Let’s say you’re wandering in a mall then a person approached you and offered you a credit card application. You realized that you don’t have any credit cards yet. So, you listened to the sales representative and thought “Maybe I really need one already!” But you thought of one thing; DEBT.
How it Works
Most of the consumers associate credit cards with debt; in some cases, it really becomes one. Credit card works like cash. Instead of giving cash directly to the merchant, you use the credit that the bank gave you and wait for the statement to arrive so you can pay the bank. Fast. Easy. Handy.
Credit Card Interest Charge
“What about interest? Using credit cards will earn interest, right?” Yes. Your statement due date is your basis for that. For instance, you get that statement and you pay the full amount on time. You won’t be charged any interest. Interest only applies to debt. Your credit card bill will be turned into one if you pay after your due date and/or not in full amount.
Credit Card Benefits
“Yes, not paying interest is good, but isn’t it same as cash? So why bother?” Cold cash is good and all, but who wouldn’t want to have perks while using a credit card? There’s a wide range of benefits that you can get from credit cards. You just need to find the one that is suited for you. If you love to shop, look for a credit card that will give you a discount or points you can redeem in the future whenever you spend it in department stores or boutiques.
If you love to travel, there are cards that will give you discounts at different airlines, access to priority/VIP lounges and points whenever you use your card for purchases. So different needs, want or hobbies; there’s a card for you that will be on your advantage.
“I’m worried that it will affect my credit score.” Yes, having a credit card will definitely have an impact on your credit score. Remember our conversation with interest? Let your due date be the guide. Good payers have good credit scores while those who have debts will have low credit scores. Paying your credit card bills on time and in full will give a good impression.
Financial institutions such as banks play a big role in providing information that will measure your score. Not having a credit card will not give them that much information. So, if you’re planning to take up a loan in the future, having a credit card with a good payment history will help you boost up your chance on getting approved.
“What about security? I heard there’s a lot of fraud scheme that can affect my credit card.” Credit cards have CVV at the back of it that is necessary for you to complete that online purchase. However, there are cases where the CVV is captured by fraudsters. It could either be that you lost the card or it was stolen from you, or it was placed on a phishing website unintentionally.
If you lost your card, you have to report it immediately, or it will depend on the policy of the bank, usually within 24 to 48 hrs., so that it will be blocked. Charges that come between the period where you lost the card or got stolen and the time you reported it to the bank will be placed for review and will be paid by the bank. Waiver of charges will be granted if and only if there’s no negligence done on the part of the credit card holder.
Best to do is to monitor your account regularly so that questionable charges can be reported right away. There’s a lot of ways you can track the spending on your credit card. Most of them have online applications so you can monitor all the transactions or another option is to have the SMS alert to be activated so that every purchase you do will alert you with a text message.
If some charges come up and it’s not yours, you can call the bank to investigate and have the charges removed.
Good Payment Habit
There are pros and cons when getting a credit card. We have already discussed the pros and the things you may encounter with having a card. So before completing that application ask yourself: Are you capable of paying on time and in full?
Spending money you cannot see or touch has a great impact on one’s spending. It gives you the illusions that you have more money than you really do, making this a potential debt in the future. Remember, paying on time will not only save you from the interest charges, but it will also improve your credit score. We don’t want you having this credit card as a disadvantage but we want this card to work for you instead. So, if you can pay more than what you spend rather than the other way around, then that’s another reason to sign that application form.
On the other hand, the credit card also has fees and charges that are not cheap. It has annual fees, late fees, conversion fees, interest charge, and service fees. Late fees and interest charges will be based on your payment habits, while conversion fees and service fees are based on your spending habits.
If you are not confident to spend with a plastic card, you can get a loan to make a high purchase in cash. If you have a family heirloom or other valuable, you can pawn it in a pawnshop for a while. Meanwhile, you can also get a loan from a licensed moneylender such as cash mart singapore.