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.

A credit card is a way to borrow money or get ‘credit’ from a bank. The official term is ‘revolving line of credit’. In normal speak it’s a card with a set amount of funds (called a 'limit’) you can borrow at any time. This limit is set when you apply for a card.

Where accepted, you can use a credit card to buy things without cash and pay for purchases online or over the phone.

Like all debts, you need to repay the credit card. Credit cards have interest rates, which apply to amounts that you haven’t paid back, there’s a minimum monthly repayment, and most cards have an annual fee.

You should apply for a credit card only if you can afford the repayments.

At NAB, we offer a no interest credit card, the NAB StraightUp Card, which works a little differently.

Learn more about how a no interest credit card works.

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, 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.

Note: Interest rates and interest-free periods don’t apply to a NAB StraightUp Card.

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. The annual fee will be charged within the first statement period (generally 30 days) of your card opening and after you’ve made your first purchase. Depending on which card you choose, you may pay a lower annual fee with one credit card when compared to another.

The NAB StraightUp Card has a monthly credit card fee, rather than an annual fee. The amount of the monthly fee will depend on your credit limit.

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



No interest card	The NAB StraightUp Card is a simple and easy to understand credit card that comes with no interest and a fixed monthly fee. You’ll also benefit from no other charges including no late payment fees and no foreign currency fees. Find out more about NAB StraightUp Card.
Low rate card	The NAB Low Rate Card offers the lowest interest rate on purchases and comes with NAB Defence fraud protection. Add an additional cardholder at no extra cost, and take advantage of special movie and event offers from Visa Entertainment. Find out more about NAB’s Low Rate Card.
Low fee cards	These cards have the lowest annual fees, and may have complimentary insurances included. Find out more about NAB’s Low Fee Cards.
NAB Rewards cards	With a NAB Rewards card you can earn points³ when you make purchases using your credit card and redeem them for a range of product and experiences at the NAB Rewards Store. Find out more about NAB’s Rewards Cards.
NAB Qantas Rewards cards	With these cards you can earn Qantas Frequent Flyer Points⁴when you use your card to make purchases. And redeem points for flights, products and vouchers from the Qantas store. Find out more about NAB’s Qantas Frequent Flyer rewards cards.

If you’re not sure which credit card would be right for you then you can go through our credit card questions to find the best card for your needs, or you can compare some of the cards that you are most interested in instead.

Important information

¹Interest free days on purchases

Interest free days on purchases applies if you pay your account in full, or if the statement displays an interest free days payment, that amount in full, by the due date each month.

²Insurances

Complimentary insurance covers: AWP Australia Pty Ltd ABN 52 097 227 177 AFSL 245631 (trading as Allianz Global Assistance) under a binder from the insurer, Allianz Australia Insurance Limited ABN 15 000 122 850 AFSL 234708 has issued an insurance group policy to National Australia Bank Limited ABN 12 004 044 937 AFSL and Australian credit licence 230686 (NAB) which allows eligible NAB account holders and cardholders to claim under it as third party beneficiaries. Access to the benefit of cover under the NAB card insurances is provided to eligible NAB cardholders by operation of s48 of the Insurance Contracts Act 1984 (Cth). Any advice on insurance is general advice only and not based on any consideration of your objectives, financial situation or needs. You must check whether or not it is appropriate, in light of your own circumstances, to act on this advice. The eligibility criteria, terms, conditions, limits and exclusions of the group policy are set out in the NAB Card Insurance Policy Information booklet (PDF, 450KB) and in the NAB Purchase Protection Insurance Policy Information Booklet (PDF, 275KB) which may be amended from time to time. NAB does not guarantee this insurance.

³Earning Points

Points are earned and redeemed in accordance with the NAB Rewards Terms and Conditions (PDF, 292KB). These terms describe the purchases not eligible to earn points. You must have an open and active NAB Rewards credit card account to earn points.

⁴Qantas Points

Points are capped at $3,000 spend per statement period. Qantas Points will be allocated on a tiered basis over each statement period.

To earn and redeem Qantas Points using one of NAB’s Qantas Frequent Flyer rewards cards, you must be a member of the Qantas Frequent Flyer program and have provided your valid membership number to NAB. Points are offered in accordance with the NAB Qantas Credit Card Account Reward Terms and Conditions. If you are not already a Qantas Frequent Flyer member, the membership joining fee will be waived if you apply and receive one of NAB’s Qantas Frequent Flyer rewards cards and join through qantas.com.au/joinffnab. Membership and the earning and redemption of points is subject to the Qantas Frequent Flyer program Terms and Conditions, available at qantas.com.au/terms.

You will earn 1 Bonus Points for every dollar charged to your Card Account for the purchase in Australia of the following services directly from Qantas (ie. where Qantas, and not its agent, is identified as the merchant on the credit card transaction):

Qantas flights
Qantas Club and Qantas Frequent Flyer memberships, and
purchases from 'Qantas Travel' customer shopfronts.

Unless otherwise notified, Bonus Points will not be earned in relation to purchases from:

Qantas Freight
Qantas Holidays Ltd
Qantas Business Travel Pty Ltd
other businesses or franchisees of Jetset Travelworld Ltd
Qantas Staff Travel
Jetstar Airways Pty Ltd
other Jetstar-branded businesses, or
for goods or services supplied by Qantas Frequent Flyer program partners.

Fees and Charges

Please refer to our credit card terms and conditions to learn more. Fees and charges are payable. Approval and credit limit are subject to NAB's credit assessment criteria. Information, including interest rates and fees are subject to change. Correct as at 24 September 2018.