Credit card reward programs can be attractive to eligible customers looking to be rewarded for their spending. In some cases, just switching to a rewards credit card can offer hundreds of thousands of bonus reward points on signup, allowing cardholders to make a head start on building up a points balance they can redeem in the future.

Australians who love to travel could also be eligible for six-figure Qantas frequent flyer points bonuses when signing up to some credit cards.

That said, the bigger the rewards on offer, the stricter the terms and conditions that may apply. It’s essential to compare the rates, fees, features and benefits of a credit card before making an application – sometimes a simpler “no-frills” credit card may prove less expensive than a rewards card.

Some of the lower purchase rate credit cards on the RateCity database at the time of writing include:

• P&N Bank & Visa Platinum - 7.02%
• G&C Mutual Bank Low Rate Visa Credit Card - 7.49%
• Easy Street Financial Services Easy Low Rate Visa Credit Card - 8.99%
• MOVE Bank Low Rate Credit Card - 8.99%

Updated by Mark Bristow on 3 October 2023.

A credit card is a financial product that allows you to make purchases on credit up to a predetermined credit limit. The amount of credit you have access to is called your credit limit, and you may be charged interest on any outstanding purchases made. 

When you make a purchase using a credit card, you’re essentially borrowing money from the card issuer to pay for the product or service. As you’re using money that’s not your own, you’re required to repay the borrowed amount at the end of the billing cycle. You can either repay this amount in full to avoid interest charges, or make the minimum monthly payments required by your credit card issuer to avoid defaulting. However, keep in mind that you'll incur interest charges on the remaining balance if you choose not to pay the full amount. 

Credit cards can be a helpful financial tool that allow you to make purchases when you don’t immediately have the funds. But they can also be risky if used without self-control, as they can easily result in credit card debt. They can be used for everyday purchases, such as your morning coffee, or big-ticket items, such as a new appliance. There is no limit on what you can spend on, only a limit for how much you can spend.

Credit cards aren’t just a means to make purchases. Responsible use of a credit card can help you build a positive credit history. This can come in handy when applying for home loans or personal loans in the future, as a lender will assess your credit history and score when you apply. Paying your credit card bills on time can help to boost your credit score. You can also take advantage of the perks and benefits associated with many credit cards, such as purchase protection, extended warranty and rewards programs.

There is no one-size-fits-all approach when it comes to credit cards. There are a range of different types of credit cards that may better suit various customers, depending on your financial situation and goals. 

As you can see, credit cards vary significantly. Ultimately, the right credit card for you will depend on your individual financial situation and spending habits.

For instance, certain rewards credit cards, such as those tied to frequent flyer programs, may provide enticing benefits, but they could come loaded with relatively high annual fees compared to basic credit cards.

If you’re a frequent traveller who spends a substantial amount of money on flights and hotels, you could potentially use your card to accumulate points rapidly and use these points to pay for your travel expenses, offsetting the high annual fee to some extent.

However, if your primary use for the card is paying for everyday expenses like fuel and groceries, the rate at which you earn reward points may not justify the fee you pay for the card. Taking the time to research and compare credit card options based on your spending habits and financial goals may be worth considering.

To get the maximum benefit, you’ll need to choose a credit card that offers rewards and benefits relevant to your lifestyle without costing you more money. Further, make sure to read the fine print and compare your options to find the best deal for your needs.

Credit cards can be a helpful financial tool for cardholders, but they can also be an easy way to accrue debt or hurt your credit score if you’re not careful. It is important that those looking to take out a new or additional credit card are aware of the benefits and disadvantages of this financial product before applying.

Benefits of a credit card

Access to credit

The main draw of a credit card is that it offers access to a line of credit. Whether it is used to pay for a holiday, to purchase new appliances, or just in case of an emergency, credit cards offer customers the ability to access funds they otherwise wouldn’t have. Credit limits differ for each cardholder depending on the provider and the cardholder's personal financial situation.

Rewards and perks 

Some credit cards offer more than credit to cardholders. Additional benefits may up for grabs from some card issuers, including rewards programs, frequent flyer programs, shopping rewards, cashback offers and complimentary insurances, including domestic and international travel insurance, as well as rental vehicle excess insurance.

Interest-free windows

Credit cards may offer two types of interest-free windows: interest-free days and interest-free periods. Interest-free days (generally 44-55 days) let cardholders have time to pay off their latest statement before they begin to accrue interest.There are also zero per cent purchase cards, as well as balance transfer credit cards, which offer longer interest-free periods (from six months to two years). These may be used to make one-off purchases, which are then repaid without accruing interest, or used as debt repayment tools.

