INTRODUCTION
A credit card is a convenient payment mode as it can be readily used for making purchases at merchant outlets. However, if you do not use your credit card carefully or settle your monthly statements on time, you may owe more than you can repay and find yourself having financial problems.

The following pages will provide you some tips on how you can shop for a credit card that best meets your needs and how you can use your credit card effectively and wisely.

WHAT IS A CREDIT CARD AND HOW IT WORKS?
A credit card is a payment instrument that enables you to make purchases of goods and payment for services instead of using cash. You can use the credit card at any merchant, locally or internationally, which displays the same credit card brand as that on your credit card.

When you use your credit card, the credit card issuer will pay the merchant on your behalf first and bill you later. Once you get your monthly statement, you are required to settle at least the minimum repayment amount by the due date. An interest free period (usually 20 days) is granted by the credit card issuer where you do not have to pay any interest on the outstanding amount. The credit card issuer will impose finance charges (interest) on the outstanding amount if it is not paid by the due date.

A credit card can also be used for cash advances at Automated Teller Machines (ATMs) and at respective credit card issuer counters. However, a cash advance fee may be charged for each cash advance transaction on top of the finance charge. There is also no interest free period for cash advance. The finance charge is calculated from the cash advance date.

The credit card issuer will send you a monthly credit card statement with details of your purchases including cash advances (if any), the total outstanding balance, the minimum payment amount and the payment due date.



APPLYING FOR A CREDIT CARD
You can apply for a credit card from institutions issuing credit cards, as long as you are 21 years old or above, earn an income of at least a minimum of RM18,000 per year and comply with any other requirements set by the credit card issuer.

To support your application, you may be required to submit the following:
-A photocopy of your Identity Card (IC)
-Job appointment letter
-Latest income tax statement (Form J)
-Bank statements
-Previous months pay slips

If you are self-employed, you may be required to submit your business registration details and other documentary proof of income, and be subject to other requirements such as placement of a fixed deposit.

APPLICATION PROCESS
An application for a credit card is similar to that for a loan. The credit card issuer will need to carry out a credit assessment on you based on the information you have provided. The length of time taken to process your application would depend on the credit card issuer’s internal procedures.

Once your application has been processed, you will be notified whether your application is approved or rejected. If your application is successful, the credit card will be sent to you through registered mail or you will be requested to collect the credit card at the credit card issuer’s head office or branch. You will also be given a Personal Identification Number (PIN), which for security purposes will be sent to you separately from the credit card. You will need to use your PIN when you make cash advances with your credit card at the ATMs.



TERMS AND CONDITIONS (T&C)
Normally, the credit card issuer will provide you with a document on the T&C of the credit card together with the card. You may be considered to have accepted the T&C specified in the document once you start using the credit card or upon signing the acknowledgement of receipt for the credit card. Therefore, you should read and understand the T&C before signing the agreement and using your credit card as it is a binding document between you and the credit card issuer.

Generally, the T&C covers the following:
-The types of charges imposed
-Rights and responsibilities of the cardholder and the credit card issuer
-Usage of the credit card
-Terms of repayment and liability for unauthorised transactions
-Lodgement procedures for complaints, investigation and resolution
-Secrecy of information
-Others

Consult your credit card issuer promptly if you need further clarification on the T&C. If you do not agree with the given T&C, you may consider cancelling the credit card by informing the credit card issuer and returning the credit card to the credit card issuer immediately.

UNDERSTANDING THE CHARGES APPLICABLE FOR CREDIT CARD
It is important for you to understand the various charges involved in the usage of credit cards. As long as you use your credit card wisely and settle payments on time, you can minimise unnecessary charges imposed on you. The following are the common charges that you may incur:

Joining fee
Credit card issuers sometimes impose a one time joining fee for credit cards. The fee may vary depending on the credit card issuer.

Annual fee
This is a flat fee which is payable annually once you accept the credit card. You will have to pay the fee even though you do not use the credit card. Annual fees may range from RM60 to RM90 for a classic card and RM130 to RM195 for a gold card.

Finance charges (Interest charges)
These are charges imposed on you by the credit card issuer on the outstanding balance which you have not settled with them after the payment due date. It is usually calculated on a daily rest basis. You are advised to ask your credit card issuer to explain the method used in calculating the finance charges, as this amount can be large if you do not make payments on time.



TIPS ON SHOPPING FOR CREDIT CARDS
With so many credit cards being offered, it is important for you to get the credit card that best suits your needs. Here are some tips for shopping for a credit card or evaluating the credit cards you already have:

Promotional gifts
The credit card issuers may offer you promotional gifts such as hand-phones, leather wallets, etc to promote their credit cards. However, before you apply, it is important for you to understand the T&C related to the offer. Pay attention to the conditions set for the promotional gifts and the penalties for not complying with such conditions.

