How do credit cards work?

In bankspeak, it’s called a ‘revolving line of credit’. This just means it’s a card with a set amount of funds (we call that a ‘credit limit’) that you borrow from a bank and can use anytime.

When you use your card to make a purchase, you then need to pay it back. You’ll be charged interest on the amounts you don’t pay back each month, there’s a minimum monthly repayment to avoid a late fee, and some cards will have an annual fee.

Before you apply for a credit card, make sure you’re comfortable making your repayments.

Most credit cards have one main perk – usually a low rate, low fees or a rewards program. It pays to do your research and find out which one will suit your lifestyle.

We’ll send you a statement each month showing the amount you borrowed, and any fees or charges accrued that month. It’ll also show you your minimum payment amount and due date.

From here, you have a few options.

You can pay your entire closing balance, which will mean you avoid any purchase interest and payment fees, and you’ll keep any interest free periods.

You can pay your minimum payment amount, which will mean you won’t be charged a late payment fee.

Or, you can pay something in-between. Remember, if you pay anything less than your closing balance, purchase interest will be charged on the remaining balance and you’ll lose any interest free periods.

You’ll find the full list of fees you might be charged in the T&Cs, but here’s some of the more common ones.

Most cards will have an annual fee. As a general rule, the more features a card has – like rewards programs, complimentary insurance or fee waivers – the higher the annual fee will be.

If you don’t make your minimum monthly repayment on time, you’ll be charged a late fee.

If you withdraw cash from your credit card at an ATM or a branch, or if you use your credit card to buy cash equivalent items like travellers cheques, it’s called a cash advance. You’ll be charged interest (cash advance rate) and a fee (cash advance fee) when you make one.

You can apply for one of our credit cards online, in a branch or over the phone. We’ll ask you for info about your income, expenses, debts and assets, so make sure you have that handy.

This is when you transfer the money you owe on an existing credit card to new credit card with a different provider - usually to get a special, lower interest rate or intro offer.

• Credit card tips for absolute beginners
• Credit card glossary
• Get to know your finances