How Does Credit Card Work? A Comprehensive Guide To How They Work And Their Key Features

Dexter Lee October 8, 2023

How Does Credit Card Work? A Comprehensive Guide To How They Work And Their Key Features

In the fast-paced world of finance, credit cards have become an indispensable tool for individuals and businesses alike. Understanding how credit cards function is critical whether you’re a seasoned credit card user or new to the world of plastic money. This detailed guide will explain the essential characteristics of Singapore credit cards, the application procedure, and what steps to take if your card is lost or hacked.

I. Definition Of A Credit Card In Singapore

Definition Of A Credit Card In Singapore

In the context of Singapore’s financial landscape, a credit card is a financial instrument that allows cardholders to make credit purchases. In essence, it enables users to borrow money from a bank or credit card provider, allowing for smooth purchases of goods and services in both the physical world and the ever-expanding domain of Internet commerce. However, it is critical to understand that this convenience comes with a high level of responsibility.

Emphasis On Wise Usage And Fraud Prevention

While credit cards provide unrivalled convenience, they also carry the risk of financial disaster if not used wisely. It is critical to understand that a credit card does not imply free money. Instead, it functions like a short-term loan that must be repaid. Furthermore, the threat of credit card fraud looms, making it critical to prioritise the protection of one’s card and personal information. 

We will go deeper into these key components of credit card management in this complete book to provide consumers with the knowledge and tools they need to make informed financial decisions.

Let’s dive in!
Key Takeaways

  • Credit cards offer the convenience of making purchases and delaying payment until the monthly billing cycle ends, known as the “buy now, pay later” feature.
  • You must meet the minimum payment on your credit card to avoid severe repercussions. 
  • It’s crucial to take measures to protect your credit card and even a debit card due to the increasing incidence of credit card fraud  

II. Understanding Credit Cards

Here are the mechanics of credit cards to provide a comprehensive understanding of how they operate in Singapore. 

Borrowing Up To The Credit Limit In Singapore

A credit limit is effectively made available to you when you use a credit card. Your creditworthiness, income, and financial history all play a role in how much of a limit your card issuer will set. It’s critical to understand that this limit is the highest sum you are permitted to borrow on your credit card.

Keeping your expenses inside your credit limit is crucial for a number of reasons:

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    • Don’t pay over-limit fees: Over-limit fees might increase your financial burden if you exceed your limit.
    • Keep your credit score safe: Utilising your credit card to the farthest possible extent will lower your credit score and make it more difficult for you to obtain credit in the future.

    Outstanding Or Unpaid Balance

    You’ll get a statement every month with information about your credit card usage, including your unpaid debt. You owe the card issuer the sum of this balance for the purchases you have made. It is essential to realise that while you have an outstanding amount, the issuer is effectively lending you money.

    High-Interest Charges (25% to 29% Per Annum)

    The interest levied on delinquent bank accounts is one of the key features of credit cards in Singapore. The interest rates applied to credit cards in the area can be unusually high, frequently ranging between 25% and 29% annually. This interest accrues on the outstanding balance and, if not properly handled, can add up quickly.

    To avoid excessive interest fees and financial burdens, it is crucial to understand the significance of these interest charges and to take the necessary actions, such as paying your amount in whole or making sizeable costs before the due date.

    Ready to begin your financial journey with a credit card? Take the first step towards financial empowerment and convenience by applying now with CreditMaster. Click here to start your application today.

    III. Key Features

    In order to efficiently manage your credit card and make wise financial decisions, you must be aware of these aspects. The main characteristics of credit cards in Singapore are shown below.

    Annual Fees In Singapore

    In Singapore, several credit cards include annual fees. Depending on the card’s features, advantages, and issuing bank, these fees can vary greatly. Some premium credit cards could include extra benefits like access to airport lounges, travel insurance, or cashback awards, which can make up for the annual charge. To determine whether the annual fee is worthwhile for your financial needs, it is critical to thoroughly study the conditions and advantages of your credit card.

    Monthly Statement And Payment Due Date

    Credit card companies send monthly statements to cardholders that include a history of all transactions, including purchases and interest charges. Your monthly statement is an important record that gives you access to your payment and spending history.

    The settlement deadline indicated on your bill is crucial. If you miss this deadline, there may be late payment penalties and interest charges added to the sum due. To keep a good credit history, timely payments are necessary.

    Foreign Currency Transactions And Conversion To Singapore Dollars

    It’s critical to comprehend how credit cards handle foreign currency transactions if you frequently make purchases in foreign currencies or travel internationally. Foreign exchange costs may apply when using your credit card to make purchases outside of Singapore, and the transactions will be converted to Singapore dollars at the current exchange rate. To efficiently manage your spending, familiarise yourself with the conditions and charges involved with transactions involving foreign currencies.

    Free Credit Period Before The Due Date

    Many credit cards provide a grace period, which typically lasts 20 to 25 days and exempts new purchases from interest charges. This interest-free period, however, is only valid if you settle the debt from the preceding month in full by the due date. If you arrange your payments wisely, using this tool can help you make interest-free purchases.