Teaser rates
In order to attract you, credit card issuers may temporarily offer lower fees and finance charges, or even waive them for a certain period. The promotional materials may highlight an attractive and low introductory interest rate in a large, easy to read font size, sometimes without expiration date. The interest rate in effect after the promotion period is disclosed much less prominently, i.e. in a smaller font size and may only appear on the reverse side of the application or on the last page of a multi-page promotional material. You should understand the T&C for the promotion and be aware of when the promotion period expires as you may be charged the regular or substantially higher fees and charges after the promotion period ends.

Finance charges, fees and interest free period
Credit card business generates profits mainly from finance charges. You will be imposed finance charges if you do not settle your outstanding balance in full after the interest free period. However, for cash advance and balance transfer, you may be charged a fee as well as finance charges starting from the transaction date. Pay attention to the fees for cash advance and balance transfer transactions, the finance charges and the interest free period offered by the credit card issuers.

a. Interest free period
Credit card issuers offer an interest free period, usually 20 days, from the posting or statement date up to the due date, except for cash advance and balance transfer. Therefore, shop for credit cards that offer longer interest free periods to settle your balances in full without incurring finance charges.

TIPS ON HOW TO MINIMISE YOUR CREDIT CARD CHARGES
It is possible for you to avoid some of the credit card charges and still have the convenience of using a credit card. Here are some tips on how that is possible:

• Shop around for the best deal. Some credit card issuers do not charge any annual fees and joining fees, at least for the first year
• Use your ATM card to make cash withdrawals. Taking cash advances using your credit card should be done only as a last resort. Cash advance fees and charges can be expensive
• Avoid unnecessary credit card costs. Make your payment before the due date stated in your credit card statement. Be sure to update your contact address to ensure that you receive the statement on time
• Paying only the minimum monthly payment will extend your repayment period and the interest you have to pay. Settle your outstanding balance in full to avoid paying interest
• Limit the number of credit cards based on your needs and payment capability
• Be alert of the changes in policies and rates. For example, your credit card issuer may raise its fees and charges or vary some of its T&C

HOW TO AVOID BEING TRAPPED AS A BORROWER
Credit card marketing strategies have become more aggressive and innovative to entice credit cardholders not to pay the outstanding amounts in full and to continue carrying forward the outstanding balances each month. These borrowers or ‘revolvers’ may think that it is beneficial and convenient to just pay only the minimum payment each month, but it is just the opposite.

You should be aware of the consequences of paying only the minimum repayment amount by the due date of each month. Not only will you incur more interest charges but also lengthen the time taken to repay your balance. Many people do not realise the impact of accumulating their monthly credit card balances and end up with huge debts.

Below is an illustration of the repayment period and the total interest charged if you pay only the minimum monthly payment each month, i.e. 5% of the outstanding balance. For example, if your outstanding balance is RM1,000 and you pay only the minimum monthly payment, it will take you about 5.8 years to settle your total debt and would cost you RM382 in interest charges, based on an interest rate of 18% per annum.

HOW TO PREVENT CREDIT CARD FRAUD
Potential fraud is a real threat that all consumers face in using credit cards. Credit card fraud can cost you and the credit card issuer huge losses. Credit card issuers are always on alert for fraudulent scams and have taken security measures to protect you against such possible frauds. However, you should also take the necessary steps to minimise the risk of being a victim of fraud.


Safeguard your credit card

• Sign on your credit card immediately after you receive it
• Keep your credit card in the same place in your wallet or purse so that you will notice immediately if it is lost or stolen
• Do not lend your credit card to anyone
• Do not provide your credit card details, (i.e. card number and expiration date) to an unknown party as they may use it to make purchases via telephone, mail or Internet
• Memorise your PIN number and do not write down your PIN number on the back of the credit card or keep it in your wallet, or disclose it to anyone
• Keep the telephone number of your credit card issuer so that you can immediately report lost/stolen cards, unauthorised transactions or disclosure of PIN to a third party
• Make sure you cut your expired credit cards into two when you get the new one

Check your credit card transactions

• Check all details on the charge slip before signing or confirming the transaction
• Keep all your charge slips and check it against your credit card statement as soon as you receive it
• Notify your credit card issuer immediately of any error or possible unauthorised transactions in relation to your credit card or PIN and follow-up in writing as soon as possible
• Destroy all your charge slips before you throw them away

Article Source : http://www.bankinginfo.com.my/