Credit cards have become a part of our daily lives. It has stood the test of time, and even in the e-wallet era, the credit card has remained an essential tool in Singapore.
The convenience in paying bills this mode of payment offers is one of the reasons for its dominance in Singapore.
How does credit card work? The fast swipe payment model lets you make your payments instantly, even if you’re out of cash. It also allows you to save money when you use it to pay your bills. In addition, you can utilise the credit card to build healthy credit by adhering to appropriate financial habits.
But don’t let the excitement of using credit cards overwhelm you. Note that you’re not spending from your pocket when you use a credit card to purchase or pay a bill. Instead, you’re paying using an advance short-term loan that must be repaid. On top of that, you must pay an interest rate changeable. However, paying your credit bills fully before the due date will exempt you from the chargeable interest.
Whether you’re a seasoned financial expert or a newbie in the credit world, this article has something for you. Reading the article will widen your knowledge of credit cards, their key features, how to apply, eligibility criteria, and what to do when you lose your credit card. Let’s get started.
- A credit card allows an advance payment, letting you buy now but pay later.
- The credit card charges interest when you use it to purchase items or pay bills. However, late credit repayment will attract hefty interest and late payment fees.
- Late credit payments will lower your credit score, which may make getting a new credit facility challenging.
- The credit card has a credit limit. You can spend up to the limit.
- You can earn rewards when you purchase items with certain credit cards through miles, points, and cash back.
- You can get your credit card from a bank, store, or other financial institution in Singapore.
What Is A Credit Card?
A credit card is a small rectangular card used to pay bills and make purchases, especially when you’re out of cash. The simplest way to put a credit card into context is a short-term loan that pays for your bills, allowing you to repay later with interest. The amount you owe is called an unpaid or outstanding balance.
How Does Credit Card Work?
The first thing you need to do is apply for a credit card account. After it is opened, the credit card issuer will assign you a credit limit. The limit is the amount of money the credit company permits you to utilise in paying bills or making purchases.
As you spend, your credit reduces until you reach the limit. Note that you must pay the credit and interest.
Besides getting a credit card, the issuer can also give you a cash line of credit (LOC). The cash line of credit allows you to withdraw cash loan advances in ATMs, bank tellers, or credit card checks. Note that loans acquired through this means attract higher interest rates from 25% to 29% per annum and don’t have grace periods.
A credit card can be secured or unsecured. The most common one many individuals in Singapore prefer is the unsecured one. It lets you obtain credit facilities without cash deposits. However, a secured credit card requires depositing cash before opening it. The initial deposit you make doubles as your credit limit.
Understanding Credit Cards
As described above, a credit card is a short-term loan facility that allows you to borrow cash advances and use it to pay bills or make purchases until you reach your credit limit. You must repay the credit later with an interest.
Repaying Your Credit
There are three ways you can repay your credit. The first method is making a full payment; if you have used $500, you repay the whole amount as one payment. Another way of repaying your credit is making a partial payment, say $150 of the $500 you owe. The last way to repay your credit is by paying the minimum sum as directed by your credit issuer.
The only downside to credit cards is that they impose high interest rates on their credit. The average interest rate chargeable on credit cards in Singapore is between 25% and 29% per annum. Credit cards have the highest annual percentage rate (APR) compared to other consumer loans. Note that the interest will start accruing on the outstanding balance a month after your purchase, except when there is a 0% APR introductory offer.
Regulations On Credit Cards
The regulatory laws of Singapore constrain credit card issuers to grant a 21-day grace period before they start charging interest on the credit obtained. That means you won’t pay any interest when you pay before the 21-day grace period elapses. That’s why we recommend you pay the credit early enough and in total amount to evade the interest.
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Below are the key features of credit cards in Singapore.
Annual Fees In Singapore
The annual fee is the membership fee each credit card holder pays for using the credit card. The amount is paid annually.
Monthly Statement And Payment Due Date
Each month, your registered bank will send you a bill showing the details of how you used your credit card that month. It is essential to go through and check the monthly statement to know how much you’ve spent on your credit card. However, if you find anything unclear or discover a transaction you don’t recognise, check with your bank for clarification.
The payment due date is when you’re supposed to pay your bank so they can repay your credit in full. Beyond this date, you’ll incur interest and late payment fees on your credit.
Foreign Currency Transactions And Conversion To Singapore Dollars
If you use your credit card overseas, the bill will be converted to Singapore dollars. However, the foreign exchange rate varies daily and may confuse you if you’re not keen. Different banks also have different foreign exchange rates. On top of the credit and interest chargeable, you must also pay for the currency conversion charges and other associated fees.
Free Credit Period Before The Due Date
The free credit period is the 20 – 25 days grace period you’re given to pay your credit card bill each month after the bank issues it to you. Beyond this date, the bank will start charging late payment fees and interest.
Minimum Sum For Payments
The minimum sum is a percentage of the outstanding balance you’re supposed to pay on your credit card. Singapore’s average minimum sum of payments is between 3% and 5% of the unpaid balance. However, some credit cards require you to pay a specified amount, like $50, if it exceeds 3-5% of the outstanding balance.
Note that the remaining amount will attract interest charges if you pay the minimum sum of payments. It is beneficial to at least pay the minimum payment before the due date if you cannot make a full payment. This way, you’ll be able to avoid the late payment charges. After that, plan to pay the remaining amount as soon as possible.
Interest Charge On Unpaid Balances
Paying the minimum sum for payment or making a partial payment means the outstanding amount will attract interest charges. Also, any new purchases will attract interest charges. Note that interest charges on credit cards can quickly snowball. Therefore, it is advisable only to use the card if you can pay for the purchases.
Gifts, Rewards, And Credit Card Instalment Plans
Credit cards can earn you bonuses, gifts, and cashback as you continue using them. However, the bonus calculation criteria vary from one financial institution to another.
Applying for A Credit Card In Singapore
Below is the process involved when applying for a credit card in Singapore.
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 report to see if it’s accurate.
Application Process With Credit Card Issuers Or Banks
- Browse the issuer’s website or their branch.
- Apply for a new card.
- Wait for the approval. The credit card issuer will assess your repayment ability and your income for eligibility.
- The issuer will communicate the approval decision.
- After 5-7 business days, you’ll receive your new card by mail if approved.
- Follow up with the credit card issuer if the application is rejected.
Eligibility And Credit Limit, Including A Minimum Annual Income Of $30,000
The eligibility criteria for banks in Singapore is a minimum annual income of $30,000. You must attain this requirement to apply for a credit card. The Monetary Authority of Singapore will assess and regulate the credit limit for the unsecured credit card you apply for.
Tips For Application, Including Limiting The Number Of Credit Cards
Consider the following tips when applying for a credit card.
- Only apply for the number of credit cards you need and cancel the cards you don’t use.
- Opt for a debit card if you can’t control your credit card spending. The debit card will limit you to what your account has.
If You Lose Your Credit Card Or Suspect Fraud
If you lose your credit card, call your bank immediately. Do the same if you discover unauthorised transactions. Also, take note of the date and time this happened.
To further secure your credit card against fraud, set SMS alerts that will notify you whenever there is a transaction on your credit card overseas.
You have the best opportunity to access funds for paying your bills, making purchases, or addressing urgent expenses. While a credit card can sort you out in most cases, a supplementary cash loan can do much more. We at Credit 21 have the best loan offers in Singapore, be it personal, car, or student loan. Don’t hesitate. Click here to get started.