powering smart financial decisions

Starting your credit card comparison can seem like a daunting task, but if you understand the key points to consider, you can make the best credit card choice and decision. 

RateCity’s credit card guide covers topics such as rewards, interest free days, balance transfers and frequent flyer options, and is designed to help you make sense of how credits cards can help you in your life. It’s important to pick the best card for your needs and level of spending, otherwise you could find yourself paying more in annual fees and interest than you need to.

The basics

Different credit cards come with different features. Before you choose you first or next credit card, it’s important to know which features are involved, so you can tailor your credit card search accordingly.

  • Interest rates

The interest rate on a credit card is a major factor in determining the overall cost. It’s also one key factor in allowing debt to snowball if not managed properly. Interest is charged per annum (pa) and can be anywhere from around 8 per cent to 25 per cent and over. Card providers charge different interest rates for purchases, cash advances and balance transfers. The fees incurred from interest rates can be avoided if you pay your bills on time and before your interest-free days are finished (if your card offers them). Some providers will offer you lower introductory interest rates known as “honeymoon rates” that revert to a higher rate. This is done to entice new customers.

  • Balance transfers

Balance transfer credit cards benefit customers struggling to pay off one or more credit card debts. For a set period of time, balance transfer cards usually offer a much lower interest rate for you to transfer existing credit card debt to, and they may also waive the interest charges entirely. However balance transfer credit cards only available if you transfer the balance from your previous card(s) to the new card. Lowering or eliminating the interest charges on your transferred balance can help you pay off your outstanding credit card debt sooner, without letting your debt grow. 

  • Keep in mind, after the introductory period on a new balance transfer card has expired, the card’s interest rate will usually revert to a much higher rate. Be aware that the card’s purchase interest rate will not necessarily be the same as the balance transfer rate, so try to avoid making new credit card purchases until you’ve paid off your transferred credit card balance. This option may not be ideal for the undisciplined spender.
  • Minimum repayments

This is the minimum amount that you must pay each month. It can be expressed as a fixed amount, or as a percentage of the balance owing. Minimum credit card repayments are often around 2 or 3 per cent of the balance owing. It’s recommended that you try to pay more than the minimum amount, and where possible, try paying off your credit card’s entire balance each month. This is so you can reduce the balance owing, pay less in interest, and clear your credit card debt sooner.

  • Cash advance

A cash advance is when you withdraw money using your credit card, such as getting cash from an ATM. The interest rate for cash advances is usually higher than the purchase rate, which means paying back from a cash advance credit card typically means paying more for the cash you originally have taken out. There are usually no interest-free days on cash advances, so you are charged interest from the moment you withdraw the money. Try and avoid making cash advances where possible to save on interest charges.

  • Interest free period

The interest-free period is the length of time you have to repay what's owing on your credit card before you’re start to be charged interest on purchases. Different cards offer different interest-free periods, but 45 to 55 days from the start of each month’s billing cycle is common. To avoid interest charges, pay for your purchases before the interest-free period ends. Make sure you leave enough time for funds to transfer from your bank account to your credit card. If your card isn’t fully paid off by the time the interest-free period ends, you’ll be charged interest on your current debt and any new purchases, until you clear your credit card balance.

  • Annual fees

A low interest rate on your credit card doesn’t matter if you’re also paying a hefty annual fee. Some lenders may waive annual fees, though you may need to spend big on the card to earn this benefit. Many credit cards have annual fees around the $100 mark, but some have annual fees as high as $1,200 per year. Credit cards with no annual fees are available, just make sure you check the interest rates and other features to make sure they’re worthwhile.

Spending profile

Like a set of keys, there’s no one-size-fits-all credit card. To narrow down your choice of plastic companions, you should take a look at your spending habits. This can shine a light on what's really important to you. 

Credit cards are often used as an additional source of finance to purchase goods and services. However, people use their credit cards in many different ways. Some people struggle to pay off their card each month, effectively using it as a short- or long-term loan, while others may chase reward points and always pay their bill on time, meaning they never pay interest.

