Compare Credit Cards - Australia

Ads for credit cards inundate social media, TV, billboard ads and more. And you may have seen your fair share of offers from banks and lenders with an ‘amazing’ credit card. But how do you sift through all the jargon and compare credit card options to figure out which is the best for you?

While there’s no ‘best’ credit card, we’ve put together this easy-to-understand guide — which is jam-packed with helpful information — so you’ll be able to confidently compare a range of credit cards to help choose a suitable option for your needs.

Before we dive into some more complex aspects of credit cards, let’s break down exactly what a credit card actually is. It looks, and appears to function, much like a debit card — it’s a small, plastic card, issued by any number of banks and lenders, that allows you to buy products and services without having to pay with physical cash.

However, while a debit card allows you to spend money stored in a bank account, a credit card allows you to use money you don’t actually possess. This is often called a line of credit. When you use a credit card, you’re taking out a loan from your bank or other kind of lender.

When you get a credit card, you’ll be given approval to use a certain amount of credit. That amount is called your credit limit because you can use as much credit as you choose up to your approved amount.

As an example, let’s say a credit card provider approved you for a $2000 line of credit. That would mean the provider would be giving you permission to borrow and spend up to $2000 using that card. So your credit limit would be $2000. You would have the option of spending as much, or as little, of that $2000 as you like. Once you’ve spent $2000, you’d have to pay back some of that borrowed money — that credit — before you could buy anything else using the card.

Imagine a bucket filled with 2000 L of water. Every time you take a drink from the bucket, the volume of water decreases. When the bucket is empty, you can’t drink any more water, no matter how thirsty you are. But if you refill the bucket, you can start drinking from it again.

It’s the same with a credit card. Repaying spent credit refills your credit allowance, so you can borrow funds again when you need to. For that reason, the line of credit you get when your credit card application is approved is called a ‘revolving line of credit’.

Except under specific circumstances, whenever you buy something using a credit card, you don’t just have to pay back what you borrowed. You also have to pay an extra amount as a fee for being allowed to borrow funds. That fee is called interest. Depending on the type of credit card you have and the purchase you make, you’ll generally either:

• Be charged interest from the moment you make a purchase; or
• Have until a particular due date to repay the borrowed funds and will only be charged interest if you don’t repay the full amount by that date.

As an example, let’s say you spent $100 using your credit card on July 1 and your interest rate is 12 per cent per annum (per year). If you didn’t repay the amount for a whole year (that’s the ‘per annum’ bit), you’d have to pay 12 per cent of $100, which is $12. But your interest due is calculated daily on the amount you owe (so the $100 plus the interest you accrued from previous days). So, if you choose to repay the amount you owed in full, including the interest, on July 31, you’d have to pay roughly $101.

Having said that, many banks and lenders that provide credit cards may offer an interest-free period. The interest-free period is like a grace period during which you won’t accrue any interest. In our example, if your credit card provider granted you an interest-free period of 31 days starting from July 1, you wouldn’t have to start paying interest until August 1.

The important thing to note about interest-free periods is that they’re the maximum number of days you won’t be charged interest for. So, if you spent the $100 on July 27, you’d still need to repay the amount by the end of July 31 if you wanted to avoid paying interest. Many credit card interest-free periods are 44 or 55 days. Your credit card statement will specify when your interest-free period starts and ends.

Also, some types of transactions aren’t eligible for the interest-free grace period.

One other thing to be aware of — banks and lenders will require you to make at least a minimum repayment of your credit balance each month. This is usually whichever is larger between a small percentage (e.g. 2 per cent) of the total amount you owe or a fixed minimum (e.g. $25). If you don’t pay that minimum amount on time, they may charge a late payment fee, which will be charged on top of any interest you have to pay.

When you look at a credit card, you’ll notice it’ll have the logo of the bank or lender that provided it and a second logo, such as:

• Visa
• MasterCard
• American Express / Amex
• Diners Club

Those secondary logos represent the payment networks that support credit cards. These payment networks make it possible for retailers and other organisations to accept credit card payments. In exchange, they charge the seller a fee, which is why some sellers include a credit card surcharge in their fee structure.

