Applying For Your First Credit Card? Here Are 10 Things You Should Take Note Of
by CashOctopus • September 18, 2019
Applying for your first credit card usually comes with a sense of excitement and apprehension. You’ll have the opportunity to make your purchases conveniently and also benefit from the many perks that are offered by most credit cards. Think cashback, air miles and reward points!
That said, all this is only possible if you use your credit card wisely. Before taking a leap into the world of a credit card holder, there are some important facts that you need to know. Some of these are given below.
1. Eligibility Requirements
There are credit cards that students can apply for but we won’t be covering that here. Here are the eligibility requirements, in general that you will need to meet in order to apply for a credit card:
- You need to be at least 21 years old.
- If you are a Singaporean, you need to have an income of at least $30,000 per year. For foreigners, the annual income needs to be at least $45,000.
- You will need to present identification documents such as your NRIC card for Singaporeans or passport for foreigners.
- You will also need to present documents that verify your income which includes your most recent pay slips or CPF statements.
2. Monthly Payments
The bank that issues your card will give you a minimum amount that should be paid monthly before the due date. It is usually either 3% of your monthly bill or $50, whichever is higher.
If you fail to pay this amount, a late payment fee will be charged. However, if you pay only the minimum required, then you will be charged interest on the balance outstanding. The average interest rate for credit cards in Singapore is 25.9%. You wouldn’t want to incur credit card debt due to their exorbitant interest rates.
This also means that it is best to spend within your means and not overspend on unnecessary items.
Alternatively, if you decide to pay the full amount owed before the due date, then it will be free of any interest.
3. Need For A Bank Account
You do not need to have a bank account before applying for a credit card. This is because the card is simply a short term credit instrument which can be repaid using different avenues such as cheque and online payments.
Let’s say you wish to apply for a Citibank card but currently only have a DBS account open. Fret not! You’ll still be able to apply for a credit card with Citibank while making monthly repayments through your DBS account.
4. Credit Limit
Your credit limit is the maximum amount that you are allowed to borrow on your card on a monthly basis. You will be able to customize your monthly credit limit. If you exceed your credit limit before the end of the monthly cycle, you will be required to make an early payment to redeem some funds and continue spending.
5. Owning Several Cards
It is possible for you to own several credit cards at the same time. However, it is only acceptable if you’re prudent with your spending.
This is because of the risk of becoming overburdened with too much debt. If you choose to apply for several credit cards from the same bank, then your credit limit will natrually be spread across all the cards.
However, if you decide to apply for credit cards from different banks, you have the advantage of getting the same credit limit from each bank. Therefore gaining access to a much larger amount of funds. That said, you should never make use of this opportunity to simply spend more than you can afford.
6. Annual Fees
Most credit cards in Singapore charge an average of $193 in annual fees which vary greatly depending on the type of credit card issued. During the first 2 years, the annual fees are usually waived and you can request for a waiver in cases where it is not waived. Some cards also give bonuses such as air miles to compensate you once you pay the annual fees.
7. Cash Withdrawal From The ATM
It is possible to withdraw cash from the ATM using your credit card, though it is very costly. If you decide to take this cash advance you will be charged withdrawal fees and interest for each withdrawal that you make. This can accumulate into a substantial amount especially if you decide to do cash withdrawals frequently.
8. A Credit Card Is Not A Debit Card
Before you apply for a credit card, it is important that you realise that it is not a debit card. There are several differences between a debit and credit card. Some of these are given below:
- You do not need to have a bank account to get a credit card, but with a debit card you must have a bank account.
- With a credit card you have access to funds that may not be available in your account at that particular time. However, with a debit card, the cash you spend must be in your bank account at the time when you are making the purchases.
- In the case of a stolen credit card, it has better consumer protection and the limit is lower than your current account thus few funds will be accessible. However, a debit card offers less protection as you will incur immediate losses because funds will leave your account as soon as the card is used.
9. Supplementary Cards
As a cardholder, you may want a family member to share the benefits of your card. In this case, a supplementary credit card card will be issued for that family member but you will remain the principal cardholder.
The holder of the supplementary card will share the credit limit on your card and enjoy all the benefits. However, the payments on the card will remain your responsibility as the principal cardholder.
10. How To Limit Credit Card Debt
Before you apply for a credit card, it is important that you know how to limit the debt on your credit card so that you do not end up with a figure that you cannot pay.
The first way to limit the debt is to always spend money that you already have in your savings. The credit card should be used as an instrument of payment not as a line of credit. The second way to limit the debt is to pay the full amount every month to avoid interest charges. The third way is to track your spending carefully to ensure that you do not exceed your credit limit.
Ultimately, having a credit card can be a very useful and convenient instrument if it is used with careful planning and discipline.