Choosing a credit card in Australia

A credit-card offer is a one-page argument that you should stop reading. The purchase rate sits in a large typeface. The cash-advance rate, the residual-interest clause and the foreign-transaction fee sit in a typeface designed not to be read. The useful skill is not picking a winner from a leaderboard. It is knowing which line on the offer will actually price the way you use the card.

This piece is general information for readers in Australia. It does not rank products and it does not tell anyone which card to take, keep or cancel. Suggesting a particular credit contract is credit assistance, a licensed activity under the National Consumer Credit Protection Act 2009 (Cth). Credit Made Simple is an editorial publication, not an Australian credit licensee.

The brochure is not the contract

Issuers advertise a purchase rate, a number of interest-free days, and sometimes a points figure. The contract — the credit-card terms, the financial table required under the National Credit Code, and any product disclosure for bundled insurance — is where the money is. Moneysmart, ASIC's consumer site, still puts the same unfashionable advice at the top of its card pages: read the cost of credit, not the lounge-access photograph.

A comparison site can be a filing cabinet. It is a poor substitute for the terms, because a ranking engine has to pick a single number. Cards are not a single number. Someone who clears the closing balance every month is priced mainly by the annual fee and by international charges. Someone who revolves a balance is priced by the purchase rate and by how interest is calculated day by day. Someone who draws cash is priced by a third rate, usually with a fee and without an interest-free period.

Suitability is personal: spending pattern, existing limits, whether a home-loan offset is in the picture. It is also legal. Responsible lending obligations were scaled back for many — not all — credit products in the 2020s, but a card is still a credit contract, and an authorised deposit-taking institution still assesses income, liabilities and serviceability. Passing that assessment is not a finding that the card is a good idea.

What the headline rate actually prices

The purchase rate is the annual percentage rate that applies to ordinary retail transactions once they are no longer sitting inside an interest-free period. It is not the rate on cash advances, and it is not automatically the rate on a balance transfer after a promotional window closes. Those are separate lines.

Issuers calculate interest daily in most Australian contracts. The daily rate is the annual rate divided by 365. A gap of two percentage points on a balance that is paid in full every month costs nothing. The same gap on a balance that is carried for a year is the difference that matters. There is no honest way to say which card is cheaper without knowing whether the balance is cleared.

Introductory purchase rates exist. They expire. The revert rate is the number that prices the second year, and it is often closer to the issuer's standard purchase rate than to the number in the advertisement. A reader who is choosing on the introductory figure alone is choosing a product they have not priced.

Cash-advance rates are a different product

A cash advance is not a purchase. Typical Australian terms treat ATM withdrawals, some over-the-counter cash, and a list of cash-like transactions — gambling in many contracts, sometimes stored-value top-ups — as advances. The cash-advance rate is usually higher than the purchase rate. Interest commonly runs from the date of the advance. There is often a fee expressed as a percentage of the amount, with a dollar minimum.

The offer leads with the purchase rate, so this is easy to miss. A card that looks inexpensive on retail spend can be an expensive way to take out cash. Even if cash is not the intended use, the definition still matters: a merchant category can be coded as an advance without looking like one at the till.

Annual fees and the quiet extras

An annual fee is a fixed cost. It is paid whether the card is used or not, unless the issuer waives it for a period. Rewards and annual fees are a separate calculation: points, partner transfers and bundled insurance against a fee that does not care how carefully the points are banked.

Other fees sit beside it — late payment, over-limit, paper statements, replacement cards, foreign transactions. None appear in the purchase rate. A low-rate card with a modest fee can still be expensive if the account is repeatedly late. A first-year fee waiver is a discount on year one. The second-year fee is the ongoing cost.

Interest-free days are conditional

Australian cards often advertise up to 44 or 55 interest-free days on purchases. The number is a maximum, not a promise attached to every transaction. The interest-free period usually runs from the start of the statement period to the payment due date, and it usually applies only if the previous closing balance was paid in full by the due date.

Miss that condition and the period can fall away. Interest is then commonly charged from the date of each purchase, not only on the unpaid slice. The headline day-count is worthless as a comparison tool unless the balance will, in fact, be cleared.

Cash advances and many balance transfers do not get the interest-free period at all. New purchases made while a promotional transfer is sitting on the account can also lose it, depending on the terms and on how the issuer allocates payments. Payment allocation — which balance a repayment is applied to first — is one of the less advertised paragraphs in the contract, and one of the more expensive.

International fees hide in two places

Two charges appear on spending outside Australia, and they are easy to conflate. The issuer may levy a foreign-transaction fee, often a percentage of the converted amount, on purchases in a foreign currency or processed overseas. Separately, the card network converts the currency. Some merchants offer to charge in Australian dollars at the point of sale — dynamic currency conversion — which replaces the network rate with the merchant's rate. That is not a saving just because the number is in dollars.

ATM withdrawals overseas can attract the cash-advance fee, the cash-advance rate, an ATM operator fee, and a foreign-transaction fee. The reading task is to find the foreign-transaction percentage and to notice whether cash-like treatment applies to overseas ATMs. Bundled travel insurance, where it exists, is a separate contract in a Product Disclosure Statement. It does not cancel a conversion charge.

Credit limits, utilisation and the file

A credit limit is not free money. It is a revolving facility that appears on a credit file. Comprehensive credit reporting in Australia means repayment history, limits and balances can be visible to other lenders through Equifax, Experian or illion. How Australian credit scores work is a longer story than a single number: the bureaus do not share one model or one range.

A higher limit can lower the utilisation ratio if the balance stays still. It can also fund a larger balance. A new application typically records an enquiry; several in a short window are a pattern some models treat unkindly. Opening another facility, or closing a credit card, changes available credit. The score effect is not the same as the cash-flow effect, and neither is a recommendation.

Suitability is not a ranking

Leaderboards collapse a contract into a score. They have to. A points card with a high annual fee will rise on a ranking that assumes a lot of retail spend and a clean interest-free record. A low-fee card will rise on a ranking that assumes a revolving balance and no appetite for insurance. Both rankings can be internally consistent and still be useless for a reader whose life does not match the assumption.

The honest comparison is narrower. Write down how the card would be used: cleared in full or not; used overseas or not; used for cash or not. Then read the five lines that price that use — purchase rate, cash-advance rate, annual fee, interest-free conditions, international fees — in the actual terms. If the use is unknown, the cost is unknown. A gold-coloured card is not a safe default.

A no-frills card is not a moral position. It is a cheaper way to hold a revolving limit for some patterns of use, and a poor match for others.

The licensing line

Credit assistance includes suggesting a particular credit contract, or assisting a consumer to apply for one. It is regulated by ASIC and generally requires an Australian credit licence. This publication does not hold one. It will not name a "best card" or tell a reader that their situation suits a particular issuer. ASIC's Moneysmart pages and the issuer's own terms are the primary documents. If the decision is entangled with hardship, the National Debt Helpline on 1800 007 007 is a free starting point, and hardship variations under the National Credit Code exist for a reason.

A card already taken out is a contract that can be read, used, and complained about through internal dispute resolution and, if needed, AFCA. Choosing the next one sits on the other side of a licence this masthead does not hold.