Boost your credit score 

Making regular repayments on a credit card and paying your balance in full each statement period is one option cardholders have to boost their credit score.

Risks of a credit card

Easy to grow debt

As interest grows on outstanding balances, so too does the level of debt. Due to the nature of credit cards, cardholders who struggle to pay their balance in full each statement period can find themselves quickly accruing interest. Cardholders who may easily fall into this debt trap could look for low rate and low fee credit card options - or avoid credit cards altogether.

Hurting your credit history 

Making multiple credit card applications at once or having one or more outstanding credit card debts can hurt a cardholders’ credit history. Cardholders run the risk of defaulting on their credit card, or more serious credit infringements, due to multiple late payments.

Fees

Credit cards may come with a range of fees that could increase the cost of using the card. These fees may include:

• Annual fees
• Foreign transaction fees
• Cash advance fees, which may be charged for withdrawing cash from the credit card
• Late fees (for missed or late payments)

Over time, these additional costs can begin to add up, even if a cardholder has opted for a lower rate credit card.

The risk of overspending

A credit card could make it easier to overspend, especially for individuals who struggle with managing their spending habits or have difficulty controlling impulsive purchases. If you think a credit card could tempt you into spending more money than you can afford, consider opting for a card with a lower credit limit that you can afford to repay in full each month.

There's no shortage of cards to include in your credit card comparison. Your credit card choice will ultimately depend on what you want to use your card for, your financial situation, and the perks you may receive whenever you do.

Some of the most popular credit card types include:

Different credit cards will suit different spenders, so it’s crucial that you compare a range of options if you’re in the market for a credit card. Here are key factors to consider when shopping around for your best credit card:

Purpose

How do you plan on using your credit card? For example, is it for everyday shopping or major purchases only, buying overseas or travel, or transferring an existing balance? You may need access to credit for work and be better off comparing business credit cards. Identify your card purpose so you can easily compare apples with apples.

Interest rates

Credit cards can charge different rates for purchases, cash advances (withdrawing cash with your credit card) and balance transfers. Also, keep an eye out for introductory, promotional, or “honeymoon” rates that revert to a higher rate after a set period (typically the first year). Knowing what rates you may be charged before applying can keep you from accruing debt.

If having a low interest rate is a priority for you, keep in mind that you can sort your results on the comparison table on this page to show you the lowest interest rate products first. Strict eligibiliy criteria will apply, but this is one way you can quickly find and compare the lowest-rate credit cards on the RateCity database. 

Card fees and charges

Some credit cards charge a range of fees to cardholders. Consider whether the credit card’s benefits would likely be worth these costs. Some of the most common fees include:

• Annual fee – Annual fees can range from $0 to $1200 depending on the credit card status tier and the card issuer. Make sure to weigh up whether the benefits and other perks of the card are worth the cost.
• Cash advance fee – When you withdraw money at an ATM, you might have to pay a fee and a higher interest rate on that transaction amount.
• Late payment fee – If you don’t make your minimum repayment on time each month, you may be charged a late payment fee.
• Overseas fees – There are a number of fees associated with overseas spending, such as currency conversion fees, foreign transaction fees and foreign ATM charges.

Some cards offer a low interest rate or interest-free period for a specified time frame after you sign up. Keep in mind that the interest rate can rise steeply after the introductory period expires.

Interest-free periods

The number of days allocated to pay your credit card balance before you’re charged the purchase rate. The higher the number of days, the more breathing room to make repayments. A typical interest-free period is around 44-55 days.

Rewards programs and frequent flyer programs

Rewards card programs let you earn points on your everyday spending that can be exchanged for goods, transferred into frequent flyer points, or may come in the form of cashback deals. You’ll want to carefully compare the types of rewards on offer by the card issuer to ensure it meets your specific needs and goals.

The most common rewards associated with credit cards include:

• Travel rewards – Frequent flyer points to put towards flight upgrades, airport lounge access, travel insurance, accommodation, etc.
• Merchandise – Rewards points to put towards items such as electronics, appliances and event tickets.
• Cashback – Points you can redeem for cash, usually credited back to your account.
• Gift cards – Department store vouchers, fuel vouchers etc.
• Events – Exclusive access to pre-sale tickets, discounted tickets, VIP event access, etc.

Some credit cards also offer extras like not charging a fee for supplementary cards for additional cardholders. These programs and extras typically incur higher annual fees.

