Banks will no longer be able to approach customers offering credit card limit increases after new laws cleared parliament.
Under the changes, banks will also be banned from inviting customers to increase limits and be forced to provide an online option to cancel cards or reduce credit.
"These reforms will provide vital protection to vulnerable Australians and improve competition in the credit card market," cabinet minister Michaelia Cash told parliament.
About $52 billion of debt is spread over 16.7 million Australian credit cards, at an average of $4730 for each card.
The crack down on credit practices is one of the government's financial sector reforms announced before it relented on holding a royal commission into the sector.
Banks won't be able to make unsolicited invitations to increase credit limits in writing, phone or online, even if someone has previously opted to receive them.
Providers will be required to assess the suitability of a credit card contract on the consumer's ability to repay the credit limit.
Labor supported the reforms, but criticised the government for being slow to act in protecting customers.
"This change cannot come soon enough. The royal commission though, will deliver the real change in practice and culture," Labor senator Chris Ketter said.
In addition, banks will no longer be able to charge backdated interest or charge interest on balances which have already been paid.
The new laws also give the banking regulator more powers over non-bank lenders, which Senator Cash said would add to the Australian Prudential Regulation Authority's "tools on the shelf".
APRA will be able to make rules and directions over non-bank lenders to stop them acting in ways which will jeopardise financial stability.
On Wednesday, separate laws cleared parliament giving APRA beefed up powers to respond during a future financial crisis.
Australian Associated Press
