For those of you who have just started out on your first job, you might now be thinking of signing up for a credit card.

They open up a whole new world of benefits: Think cashbacks, rebates, air miles and added discounts!

With all the benefits associated with a credit card, you might also have heard of horror stories where people find themselves knee deep in credit card debt. However, this can be avoided.

Having a credit card is not as frightening as some people make it to be. This is as long as you are disciplined and organised with your spending habits.

Before applying for a credit card in Singapore, here are 10 points for you to take note of. Especially so for first time credit card applicants:

1. The Requirements For Eligibility

In order to qualify for a credit card, you’ll need to earn a minimum monthly income of S$2,500 to apply for a credit card. This translates to an average of $30,000 per year. For foreigners, the minimum income level should be S$45,000 per year.

However, there are several high-end credit cards that require you to have a much higher income. These particular credit cards also give much higher amounts in perks and benefits. There are also some credit cards like American Express Platinum Card that can only be acquired by invitation with the qualifying income level at $200,000.

Another eligibility requirement is that you have to be at least 21 years old. You will need to submit proof of identification, which includes a copy of the NRIC or passport. You will also be required to show proof of income in the form of recent pay slips and tax documents.

If you are currently below 21 but wish to apply for a credit card, there’s still hope! You’ll be glad to know that there are also credit cards available for students who are at least 18 years old. You do not need to submit documents showing proof of income. Once all the documents are ready, you will be required to submit them to the bank and wait for approval.

2. The Difference Between A Credit Card And A Debit Card

A credit card is very different from a debit card.

A credit card holder borrows money from the bank on a short-term basis. You do not need to open an account with the bank that is issuing the card. The only requirement is that timely monthly payments be made as they fall due.

With the debit card, you must have an account with the bank issuing the card because purchases are made directly from the cash available in your account. There are also no annual fees charged for debit cards. An applicant needs to be only 16 years old to apply for a debit card; this is different from the minimum age for most credit card which is 21 years. After considering all the differences between a debit and credit card, there are certain reasons why using a credit card is preferable:

  • A credit card is more secure. If it is used fraudulently, you can report it immediately and the transaction can be cancelled. You will not lose those funds. However, with a debit card, the funds are lost immediately if the card is used fraudulently.
  • With a credit card, there is an interest free period if the bill is paid in full before the deadline.
  • A card holder can build your credit rating by using a credit card and making all the payments on time. The use of a debit card does not affect credit history.

3. Payment Requirements

Banks will give the credit card holder a minimum amount to pay each month. If this amount is not paid on time, then late payment fees of even up to $100 per month will be charged.

If the minimum amount is paid, then a compounded interest figure of 25.9% per year will be charged on the remaining amount. These charges can cause the debt to accumulate very quickly.

As an example, you may spend S$5,000 on the credit card to buy household items. If you are unable to pay for it in full on the due date, then late payment fees of $100 per month will arise and also compounded interest of 25.9% per year will be charged. This will inflate this debt to a total figure of approximately S$7,600 in one year.

To avoid this, you need to have discipline in spending. Some other ways of limiting the accumulation of credit card debt are given below.

  • You should never spend cash that you don’t have. The credit card should be used as a method of payment, not a credit option. The cash spent on the card should be available in a savings account.
  • The full amount due should be paid monthly before the deadline, to avoid the interest and late payment charges.
  • There should be a good tracking system of the spending. There are various applications that you can use to track all amounts spent, to plan for the monthly payments. This way, you’ll be able to limit your spends to ensure that you don’t chalk up unnecessary debt.

4. The Credit Limit

The credit limit is the maximum amount that a card holder can borrow from the bank on the card.

As a card holder, you can suggest a credit limit, and this will be subject to approval by the bank. The bank will decide on a credit limit by doing an assessment of your monthly income. The higher your income, the higher your given credit limit.

If the amount spent within the month reaches the credit limit, you will naturally not be allowed to make any more purchases. You will need to make an early payment to allow for more spending to be done. For example, if the credit limit is S$5,000 and you spent S$4,500 on a two week holiday, then the amount left for spending that month will be only S$500. You will then need to make an early payment of $4,500 to continue spending up to the full credit limit.

The credit limit can also be reviewed if your income level changes. It is important for you to closely monitor the spending during the month, and to not be caught unaware when the credit limit is reached.

