Credit card

Information about card-based credit products

A credit card is a card issued to an individual for buying goods and services on credit. Repayment is usually made monthly with interest charged on any unpaid balance. Credit cards:

allow you to buy goods and services now and pay for them later;
give you the convenience of being able to purchase goods and services over the counter, over the phone and on the internet;
reduce the amount of cash you need to keep in your wallet
can be relied upon as a source of instant cash in emergencies; and
(when used sensibly) can help you build a positive credit history which will assist you being approved for a loan, buying a car, renting an apartment and ultimately, taking out a mortgage.

Did you know?

If the minimum payment required on a credit card debt of $2,800 is 2 percent of the total debt (i.e. $56 per month), and you only make the minimum payment, it would take you approximately 50 years to pay off your credit card debt! Based on an annual percentage rate of 18%, over the 50 years you would pay more than $25,000 in interest charges. To avoid this scenario, always pay more than the minimum payment.
The methods that credit card providers use to calculate interest on overdue amounts vary greatly. Some providers go so far as to charge interest daily on the total purchase amount even when part of it was repaid on or before the due date. They may also charge interest back to the actual date of purchase and remove the interest-free period for new purchases if a consumer fails to pay the closing balance in full.
In general, withdrawing cash from your credit card (cash advance) attracts interest from the moment you take out the money and your payments won't go towards repaying your cash advance until all previous credit advances have been completely repaid.
Merchants are allowed to charge consumers a fee for paying with their credit card (but they are required to tell you if they charge a credit card fee).

Before you get a credit card

Calculate your budget and set your own credit limit instead of letting the credit provider set one for you. Accepting the maximum credit limit may set you up for future grief if you can't maintain a budget or control your spending.
Don't just consider the credit cards offered by the major banks. Credit unions, mortgage originators, community banks, building societies and other financial institutions are keen to expand their customer base and may offer a lower interest rate as a result.
Cannex and InfoChoice are free, independent consumer websites which provides information about, and comparison between, a huge variety of lenders, types of financial products, rewards programmes and much more.
Compare and carefully consider the value of special offers. For example, if you are considering a credit card with a rewards program you will probably have to pay more by way of a higher interest rate and/or higher fees.
Some cards advertise unusually low 'Honeymoon', 'introductory' and 'low-start' interest rates. However you will find that they will rise to their normal level within 5-6 months. This also often applies to transfer balance rates, the temporary rate offered to customers with an outstanding credit card balance to entice them to change credit card companies.
Choose a card that matches your needs based on your spending profile.

Managing your credit card

Try to use the card only in emergencies. Stop yourself from 'impulse buying' and don't take it when you go shopping. Use a debit card instead.
Pay your account completely every month. If this is not possible, pay as much as you can. Make sure that you pay more than the minimum payment.
If you can pay your account completely every month you can save bank fees with your credit card. Most banks only allow customers a limited number of free bank account transactions. To avoid paying fees for having exceeded this limit, use your credit card with interest-free days to make purchases rather than withdrawing cash. Then, when your credit card statement arrives, pay off your account in full and you will have only spent one of your free transactions.
Before accepting an offer to boost your credit limit make sure you really need the increase and will be able to afford it. Keep to the lowest credit limit possible.
Don't keep heaps of credit cards. Remember if you have lots of credit cards, you will more than likely be paying lots in fees and charges.
Open all mail from your credit card company since it isn't always marketing material. It may be correspondence outlining important changes like the introduction of a new fee or an interest rate rise.

Security issues

Retain recent credit card receipts as evidence of your transactions but shred old ones.
Sign new cards as soon as you receive them and destroy old ones by cutting them up.
Check that your credit card statement matches up with your receipts and whether it contains any unauthorised charges and/or billing errors.
Do not sign a blank receipt.
It is recommended to close any inactive accounts.
In a safe place, keep a record of your credit card numbers, expiration dates and the phone number for each credit card company in case your credit card is lost or stolen.
If you discover that your card has been stolen, immediately phone the credit card company. Follow up your phone call with a letter containing your credit card details, the time you realised your card was missing and the time that you rang up to report the loss.

Internet transactions

Ensure that your computer is secure and access to it is controlled.
Change passwords frequently.
When doing business online, check for the padlock symbol in the bottom right-hand corner and that the internet address begins with https:// (where 's' stands for secure). If using a new and unfamiliar site, read the company's privacy policy and start out with small transactions.
When using the internet at work, libraries or net cafés, be sure to log out of any online accounts before you leave.

For more information, see the Choosing and using your credit card brochure.