Credit card guide for dummies and beginners

Understand how credit cards work, what they cost and everything you need to know about choosing 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 mistakes you should avoid to get your credit card history off to a good start.

How does a credit card work?

A credit card is an unsecured revolving line of credit, meaning you can borrow money to make purchases without having to put up collateral. 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, when you use a credit card, you are borrowing the bank's money. At the end of your billing cycle, you receive a statement and that tells you the total amount you owe for all of your purchases for that period. In the diagram below you can see the flow of money and information that happens behind the scenes when you use your credit card.

How CC Payments Work

How credit card interest works

As you spend on your credit card, your debts will also begin to collect interest if you’re unable to pay the whole balance back by the end of the statement or interest-free period. If you’ve used your card for purchases, it will start collecting an interest charge (usually between 11.99% and 20%). If you’ve used your card for an ATM withdrawal or any other transaction that’s considered a cash advance, you’ll accrue 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 either the interest rate or 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. Aside from interest rates, the main cost that comes with a credit card is the annual fee, which can vary from $0 to $1,200 p.a. depending on the card.

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.
  • Interest and 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. 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. A money-saving credit card feature, transfer your existing credit card debt to a new credit card with a different provider and get a special interest rate on the balance transfer amount for a limited time.
  • Cash advances. Using your credit card to get cash from an ATM, for gambling purchases and paying some bills are cash advance transactions. Cash advances attract a cash advance fee.
  • Rewards programs. A value-adding feature, get points in a rewards or frequent flyer program when you use your credit card to make eligible purchases.
  • Contactless payments. For purchases under $100, tap your credit card against a contactless reader to complete a purchase in seconds.
  • Extra features. Credit cards come with extras such as complimentary international travel insurance, purchase protection insurance, extended warranty and best price guarantee cover, complimentary airport lounge access, platinum concierge services and you can even get free wine when you use a Citi credit card to pay for a meal at a participating Citibank Dining restaurant.

What are the costs of a credit card?

  • Repayments. You’re free to repay as much as you like as often as you like. You’re required to make the minimum repayment when your statement is issued. The minimum repayment is usually 2% of your outstanding balance. 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 credit card type. 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.
  • 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 and financial institutions and even supermarkets. There are many types of credit cards with different features for different types of borrowers. Low rate credit cards feature a low purchase rate of interest and annual fee whereas rewards credit cards feature high rates of interest and annual fee, but also reward cardholders with points for purchases. 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 types of credit cards can also feature a promotional period in which you pay low or no interest on credit card purchases.
    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; 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.

How to apply for your first credit card

Credit cards are a product for borrowers with a good credit history. If you’ve never applied for a credit product before, you have a better chance of getting approved for a basic credit card than a credit card packed with extras. The credit card company will want to see copies of your latest payslips to verify your income as well as documents to verify your identity.

While most institutions require you to apply for a credit card in your own name, some also let you apply for a joint account with your partner. If you want to provide someone else with access to your account, you can also nominate additional cardholders.

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 team will be in touch.

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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.


    • Staff
      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,

  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 :)

    • Staff
      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.


  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?

    • Staff
      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.


  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

    • Staff
      MayJuly 7, 2016Staff

      Hi Sam,

      Thanks for your inquiry.

      Unfortunately, as 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.


  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

    • Staff
      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.



  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?

    • Staff
      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!



  7. Default Gravatar
    EmilyMarch 11, 2015


    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!

    • Staff
      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.



  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.

    • Staff
      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.



  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.

    • Staff
      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.



  10. Default Gravatar
    AmyJanuary 17, 2014

    Can I transfer some money to clear overdraft on current account

    • Staff
      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.

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