Understanding credit cards

Key features of credit cards

A credit card is a form of borrowing and allows you to borrow up to the credit limit set for your card. Whatever you charge to your credit card is called the outstanding or unpaid balance. It represents what you owe.

You can pay your outstanding monthly balance in full, make a partial payment or pay the minimum sum. However, a high interest charge (25% to 29% per annum) will apply on the balance and any new transactions charged.

The key features of credit cards include the following:

Annual fees

This is a membership fee which you have to pay for the use of the credit card.

Monthly statement

Your bank will send you a monthly statement (i.e. bill) with details of your credit card spending for the month. Check your statement carefully to keep track of how much you had spent. Let your bank know if there are transactions which you do not recognise or if anything is unclear.

The payment due date is the date by which the bank must receive the money to pay your credit card bill in full, to avoid incurring interest and late charges.

Foreign currency transactions

Overseas purchases will be converted to Singapore dollars in your statement. The foreign exchange rates used may vary from day to day and from bank to bank. They usually include currency conversion charges or other administrative fees. Check with your bank for their rates.

Free credit period before the due date

When you receive your credit card bill each month, you are given 20 to 25 days to pay it (by the due date) before the bank starts charging interest and late fees. This period is known as the free credit period.

Minimum sum for payments

Paying the minimum sum due on your credit card means the rest of your balance will incur interest charges. The minimum sum is usually 3% to 5% of the unpaid balance or a specified amount, e.g. $50, whichever is higher.

Note: If you are really unable to pay your bill in full, pay at least the minimum sum by the due date to avoid late payment charges. Then pay off the balance as quickly as possible. Put your credit card away until you have paid off the outstanding balance.

Interest charge on unpaid balances

If you make a partial payment or only pay the minimum sum due, interest will be charged on the unpaid balance. Interest will also be payable on any new purchases.

Note: Credit card interest can easily snowball. Use your credit card only when you can afford to pay for the purchases.

Gifts and rewards

You may get gifts, cashback and bonus points when you chalk up your credit card spending. Compare how bonus points are calculated as different banks have different reward schemes. Specific terms and conditions may apply. For example, you may not be able to cancel your card within the first year after claiming a gift.

Credit card instalment plans

When you buy something on a credit card instalment plan, you have to settle it in full. Which means that even if the merchant fails, you have to keep paying the monthly instalment until it is fully settled.

• In-house Instalment Payment Plan: The store offers to extend credit to the customer. In these plans, the store can usually repossess the item should the customer fail to pay their instalments.

• Instalment Payment Plan: Credit is offered as a deal between a credit card issuer and a merchant as an incentive for customers to use that credit card.

Applying for a credit card

You can apply for a credit card from any credit card issuer or bank. If your application is accepted, you will receive a card with a fixed credit limit.

Before that, the credit card issuer or bank will assess your income and repayment ability by reviewing your credit report. Take a look at your credit card to see if it is accurate.

You will also sometimes see credit cards offered at roadshows and shopping malls. While the credit card promoter can help you fill out the form, the final decision to send in the application rests with you.

Eligibility and credit limit

To apply for a credit card, you must meet the bank's eligibility requirements, including a minimum annual income of $30,000.

While you may meet the eligibility criteria, you will also be subjected to the rules on unsecured credit limits from the Monetary Authority of Singapore.

If you lose your credit card or suspect fraud

Call the bank immediately if your credit card is lost or stolen, or if there are unauthorised transactions. Note the time and date when you do so.

Set SMS alerts on your credit card transactions to notify you if your card is charged above a certain amount or used overseas.