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Different Types of Credit Cards Explained

Charlotte Monteath

Charlotte Monteath

June 25, 20215 minute read
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As one of the most convenient forms of personal finance, credit cards are used by millions of Aussies as part of their day-to-day money habits.

On this page:

    According to data by the Reserve Bank of Australia (RBA), there are 13,373,592 active credit cards in Australia as of April 2021 with an average credit purchase of $100.

    But with this power comes responsibility. The trick is to be credit savvy, consider your spending habits, and know which type works best for you. Below we discuss the different types of credit cards available, so you can compare your options.

    What is a credit card?

    A credit card is a consistent line of credit that allows users to make purchases by borrowing money up to an established amount. Similar to a loan, you have a spending limit that requires repayment. But, if you want to skip the stress of fees and interest, you’ll need to pay back the full amount by the end of each month.

    Even if you can’t make the cut, there will be minimum repayments required (usually 3%), which must be met by the specified date. Otherwise, you can pay the balance in full and avoid additional interest charges.


    Let's break it down

    When you make a purchase, your available credit drops by the amount you spent. For example, if you have a credit limit of $1,000 and you spend $45 on groceries, you’ll have $255 of available credit left.

    There are lots of things to consider before deciding on a credit card including:

    • The interest rate;
    • The fees;
    • The features;
    • Potential rewards.

    The process of applying for a credit card also means you should ensure you:

    • Can afford the repayments;
    • Understand the ins and outs of a credit card;
    • Can handle your debt responsibly.

    What are the pros and cons of credit cards?

    Now that we’ve discussed the basics, let’s weigh up the pros and cons of owning a credit card.


    Pros: Credit cards can provide easy access to money, without the need to apply for further credit. This is useful when unexpected expenses pop up, you want to make a big purchase, or you need it for spending before pay day. Each month, your credit card forwards you a statement on your financial situation detailing when, where, and how you spent your credit. This can be helpful for tracking your finances. Just remember that whatever you spend, you must pay back each month.

    Cons: If you can’t make your repayment in full each month then you will need to pay interest on top of your purchases, plus a late payment fee. Additionally, many credit cards often come with an annual fee.

    Rewards and extras

    Pros: Earning, managing, and redeeming rewards can be a huge benefit of owning a credit card. Rewards programs associated with credit cards simply means when you spend money on your card, you earn reward points. The points earned can be exchanged for a range of  goodies.

    A rewards program can offer:

    • Frequent flyer points;
    • Vouchers and tickets;
    • Sign up bonuses;
    • Cash back;
    • Travel insurance;
    • Retail perks and discounts.

    Cons: Be aware that cards with rewards programs and complimentary extras often come with higher interest rates and extra fees that could end up costing you more than what you get in return. This is why it’s important to check if the benefits are worth the extra cost.

    Forming a credit history

    Pros: Owning a credit card may give banks some assurance when you apply for bigger loans, such as a home loan. If you can show trustworthiness by consistently meeting your monthly repayments, then lenders can view you as a reliable borrower on your credit report.

    Cons: However, if you are unable to meet deadlines on time, you’ll face the risk of harming your credit score and demonstrating an inability to repay debts consistently in your report. This can impact your ability to obtain loans in the future.

    According to CreditSmart, any “default information and any record of payment of the default will stay on your credit history for five years.” Repayments will also stay on your credit history for a minimum of two years.

    Purchase protection

    Pros: Most credit cards will offer purchase protection, which can be useful if you lose or damage a recent purchase on your card. In most cases, you can claim insurance on lost or damaged items through your credit card within 90 days of the purchase.

    Cons: Just like with any insurance offering, you should consider the limits and exclusions of any protection offered by a credit card.

    What are the different types of credit cards?

    Now that we’ve broken down the pros and cons, here are the different types of credit cards.

    Generally, credit cards can be categorised into six different types:

    Low-interest rate cards Cards with lower interest rates are better suited for those who can be a little forgetful and don’t always pay off their credit at the end of each month. Generally, most low-interest rate cards come with an interest-free period of up to 55 days.

    However, these cards rarely come with extra features like rewards or insurance.

    No annual fee cards In a nutshell, this type of credit card is a card with no annual fee. These can be more suitable for those who are consistent with repayments and plan on using their card just a few times a year. These cards offer little to no annual fees, however they often come with higher interest rates.
    Balance transfer cards If your purchasing habits are a little out of hand then you probably have a higher interest rate. You may want to consider balance transfer offers available. The process is simple – you move any outstanding debt across to a new balance transfer card with little to no interest for a period of three to 36 months. But some banks will charge a balance transfer fee of around 1% to 3% of the amount being transferred.
    Rewards cards Rewards cards are designed to accumulate points and optimise your spending habits. Points earned can be redeemed for cash, petrol, flights, vouchers, and more.
    Premium cards (platinum or black credit card) Some of the perks offered by premium cards can include exclusive deals, travel insurance, price protection, concierge service, and airport lounge access. But keep in mind that these types of cards tend to come with much higher rates and extra fees. You might also need a good credit score to obtain this type of credit card.
    Frequent flyer cards If you have a bad case of the travel bug then a frequent flyer card may be the best option for you. These cards accrue points that can be spent through particular frequent flyer programs from big companies like Qantas or Virgin. But these points expire so don’t leave them for too long.

    Copyright © www.jacarandafinance.com.au Jacaranda Finance Pty Ltd ® ABN 53 162 078 195 Australian Credit Licence 456 404, Pawnbroking License Number 4221738. The information on this web-page is general information and does not take into account your objectives, financial situation or needs. Information provided on this website is general in nature and does not constitute financial advice.

    Charlotte Monteath
    Charlotte Monteath

    Written by Charlotte Monteath

    Charlotte Monteath is a Content Intern at Jacaranda Finance. She has a Bachelor of Business Management & Journalism from the University of Queensland.

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