 Selecting the right credit card for your lifestyle is extremely important. Look for a card that fits your spending needs, but avoid credit cards with a bunch of added extras if you don’t truly need them. You may end up paying a high annual fee for services and features you don't require. 

There are four different types of credit card users. Think about which one sounds most like how you intend to use your credit card. 

The Habitual Spender

Habitual spenders use credit cards like they do their debit cards, and are constantly incurring interest charges and paying off debt. If you struggle to pay your credit card bills each month, you may benefit from a low rate card with a very low or no annual fee.

Suggested credit card:

  • Low rate low fee credit card

The Impulse/Occasional Spender

You may not think of your credit card as an accessory, but rather as a necessary financial tool. You may use your credit card to order large purchases that you don’t have the money for upfront, and then pay these purchases back over an extended period. 

If you only use your card for emergencies and occasional spending, you may want to consider a low rate card with a very low or no annual fee. If you just need the ability to make purchases online and overseas, a debit card may also suit in some cases.

Suggested credit card:

  • Low rate low fee credit card
  • Travel credit card

The Everyday Spender

If you use your card almost every day to do grocery shopping, make purchases online or pay your bills, and always manage to pay off your credit card balance on time each month, you may want to consider a rewards credit card. 

If you also pay off your credit card balance each month to avoid interest charges, you’ll want to focus more on a card’s features and fees than its interest rate. There are a range of low or no annual fee credit cards on the market. 

You may want to find a card that provides a rewards program you're interested in, such as for cash back or frequent flyer points. Keep in mind that rewards cards often come with higher annual fees, so make sure you choose one you will get the most out of, at a lower cost. 

Suggested credit card:

  • Low rate low fee credit card
  • Rewards credit card

The Big Spender

You may be a big spender if you’re forking out over $5,000 per month on your credit card. Perhaps you use your credit card for convenience or to gain reward points and game point hacks, but you are always conscientious about paying off your credit card debt in full each month and avoiding interest charges. 

If you’re a high-income earner and big spender who always pays off your balance, you might be in the market for a card that provides features and perks that you’d use frequently. These may include free travel insurance, concierge services and rewards programs. 

Suggested credit card:

  • Platinum credit card
  • Rewards credit card
  • Frequent flyer credit card

Credit card types

Once you have worked out what sort of spender you are, you can work out which type of credit card interest rate is likely to suit your needs.

Credit card type About 
Low rate credit cardsAs the name suggests, these credit cards have a low-interest rate. They are usually accompanied by a relatively low annual fee. They tend to be the "no frills" cards on the market, and offer limited features and services compared to other types of cards. They typically don’t have any rewards programs attached. The main benefit of these cards is the lower interest rate compared to many other cards. If you don’t pay off your credit card balance in full each month, then you may find a low rate credit card useful. As you would be incurring interest charges each month, your main objective would be to keep interest rates to a minimum so you can pay less in interest charges.
Platinum credit cardsPlatinum credit cards are designed to suit those looking for high credit limits and comprehensive rewards programs. Due to this they typically feature higher than average interest rates and ongoing fees. However, the cards are marketed towards high income earners, so it’s expected card holders can afford these costs.
Balance transfer credit cardsBalance transfer credit cards allow people to transfer existing credit card debt to a new credit card with a zero per cent interest rate (0%) for a set period of time. This gives card holders some much needed breathing room to pay off their credit card debt without accruing any more interest. Once you’ve transferred your debt, you may want to put your new card in the freezer, so you’re not tempted to use it. New purchases made on balance transfer credit cards can be hit with higher than average interest rates.
 Rewards credit cardsRewards credit cards are credit cards with rewards programs linked to your transactions. Typically, you’ll earn 1 to 3 rewards points per dollar spent that can be exchanged through the card provider’s rewards program, usually for a range of goodies, be it gift cards, alcohol, entertainment packages, or home goods. 
 Frequent flyer credit cardsSimilar to rewards credit cards, frequent flyer credit cards use the dollars you spend towards earning frequent flyer points. These can be spent on flight upgrades or plane tickets with a range of airlines. Frequent flyer credit cards are typically linked to one airline in particular, such as Qantas or Virgin.   
 Travel credit cardsCredit cards often come with overseas fees and foreign transaction fees. However, travel credit cards are designed with overseas spenders in mind. These credit cards come with low or no overseas fees for purchases made while travelling internationally or through online stores. 