5. Owning Several Credit Cards

If you’re one who likes to have different cards to reap the various rewards, by all means! You can have as many credit cards as you wish to have, there are no limitations.

If you decide to get several cards from the same bank, then there will be no need of submitting fresh documents for the additional cards. The credit limit of the cards will also be spread across all of them.

For example, if you have a credit limit of S$6,000, and you apply for two credit cards with the same bank, then each card will carry a credit limit of S$3,000. However, if you decide to get two credit cards with two different banks, then you will be required to submit all the documents needed for application to both banks. The credit limit will then be $6,000 for each bank, meaning that you will have a total credit limit of $12,000.

It should be noted that it is advisable to not have too many credit cards, because it may become difficult to follow up the payment dates of all the cards.

6. Fees And Benefits

The average annual credit card fees stands at S$192 per annum. This is usually waived for the first or second year. Most Singaporeans also request for a waiver for the subsequent years.

Some credit cards charge annual fees but compensate it with some fringe benefits. For example, DBS Altitude Visa Signature Card offers 10,000 miles if the cardholder pays the annual fee of $192. Other benefits given by credit cards are cash backs.

Specific credit cards are known for their rewards on miles while others are known for their cash back perks. For example, Citibank Premier Miles Card rewards 1.2 miles for every $1 spent. Overseas spending earns 2 miles for every S$1 spent. These miles never expire. However, you will need to have an annual income of S$50,000 per year to qualify for this card.

Another example is the Standard Chartered Unlimited Card which gives cash back perks of 1.5% regardless of the amount spent. This can be enjoyed for all purchases. You will require a minimum income of $30,000 per year to qualify for this card.

7. ATM Withdrawals And Other Card Functions

No one really uses their credit card to withdraw cash from the ATM. However, there are some exceptions.

Using the card to withdraw cash from the ATM is very costly. This is because an amount of interest is charged as soon as the cash is withdrawn, and this interest is compounded. There is also a withdrawal fee charged. The interest charged on a cash advance from the ATM is higher than the interest charged when the card is used normally.

That said, some credit cards also double up as ATM cards. This relieves the card holder from carrying too many cards around. An example is POSB Everyday Card. This is also an ATM card and gives rewards of 5% cash rebates at Sheng Siong and 3% rebates at Watsons.

There are also some credit cards that can be used in other functions. An example is OCBC Frank Card which can be used as an Ez-Link card when using transport and it can also be used to pay for parking fees.

8. Different Payment Networks

Banks usually use well known payment networks to operate their credit cards. This is because many banks may not be located all over the world therefore, they use the platform of these networks.

The most popular networks include Visa, MasterCard and American Express. Many of these networks or card issuers are co-branded with vendor companies that offer some products or services. This is advantageous for the card provider, for the company offering products, and also for the customer.

An example of co-branding is the American Express Singapore Airline Kris Flyer Card. This card is a co-branding between American Express and Singapore Airlines. Customers who use this credit card get an offer on miles as well as discounts on purchases of goods sold by Singapore Airlines.

9. The Need For A Bank Account

There is no need for you to open a bank account at the bank where the credit card is being issued.

The important thing to note is that you should pay the monthly amount due before the deadline. You can choose to pay through cheque or online banking.

It may also be helpful for you to set up an automatic payment system where the amount is paid electronically every month. You can pay for a credit card using a bank account that is not in the bank that issued the card.

For example, if you have an account with DBS bank, but a credit card with UOB, then the card can be paid from your DBS bank account.

10. Supplementary Cards

The applicant of a credit card is known as the principal card holder. You can allow a family member who is over 18 to enjoy the benefits of the card. This can be done by applying for a supplementary card for the family member.

The requirements needed at the bank are identification documents only. The supplementary card holder will be able to enjoy almost all the privileges that come with the card. However, you, as the principal card holder will have the responsibility of making the monthly payments on the card. If there is any defaulting, then the principal will be fully liable for the debt plus interest charges.

It’s great that having a credit card allows you to enjoy the various benefits that comes with it. However, it should not be taken too casually as well. You need to to be very organised and disciplined to ensure timely repayments in order to enjoy the full benefits of this instrument.

About Lending Bee

In a volatile, uncertain, complex and ambiguous world, you can count on one thing – your partner in credit, Lending Bee. Just like an industrious bee, we are committed to helping each and every customer access credit – quickly, easily and seamlessly.