5 things to consider when applying for your first credit card

If you are applying for your first ever card, here are the top five things that will help make your decision easy.

1. Take a look at your financial situation

Paying off a personal loan or a home loan? It might not be a good idea to apply for a new card.

Credit cards require you to make regular monthly payments which can put a strain on your finances. Your credit score will suffer too, with late or missed payments contributing to around 70% of your score.

Financial institutions consider your credit rating to approve your application. Work around this by applying for cards that do not require a high score or, make regular payments to improve your rating.

2. Credit cards have their own fees and costs

Essentially, when you buy an item using your card, you are making the purchase using the bank’s money. That is why you have to pay a certain interest, also called finance charge, for the borrowed amount.

Apart from the interest rate, there are other fees and costs you must consider.

Annual fee: Annual fees are applicable on high-value cards or to high-risk customers. Most banks waive off the fee without any conditions. You may have to spend a certain amount or make a certain number of transactions in order to be eligible for the waiver.

Balance transfer fee: Those with multiple cards who want to transfer all their debt to one card will be charged a balance transfer fee.

Cash advance fee: Withdrawal of cash will incur a fee. Usually, banks set high cash advance fees.

Overseas transaction fee: You will be charged a fee if you use your card overseas. All transactions via foreign currency will be subjected to this fee.

Late-payment fee: If you don’t pay your monthly amount on time you will be penalised in the form of a late-payment fee. So make sure you pay the minimum payment at least.

Over-limit fee: Spending beyond your set credit limit will incur a fee. In most cases, your card will get declined.

Returned payment fee: Attempting to pay your card bill with insufficient funds will incur a penalty fee.

3. Which card works best for you?

Choose a card that offers the best perks according to your spending habits and what you use the card for.

All credit cards offer rewards either in the form of cash or points:

Cashback: A cashback card returns a certain percentage of the amount spent back to you. Cards have conditions like maximum rebate per month or rebate only for certain categories.

Certain cards will give you 10% cashback only on retail and petrol spends. There could be a cap for the maximum rebate when you buy petrol. This card is ideal if you use your card to buy groceries or make other retail transactions regularly.

Reward points: A rewards card earns points for transactions made. Every time you make a purchase you earn a certain number of points that can be redeemed. Reward cards work best for those who shop online or dine out often.

Travel cards: These cards earn air miles to redeem for flights. They also come with travel-related benefits, including free access to airport lounges, a discounted or free ride from the airport, discounts on hotels, complimentary travel insurance etc. Most banks allow you to convert your reward points into air miles.

4. Look for additional benefits

Other than category-specific privileges, look for other additional perks and privileges that cards offer, such as:

• Discounts and offers at partner establishments.

• Signup bonus.

• Complimentary travel insurance.

• Purchase protection insurance.

• Lounge access.

• Purchase price protection.

• Offers on tickets to sporting events, concerts, and movie tickets.

5. Eligibility and other details

Some cards come with a high annual fee, while some cards require you to have a high annual income.

Consider all the parameters and then make a decision. Remember that too many credit card application rejections can put a dent in your credit score.

There are hundreds of cards on offer and it can be intimidating to go through them. It’s wise to use a comparison site to make an informed decision to go ahead with your application.

This article first appeared in https://mypf.my

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