Understanding Credit Cards in Singapore
So many of us know the term credit card, even children know that it is an ‘almighty plastic’ that you can buy anything with, but do you really know the details of how this piece of plastic work?
A credit card is perhaps one of the most convenient forms of payment one can have. You may argue that cash is king, but if you are going to buy a laptop that cost $1,500, are you saying you have that wad of cash in your wallet, anytime, anywhere? Simply put, the credit card is a plastic card with a bank’s logo, a set of 16-digit number and a form of monetary payment. What many people do not know is that essentially when you use a credit card, you are borrowing money from a bank to finance your purchase.
“So if its a loan, why does the bank not charge me an interest rate for borrowing the money?”
It does! In fact, the interest rates are crazy compared to a normal loan. In Singapore, typical interest rates on late credit card payments amount to around 24 percent per annum. Compare this to a mortgage loan rate of around 3-4 percent. So suppose you use your credit card to buy a television set that costs you $1000 and you were late on your monthly payment, you need to pay $240 for the interest charges. Crazy huh? Some people may also confuse credit cards with debit cards, thinking that when they make a purchase on their credit card, the money is taken from the deposit account they have with the same bank(which is what a debit card does).
So let’s have a quick look at what happens when you make a purchase via your credit card:
At the cashier, you hand over your credit card to the cashier for them to process the payment for the item you want to purchase
The cashier will then swipe your card on the card reader, in the process submitting your account details over a secure internet connection. This also helps the retailer validate your account and settle with the issuing bank on whether the purchase can go through.
Two things can happen here – either your purchase is rejected or approved. If a purchase is declined, it’s could be due to the following reasons:
- You exceeded your credit card limit
- You made a late payment
There’s a hold on your account (eg. You paid for a massage package and the company has a “hold” on your account for a deposit)
Something went wrong with the retailer’s internet connection
Assuming that the purchase is approved, the amount will add on to your monthly billing cycle, which will cumulate in an end-of-month statement of account.
The Credit Card Statement
Every month, the bank of your issuing credit card will send you a bill that includes all purchase made throughout the month. The credit card issuer will show your balance due, the minimum amount that needs to be paid as well as the rewards points you might have. Most banks in Singapore will calculate the minimum sum at about three percent of the outstanding amount or $50, whichever is higher.
How do I apply for a credit card?
To apply for a credit card, all you need to do is fill out an application at a bank or online. You will also need to supplement the application with personal documents, such as your ID or working permit, as well as your income statement for the past few months. Once your application has been evaluated and approved, the bank will provide you with a line of credit showing you what’s your monthly credit limit. The bank will then send you your credit card in the mail and give you instructions on your to activate your card.
Once you receive your credit card and activate it, you’re free to use it in various ways. Just make sure that you do not see it as a gateway to free shopping because, in the end, you are still the one who needs to foot the bill.