Find that classy new phone online that you just gotta have? Key in 16 digits, hit the “Purchase” button and it’s yours. Going out shopping and you’ve got no cash? Just whip out your card and those cute shoes go home with you. The reality of what you’ve just spent won’t show up until your credit card statement arrives, possibly weeks later. A credit card account is one of the most slippery financial tools you may own. That’s why every card user needs to understand their primary responsibilities and the trickle-down effects of their spending behaviour. For while a credit card may be useful in an emergency or for a little extra help out, and is a recognised tool for building a credit history, there are many ins-and-outs you need to be aware of before you decide to submit your new card application.
All credit cards’ contractual terms include some qualifications that every credit card account holder must have. This is called minimum eligibility. Most companies require that the account holder be at least 18 years old, that is, legally an adult. An applicant must usually prove a predetermined annual income level dependent on where they live, a requirement that exists to ensure that the customer can pay their bills on time. This income level varies from one country and one credit card provider to the next, so it’s best to check with the provider where you want to apply. For Singapore, one such company to check out is HSBC.
Once you have applied and approved for a credit card, keep in mind all the things that you should and should not do to keep your credit history clean, and to protect yourself from accruing an enormous pile of debt. Making sure to avoid a few common mistakes will help you properly manage your new credit card.
Not Paying Your Credit Card Balance
Not paying your credit card can be very dangerous to you in both the short-term and the long- term. When you don’t fully pay the monthly balance you carry on that card account, you will rack up a huge amount of interest on top of owing all that money you’ve spent. Also, you’ll get slapped with a late payment fee that can be more harmful in the short term as well. If you pay less than the minimum required balance, this is also considered delinquent, as if you hadn’t paid at all. Nothing good can come of this.
Paying Just the Minimum Balance
While the credit card company stipulates a minimum amount to be paid, paying only that amount of money means you continue to rack up more and more interest on the debts you already have. If you pay more than the minimum due, you can chip away at your balance, thereby decreasing over time the amount you’d be charged in interest.
Taking a Cash Advance
If you are in a bind and need cash, but don’t have enough in your regular bank account, it’s possible to get a cash advance on your credit card. This means that you take a small loan out against your card in the form of cash, a loan which you’ll have to pay back at a later time. Before doing this, you should think long and hard about if it is the best option for you because many fees can pile up during that period in which you’re paying it all back. It’s also important to know that you cannot receive the entirety of your credit limit as cash. Most companies do not allow this. If taking a cash advance is your only option, you’ll need to be aware that the interest rates are going to be high.
Not Maximising Rewards
Every credit card company offers a slew of perks for their customers. The details depend on how long you have been a customer, what type of card you have, and the availability of these rewards around the world. As a credit card holder, you can get a bit of a discount break regarding using points in exchange for air miles, hotel stays, etc. To make sure that you don’t lose such rewards, you’ll need to use up a minimum each month, pay your bills on time and not allow them to expire. It can be a huge benefit to you if you find yourself in a situation where one of these rewards works for you. If you want to find the card best suited for you, check out moneysmart.sg to compare the features on various cards.
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