Have you ever heard the quote, “With great power comes great responsibility”? Yeah, you might have heard Tobey Maguire utter these words of wisdom in Spiderman (or you might have seen the same quote while reading some Voltaire, if you’re a philosophy nut who happens to be fluent in French).
Well, no matter where you heard the quote, the point is this – if you have power, you must learn to use it with caution, respect and self-control.
That’s especially true when it comes to having a credit card. Because having the “power” to spend beyond your normal means is especially useful – and dangerous.
If you want to maximise the usefulness of your credit cards while minimising the danger, follow these credit card “do’s”:
Before Taking Up a New Credit Card
There are plenty of “do’s” to consider before taking up a new credit card. It doesn’t matter whether it’s your first credit card or your seventh – everyone should take due diligence before signing up for any credit card no matter how “cool” the signup gift may be.
Before you fill out that credit card application, make sure check out the “do’s” you’ll need to follow when taking up a new credit card:
- Consider Signing Up for a Secured Credit Card: If you’re just building up your credit history or you’re trying to repair it after a bankruptcy, having a secured credit card is something to consider. All you need to do is leave a deposit (ex. $10,000) with the credit card issuer and you can build your credit while your deposit protects you against default.
- Compare Credit Card Benefits: In Singapore, the larger your annual income, the more access you’ll have to credit cards with better rewards and air miles programmes. But don’t assume that a credit card with a minimum income requirement of $50,000 will have a better rewards programme than one with a $30,000 income requirement. Compare the benefits to find out for yourself! You can use our Credit Card Comparison Wizard to compare credit card benefits quickly and easily.
- Select a Credit Card That Suits Your Spending Needs: If you don’t own a car but you chose a credit card that offers great petrol discounts, you’re not choosing a credit card that suits your spending. But if you take plenty of holidays every year and work a job that requires regular business travel, having a credit card that offers a great air miles programme is a card that’s better suited to your spending needs.
- Check out Credit Card Reviews: Reading customer reviews on credit cards that you’re considering can help you find out about any gripes or praise certain cards receive from other consumers. For example, if a credit card looks good on paper but many users complain about bad customer service or billing errors, you might want to avoid it.
- Take Time to Read the Fine Print: Taking a few minutes to go through the credit card application Terms and Conditions (T&Cs) and Cardholder Agreement can save you plenty of cash in the long run. That’s because credit card issuers love to hide the specifics of rewards programmes (especially caps and qualifying periods) and fees.
Using Your Credit Card
Just because you (hopefully) select a great credit card doesn’t mean you’re out of the woods yet. There are still plenty of credit card “do’s” you must follow to avoid a financial future that involves becoming a slave to credit card debt.
True, there are many ways to deal with credit card debt. But why go through the trouble when you can avoid it completely by simply following the “do’s” on this list?
Here are some credit card “do’s” you should keep in mind as long as you carry “plastic” in your wallet:
- Always Keep an Eye on Your Credit Utilisation: Ideally, you’ll want to borrow only what you can afford to pay back. That means paying your credit card balances in full every month. But if you do carry a balance, make sure it never surpasses 30% of your credit limit. So if your credit limit is $10,000, you shouldn’t pass the $3,000 utilisation mark. Carrying a balance over the 30% mark tends to worry creditors and will have a negative impact on your credit rating.
- Scrutinise Every Major Purchase: Before you make any “big” purchase with your credit card, hold off on the purchase for at least a day to think about whether that item you want to purchase is really worth it. Yes, that means deciding whether that purchase is a want or a need. And if you have trouble deciding on whether it’s a want or a need, look at the purchase from a labour perspective instead to see how many “work hours” that item will cost you to purchase.
- Review Your Statement Monthly: Never assume that everything on your credit card statement is 100% correct. You’ll want to hold onto your receipts (especially from big purchases) and match the dates/amounts against your statement to see if you’re being overcharged. Also, you’ll also want to check to see if there have been any “unauthorised” purchases made with your card so you can dispute them as soon as possible.
- Notify Your Creditor if You Can’t Make Payment: Sometimes, emergencies come up that require you to delay or miss a payment. Make sure you notify your credit card issuer and explain exactly why you’re making a late payment that month. Although it’s not 100% guaranteed, if you speak to your credit card issuer beforehand (and happen to be a good customer who always makes payments on time), you might be able to get that late fee waived. Maybe.
- Negotiate Your Annual Fee: Many credit cards offer annual fee waivers ranging from 1 to 2 years when you sign up, meaning you’ll have to pay it when the waiver expires… or not. Before you pay it, try negotiating it first! While it’s not guaranteed to work for everyone, if you’re a good customer to uses your card fairly often and always makes payments on time, the chances of getting your annual fee waived becomes much better. Also, it doesn’t hurt to hint to your credit card issuer that you’ll take your business elsewhere. That might also raise the odds in your favour!
Closing Your Credit Card
As you acquire credit cards throughout your lifetime, you’ll find out that some cards are just too expensive to hold onto – especially if you’re not using them! For example, some credit cards might have an expensive annual fee and a very high interest rate.
In such instances, it’s probably cheaper just to close out the credit card account. However, closing out a credit card account still requires some care on your part.
Here are some credit card “do’s” you should stay on top of when closing out one of your credit card accounts:
- Confirm That Your Credit Card is Cancelled: Whether you cancel your credit card in person, on the phone or via email, make sure you double check with your credit card issuer’s customer service department to make sure your card is cancelled.
- Check Your Credit Report: After cancelling a credit card, it’s wise to check your credit report to see if your account been closed and if there is indeed no outstanding balance on the report (and if there is, you’ll need to contact the credit card issuer to resolve it and the credit bureau to make the change).