What are credit card rewards and points?

Some credit cards allow you to earn rewards such as frequent flyer points, rewards points or cashback on eligible purchases. Rewards credit cards usually have higher interest rates and annual fees than non-rewards cards.

Should you get a credit card? We weigh up some of the pros and cons

“Should I get a credit card?” If you’re currently pondering this question, it may be worth asking whether you can responsibly manage a credit card, and whether the perks and benefits outweigh the potential downsides.

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Key points:

Most credit cards offer an interest-free period on purchases
Credit cards can be useful in an emergency situation
You can be charged credit card fees and other related costs
Credit card interest can add up, and may impact your credit score.

A credit card allows you to borrow funds from a bank to make purchases, generally up to a set limit. Credit cards typically have a minimum repayment amount that you must meet each billing period, and any balance that is still owing on the card will be charged interest, which you will eventually need to repay alongside the balance.

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Some credit cards come with rewards programs, with awards ranging from points that can be spent in stores through to frequent flyer miles and other related perks. If you manage a credit card responsibly, then these perks can be a welcome bonus, but if not, you can find your finances and your credit score adversely affected.

If you’re currently asking yourself “should I get a credit card?”, we’ve weighed up some of the advantages and disadvantages.

What are the potential advantages of a credit card?

1. You can take advantage of credit card interest-free days

Most credit cards offer an interest-free period on purchases, usually up to 44 or 55 days. This is the maximum number of days you won’t be charged interest on your purchases. It applies so long as you pay your closing balance in full by the due date each month.

If you don’t pay off your closing balance in full or simply make the minimum repayment, you’ll lose your interest-free period and be charged interest on your unpaid balance.

The interest-free period also only applies to purchases. It doesn’t apply to other types of transactions, such as cash advances.

2. A credit card may help in an emergency

Credit cards can also be useful in an emergency situation if you need to pay for something but you’re short on cash. Remember though, you can be charged interest if you don’t pay your balance in full on time.

If you only intend to use your credit card for emergencies, you may want to look for a card with no annual fee.

Another option could be to create an emergency fund to help cover any unexpected expenses that crop up. You might also like to try the Canstar app or Budget Planner Calculator to help you manage your personal budget. This could help you avoid situations down the track where you need to rely on a credit card for emergency funds.

3. You can earn credit card rewards and points

Some credit cards allow you to earn rewards such as frequent flyer points, rewards points or cashback on eligible purchases. For example, with a frequent flyer credit card, you typically earn airline points for each dollar you spend using the card.

Rewards credit cards usually have higher interest rates and annual fees than non-rewards cards.

If you think you may struggle to pay off your balance in full each month, you may be better off with an interest-free or low rate credit card, or sticking to a debit card. Any benefits you gain from a rewards card could likely be outweighed by the interest and fees you would be charged.

4. Weigh up credit card insurance

Some credit cards (usually more premium ones) provide some complimentary insurance. For example, some credit cards come with complimentary travel insurance and rental vehicle excess insurance.

Other common insurance offerings include purchase protection insurance, which can cover you against loss, theft or accidental damage to personal items purchased with your card, price protection insurance, which may refund you the price difference if an item you bought using your card has dropped in price, and extended warranty insurance.

You may also come across optional consumer credit insurance (CCI). This type of insurance provides cover if you are unable to meet your repayments because you are unemployed, you are sick or injured, or you die. The Australian Government’s Moneysmart warns that CCI insurance offers “poor value for money” and stresses “you don’t have to buy it”.

As with any insurance product, take the time to understand the limits and exclusions of any cover you may get and consider your personal needs and requirements.

What are the disadvantages of credit cards?

1. You may be charged interest on your credit card

If you don’t pay your closing balance in full by the due date, you will generally lose your interest-free period. This means you’ll pay interest on your outstanding purchase balance.

You may also pay interest on any cash advances or balance transfers. Cash advances typically attract interest from the date of the cash advance until it’s paid off.

For balance transfers, some cards have 0% balance transfer offers, where you are charged no interest on your transferred balance for a limited time. But at the end of the offer period, the balance transfer rate will revert to the new rate and that could be higher than your existing credit card. If you haven’t paid off the amount transferred, you will be charged this rate on your outstanding balance.

2. You’ll likely face fees and costs

You can be charged a range of credit card fees and other related costs. This could include annual fees, late payment fees, international transaction fees, cash advance fees and balance transfer fees.

There are some cards that have no annual fees, but these are usually ‘no-frills’ cards. Frequent flyer and rewards credit cards typically charge higher annual fees.

3. Your credit score could be impacted, if you’re not careful

If you miss your credit card repayments, this can be recorded on your credit report and can have a negative impact on your credit score. You’re considered to have missed a payment if you make the payment more than 14 days after the due date. This will stay on your report for two years.

Making multiple applications for credit in a short space of time can also be bad for your credit score. This flags you as a greater risk compared to someone who makes infrequent applications.

On the flipside, if you use your credit card responsibly and make your repayments on time each month, this can help build up your credit history and improve your credit score.

→ You can check your credit score for free

Compare Low Rate Credit Cards with Canstar

The table below displays some of our referral partners’ low rate credit cards for Australians spending around $2000 per month. The results shown are sorted by highest Star Rating, then lowest purchase rate, then alphabetically by provider name. Consider the Target Market Determination (TMD) before making a purchase decision. Contact the product issuer directly for a copy of the TMD. Use Canstar’s credit cards comparison selector to view a wider range of credit cards. Canstar may earn a fee for referrals.