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HELPFUL GUIDE

Smart ways to use a credit card


Understanding credit cards:
what you need to know.

Considering a credit card? Or perhaps you want to apply but have some questions? You’ve come to the right place.

Learning how a credit card works, how to save on interest and how to pay it off, is an important first step. Find out all you need to know before you apply.

What is a credit card?

A credit card allows you to borrow money via what’s officially called a ‘revolving line of credit’. In simple terms, it is often called a ‘credit limit’.

You can use a credit card to make purchases in retail stores and online, up to the value of your approved credit limit. The money can be paid back in small amounts or in one go before the end of your billing cycle. The choice is yours.

It’s important to keep in mind that an interest rate is applied to the money that you owe. This is essentially the cost of accessing your credit. Many credit cards have an interest free period on purchases which means that you may have some time to pay back the money before you start paying interest.

How does a credit card work?

When approved, your credit card will come with a credit limit, an interest rate for purchases, and an interest rate for cash advances.

Once you receive and activate your credit card, you can start using it to make purchases up to the value of your credit limit straight away.

For example

Your credit limit is $4,000 and you spend $120 on some new sneakers for the gym, then $260 booking a weekend beach getaway. The next day, your car needs some unexpected repairs, so you use your credit card to pay the bill of $370.

You’ve now spent a total of $750 and your available credit is now $3,250.

Using a credit card

Decided to apply for a credit card? There’s more to know before you hit the shops. Read on to learn how interest-free periods work, what happens when you get a cash advance, and understanding your statement when it arrives.

How does credit card billing and payment work?

At the end of your billing cycle, you will receive a statement with the following information:

  • Your closing balance
  • Your minimum monthly repayment and due date
  • Any applicable interest and fees.

Your minimum monthly repayment is the minimum required amount you need to pay. You’ll also need to make the payment before the due date on your statement.

Making more than the minimum repayment or paying your closing balance in full will help you avoid paying more interest. Any amounts that you don’t pay will be added to your closing balance in your next billing cycle.

A credit card billing cycle is monthly and starts on the day your credit card was activated.

How do I pay off a credit card?

At the very least you’ll need to pay the minimum monthly payment by the due date. However, it’s important to note that any amounts you don’t pay will incur interest.

Going back to our example, if your total balance is $750 and you only pay $500, you’ll be charged interest on the remaining $250 until you pay it back in full.

Paying your credit card statement in full and before the due date is by far the cleverest way to save on interest charges. Plus, if your purchases are within an interest-free period, you could avoid paying interest altogether!

If you're unable to pay off the statement by the due date, here's a tip to save on interest. Simply make several small payments until you have paid your balance in full. As interest charges are calculated on your daily outstanding balance and charged monthly at the end of the statement period, you’ll save on interest as your balance reduces.

If you take up this option, you may also want to avoid making additional purchases or cash advances. These extra transactions will be added to your balance and incur interest. Once you’ve paid off your balance, your interest free period will reset, and you can start using your card again.

Please note: if you don’t pay the minimum payment before the due date you will have to pay a late fee as well as interest.

What’s a credit card interest free period?

An interest free period is the period of time where no interest is charged on new purchases. In order to receive this benefit, you must pay your closing balance in full on or before your statement due date.

If you’re unable to pay the full closing balance before the due date, you will be charged interest on the outstanding amount. When you have paid the balance off in full your interest free period will reset, and any new purchases will be eligible for the interest free period.

What’s a cash advance and how does it work?

A cash advance is when you use your credit card to make a cash withdrawal, usually from an ATM. It’s important to keep in mind that cash advances don’t have an interest free period and typically have a higher interest rate and associated withdrawal fees. Your interest rates for purchases and cash advances can be found on your credit card statement.

How can I save money when using a credit card?

When using a credit card there are many ways to save on interest, avoid unnecessary fees and stay in control of your credit.

Here are our top tips:

  • Get a credit card with no monthly fees and keep more money in your pocket.
  • If you have existing balances on other credit cards, consider a Balance Transfer. You won’t pay interest for a set period, giving you the time and space to pay your new card off.
  • Other credit card features may include a low exchange rate, low or no fees when using the card overseas, or complimentary travel insurance.
  • Know your interest rate for making purchases and cash advances.
  • Pay your statement in full each month to save on interest and avoid unnecessary late fees.
  • If you’re unable to pay your balance in full each month, consider making smaller repayments on a regular basis until you’ve paid it all back.
  • Stay below your credit limit.
  • Use your card for needs not wants.
How do credit cards differ from personal loans?

With a credit card you get continuous access to your credit. You can use it to buy multiple items and services up to the value of your credit limit. A personal loan is a one-off lump sum of money typically used for a large single purchase such as a car. A personal loan will have a set time frame and repayment schedule, whereas a credit card allows you to make transactions and unstructured repayments with no end date.

Which credit card should I choose?

Before applying for a credit card consider your spending habits, how you’ll pay it off, and the card’s features. Then choose the card that best suits your needs.

Popular credit card features include:

  • Low rate credit cards are useful for making larger purchases or paying emergency bills and paying them off over time. If you don’t need extras such as rewards points or complimentary insurance, a low rate credit card can help you save on interest.
  • Platinum credit cards allow you to earn rewards points when you use your credit card. They usually have a higher interest rate, but  you’ll benefit from trading your rewards points for gift vouchers, flights, and other merchandise. Discover more benefits of platinum.

You may find you use your credit card differently at different times but it’s also important that you only use the credit that you can afford to pay back.

When should I apply for a credit card?

If you meet the eligibility requirements, you can apply for a credit card online at any time.

You must be

  • At least 18 years of age
  • A permanent resident of Australia
  • Receive a regular income
  • Have not been bankrupt or insolvent in the last five years

Credit card tips

More information and useful articles to help you decide.

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