If you’re carrying around a wallet with enough slots to carry half a deck of playing cards, then you’ve probably already signed up for quite a few credit cards of your own.
Everyone wants to know which credit card is a must-have to sign up for. But it’s not as simple as one best card that will give you all the benefits in the world. Before getting there, it’s better to get to know the basics of credit cards to be MoneySmart!
Here, we have answered some commonly asked questions about credit cards for all credit card beginners!
How do credit cards work?
Credit cards allow you to borrow money from a lender to make purchases. You are required to pay back the borrowed amount along with interest and any fees.
Credit cards vs. debit cards: What’s the difference?
While credit cards allow you to borrow money to make purchases, debit cards allow you to spend money that you already have in your bank account. With a debit card, you can only spend what you have in your account, which can help you avoid overspending.
What are the benefits of using a credit card?
Credit cards offer several benefits, including cashback, reward points, and fraud protection. Many credit cards also offer the ability to build credit, which can be helpful if you’re looking to improve your credit score.
How to choose the right credit card
Choosing the right credit card can be a daunting task, but it’s important to consider factors such as your credit score, spending habits, and rewards programs to choose a card that fits your needs. Some credit cards offer rewards for specific types of purchases, such as travel or dining, so it’s important to consider your spending habits when making your choice.
Checkout the following guide to find your best fit:
How does my credit score affect my credit card application?
Your credit score is a numerical representation of your creditworthiness and it affects your credit card application by influencing the interest rate and credit limit you receive. A high credit score may help you secure a lower interest rate and higher credit limit.
Here are some tips to improve your credit score:
- Repay outstanding balances: Paying off your credit card balances in full and on time each month is one of the best ways to improve your credit score.
- Keep your credit utilization low: Your credit utilization is the amount of credit you’re using compared to the amount you have available. Keeping this ratio low (roughly lower than 35%) can help improve your credit score.
- Don’t open too many new accounts at once: Opening too many new accounts in a short period of time can negatively affect your credit score.
- Check your credit reports regularly: Reviewing your credit reports can help you identify errors or fraudulent activity that may be negatively affecting your credit score.
- Avoid closing old accounts: Closing old credit card accounts can negatively impact your credit score, so it’s generally best to keep them open even if you’re not using them.
How are interest rates on credit cards calculated?
The interest rate on your credit card is the cost of borrowing money, and it is calculated based on the annual percentage rate (APR) and your balance. If you carry a balance on your credit card, you will be charged interest on that balance.
How do I make payments on my credit card?
You can make payments on your credit card through the lender’s website, app, by check, or by phone. It’s important to make your payments on time to avoid late fees and negative impacts to your credit score.
What happens if I miss a payment on my credit card?
If you miss a payment on your credit card, you may be charged a late fee and your credit score may be negatively affected. It’s important to make your payments on time to avoid these consequences. You can try give a call to the customer to “explain” your situation to waive the panalty fees.
Check out the blog post to find all the phone numbers of credit card providers.
How do I dispute a charge on my credit card statement?
If you see a charge on your credit card statement that you don’t recognize or believe is incorrect, you can dispute it with your lender. They will investigate the charge and provide you with a resolution.
Check out the blog post to find all the credit card providers hotline.
What should I do if my credit card is lost or stolen?
If your credit card is lost or stolen, it’s important to contact your lender immediately to report the loss and prevent fraudulent activity. They will cancel your card and issue you a new one to prevent any unauthorized charges.
Check out the blog post to find all the credit card customer service contact numbers.
How does the annual fee work with credit cards?
The majority of credit cards offer a waiver on the annual fee for the first year or two, so it should cost you nothing to sign up for them. Still, having a credit card you rarely use can turn out to be a liability as you might have to pay annual fees later on if you forget to ask for a waiver, and it’s especially tough to get one if you haven’t spent enough on it throughout the year.
What are the tips before applying for a credit card?
- Be sure you at least know the basic benefits of the credit card and consider whether it’s something you are actually interested in before signing that application form.
- Check out the annual policy of the credit card before applying (Check out the credit card with no annual fee.)
- Rewards points may sound like a nice thing to have, but look through the catalogue to see what you can actually claim. Beware of the cap on the rebate; don’t spend more than the limit to receive no rebate.
- Frequent flyer miles are most useful for those who travel often, because you can combine the miles from your credit card with the miles you’ve accumulated on your own flights to save money on future travel. (Check out the credits with Asia Miles redemption program.)
More tips about credit card cash rebate
Beware for some false advertising as well that might promise you a high cash rebate rate amount if you spend a lot but then cap the cash rebates under the actual rebates e.g. 5% bonus cash rebates but what you actually get back is less than 5% because of a cash rebate cap.
Obviously, banks are not going to advertise the spending requirements in big, bold print on their websites. You need to click through to the terms and conditions document in order to read the exact requirements.
Consider your spending patterns to ensure that you can actually benefit from a particular credit card. For instance, if you only spend HK$3,000 per month on your credit card, a card that requires you to spend $30,000 to receive the benefits will be useless. If you already allocate 80% of your spending to a main credit card, you will have less to allocate to new cards.
When do the benefits expire?
If you are new to credit cards, one of the key things you should definitely know is that credit card benefits don’t last forever.
First of all, find out how long rewards points and air miles are valid. Some of these can have a pretty short shelf life of only 1 to 2 years, so if you don’t use them in time you’ve wasted all those thousands of dollars you’ve spent to get them.
In other instances, things like bonus cashback offers or accelerated miles and reward points accrual rates might only be in effect for a certain period of time. Make sure you’re aware of the time period for this, if not you’re going to end up getting a card that doesn’t actually maximise the benefits you get based on what you are spending on.
What are the credit limit and balance transfer fee?
If you are paying your credit card bills in full every month like you should be doing, you don’t need to care about this. But if you’re the sort who tends to lose track of how much you’ve spent, make sure you at least know your credit limit so that you don’t end up trying to pay for something and having your card rejected multiple times.
Also, ask the bank how much a balance transfer costs. If you have difficulty paying off the balance on one card, you might want to pay for the bill using a card with a lower interest rate. Balance transfers can help with debt consolidation i.e. paying off multiple bills through one channel, especially if your different bills are being charged different annual percentage rates (APRs). Also, you would typically transfer your balance over to a lower APR so that you pay less in interest while clearing your debt.
Related artciles
Wanna stay ahead of the herd? Let’s check out the MoneySmart blog for more financial tips!
MoneySmart—Your One-Stop Financial Products Platform
Homepage: www.moneysmart.hk/en/