One of the many hallmarks of reaching adulthood is having the opportunity to get a credit card under your name. Owning a credit card is an exciting prospect that offers a lot of practical benefits. With it, you’ll be able to enjoy cashless transactions, plan your finances better, and slowly build your creditworthiness. At the same time, a credit card is also quite handy to have around in case you need a cushion during times of emergency.
Often, the advantages of owning a credit card outshine the fact that this rectangular piece of plastic or metal is also a responsibility. Anyone can easily get in deep financial trouble after overspending, missing monthly payments, or incurring interest charges and various penalties. At the same time, you should always also exercise caution when using your card or sharing its details, as unscrupulous people are always looking for ways to steal your personal information and use your card.
Making the right choice
When it comes to banks that offer credit cards, Philippines-based residents are not lacking in options. It’s quite easy to apply for one. You can opt to apply online through your chosen bank’s website, or you can head to a branch near your location and fill out the application form there. Banks are always looking for clients who want to use their credit cards, so there’s also a chance that you’ll see credit card agents in popular commercial spaces like malls.
It’s a good decision not to jump at the first offer that lands on your lap, though. Not all credit cards are made equal, and there are products and programs out there that may suit your purpose better than others. Whenever you’re presented with a credit card offer, it’s important to pay attention to these details and see if the credit card will benefit you in the long run:
Type of credit card
To begin with, take note that there are different types of credit cards. They’re often classified according to how they’re meant to be used, though it’s not out of the ordinary to find credit cards that serve multiple purposes. Here are a few common types:
- Purchase cards – Often designed to cover the cost of big-ticket items, purchase cards present their users with an interest-free period that typically lasts between 3 to 20 months. The user should be able to pay their monthly dues on time and within the given terms, else they risk losing the promotional rate. If they complete their payments in a timely manner, though, then they’ll have purchased their item without incurring any interest. A good credit score is a requirement for this type of card.
- Reward cards – Every time you use a reward credit card to pay for a purchase, you earn a reward point that can be used to make a payment or to redeem something. The reward points often correspond to the amount that the user spent, how often the card is used, and how quickly it can be paid back. There are also reward cards that offer benefits specifically if they are used to book a hotel or flight.
- Balance transfer cards – Balance transfer cards, on the other hand, are aimed at people who already have an existing credit card. It may offer a 0% interest rate for up to 40 months. Users can move their debts to a balance transfer card to make their payments easier to manage.
In other places, consumers can also have access to other types of cards. There are cards that are designed for travelling in another country, and there are credit builder cards with low credit limits and high interest rates. The latter is specifically designed to help high-risk consumers improve their credit scores.
Credit limit refers to the total amount that you can spend using your card. This includes your actual expenses, balance transfers, and the fees and penalties that you may incur. Once you reach your credit limit, the bank may decline your next purchases. Your credit history, income, and debt-to-income ratio are some of the factors that banks consider when setting your card’s credit limit.
In the Philippines, credit cards often charge a 3.5% interest rate per month. This amount is calculated from the outstanding balance on the card, and it is compounded monthly. Take note of this small detail, as accrued interest can put you in a less-than-ideal financial situation. Make sure that your bank statement reflects zero balance at the end of every month so you can avoid paying interest charges.
Fees and penalties
How much will owning a credit card cost? When shopping for a credit card program, look out for annual fees, finance charges, late payment fees, over the limit fees, cash advance fees, fees for foreign transactions, and other additional charges that you may need to pay.
Don’t hesitate to shop around for credit card programs and promos that suit your current needs and future goals. At the same time, make sure that you’re ready to take on the responsibility of owning a credit card. With discipline, good financial habits, and the right mindset, your credit card can help you take control of your finances.