Credit Cards

4 Questions You Should Be Asking Before You Get a Credit Card

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Elizabeth Kwong

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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 what that magical “best” credit card to sign up for is. But it’s not as simple as one best card that will give you all the benefits in the world. To make sure you get the right credit card that will benefit you the most, here are four things you should actually be asking when you apply:

 

1. What are the benefits of that credit card?

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.

So before you sign up for a credit card because of its flashy design, or because a roadshow promoter told you you can get a free luggage or umbrella on the spot when you apply, consider what you are actually signing up for. 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.

Rewards points may sound like a nice thing to have, but look through the catalogue to see what you can actually claim. Cash back tends to be more useful because anybody can use free money. 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.

 

2. Can you qualify for the benefits based on your spending patterns?

If you think a credit card’s benefits sound too good to be true, there’s a good chance they are. For instance, they might be offering you 5% cashback on all your spending… but only if you spend $2,000 in a billing month. 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.

Based on your spending patterns, make sure you’ll actually be able to benefit from the card. If you only spend HK$3,000 a month on your credit card, a card that requires you to spend $30,000 to receive the benefits is useless. If you have a main credit card that you already allocate 80% of your spending too, you’ll have a lot less to allocate to new cards.

 

3. 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.

 

4. 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.

What factors do you consider before deciding to apply for a credit card? Tell us in the comments!

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