What Is A Credit Card? Understanding Usage, Fees, And Safety In Singapore

Personal Finance

What Is A Credit Card? Understanding Usage, Fees, And Safety In Singapore

September 28, 2023

Your credit card issuer will often allow you to make purchases up to your card’s credit limit. In this article, you’ll find information about credit cards, including what is a credit card and how they function.

You will also discover how to maximise spending and safeguard your account from fraudulent charges.

Key Takeaways

The key takeaways include:

  • With a credit card, you can keep purchasing items now and make the payment later.
  • Late payments sometimes incur steep penalties in the form of late payment fees and interest charges.
  • Damage to one’s credit standing is inevitable when payments are late or not made at all.
  • Protect and keep your credit card information safe as though it were cash.

What Exactly Are Credit Cards?

A credit card refers to a slender rectangular object made of metal or plastic that a financial organisation or bank usually provides. Card owners can spend money on credit to settle payments for services or purchases.

Credit cards are a convenient way to borrow money up to your card’s maximum credit limit. A credit card’s outstanding balance is the total amount of all charges made to the card, which sums up your debt.

Options for paying the outstanding balance include paying the following:

  • The whole monthly debt.
  • Only the minimum due.
  • A partial payment.

On the other hand, the outstanding balance and extra transactions will be subject to a hefty interest rate of 25% – 29% annually.

Benefits And Drawbacks Of Credit Cards

Benefits And Drawbacks Of Credit Cards

Credit cards come with both advantages and disadvantages.

Benefits Of Credit Cards

Some of the advantages credit card users enjoy include:

  • It’s possible to make a sizable buy immediately and pay for it slowly.
  • By employing responsible practices, individuals can establish and enhance their creditworthiness, a crucial aspect of future financial endeavours.
  • The convenience and safety of carrying credit cards surpass that of carrying a bundle of cash.
  • Credit cards have a broader acceptance than individual checks.
  • Numerous credit cards offer cardholders rewards, providing a cashback equivalent to or exceeding 1% of their expenditures.

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Drawbacks Of Credit Cards

The disadvantages of using credit cards are:

  • One may find themselves in an untenable financial predicament if they do not exercise caution and restraint in their expenditure, possibly leading to debt accumulation.
  • Failing to make timely payments or utilising the whole credit limit on a card will rapidly deteriorate your credit rating.
  • The convenience that comes with the utilisation of credit cards may lead to excessive spending.
  • Even a minor debt can grow significantly over time due to interest.

Fundamental Characteristics

The following are the fundamental characteristics of credit cards.

Annual Fees

The membership fee is a mandatory payment for utilising your Singapore credit card. However, most credit cards offer new members a waiver to use the card for one year before incurring annual fees. Some institutions even have a two-year fee-free grace period when you first sign up for a credit card.

Monthly Statement

The bank will issue a monthly statement to give customers a comprehensive breakdown of their credit card expenditures for the particular month. Reviewing your statement to monitor your expenditure accurately and thoroughly is advisable.

You should also immediately notify your financial institution of any unfamiliar transactions or instances of ambiguity.

Due Date

The repayment due date refers to the specific date when the lending institution must obtain the entire payment for the credit card balance to prevent the accumulation of interest charges and late fees.

Dealing In Foreign Exchange

You will see the equivalent amount in Singapore dollars after overseas purchases. The applicable foreign currency rates can change daily and from one bank to another.

Currency conversion fees and other administrative expenses are common. You should contact them to find out what interest rates a bank offers.

Minimum Sum For Payments

If you pay the minimum monthly payment, interest will accrue on the remaining debt. Typically, the minimum quantity necessary ranges from 3% to 5% of the outstanding debt or a fixed amount such as $50, whichever is greater.

Tip: If you cannot settle your account in full, at least try to pay the minimal amount necessary before the deadline to avoid incurring late payment fees. Then, settle the outstanding debt as soon as you can. Stop using your credit card until you’ve repaid the bill in full.

Free Credit Period

Upon receipt of the monthly credit card invoice, individuals frequently get 20 to 25 days to remit payment before incurring interest charges and penalty fees from the issuing bank. This time frame is sometimes what we call a free credit period.

Gifts And Rewards

When consumers make expenditures on their credit cards, they have the potential to receive various incentives, such as:

  • Bonus points.
  • Cashback.
  • Gifts.

This analysis compares banks’ techniques in calculating bonus points, considering that various financial institutions implement distinct reward plans. Specific terms and limitations may be applicable.

As an illustration, it can’t be possible to terminate the credit card during the initial year after redeeming a gift.

Interests On Outstanding Balances

Interest will accrue on the remaining balance if you submit partial payments or repay only the minimum amount due. Any additional purchases will incur interest charges as well.

The interest you pay on a credit card can quickly add up. Only make purchases using a credit card if you can quickly pay for them.

Credit Card Instalment Plans

You must pay the entire amount when you purchase using a credit card instalment plan. This implies that until the debt is entirely repaid, you must continue making the monthly instalment payment regardless of whether the vendor fails.

In-house instalment repayment schedule. The shop offers to give the consumer credit. The merchant can typically reclaim the item if the customer defaults on their payments under these programs.

Payment schedule in instalments. Credit becomes available to clients as part of a mutually beneficial agreement between the card issuer and the store accepting the card.

Application Process For Credit Cards In Singapore

Individuals can apply for a credit card through various issuers or financial institutions. Upon approval of your application, you will receive a credit card with a set credit limit.

The bank or credit card provider will first examine your credit history to determine your income and capacity for payback. Examine your credit history to ascertain its accuracy.

Credit cards are occasionally available for acquisition during promotional events and retail centres. Although the credit card marketer can assist in completing the paperwork, the ultimate responsibility for applying lies with the individual.

A Credit Limit And Eligibility

To initiate the process of obtaining a credit card, it is imperative to satisfy the eligibility criteria set forth by the financial institution. It includes meeting a minimum annual income threshold of $30,000.

You might satisfy the requirements. However, the Monetary Authority of Singapore has regulations on the maximum amounts one can borrow on an unsecured credit card.

Tips For Controlling Spending

It is advisable to refrain from applying for more credit cards than necessary, even though they come at no cost.

Considering individual demands and payment capacity, it is wise to exercise caution while determining the appropriate number of cards to possess. Additionally, it is a good idea to terminate any credit cards that are not active.

A debit card restricts an individual’s expenditures to the available funds in their bank account. If an individual lacks confidence in their ability to exercise control over their expenditures, utilising a substitute for credit cards may be a viable option.

In The Event Of Credit Card Loss Or Theft

In the event of misplacing one’s credit card or harbouring suspicions of credit card fraud, you should:

  • It is imperative to promptly contact the bank in case of a stolen or missing credit card or if there are any purchases where there is no authorisation. Make sure to record the date and time of your action.
  • Set up SMS alerts for your credit card transactions to inform you if someone uses your card internationally or for charges that exceed a specified threshold.

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Final Thoughts

Credit cards, when used sensibly, are a handy financial instrument. Once consumers have a firm grasp on how credit cards function and how they might aid in establishing credit, they can move on to figuring out the many options available.

Next, you’ll need to determine which credit card will serve your needs best before using credit wisely to reach your long-term objectives.