How do credit cards work?

Credit versus debit cards

A credit card allows you to borrow and spend money up to your approved credit limit. With a debit card, you’re spending your own money. A debit card is linked to your everyday transaction account, so you can only spend what’s in the account. If you’re worried about overspending, a debit card might be a better option for you.

You can also use the Spending tool in the NAB app to track where your money is going, and you can set a savings goal with Saving Spaces.

Learn more about differences that set debit cards and credit cards apart.

How does a credit card work?

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 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.

Learn more about how credit card interest is calculated.

Interest-free periods

Most credit cards have ‘up-to-44 days’ or ‘up-to-55 days’ interest-free periods on purchases. 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 date on your statement to pay the closing balance before incurring interest.

Repayments

Now you might be wondering how to pay off your credit card. 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.

Balance transfer

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 variable cash advance rate. 

Fees

Depending on which credit card you choose, you may need to pay fees. Many credit cards charge an annual fee, which has to be paid every 12 months. Other cards may charge a monthly credit card fee, rather than an annual fee. Most credit cards also charge a late fee if you don’t make your repayments on time. Learn more about credit card fees and ways you can avoid them.

What is cashback?

Cashback  is when you receive a credit back to your account. To earn the cashback, you need to make contactless purchases with your card, usually each month, and a percentage of those purchases will be returned to your account. Not all cards have offer cashback, and the eligibility criteria for the cashback amount will vary depending on the product, rewards program or offer you sign up for. 

Types of credit cards

There are many types of credit cards available:

Learn how to improve your credit score before you apply for a credit card, and why creditworthiness is important.

Things to consider

While credit cards can be convenient, they also come with risks if not managed carefully:

• High interest: Balances can grow quickly if you don’t pay them off.
• Fees: Annual, late or cash advance fees add extra costs.
• Credit score risk: Missed payments or maxed‑out limits can hurt your score.
• Overspending: Easy access to credit can lead to spending beyond your means.

How to apply for a credit card

To apply for a credit card online:

1.  Complete the online application form and get a response in 60 seconds.
2.  If conditionally approved, we may ask for additional information or documents (such as payslips or bank statements) to verify your information.
3.  If approved, your physical card will arrive within five working days.
4.  Simply activate your card using the NAB app or NAB Internet Banking.
5.  Start using your card. Find out about digital payments and use this card anywhere Visa is accepted, including for overseas and online purchases.

You can also apply by visiting a NAB branch.