Credit cards can be tricky.
There are probably more than 40 credit cards in Singapore for you to choose from.
Their charges, fees, and rewards work in complex ways. If you haven’t had the time to deconstruct credit cards then don’t fret – that’s precisely what we are going to do in this article.
Credit cards come in many designs and with many different perks, rewards, incentives, cashback offers, and more. It’s important to choose the right credit card that fits the bill for you and caters to your priorities.
For some credit cards, their rewards are mainly given from dining or shopping. For some, it’s for overseas spending.
However, that’s not all. The world of credit cards is filled with marketing talk and misinformation. Neither is good news. The unsuspecting consumer is likely to get duped and end up paying more than they planned for initially.
It’s important to fully understand how a particular credit card works before applying for it. It’s also equally vital to understand the lingo deployed to explain the various features and the terms and conditions generally associated with high-end credit cards.
When used the right way, credit cards make a lot of sense. They make transactions faster and easier. However, not everyone uses them correctly. It’s not rare to hear stories of people falling into crushing debt due to overspending and accumulating late payment fees.
When they are deep in debt, they will have to consider taking personal loans to clear them. The interest rates for personal loans are lower than that of credit cards!
Without further ado, let’s get right to it.
What are credit cards acreind how do they really work?
Don’t apply for a credit card unless you’re confident that you know the ins and outs of how it works.
A credit card is a payment system. It allows you to spend more than what you have in your bank account. However, you also have to repay the overspent amount to the credit card company on time.
In principle, a credit card is very helpful in getting you out of a tricky spot. It allows you to spend more if some unexpected expense comes up.
They are also very helpful if you’re making large purchases such as for electrical appliances or for a wedding. These things cost thousands of dollars and you can easily accumulate points for a holiday or greater cashback.
But many credit card users become quite accustomed to overspending over time. They might use their credit cards even for things they don’t need without tracking their expenses or overdue. At first, it’s a small amount but slowly, it grows in size until the point where it becomes very hard to pay it all off.
Credit card fees
If you’re about to apply for a credit card then it might help you learn more about credit card fees in general. They typically range anywhere from “very affordable” to “pretty expensive.” However, the fee in and of itself isn’t what you should worry too much about. Chances are, you will find a good credit card for yourself that comes with a pretty minimal annual fee.
Credit card interest rates are on an average of 24% Annual Percentage Rate (APR).
Much to the surprise of many, you can actually get your credit card annual fee waived. All you have to do is call your card’s supporting bank and let them know. It is possible and common in Singapore.
Limits and caps
Credit cards have limits and caps.
- Some credit cards have limits on how much you can overspend. The more premium and higher-end credit cards allow for higher spending power.
- There are also maximum caps on how much you can earn in terms of savings, cashback, points, or rewards. For example, most cashback-focussed credit cards have a maximum limit such as S$80 per month only. Your monthly cashback cannot exceed that amount.
- There are minimum spending limits as well. You have to spend a particular minimum amount to fully use the rewards that the credit card advertises. For example, sometimes a card provides up to S$100 cash rebate, but you have to spend a minimum of S$300 monthly to achieve that.
Be aware of all the limits and caps. Don’t buy into an offer without doing research first.
All the rewards, perks, incentives, and bonuses come with their own terms and conditions too which you need to fully comprehend to make up your mind about which card you wish to apply for.
For example, it’s easy to find credit cards providing a S$250 welcome bonus “as you spend”. It’s important to note that this welcome bonus might take months to land in your account. Alternatively, a cashback of 3% per month with no upper limit can be a much better arrangement for you.
Requirements and eligibility
Credit cards in Singapore are mainly for working adults. Although, there are a few student credit cards as well.
Credit cards have certain requirements and eligibility criteria that you must meet. Here are a few common criteria:
1. You must be at least 21 years old to apply for a credit card.
2. You can apply for a supplementary credit card (a card that extends the privileges with only identification required and no income documentation) for a family member over 18 years of age. Supplementary cards often have lower fees.
3. A minimum income of S$30,000 is required for salaried Singaporeans or permanent Singapore residents. A slightly higher (such as S$40,000 to S$60,000 or even more in certain cases) minimum annual income is required for self-employed permanent residents and foreigners.
How does repaying the overdue amount work?
Swiping your credit card is easy until you receive your monthly credit card statement.
This is the minimum amount that you need to pay to the credit card company. Usually, it’s a particular percentage of all your outstanding balance. In many cases, this amount can also be a fixed amount. Depends on which one is greater.
If you fail to pay the credit card bill on time then the bank will impose a late payment fee or charge you interest rates.
And frankly, late payment fees generate the most profits.
If you overspend, you might be stuck in a loop, forever unable to pay off your credit card bills. Spend consciously and carefully.
For individuals who face issues repaying their credit card bills, they can apply for a low interest personal loan from the best financial institutions in Singapore.
Is a bank account with the credit card company important?
No, you don’t need to open a bank account with the company you’re applying for a credit card from. A credit card is simply a financial tool that will work with any other bank account you have.
There are a couple of caveats here:
- Some credit cards only work with certain types of bank accounts. More precisely, most credit cards do not work with certain bank account types. You might want to check with your bank regarding what types of credit cards can you use.
- Most credit cards come from some bank. They’re a financial service pioneered by banks themselves. Consequently, banks try to win more bank accounts with their credit cards by improving the perks and rewards for their credit cards if you also have a bank account with them. Even a 10% fuel savings or a S$200 welcome bonus when you also have a bank account with them can urge many to open a new bank account.
With good financial planning, credit cards are otherwise helpful with their high cashback rates and rewards.
For example, numerous couples have used KrisFlyer credit cards to accumulate points and fly overseas with Singapore Airlines (SIA).
At the end of each month, just make sure you repay the amount you owe to the bank and you will be good to go. Credit cards are a great short-term borrowing tool and they can help you out in a pinch.
Keeping an eye on your expenses and properly tracking them are great ideas to know what to expect at the end of the month.
The compound interest on outstanding balance always works in the bank’s favor. People who find it hard to pay their credit card bills on time often find themselves going down a rabbit hole of increased borrowing to pay off their debts – ultimately leading them towards a poor credit score.
Always pay your credit card bills on time!