Guide to choosing a credit card

Choosing the wrong type of credit card can end up costing you a fortune in interest.
Learn more
  • Updated:15 Nov 2000

01.Shop around

Credit cards

If you usually have an outstanding balance on your credit card, check the interest you're paying. Some cards charge 18% to 20% annually, while others charge interest rates below 10%, so it's well worth shopping around.

Please note: this information was current as of November 2000 but is still a useful guide to today's market.

Fair vs mean cards

If you only occasionally pay your bill late it’s more important whether your card company uses a fair or a mean way to calculate the interest your pay. We found that the meanest method of calculating interest could more than double some interest bills. You could end up paying more interest on a credit card that charges 10% and uses the mean way than on one charging 18% that uses the fair way. When we compared credit cards in 2007, Bank of Queensland and NSW Teachers used the fairest way to calculate interest.

Fair cards

Fairer cards use one or more of these ways to calculate interest on overdue amounts:

  • Interest only applies to amounts that are unpaid by their due date — you get credit for partial repayments.
  • Interest charged only from the date the new statement was produced.
  • An interest-free or ‘grace’ period for new purchases even if you’re carrying an unpaid debt from the previous month.

Mean cards

Mean cards calculate interest on overdue amounts in these ways:

  • Daily interest on the full purchase amount, even if some of it was repaid on time.
  • Interest charged back to the original purchase or postingdate.
  • No interest-free period for new purchases if you’re carrying an unpaid debt from the previous month.

Credit card tips

  1. Always pay more than the minimum. Even if you owe as little as $500 on a credit card, you may never get out of debt by only repaying the monthly minimum. (Calculations based on a credit card with an 18.25% interest rate and $40 annual fee; the minimum monthly repayment is the higher of 2% or $10).
  2. Only use a credit card with a 0% balance transfer offer if you can pay off the balance quickly. Switching to a low intro rate that reverts to a high standard rate is normally not a better option in comparison with a low-rate card.
  3. Avoid cash advances if you can because interest can accrue immediately. Usually no interest-free days apply on cash advances.
  4. High fees may apply on cash advances. You may have to pay a high fee of either a flat amount such as $4 or a percentage of the advance up to 2.7%. That means a $500 cash advance can cost you up to $13.50 on top of the interest you pay.
  5. Check if electronic bill payments (BPAY) are looked upon as cash advances by your credit card provider.
  6. Pay cash advances off as soon as possible. But check how much you need to pay — you may have to pay the full balance as any payments you make may be applied to purchases first.
  7. Set up a direct debit from your bank account to pay the credit card bill. If you miss making the minimum payment on your card by the due date, you may be charged up to $35.
  8. Check the balance on your card through phone or internet banking or at an ATM if you think you might be close to the limit. You may face a fee of up to $35 if you go over the limit on your card.
  9. Don’t bother with a rewards credit card if you pay interest. You’re far better off using a no-frills card with a low interest rate.
  10. Stick to a card with no annual fee if you only spent $1000 per month. With an average rewards card you’ll pay more in annual fees than you’ll earn in rewards.


Sign up to our free

Receive FREE email updates of our latest tests, consumer news and CHOICE marketing promotions.