There are also three main credit card brands to consider in your credit card search:

  1. Visa offers a range of credit cards that are available through a large range of financial institutions for both personal use, businesses and merchants. They also offer customers early access to pre-purchase tickets to concerts and gigs before they go on sale to the public, as well as other exclusive offers.
  2. MasterCard offers cards for personal use, businesses and merchants. These cards are available through a range of financial institutions which can be used around the world. They offer their members access to exclusive competitions and offers depending on the level of card.
  3. American Express (AMEX) offers its own brand of cards as well as issuing them through financial institutions. While AMEX provides access to a range of exclusive services, it also tends to charge higher credit card fees overall. AMEX cards are not as widely accepted around the world as other brands.

Rewards programs, perks and protections

If you want to get more out of your credit card, consider a card with a rewards program attached. This way you will be earn points on your purchases, instead of only incurring nasty interest charges. 

Be aware that cards with reward programs often cost more in fees and interest, so only choose a rewards card if you can pay off your balance in full each month. Also consider if the benefits you earn on your annual spending will outweigh the cost of the rewards program membership.

  • Frequent flyer rewards. If you are a loyal airline traveller, you could reap the benefits of a frequent flyer rewards card. Each time you pay for something using your credit card, you can receive Frequent Flyer reward points. They can be redeemed towards Qantas, Virgin, or other airline flights anywhere in the world. This type of rewards program can be great for frequent travellers, as well as for businesses with staff who travel frequently for work. Most programs have a main partner, such as Qantas Frequent Flyer or Virgin Velocity. However, some cards allow you to convert your points to a range of global frequent flyer programs based on what you need for your next dream holiday.
  • Cashback. Cashback reward programs allow you to redeem your credit card points for cash, usually in the form of money credited back to your account. These rewards function similarly to a delayed discount on your spending. The cashback offer may be a dollar value, or a percentage of your purchases. These are often capped at a set amount.
  • Travel. For each dollar you spend on a rewards program, you're allocated points that can be redeemed for travel perks, such as hotel stays, airport lounge passes and flights. These credit cards may also come with no overseas transaction fees on purchases.
  • Merchandise. For each dollar you spend, you earn points to go shopping for a wide range of items, such as appliances, sports gear, entertainment and more. Your choices are limited by what is offered in your provider’s catalogue.
  • Gift cards. Rewards points may also be redeemed for gift cards for a range of outlets, such as Myer or David Jones. Gift cards can offer a happy medium between cash back and merchandise. While not quite as versatile as cash, you might have more to choose from than the merchandise offered in rewards stores.

Here is a list of potential perks your credit card may offer you. Check the terms and conditions to see what is offered before you apply for any credit card.

Airport LoungeAccess to airport lounges, such as Business Class Lounges etc.
ConciergeAccessible by phone or online, a concierge service can organise travel arrangements, dining, entertainment and much more for you.
Discounted Annual FeePay a lower annual fee for a set period of time.
Free Supplementary CardsAdditional cards available for no extra charge.
Partner DiscountsYou may be eligible for discounts from partnered brands, such as fashion, dining, movies and more.
Special EventsCardholders may gain exclusive access to special events, as well as access to lounges.
VIP SeatingEligibility for VIP seating or packages for special events.
Reward PointsDollars spent typically earn you rewards points that can be exchanged in rewards programs for things like home goods, electronics and giftcards.

Here is a list of potential protections your credit card may offer you. Check the terms and conditions to see what is offered before you apply for any credit card.

