When you are traveling or living in another country, especially in Singapore, credit cards will come in handy. Sometimes you will not have enough cash on hand to meet all your needs. You can also utilize credit cards to build your credit. Good credit history, which means consistent credit card repayments, can help you obtain loans and even other credit cards conveniently.
But do you really know what a credit card is or how it works? Perhaps only a little. Thus, the following information will surely come in handy.
What is a credit card?
Credit cards are sometimes called plastics, because they are made of such. However, they are very powerful, as you can do a lot of things with them. Credit cards come in wide varieties. There are entertainment cards, dining cards, travel cards, regular ones, charge cards, supplemental cards—and a whole lot more.
A credit card, though, is more associated with debt. When you use it, you are not using your own money but from the issuer, which can be both a bank or a non-bank.
The first credit card was released in 1950, and it was issued by Diner’s Club. It is the first credit card that is accepted by various business establishments. It was followed eight years after by American Express. Later the banks adopted the system, and they too started issuing their own credit cards. Two of the most popular ones found all over the world are Visa and MasterCard. Visa was from Bank of America while MasterCard was formerly called MasterCharge.
Credit cards are made up of a series of numbers, both found in the front and the bank. They are not random ones. Issuers follow the ANSI system. What the numbers mean, however, differ from one issuer to another. The back contains a magnetic stripe that contains information and is the one “read” by the machine in shopping centers and other establishments.
How does it work?
A credit card works like a loan, wherein you use other people’s money to purchase something you need or want. Virtually all cards have credit limit. It is the amount you can utilize in whatever way. Normally the amount is based on a number of things, such as your employment status, credit history, and salary. If you have been their credit card user for such a long time, your credit limit may be very huge.
When you shop, you present the credit card to the cashier. The cashier will then swipe the card into their credit card reader. If it works, the machine will print a copy, stating how much money you have taken from the credit limit. Meanwhile, the amount is debited from your credit card.
Every month, you will be provided with a statement. It is a document containing a lot of data, such as how much you spend within a statement period, what is your minimum payment, when to pay it, interest, fees, and total balance of your credit card limit and amount you have used up.
What is the relationship between credit cards and interest?
Credit cards have interest rates, calculated per annum. This is how credit card issuers can earn money from you—just like loans. In Singapore the interest rate can be between 18 and 25 percent. Since it is something you need to pay, you should look for credit cards with low interest rates also for low repayments.
Moreover, the interest on your credit card will be based on your remaining balance. That is why it is recommended you pay the full amount when it is due, not just the minimum. As more debts are carried over, the higher your interest repayments will be.
Remember: don’t easily fall for interest-free credit cards. Usually, they remain interest free for only a period of time. If you’re not keeping track of it, you could be overspending and be charged with a very high interest repayment.
How do you apply for a credit card?
There are two ways on how to apply for a credit card. You can go to their respective websites or proceed to the banks, such as in the case of Visa. What you should focus on is how to be eligible for a credit card.
A bad credit report does not really mean you are no longer eligible for a credit card. However, if you do get one, you may have a very small credit limit and a high interest rate. In Singapore you need to be at least 21 years old and a resident or citizen of the country. It helps if you already have an existing account in the bank. Normally you will just request your origin country to send your references to their Singapore branch. You also need proofs such as visa, passport, employment pass, and proof of billing.