Definition of Credit Card
Credit cards are a modern payment facility that allows consumers to make purchases or pay for services without having to carry cash. They are widely used because they are easier, faster and safer for daily transactions.
How to Use a Credit Card
Every credit card has a certain usage limit set by the bank or card issuer. When a user makes a payment using a credit card, the bank will pay the merchant first. The user then has to repay the amount based on the monthly statement received.
Advantages of Credit Cards
If used wisely, credit cards can provide various benefits to users such as:
- Facilitate cashless payment transactions.
- Allow purchases to be made online more easily.
- Help users record and control expenses through monthly statements.
- Offer additional protection such as travel and accident insurance for certain cards.
- Provide installment payment facilities and flexible financial plans.
- Provide rewards such as bonus points, discounts or cash back for each use of the card.
Important Things About Using Credit Cards
Before using a credit card, users need to understand several terms and conditions set by the bank to avoid financial problems in the future.
Credit Card Usage Limits
A credit limit is the maximum amount that a cardholder can use to make purchases or payments. If the amount of usage reaches the specified limit, the card can no longer be used until part of the payment is paid.
Typically, the credit card limit is around two to three times the cardholder’s monthly income. Therefore, using the entire credit limit means that you are spending income that should be used for the coming months.
Types of Credit Card Charges and Payments
Before getting a credit card, users need to be aware of several types of fees and charges that may be imposed by the bank or credit card issuer.
| Application Fee | Some credit card issuers charge a one-time registration fee when the card is issued. The amount of this fee varies depending on the type and issuer of the card. |
| Annual Fee | An annual fee is a charge levied every year for using a credit card. However, there are banks that offer a fee waiver if the user meets certain conditions such as a minimum annual usage amount. |
| Interest Charge |
This charge is levied on outstanding balances that are not paid after the payment due date. The interest rate is usually based on the user's payment record. The better the repayment record, the lower the interest rate charged.
Examples of current interest rates:
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| Cash Advance Charges | This charge is levied when a user withdraws cash using a credit card. Typically, the charge is between 3% to 5% of the withdrawal amount and interest will start to be calculated as soon as the money is withdrawn. |
| Late Payment Charges | If the user fails to make the minimum payment by the due date, a late payment charge will be applied. In addition, interest on the outstanding balance will continue to accrue until payment is made. |
| Service Tax | Every credit card is subject to an annual service charge. Typically, the primary cardholder is charged RM50 per year while the supplementary cardholder is charged RM25 per year. This charge will be included in the user's credit card statement. |
Interest-Free Period
Credit card holders can enjoy an interest-free period, usually between 20 and 50 days from the date the transaction is recorded, provided there is no outstanding balance from the previous month.
However, if the consumer only makes the minimum payment or does not settle the entire bill by the payment due date, interest will be charged on all transactions starting from the date the purchase is made. The interest will also continue to accrue until the balance is fully settled.
Balance Transfer Facility
Balance transfers allow consumers to transfer credit card debt from one bank to another. Most banks offer lower promotional interest rates to attract customers to use this facility. This method can help consumers reduce their interest burden and manage their debt better.
Flexible Installment and Payment Plans
Some banks and merchants offer interest-free installment payment schemes for a certain period, usually between 3 and 24 months. This facility allows consumers to make payments in stages according to their ability.
Additional Cardholder Responsibilities
The primary cardholder is responsible for all transactions made using the supplementary card. In most cases, supplementary cardholders may also be jointly liable for the credit card debt.
How to Manage Credit Card Usage Wisely
Paying only the minimum amount each month can cause debt to take a long time to settle as interest will continue to accrue. Therefore, consumers are encouraged to pay the full balance or more than the minimum payment to avoid a high debt burden.
Steps to Avoid Credit Card Fraud
Credit card fraud such as identity theft and unauthorized transactions are becoming more common. Therefore, consumers should always be careful when using credit cards, including safeguarding card information, monitoring transactions and immediately reporting suspicious activity to the bank.