Credit card status tier

There are different credit card tiers that customers may gain approval for, ranging from the more basic options with smaller credit limits, through to platinum credit cards for bigger spenders, and even black credit cards for rockstars and royalty. The status of a credit card may be listed as a colour, such as a gold credit card, or it could be branded with a name from the issuer.  

Generally speaking, these are the different credit card status tiers, which may suit different types of spenders:

• Basic low rate and low fee credit cards: Your standard entry-level offering which typically comes with a lower interest rate, more accessible eligibility criteria and lower credit card limits. This may be ideal for a first credit card. 
• Mid-tier credit cards: While the credit card may still come with a competitive purchase rate, the perks and the fees may start to kick up. You may be able to earn rewards points and gain access to complimentary travel insurance, but your annual fee may be around $100-200+. 
• Premium credit cards: Platinum credit cards that offer a range of perks and benefits, from rewards programs, to frequent flyer bonuses and concierge services. Applicants typically have higher incomes and are offered higher credit limits, and may need to meet spending minimums each year. These cards typically come with much higher annual fees, but it is expected that applicants can afford these. 

Credit card type

There are three main credit card types: Visa, Mastercard and American Express. Visa and MasterCard are quite similar in that they are just payment processing systems, so they cannot issue cards directly to customers. Whereas Amex is both a payment processing system and can issue its own cards. When making payments, Visa and MasterCard typically carry lower card fees than Amex.

When applying for a credit card, the card issuer will need to assess your personal financial situation, budget, and credit history to determine if you can safely manage the risks associated with said card. To do this, you’ll need to provide some or all of the following:

• Proof of income: recent payslips,
• Proof of bonuses and commissions: via payslips or tax returns
• Photo ID (driver’s license, proof of age card or passport)
• Additional assets and income (such as a savings account or managed investments)
• Credit history
• Tax file number
• Details of any existing loans, such as personal loans, a lease or other credit cards
• Recent tax returns, particularly if you’re self-employed

The steps to apply for a credit card are as follows:

1. Research and compare credit cards: Start by researching and selecting a credit card that aligns with your financial goals and needs.
2. Check eligibility and gather documents: Review the card's eligibility criteria and collect the necessary documents, including proof of income and identification (as listed above).
3. Complete the application: Hop online or head into a branch to fill out the application form, providing all requested information.
4. Submit the application: Submit your application and wait for the issuer's response.
5. Activate your Card: Once approved, you'll typically need to activate your card as instructed.
6. Use responsibly: Use your credit card wisely, make timely payments, and regularly monitor your statements to maintain good credit and financial health.

Keep in mind that throughout the credit card application process, your credit score can fluctuate. The credit card issuer will perform a hard credit check on your credit file when you apply to determine your creditworthiness and the likelihood of you meeting your repayment obligations. 

Even if your credit card is approved, your credit score may fall after a hard credit check. However, this typically corrects itself and may even improve if you demonstrate positive credit behaviour. This may mean ensuring you can pay off your balance in full each statement period.  

It’s worth keeping in mind that you will need to meet credit card eligibility criteria to be approved, such as:

• Being an Australian citizen or permanent resident
• 18 years old or over
• No history of bankruptcy
• Meet minimum income requirements
• Good credit rating

Whether or not you take out a credit card is a personal decision, and not one to be made lightly. As credit cards are easy to misuse, even the most diligent cardholder can quickly begin accruing debt if they can’t pay their balance in time and have a high interest rate. However, like any credit product, it is simply a tool. When used responsibly, a credit holder may never pay a cent in interest. They may also earn generous perks and benefits, like cashback offers and rewards points. 

It may be easier to be approved for a credit card than some other forms of finance, like a home loan, as you don’t need to offer up a deposit to be approved. But credit cards may come with some of the highest interest rates on the market, climbing into the high teens.

An unsecured personal loan may charge a comparable interest rate to a credit card, however a personal loan has a set repayment structure in place to help ensure your debt is repaid over the loan term. A credit card, instead, relies in minimum repayments only: typically $20 or 2% of the balance owing - whichever is higher. So, while a credit card may be easier to be approved for than a home loan or personal loan, the ability to see you accrue debt is higher.

If you are looking for your first credit card, you may want to consider prioritising low-rate options so that you can get used to spending and paying off your outstanding balance in full each statement period, without the risk of accruing too much debt. You could also consider no-interest alternatives, such as a buy now, pay later platform like Afterpay.