Getting your first credit card? Read this first!

Having your first credit card is a huge milestone and we all know how exciting it is to browse through all the various options different credit card issuers have to offer. However, it is also important to know how to use it prudently and handle your credit card payments responsibly. Read further to learn the tips that can help you to build a good credit reputation.

Which type of credit card to choose?

Study the few types of credit cards that are currently being offered in the market – Cashback, travel miles, Rewards and Co-brand. Choose your credit cards wisely and find the one that will suit your lifestyle. Example: if your job requires you to travel abroad frequently then choose a miles earning card to get the most benefit out of your card. However, it is important to avoid signing up for too many credit cards at a go as it might have a detrimental effect on your Credit Score.

Understand the terms and conditions for your credit card

• Credit Limit
  The maximum amount of money the card issuer will allow a consumer to spend on the credit card. The limits are determined based on your credit rating, personal income, loan repayment history, annual income and other factors. Some credit card issuers will also impose an over limit fee if you spend beyond your issued credit limit.
  
  
• Membership Fee
  Annual membership fee for the privilege or perks for using the credit card. Some membership fee is waived for the first or second year and subsequent membership years are chargeable. Depending on the credit card issuer’s criteria, this fee is also waivable upon request especially if you are a frequent user of the card.
  
  
• Minimum Payment
  The minimum amount of money you need to pay towards your credit card balance each month to avoid a late charge. Most credit card issuer require at least S$50 or 3% of the principal outstanding balances.  However, always avoid making the minimum payment, your balances will snowball with the prevailing interest rates and hence making it more difficult for you to settle the remaining balances in the future.
  
  
• Late Fee
  A penalty charge that the bank will impose when the required payment is not received by the due date or the payment received did not meet the minimum amount required. Delinquency is one of the factors that will bring down your Credit Score.
  
  
• Interest Fee
  Interest fee is calculated on any unpaid outstanding balances. Interest is accrued on a daily basis till it is fully paid up. Remember to always pay the full amount to avoid paying for any additional interest charges.
  
  
• Cash Advance
  A short-term loan offered by your credit card issuer whereby you are basically drawing cash out of your card’s line of credit. Avoid making any unnecessary cash advance as it will have a detrimental effect on your Credit Score as well.
  
  
• Billing Cycle
  A billing cycle is the period of time between billing statements. The period between the billing date and payment due date is the interest-free credit period or the grade period offered by the card issuer. Make a good habit to pay off your bills immediately once your credit card statement is out. Request for the card issuer to send you notification reminders via email or SMS so you will not miss out any payments by the due date.

Make a habit to check your Credit Score

Take the time out to check your Credit Score too. If you have recently applied for a new credit facility with any of CBS members, you can download a free CBS credit report within 30 calendar days from your approval or rejection letter here.

Other tips

Make it a habit to monitor your credit card statements. Go through your transactions and spend responsibly to make sure you stay within your budget. An important concept to remember is to always spend lesser than what you are bringing home. You can also send a request to your card issuer to set a lower daily transactional limit on your card if you wish to stay committed. It is also advisable to set aside any emergency funds to pay back any unexpected bills, a good gauge is to have at least 3 months’ worth of rainy day funds to cover your daily essential expenses.

Surely owning a credit card is a big achievement and a step closer to adulting but always keep in mind to practice good spending habits and spend within your own means only. You should also take a moment or two to do some online research and comparison before you apply and stick to a few cards that you will be regularly using.