Fraud ProtectionProtects you from losing money in the event of fraudulent transactions on your credit card.
Free Domestic Travel InsuranceEntitles you to a level of insurance over when travelling domestically in Australia. Can include anything from luggage cover to cancellation fees and personal liability cover.
Free International Travel InsuranceEntitles you to a level of insurance over when travelling internationally. Can include anything from luggage cover to cancellation fees and personal liability cover.
Extended WarrantyAn additional insurance that extends the manufacturer or retailer’s warranty on your purchases.
Purchase Protection InsuranceProtects you against loss, theft or accidental damage
Rental Car Excess InsuranceCovers rental car excess costs in the event of accidents or other issues.
Transit Accident InsuranceCovers yourself or your family in the event of an accident or death while in transit (buses, trains, planes etc.), or while boarding or alighting.
Guaranteed Pricing SchemeIf you find a cheaper price for something you’ve already purchased using your credit card, Guaranteed Pricing Scheme works by paying the difference.

Buy now pay later or credit cards?

Buy-now-pay-later (BNPL) services, like Afterpay, have surged in popularity in the last few years, particularly for younger Australians. Similar to old-school Laybuy, BNPL services allow you to purchase something today and pay it off in smaller increments over a set period of time.

Your payments are split up into even segments and, unlike a credit card, are not charged interest. This limits your chances of growing out of control debt. Spending caps are in place across BNPL services and can be anywhere from a few hundred dollars to tens of thousands. Missed payments generally incur a fee and vary for each BNPL service.

While it cannot be used everywhere unlike a credit card, you can generally find these BNPL services in a range of online or brick & mortar stores. These include for fashion, home goods, electronics, an appliance, as well as for health services like dentistry. Check a BNPL service’s store partnerships list on their website.

There are advantages and disadvantages to choosing BNPL services over a credit card:

  • The main benefit of BNPL services over credit cards is that they don’t charge interest on outstanding purchases. Staggered payment plans allow you to pay off your purchase over a period of weeks without growing the debt further – unless you miss a payment.
  • The application process for BNPL services is also generally as easy as downloading an app. There are no lengthy wait times for approval and no credit checks. They typically just require you to be over 18 and have a linked credit or debit card to your account.
  • BNPL services are limited in terms of what they can offer you compared to credit cards. They’re simply a financial tool designed to let you pay off items in smaller payment plans. If you’re looking for protections like insurance, or perks like rewards programs, you may want to stick to credit cards.

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Credit card checklist

If you are considering applying for a credit card, make sure you read the product disclosure statement (PDS) before you apply so you are aware of all the terms and conditions attached to the card. 

Here’s a quick checklist of what you should consider before taking the leap:

  • What is the interest rate? Check whether the credit card has an introductory "honeymoon" interest rate as a promotional offer, and what rate the card will revert to once it ends. If you're planning to transfer the balance from your current credit card, check the new card's balance transfer rate.
  • What is the annual fee? Credit cards that offer additional benefits such as rewards and bonuses are more likely to charge higher annual fees.
  • What other fees are charged? One way to estimate the approximate value of a credit card is to add up the annual cost of any fees it charges and compare these to the value offered by any benefits it provides, such as rewards you can realistically expect to redeem by using the card. If it looks like you'd likely pay more in credit card fees and charges than you'd receive in benefits over a year, it may be worth comparing some alternatives.
  • What is the credit limit? Consider choosing a limit you could afford to pay off in full, reducing the risk of getting into financial trouble. Just because a huge credit limit sounds appealing, doesn't necessarily mean you can afford it.
  • Which card brand suits you best? Most banks and financial institutions offer credit cards from MasterCard or Visa, which provide similar benefits. American Express cards are offered by a smaller number of banks and lenders, as well as directly from American Express.
  • Which type of card suits you best? Consider how you plan to use your credit card, and whether a low interest card, rewards card, platinum card etc. will likely to suit your personal finances.