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A guide to using credit cards

If you're new to the world of credit cards, learn how to choose the best credit card for you

12 January 2022Lloyd Smith 7 min read
How to Choose a Credit Card? A guide to credit cards

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With so many options out there, finding the right credit card can feel like going through a maze. From complicated repayment options to confusing interest rates and rewards, it can definitely get overwhelming very quickly.

In this guide, we discuss everything you need to know about how to choose a credit card so you can avoid debt and get the best credit card possible.

A credit card is a type of unsecured lending which gives the main cardholder access to a revolving line of credit. It is unsecured because you don’t put up any asset as collateral to get credit and it's revolving because you can use your credit card in an ongoing manner.

The maximum amount you can spend with your card, also called the credit limit, is assigned to you by the credit card issuers. You can use the credit card up to the specified limit to make purchases and there is no money deducted from your bank account directly.

Instead, the bank gives you ‘credit’ or you borrow money from the bank, and you are expected to pay back the full amount or a part of the total amount by a specified due date/ monthly billing cycle. A credit card bill gets generated every month, at the end of the billing cycle. There is usually a due date mentioned on the bill along with late payment clauses as well.

You will then have the choice to either pay off the entire amount you owe, some of all the amount, or a minimum amount which you need to repay (this is usually 2-3% of the total amount.)

In case you only pay the credit back in part, the remaining amount will be considered as extended credit. While you can pay for the extended credit in the next billing cycle, there might be an interest charged over the amount until you pay it.

For some cards, interest may even be charged from the day of the transaction. While some people assume credit cards to be a financial risk, they can be useful in numerous ways, including:

  • Build a positive credit history when you pay all the owed credit by the billing date every month
  • Secure rewards points and cash back that can be used for future purchases
  • Rake in frequent flier miles to book airline tickets at a discount and get access to premium airport lounge
  • Get an extra grace period to pay off big investments

Here are some of the basic features of credit cards that you should know before you choose one.

Credit limit: It is the maximum money that you can borrow with your credit card. In most cases, it is the bank that determines the credit limit at the time of your application, based on your credit score and previous credit history. The limit is also determined by the type of card you choose.

Interest-free days: It is the period of time during which you aren’t charged any interest on the purchases you make with your credit card. In other words, you get a short period of interest-free credit from your bank and as long as you pay off the full balance by the billing due date, you aren’t charged interest over the amount.

Most credit cards offer up to 44-55 days as interest-free. Though note that you only get the interest-free benefit when you pay the entire borrowed amount in full.

Cash advance: Some credit cards also allow you to withdraw cash from ATMs whenever you need it. There is usually a limit on cash withdrawals that is lesser than the total credit limit.

In some cases, cash advances may even attract a separate fee, a higher interest rate and the amount may also not be eligible for interest-free days.

Rewards: Credit cards offer a lot of different reward programs to lure customers. While some offer reward points for every purchase which you can later redeem, others offer cash back for purchases. There are also cards that offer introductory benefits when you sign up with them.

But most reward-based cards have higher annual fees and interest rates.

Contactless payments: It has now become a norm for cards to offer contactless payments which allows you to make purchases by tapping your card on the POS instead of swiping it.

Most credit card issuers now also offer contactless payments through Google Pay, Apple Pay, Samsung Pay, and other mobile payment wallets.

Insurance cover: A lot of card issuers offer complimentary insurance, as well, like travel insurance, warranty insurance, purchase protection insurance, accidental insurance, and more. Premium cards with a higher annual fee will have more extensive insurance covers.

Here are all the costs and fees associated with a credit card that you should know about:


It is the amount you owe against the credit card. You need to pay off your credit card bills every month in order to avoid late fees and heavy interest.

While you are required to make a minimum repayment every month when your credit card statement comes in, you are free to repay as much as you like as long as it's more than the minimum required amount.

Annual fee

This is the yearly cost of using and owning a credit card. Cards with lesser benefits usually have a lower annual fee or even zero fees. But if you are going for a card with a lot of benefits and a high credit limit, it is bound to cost you more yearly.