    Minimum Sum For Payments

    The issuers of credit cards demand that customers pay a minimum amount each month. Usually, this minimum payment is a tiny portion of your remaining balance or a fixed sum, whichever is greater. Failure to make this minimum payment is subject to fines and may lower your credit rating. In order to prevent late penalties and preserve a good credit history, it’s imperative to pay at least the required amount.

    Interest Charge On Unpaid Balances

    As previously noted, credit cards in Singapore sometimes have high interest rates that range from 25% to 29% annually. Any overdue balances are subject to interest charges, which can add up rapidly if your balance is not paid in full each month. Effective credit card management requires that you comprehend the ramifications of these interest fees.

    Gifts, Rewards, And Credit Card Instalment Plans

    Credit cards frequently provide cardholders with a variety of incentives and benefits. These benefits may come in the form of rebates, air miles, savings, or access to special offers with affiliated businesses. Additionally, you can spread out the expense of large purchases over a number of months with credit card installment plans, frequently at lower interest rates than with revolving credit.

    IV. Applying For A Credit Card In Singapore

    Singapore has a simple but important process for getting a credit card. To make sure you get the correct credit card for your financial needs, you must carefully navigate this process. Let’s examine the procedures and factors involved.

    Application Process With Credit Card Issuers Or Banks

    You must work with a credit card issuer or a bank that provides credit card services in order to obtain a credit card in Singapore. The following steps are often included in the application process:

    • Research and selection: Pick a credit card that fits your spending patterns and financial objectives by taking into account rewards programs, interest rates, fees, and other incentives.
    • Application submission: To submit your application, go online or stop by a bank branch. Your salary, employment history, and contact information are among the personal and financial factors that must be provided on the application form.
    • Income verification: This check makes sure that you have enough money to qualify for the card you’re asking for.
    • Credit evaluation: Your credit score, outstanding debts, and repayment record are all very important factors in this evaluation.
    • The offer: An offer describing your credit limit and card features will be sent to you if your application is accepted.  

    Eligibility And Credit Limit, Including A Minimum Annual Income Of $30,000

    Credit card eligibility requirements in Singapore vary depending on the type of credit card and card provider. However, a minimum yearly income threshold, which often starts at roughly $30,000, is a normal eligibility condition. This income cap guarantees that cardholders have the resources to carefully manage their credit.

    It’s significant to remember that credit card issuers could provide various card levels, each with unique income requirements and advantages. To get the most out of your credit card, you must select one that fits your lifestyle and income level.

    Tips For Application, Including Limiting The Number Of Credit Cards

    When applying for a credit card in Singapore, it’s advisable to keep the following tips in mind:

    • Choose wisely: Select a secured credit card that aligns with your spending habits and financial goals. Consider factors such as rewards, fees, and interest rates to make an informed decision.
    • Limit the number of applications: Applying for multiple credit cards within a short period can negatively impact your credit score. Each application generates a credit inquiry, which potential lenders can see. To maintain a positive credit profile, limit your credit card applications.
    • Manage your credit responsibly: Once you obtain a credit card, use it responsibly by making timely payments and avoiding excessive debt. Responsible credit card usage can positively impact your credit score over time.

    V. If You Lose Your Credit Card Or Suspect Fraud

    Even while losing your credit card or having suspicions of fraud might be upsetting, acting quickly is necessary to limit any potential financial harm. The following are the necessary immediate steps in Singapore:

    • Contact your card issuer: To manage such emergencies, the majority of issuers offer 24/7 customer service. In order to stop more illegal transactions, they can block your card.
    • Report to the Police: It may be helpful in any future legal procedures as well as the inquiry by your card issuer.
    • Maintain transaction tracking: You can track the use of your card and your credit card balance in real time, thanks to the numerous mobile apps and internet portals that card issuers provide.
    • Set up SMS Alerts: These will ensure you’ll be immediately informed of any unexpected behavior and can take quick action.

    Conclusion

    Understanding how credit cards work is essential for responsible financial management. By grasping the key features, potential pitfalls, and safeguarding measures, you can harness the benefits of credit cards while protecting your financial well-being.

    Ready to embark on your financial journey with a credit card? Apply now with CreditMaster and take the first step towards financial empowerment and convenience. Click here to begin your application.

    Dexter Lee

    Born with a pen in one hand and a keyboard in the other, Dexter's been crafting words into beautiful prose since he was old enough to scribble on his walls (much to his mother's chagrin). He's a self-proclaimed pun master, often leaving his coworkers in stitches with his clever wordplay. He's been known to strike up conversations with strangers and turn their stories into captivating content that keeps readers coming back for more. Despite his unconventional approach to life and work, Dexter takes his job as a content manager very seriously. He knows that every piece of content he produces has the power to make a difference in someone's life, and he's committed to using his words for good.

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