While credit card rewards can be tempting, they may not always be worth it for every cardholder. You may be able to benefit from rewards points, discounts and extras, but you may also pay higher interest rates and/or fees for the privilege. For example, Westpac recently raised interest rates on selected rewards credit cards, meaning it’s now impossible to get a big bank rewards credit card with a rate under 20%.

If you want to get the most out of a rewards card, you may want to be confident that you can manage the repayments and minimise the interest charged on your spending. Alternatively, you could consider a more basic “no-frills” credit card with a lower interest rate, to help minimise the interest charged on your outstanding debt.

If you're searching for a card with a lower purchase rate, some of these options listed in the RateCity database might offer competitive rates that could potentially suit your financial needs better: 

Source: RateCity.com.au. Data accurate as of 02/07/2024. 

A credit card is a flexible financial product that lets you access money for shopping.

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, up to your maximum credit limit. As you’re using money that’s not your own, you’ll need 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, you'll incur interest charges on any remaining balance if you choose not to pay the full amount.

There is no one-size-fits-all approach when it comes to credit cards. Different types of credit cards may better suit different cardholders, depending on your financial situation and goals. 

Ultimately, the right credit card for you will depend on your individual financial situation and spending habits. Be sure to compare credit cards before you apply.

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. If you want to take out a new or additional credit card, it is important to be aware of the potential benefits and disadvantages 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 used to pay for a holiday or new appliances, or kept just in case of emergency, credit cards let customers access funds that would be otherwise unavailable. 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 just credit to cardholders. Additional benefits from some card issuers may include:

• rewards programs;
• frequent flyer programs;
• shopping rewards;
• cashback offers;
• complimentary insurances, including domestic and international travel insurance, and;
• 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) are how long cardholders have to pay off their latest statement before interest will start being charged.

Some specialist credit cards offer longer interest-free periods, often from six months to two years.

Zero per cent purchase cards are often used to make one-off purchases, which can then be repaid within the interest-free period without accruing interest. But keep in mind that once the interest-free period expires, you may be charged interest at a relatively high rate on any debt still owing.

Balance transfer credit cards are often used as debt repayment tools, as you can move your outstanding credit card debt to one of these cards, where it will be kept from growing due to interest charges while you pay them off. But any outstanding debt still owing once the interest-free period expires will see interest charged at a relatively high rate.

Boost your credit score 

Making regular repayments on a credit card and paying your balance in full each statement period may help some cardholders boost their credit score.

Risks of a credit card 

Easy to grow debt 

Credit cardholders who struggle to pay their balance in full each statement period can find their interest charges building up over time, increasing their total outstanding debt. 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 cardholder’s credit history. Cardholders run the risk of defaulting on their credit card, or more serious credit infringements, if they miss multiple repayments.

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. 

Overspending 

A credit card could make it easier to overspend, especially for individuals who struggle with managing their spending habits or controlling impulsive purchases. If you think a credit card could tempt you into spending more money than you can afford, you could consider a lower credit limit that you can afford to repay in full each month. This may help you to set a boundary on your spending, ensuring that you only spend what you can comfortably repay each month.

There's no shortage of cards to include in your Australian 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 better suit different spenders, so it’s crucial that you compare a range of options if you’re in the market for a credit card in Australia.

Some of the key factors to consider when shopping around for your best credit card include: 

Purpose 

How do you plan on using your credit card? For example, is it for:

• everyday shopping?
• major purchases only?
• international transactions?
• travel?
• transferring an existing balance?
• business use?

The best credit card options may vary depending on your needs, so identify your card purpose to easily compare apples with apples. 

Interest rates 

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

If having a low interest rate is a priority for you, you can sort your results on a credit card comparison table to show you the lowest interest rate options first. Strict eligibility criteria will apply for each card, but this is one way you can quickly find and compare some of 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: Can range from $0 to $1200 depending on the credit card status tier and the card issuer. Make sure to weigh up whether the card’s benefits and other perks are worth the cost.
• Cash advance fee: When you withdraw money at an ATM, you might have to pay a fee, as well as be immediately charged interest on that transaction amount at a higher rate.
• 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: Currency conversion fees, foreign transaction fees and foreign ATM charges could apply to international transactions, even if you’re not travelling and are simply shopping with overseas businesses.

Some cards offer a low interest rate or interest-free period for a limited time after you sign up. Keep in mind that this 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 interest on your purchases at the card’s 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, converted into frequent flyer points, or redeemed for cashback deals. You’ll want to carefully compare the types of rewards the card issuer offers to ensure it meets your specific needs and goals. 

Some of 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. The more rewards and extras a credit card offers, the more likely you may need to pay higher annual fees. 

Credit card status tier 

There are different credit card tiers that customers may be approved 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. 

These different credit card status tiers, may better 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. May be a useful first credit card. 
• Mid-tier credit cards: May offer a competitive purchase rate, plus perks like rewards points and complimentary travel insurance, but may also charge higher annual fees of 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 are typically offered higher credit limits, but may need to have higher incomes and 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 (Amex). Visa and MasterCard are quite similar in that they are payment processing systems, and cannot issue cards directly to customers. Whereas Amex is both a payment processing system and a credit provider that can issue its own cards. 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.
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: Wait for the issuer's response, which may arrive instantly of take a few business days to process..
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

Choosing whether to get 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, a credit card 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 or security to be approved. But credit cards may come with some of the highest interest rates on the market, climbing into the high teens and beyond.

An unsecured personal loan may charge a comparable interest rate to some credit cards. However a personal loan requires you to make regular repayments so that your debt is repaid over the loan term (typically 1-5 years). Credit cards only require you to make minimum repayments (typically $20 or 2% of the balance owing, whichever is higher), which may take decades to clear your credit card balance and interest charges. This plus the fact that you can freely use a credit card to make more purchases and borrow your money, means that while it may be easier to get approval for a credit card than a home loan or personal loan, you could potentially be charged more interest and end up in more debt if you’re not careful.

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, though these services come with their own share of risks.