How do credit cards work?

Not sure if a credit card is right for you? Read on to explore the ins and outs of credit cards, including balance transfers, interest-free periods and repayments.

To apply for a credit card you need to be at least 18 years old and have a good credit rating. You don't have to be an Australian citizen.

You can apply for a NAB credit card online, over the phone or at any NAB branch. We’ll ask you to give us details about your occupation, spending habits, income, debts and assets. You’ll also be asked to set a limit for the amount of credit you want. You may also have to supply some documents, like payslips. Approval for a credit card depends on our credit assessment criteria.

If your application is approved, it’s then subject to verification. If you meet the verification criteria, you’ll receive your credit card in the mail within 5 working days. Once you activate it, you can start using it straight away. Learn more about our eligibility requirements when applying for a credit card online.

Your credit limit

Your credit limit is the amount you can borrow. When you apply for a credit card you can either set your own credit limit or the bank will set the maximum credit amount, based on the information you supplied about your financial situation. The bank will also set a minimum card limit, which depends on the type of card you apply for.

Interest rates

When you apply for a credit card you’ll be told which interest rate applies. This is an annual percentage that you pay, and it applies to any outstanding amount not paid off by the required due date. The amount of interest you’ll pay will differ each month. It’s determined by how much you spend, how much you repay, and when you repay it. For example if the interest rate is 18% per annum, and you have $100 outstanding on your balance, you will be charged 18% per annum of $100, or approximately $1.50 per month.

Interest-free periods

Most credit cards have ‘up-to-44 days’ or ‘up-to-55 days’ interest-free periods on purchases.¹ This means interest on amounts you owe doesn’t start to build up until the statement due date.

Interest-free periods usually start on the first day of your billing cycle, not when you make a purchase. For example, if your credit card has an interest free period of 44 days, this means you have 44 days from the day of your statement to pay the closing balance in full, or if your statement displays an interest free days payment, this amount in full. After this, you will be charged interest.

Repayments

Once you have a credit card, like any debt, you need to pay it back. Your bank will send you statements each month which will show you the total amount you have borrowed, any payments you have made, the interest rate, any interest or charges that have accrued, as well as the minimum amount you have to pay.

To avoid paying interest, make sure you pay the closing balance in full by the due date each month. If you don’t pay the full amount of the closing balance, you will need to pay at least the minimum payment amount shown on your statement. If this amount isn’t paid by the due date, you may have to pay late fees or missed payment fees, as well as interest.

A balance transfer is a way to move some or all of what you owe (your balance) on one or more credit cards to a new one. The debt you move to the new card usually has a much lower interest rate (or often no interest) than what you were previously paying, for a period of time. This is known as a promotion period and it’s usually between six months and three years. After this period, any unpaid balance transfers will attract the standard cash advance rate. Find out more about balance transfers.

Most credit cards have an annual fee, which is payable every 12 months. Generally, the more features a card has like rewards points and complimentary insurances², the higher the annual fee.

Most credit cards will charge a fee if your payment is late or missed. Learn more about how to avoid late payment fees.