Most Australian credit cards (92.7%, according to research company Statista) operate on either the Visa or MasterCard networks, though neither actually issue any credit cards. Visa and MasterCard credit cards are accepted around the world, and if you get either a Visa or MasterCard credit card, you’ll likely be able to use it in most of the places you shop in Australia.

American Express (Amex) is another credit card payment network which supports cards issued by American Express. It’s relatively rare in the credit card world for a company to issue credit cards and also have a network to process card payments. In some cases, Amex cards may also offer unique perks to cardholders.

Diners Club is one of the original credit card brands in the world. The brand may offer attractive perks to cardholders, but it’s generally harder to find businesses that process payments made by Diners Club cards. Diners Club has partnered with Citi in an effort to enable more Australians to use its cards more easily.

If you get an Amex, Diners Club or other kind of credit card, you may be able to take advantage of additional benefits. But you may also find you can’t use your card in as many places. or you’re charged a higher credit card surcharge for cards processed by networks other than the Visa or MasterCard.

Every credit card has advantages and disadvantages. For example, a 0% purchase credit card will give you the opportunity to buy products and services on credit without paying interest for several months. But you may have to pay a higher amount of interest later on. A credit card may offer a low interest rate but charge a higher annual fee to compensate.

So, to compare credit cards, depending on your circumstances, you may consider weighing up the:

• Interest rate, including after any introductory period
• Locations that will accept the cards
• Various fees, charges and perks and when they are applicable
• Terms and Conditions

You may generally get better results if you weigh these factors in the context of why you want a credit card.

• Does the card offer an initial interest-free or low-interest period? If so, how long is it?
• Does the card offer regular interest-free periods? If so, how long are they?
• What is the normal interest rate of the card (the interest rate the card reverts to after any low-interest or interest-free periods have finished)?
• What is the monthly or annual card fee?
• What is the late payment fee?
• Are there any other fees? If so, how much are those fees, and how often will you have to pay them?
• Does the card offer any rewards for spending credit? If so, what is the value of those rewards?
• Does the card offer any other perks? If so, what is the value of those perks?
• Do the places you use the card support the credit card network the card operates on?
• Is the card compatible with mobile phone contactless payment systems such as Google Wallet or Apple Pay?
• How much is the surcharge for this card at the places you’re most likely to use it?
• How does the bank or lender that’s offering the card align with your personal values?

So far, we’ve highlighted some key things to be aware of such as annual fees, high interest rates and late payment fees. But there are a few other things to consider when choosing and using a credit card. Below we’ve highlighted some of the common things to consider, but remember, this information is no substitute for reading the terms and conditions of your chosen card.

Always carefully read the terms and conditions of the specific card you wish to apply for and ensure you can afford the payment terms for any credit you borrow. And always read any changes to those terms and conditions.

Your credit score or credit ratings a number that helps banks and lenders decide how risky it would be to lend you money. Having a low credit score can make it harder to get an application for credit approved, and in some cases where approval is granted, it may result in being charged a higher rate of interest.

Australia’s credit reporting agencies generally give people a credit score, such as between zero and 1200. There are a range of services online which enable you to check your credit score.

Getting a credit card can impact your credit score, as can the way you use it. For example, if you don’t make a minimum repayment by the time the lender submits their credit report, the report will state you missed a repayment and points could be deducted from your credit score. Similarly, if you apply for lots of credit cards within a short period of time, your score will generally go down.

Credit cards enable you to pay for products and services on credit. Some also allow you to withdraw funds from ATMs. That’s called a cash advance, and lenders usually treat cash advances differently to purchases. For example, cash advances are often not eligible for any interest-free features and promotions.

Also, there are a few ‘purchases’ that are considered equivalent to taking a cash advance. For example, if you gamble with funds from your credit card, that’s not considered a purchase of a product or services. Instead, that transaction will be treated as a cash advance.

If you’re heading overseas, you may pay additional fees if you use your credit card to make purchases in other countries.

There can be several additional fees which may be harder to immediately identify, which is why it is important to review the terms and conditions before applying. For example, some balance transfer cards may provide a lower rate of interest on the credit balance you transfer but charge a different rate on new purchases. And some banks and lenders may increase your interest rate for new purchases if you’re late paying your minimum repayment (though they do have to give you advance warning if they do that). Other charges can include, for example, late payment fees charged if you accidentally miss a repayment.