Note that the yearly fees are deducted from your credit limit and it also accrues interest if you don’t pay it in the first monthly statement for the yearly billing cycle. That's why it's best to pay it off at the start so you don't have to pay interest on it.

Interest rates

It is the interest that you pay for the money you borrow with a credit card. Usually, interest rates for credit cards are higher since they are a form of unsecured loans. Though most credit cards offer a specific interest-free period and you can avoid interest charges if you pay your bills on time. You can also opt for interest-free credit cards.

Late payment fee

This is the fee that gets charged when you miss interest repayment for a month. The late fee is usually added to the next month’s billing statement.


Best suited for conscious spenders and for those who are new to the credit world, interest-free cards do not charge any interest on the total amount accrued for up to 12 months, or they may have very low-interest rates.

Though it is important that you check when the interest-free period ends and how much interest you will be charged after that. It is because many a credit provider offering a seemingly interest-free card may end up charging an interest rate that is way above the market average once the interest-free month's end.


These types of cards either have low or no annual fees at all, but they can have considerably higher interest rates. They are best suited for people who are confident they can pay off their card bills on time every month. Also, note that most low-fee cards do not offer any rewards programs.


These cards have a considerably lower interest rate which is why they are best suited for people who know they might not be able to pay their card bills every month and they would probably have to transfer the balance over from one month to another. The only drawback is that most low-rate credit cards can have a higher annual fee.


Best suited for big spenders and freebie lovers, reward credit cards allow you to earn points on all your purchases. You can later redeem these points for gift cards, retail products, online coupons, or in-store discounts. Though rewards cards can have higher interest and annual fees than regular cards. You also need to be conscious of the reward point caps and expiry dates for the rewards programs.

Frequent flyer cards

Best suited for frequent travellers, these cards are linked to an airline's frequent flyer program. Every time you make a purchase, you get points that you can later redeem against airline tickets and even airport lounge access in some cases. Though these cards can also have a considerably high-interest rate and annual fees as well.

Balance transfer

In case you are struggling to pay off your existing credit card debt, it's possible to transfer the balance to another card with a different provider and get a considerably low interest at the start with the help of a balance transfer card. You can then use this extended time to slowly pay off your debt without worrying too much about how much interest it will accrue.

1- Check your credit score

While there are a wide variety of credit cards available, you may not be eligible for all of them. Your credit score will determine what kind of cards you are even eligible for. The better your score, the more chances you will have of being approved for cards with more perks.

That is why you should start by getting a credit score report. If the number is considerably low or just not what you expected, you should analyse the credit report to see what is causing the problem and then work on improving it.

2 - Identify the type of credit card you will need

When you compare credit cards, remember it will depend a lot on the main reason you are getting a credit card, your financial goals, your current financial status, and any outstanding loans that you might already have. As mentioned above, there are several different types of cards available, each with different benefits and different patterns of repayment.

The best value credit card would be the one whose features are designed to meet all of your specific needs. But if you are still new to this game, it's best to go for a low-cost and low-interest card with basic rewards features. In case your debt has been building up, you can also use balance transfer cards to transfer the entire debt to another credit card issuer.

3 - Consider your average monthly spending

Credit cards can undoubtedly be helpful in many ways but they can also throw you off your monthly budgets entirely and pile up a lot of interest and repayment fees if you are not careful enough with your spending habits.

It can be very easy to overspend with a credit card since you don’t have to repay right away. As a result, it is necessary to avoid overspending and make sure you don’t get yourself into debt that is beyond your means.

Calculate your average monthly spending to make sure you can repay at least the majority of the amount you owe.

Just paying a minimum amount as repayment can be done to avoid late fees once in a while but it's not something you should be doing every month. The lesser you pay off, the more interest you will be charged.

4 - Apply for the credit card that offers the highest value

Filter through all the options you have and apply for the credit card that seems to offer the highest value to you. If you still aren’t sure, shortlist the 2-3 cards you like the most and then zero in on the one that fits your needs perfectly.

Choosing the right credit card starts by checking your credit score.

With ClearScore, you can get a free credit score report, filter through the many credit cards you are eligible for, and apply for them all through one single account.

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Written by Lloyd Smith

General Manager AU

Lloyd spreads the word about how awesome ClearScore is.