How Does Credit Card Work In Singapore? A Comprehensive Guide To Usage, Features, Application, And Fraud Prevention
September 18, 2023
In the modern financial setting, credit cards have revolutionised our transactions. A credit card is a small plastic card issued by a financial institution like a bank that gives the holder purchasing power on a loan.
While these cards are beneficial, giving holders increased purchasing power, understanding how they function is key. Wise credit card usage can save you from several issues, including staggering into compounded debt and aiding in preventing fraud.
Let’s review how does credit card work and the ways one can help you in the modern financial setting in Singapore.
Credit cards in Singapore enable holders to access loans from financial institutions like banks, thereby increasing their purchasing power. The amount borrowed should be reimbursed before the payment due date; otherwise, the balance incurs interest.
Let’s look at some key takeaways regarding credit cards.
The Concept Of Purchasing Now Paying Later
Credit cards enable you to acquire materials currently and pay back the money at a later specified period. Purchasing now, paying later allows users to take advantage of offers, get rewards and track their spending.
Consequences Of Missing Payments In Singapore
Missing payment consequences include penalties, such as high-interest charges and additional fees like late payment costs.
Additionally, it will affect your credit score.
Importance Of Safeguarding Credit Cards
Ensuring your credit card is safe is equivalent to protecting your money. Credit card fraud has become prevalent due to technological advancements. Losing your card can expose you to several fraudulent activities that could have serious repercussions.
A Deep Dive Into Credit Cards
Now that we have the credit card definition down let’s dive deeper into how they function.
Credit Card Limits
Credit cards allow you to purchase borrowed money from financial institutions like banks up to a specific limit.
Several factors, including creditworthiness and income, usually determine this limit.
What Is An Unpaid Balance?
The amount charged on your card is also known as an outstanding balance. The unpaid balance needs is refundable after the billing cycle and set on a monthly basis in Singapore.
The outstanding balance is payable back at the agreed-upon time. Credit card issuers offer flexibility, allowing you to pay it in full, in partial instalments, or at the minimum required amount.
Failure to do so exposes you to significant interest rate charges ranging between 25 to 29% p.a charged in the principal and any new charges.
Let’s review some unique qualities displayed by credit cards.
This is a yearly charge levied by the card issuer to the owner for accessing their credit card. It is usually separate from the unpaid balance and any other extra fees credit cards attract.
When dealing with credit cards, monitoring your usage is vital. To aid this step, card issuers will present you with a monthly statement outlining how you’ve been utilising your credit card.
Reviewing this bill is essential because there might be some errors in tabulation. If you do notice any, contact your provider and let them have a look at it.
Remember, credit cards are simply loans given. Owers must repay this amount by a particular time, known as a payment due date. Card owners should reimburse the full amount before this date to avoid incurring prominent interest charges.
Foreign Currency Transactions And Conversion
When you make purchases outside Singapore conversion of the specific transactions occurs when computing the unpaid balance. These expenses undergo transfiguration back to Singapore dollars in the monthly bill. Foreign exchange rates vary, so the transactions will be according to the prevailing rates.
These rates also differ among banks. During this conversion process, extra charges are usually attracted, including:
- Currency conversion charges
- Administrative fees
Grace Credit Periods
Upon receiving your monthly statement, the card issuer often allocates a free credit period spanning 20 to 25 days. If you don’t make the deadline, they begin charging interest on the outstanding amount.
Minimum Credit Payment Amount
Credit card issuers often allow you to pay back in methods suitable for you. In the event you decide to pay the minimum balance, the rest of the debt will incur interest charges.
In Singapore, the minimum sum payments range between 3% to 5% of the outstanding amount. In some instances, it could be an amount like $70.
If you can’t clear the total balance, you can begin by paying the minimum amount and follow up on the remaining balances swiftly. This strategy will guard you against an interest charge on balances.
Interest Incurred On The Outstanding Balance
Card owners sometimes fall prey to snowballing debt due to failure to fathom this concept. You will incur interest charges on the unpaid balances when you pay the minimum amount.
Furthermore, any new purchases made will similarly attract interest.
Credit Card Gifts And Rewards
You may receive certain rewards, like earning cashback or receiving miles and reward points based on your usage. Varying banks will calculate these rewards differently. For instance, the Development Bank of Singapore (DBS) Altitude American Express® Card earns up to 2.2 miles per $1NEW on overseas spending (in foreign currency) and up to 1.3 miles per $1NEW on local spending.
You should, however, review the terms and conditions of these rewards. For example, you can’t cancel your card within a specific time stamp after claiming a gift in some Singapore banks.
Credit Card Instalment Plans
Sometimes, you may purchase something in instalments using your credit card. This agreement will require you to keep remitting that monthly fee till its full settlement, regardless of what the merchant does. The types of instalment payment plans constitute:
- In-house instalment payment plan: Under this type, the store offers credit to buyers and can reclaim the item if the customer fails to remit their instalments.
- Instalment payment plan: Credit the merchant offers to incentivise the customer to use their credit card.
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How To Apply For A Credit Card In Singapore
Applying for a credit card in Singapore is not a hassle.
Credit Card Application Process
You are simply going to undergo the following series of procedures.
- Prepare Required Documents. You’ll require some basic documents, including a photocopy of your NRIC (National Registration Identity Card and proof of income such as payslips.
- Online or In-Person Application. You can opt to complete it online or visit the bank.
- Complete the Application Form.
- Submission of Documents.
- Credit Assessment: Based on your information and supporting documents, the bank will rate your creditworthiness.
- Approval Process
- Card Delivery.
- Activate Your Card.
Credit Card Eligibility And Limit
Receiving a credit card requires you to meet the bank’s eligibility criteria. One of these requirements is having a monthly income of $30,000.
Furthermore, it would be best if you obliged to the rules of unsecured credit limits rolled out by the Monetary Authority of Singapore.
Credit Card Application Tips
While credit cards display a certain glamorous benefit, they can have a counterproductive effect if not properly used. Here are a few pointers to help you out:
- Apply only for the cards you need: Don’t have too many credit cards. Doing so may pose a challenge in repayment and chalk you up in debt. Furthermore, limit your card to your repayment ability to avoid staggering into debt.
- Opt for a debit account: Practice spending the money you have wisely before you start taking loans. Debit cards limit your spending to the amount of money in your account. YOu can get the hang of debit cards before crossing over.
What To Do When You Lose Your Credit Card Or Suspect Fraud
Once you lose your credit card, the best option is to contact your bank immediately. It helps if you remember the period and date to make it easier. If you notice any credit card fraud actions on your card, inform your provider immediately.
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Credit cards are wonderful financial tools that give holders more purchasing power. You can use these cards to purchase items in instalments or get cash advances.
However, while they display such benefits, it’s crucial to understand how to use them correctly to prevent staggering in debt.