Please see information below on Credit Cards.


What are Credit Cards?

Credit cards have been in circulation for a long time and have now become heavily relied on by a large proportion of the Australian population. They are so normal in everyday life that this guide goes back to basics asking what they really are.

Credit cards are small plastic cards holding a unique card number (the long number along the front of the card), a signature strip, chip and PIN security. Each card holder is given a personal PIN code which they will need to know each time they make payments with a card machine or want to make cash withdrawals.

How do they Work?

A credit card allows the holder to make payments online, in stores and restaurants using 'plastic money'. In other words, at the point of sale no actual money changes hands. Each purchase is recorded and the cardholder will be billed later by the card issuer. In other words, the card issuer has given a line of credit to the cardholder from which they are able to effectively borrow money in order to pay merchants.

Once a month, the card holder receives a bill for all the purchases he or she has made in the last month. Now is the time to pay for these.

If the cardholder pays the full monthly balance before the due date, they might benefit from an interest free period. That means the cardholder won't be charged interest within that time.

In addition to making payments, you can also withdraw cash from an ATM using your credit card. However, you may be subject to a fee for doing this.

Credit Limit

Your card provider will offer you a credit limit when you first get your card. You can request to increase (or decrease) this, but the card company may not accept your offer. Your credit limit is the maximum amount you are able to 'borrow' from the card company.

How are you Billed?

Each month, the cardholder should make the minimum monthly payment on their total bill. That minimum amount will vary according to your personal circumstances you will be given a limit when you apply for the card.

Your minimum payment amount will be set by the credit card provider and is usually around 2% of your outstanding balance. Late payments can incur fees from the card company, so make sure you at least make the minimum payment.

Interest Rate p.a.

Each card will carry an interest p.a. (per annum or per year) on retail purchases and cash advances. This is the amount that the card issuer charges you for carrying out purchases and cash advances.

In addition, there will be an interest rate for balance transfers many cards carry 'interest free' period on balance transfers, meaning that if you make a balance transfer to the new card within that period of time you will not be charged for doing so.

You will usually receive an Interest Free period. Within this time, you will not be charged for making balance transfers or purchases.

Many credit cards carry an annual fee. This fee varies according to card type and the issuing company, but is often in the region of $50. This fee is charged for extra benefits on a card, such as reward points. There are credit cards which have no annual fee.

What is a Balance Transfer?

A balance transfer is a way to consolidate existing debts by moving them onto one credit card. Choose a card that has a 0% balance transfer rate for anything of between 6 months to a year, move your other card debts onto the new card at zero interest. Within that time, you should try and pay off as much as possible of your debts after the interest free period, you will be charged again.

Is a Credit Card just a Loan?

Reading this guide, learning about the line of credit a cardholder receives from the issuer and the monthly payment on your balance, plus the interest rate p.a., it would be easy to assume that a credit card is really just a loan.

In a way, it is. Fail to meet your monthly repayment minimum and you face interest charges and debts. Bad management of a credit card (by never paying your balance on time and spiralling into debt) can adversely affect your credit rating.

Credit cards are therefore often seen as just another type of loan you never actually own the money which is made available to you.

What Should I Look out For?

Before taking a credit card, make sure you really consider it carefully. You will need to be sensible with your regular repayments to avoid building up severe debts.

Credit cards can be a great way to make an initial payment or deposit for a car or home. The line of credit allows you to make a payment which is much larger than the amount of money you actually have in your back pocket.

However, there are some things to think about:

  • While they are easy to get, credit cards are easy to lose control of. Can you really afford one, and risk your future chances for loans and down payments?
  • Make sure you read ALL of the small print, and be clear about what is really involved. Credit card companies charge you for all manner of things so it is best not to be caught by surprise. If you spiral into debt with your card, your issuer might charge you for bill reminders. They might even take you to court if you stay in debt for a long time.
  • Introductory offers might look great at first, but remember to check what the fees and rates are once the offer period is over you might find that they are quite high.
  • Consider the purchase you are about to make. If you couldn't afford it with your credit card now, will you be able to pay for it once the bill comes?

What Shall I do if I Fall Behind?

If you notice that you are beginning to find it hard to meet the monthly repayments, take action now before it is too late.

  • Only make essential payments with the card
  • Don't make recreational payments (such as going out, luxury goods)
  • Seek independent financial advice

Your card company will be more happy to help you if you own up to having problems. They may even be able to work out a payment plan or strategy just call them and discuss your options. Sticking your head in the sand only gives them the impression that you don't want to pay.


Please Note: is not authorised to give advice under the ASIC (Australian Securities & Investments Commission).

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