I am looking into applying for a credit card in Australia. I am currently receiving roughly 24k in welfare and am unemployed. I’ve never had a credit card before, nor have I known anyone who had one while I knew them.
    I’d like to ask a couple of questions. First, about the interest. Does the interest accrue at a certain time in the month (or statement period), or does it accrue all the time except for specifically no-interest periods? For example, if I only made small purchases using it and could pay the entire balance back upon receiving the bill, would I have to pay the interest?
    I would only want a small limit, so as to limit my spending and have it as a back-up in case my welfare for some reason doesn’t come in or is reduced temporarily. Are there any fees or penalties for not using it for a certain period of time?
    Thank you :)

    • finder Customer Care
      RenchJuly 24, 2017Staff

      Hi Emily,

      Thanks for reaching out to us.

      Most low-income cards offer interest-free days on purchases, though the number of days (such as up to 55 days) would vary from card to card. To take advantage of these interest-free days, you have to pay your account’s closing balance completely every month. You can go to this page for more info about interest free days on credit cards. Then you can check this page for credit card options that you can compare.

      Click on your preferred card to see more details then click on ‘Go to Site’ button to submit an online application.

      Cheers,
      Rench

  3. Default Gravatar
    September 9, 2016

    Alright… Really stupid here, don’t know anything about credit cards. And when I’m applying for them it asks for my card limit. I’m trying to find articles that explain it for a first-time user. Help?

    • finder Customer Care
      YsaSeptember 16, 2016Staff

      Hi JJ,

      Thanks for reaching out.
      You may wish to check this credit limit guide for a better understanding on how to choose a responsible credit limit for a credit card.

      I hope this helps.

      Cheers,
      Ysa

  4. Default Gravatar
    SamJuly 7, 2016

    Hi I need a credit card to hire a car in Spain what card would you recommend as I would only need to use it 2-3 times a year

    • finder Customer Care
      MayJuly 7, 2016Staff

      Hi Sam,

      Thanks for your inquiry.

      Unfortunately, as finder.com.au is a comparison website and general information service, we’re unable to recommend a specific card to our users as the best option depends entirely on your own financial situation, spending habits and needs.

      Nonetheless, you may like to reconsider this page in comparing your options for credit cards that can be used overseas (or in Spain). Though I’m not sure if these cards we have listed will be accepted by your merchant (for car hire). It’s best to contact the car hire provider if they would accept these cards.

      I hope this has helped.

      Cheers,
      May

  5. Default Gravatar
    JustinApril 11, 2015

    If i bought a $3000 lawn mower what are some examples of what my payments would be

    Random interest rates and min. Payments

    • finder Customer Care
      JonathanApril 14, 2015Staff

      Hi Justin, thanks for your inquiry!

      Depending on whether the card has a promotional rate, you would be paying the purchase rate on the balance remaining. For 0% purchase credit cards please see this page.

      Cheers,

      Jonathan

  6. Default Gravatar
    BrokeMarch 13, 2015

    My partner and I are relocating and need to pay car repairs $2700.00, on top of relocating. We are also changing jobs, so getting a loan has been difficult. What kind of credit card should we go for?

    • finder Customer Care
      JonathanMarch 16, 2015Staff

      Hi Broke Traveller,

      For repaying purchases such as car repair fees it can be ideal to use a purchase credit card. Please see this page for a list of cards that have purchase rate promotions.

      I hope this has helped!

      Cheers,

      Jonathan

  7. Default Gravatar
    EmilyMarch 11, 2015

    Hi,

    Would you recommend a 1st time Credit Card user to get one for an overseas trip for purchases? Most likely only needing under $1000?

    Also, when purchasing items on a credit card, are you always paying more for the product because of the rates?

    Going overseas soon and don’t want to get a loan!

    • finder Customer Care
      JonathanMarch 11, 2015Staff

      Hi Emily, thanks for your inquiry!

      Purchase credit cards can be a great way to make purchases overseas. Certain credit cards have 0% for currency conversion fees and international transaction fees. For more information please see this page for 0% purchase credit cards.

      Cheers,

      Jonathan

  8. Default Gravatar
    October 9, 2014

    I would like to know whether the merchant gets the amount instantly the time the credit card is swiped, while buying some merchandise/service or the amount is sent after we make the payment to the bank on the due date and the merchant gets his amount, after maybe adjusting some charges.

    • finder Customer Care
      ElizabethOctober 9, 2014Staff

      Hi C K Shah,

      As long as the payment is successfully processed on your card, ie. the bank allows the payment to go through because the charge hasn’t meant you’ve gone over your credit limit or for any other reason, then the merchant will be paid as soon as this amount is approved by your bank. It is not based on when your due date is as you made the purchase on credit.

      As mentioned, this process may take a couple of days, but if your credit card is declined the payment will not be able to go through, and if the payment goes through the merchant will be paid and it will be your responsibility to repay the bank.

      Thanks,

      Elizabeth

  9. Default Gravatar
    COctober 8, 2014

    After we buy a merchandise and swipe the credit card, I would like to know, when is the money usually transferred by the bank to the merchant. Thanks.

    • finder Customer Care
      ElizabethOctober 9, 2014Staff

      Hi C K Shah,

      Thanks for your question.

      This depends on the type of card used in the transaction and what type of sale it was i.e. whether it was online or in a bricks and mortar store. The time period to receive the funds can range from anywhere between one business day to seven business days, or longer in some cases.

      Hope this has helped.

      Thanks,

      Elizabeth

  10. Default Gravatar
    AmyJanuary 17, 2014

    Can I transfer some money to clear overdraft on current account

    • finder Customer Care
      JacobJanuary 17, 2014Staff

      Hi, Amy.

      Thanks for your question.

      If you would like to transfer an overdraft account to a credit card under a balance transfer promotion, you may want to consider getting in touch with Citibank. It’s a good idea to give them a call first. They can check your account over the phone to see whether they will allow the account to be transferred under the promotional rate of interest top one of their credit cards.

      I hope this helps.

Ask a question
Go to site