What is a credit card?

how to choose a credit card

What is a credit card and how to compare them?

Credit cards are a convenient way to pay for almost any of your purchases from shopping sprees in the mall & online to paying for hotels and flights for your family vacation. But, you must remember when you spend money using your credit card, you are borrowing money from the bank, just like a loan. Lets start from the beginning.

How do you get a credit card?

If you’re employed or self employed applying for a credit card is simple, first choose which bank you’re going to apply to, this is when you should compare credit cards. Then you will need to demonstrate to your chosen bank that you’re earning money and capable of repaying your debts.  The bank will then decide to accept or deny your application based on whether they think you’re credit worthy. Factors such as job, income, disposable income, assets and existing credit cards with the bank or other banks will be considered in this process.

what is a credit card

If you’re accepted the bank will then set a credit limit which is the maximum amount of money you can spend using your card. Each month you will receive a statement from the issuer stating each transaction/purchase, the amount, the total owed, the minimum you can pay and the due date.

Paying your bill each month

The great thing about using a credit card is the convenience and security, best of all you won’t pay any interest on your purchases if you pay the total amount due in full every month. When your statement arrives you’ll be shown how much you owe the bank, for example 10,000 pesos and what is the minimum you need to pay that month for example 500 pesos (Minimum payment).  If you choose to pay only 500 pesos, this means you will now be charged interest each month for the 9500 pesos outstanding balance, this is when credit cards can become expensive. It is always best to pay as much as you can afford each month so that the interest payments will be minimal, or zero if you clear your balance in full.

Penalty charges and fees

There are several penalties and fees that you may be charged if you don’t pay the bank on time or if you go over your agreed upon credit limit, going over your credit limit can be costly as the fees and penalties can quickly spiral out of control, avoid doing so at all costs. Some credit cards will allow you (if you attempt) to go over your limit so its important you are aware of your credit card balance.

Not recommended for withdrawing cash

Usually you will be allowed to withdraw a certain amount of cash using your credit card from an ATM but its advisable not to do this, unlike purchases, cash withdraws begin incurring interest immediately and usually at a much higher rate than your regular interest rate.

Safety and protection

Credit cards can be a great for security & protection. Imagine if you’re going to buy a tv from the mall with cash, you would be walking around with all that money in your pocket, if you loose the cash, its gone! With credit cards if you loose it you can simply call the bank and have it replaced without loosing a single peso. Credit cards offer much more protection, if you for example purchase a holiday and pay with you card and the holiday company goes bankrupt, you should be able to get the full amount of money back from the credit card.

Compare credit cards

Make sure you shop around for the best deal, you don’t need to apply for a card from your bank, you can apply to any bank in the Philippines. Try to look for one that suits your financial situation and your spending habits.

Credit cards are great when used correctly and even come with a lot of perks.

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