Credit Card Basics for Filipinos

Published: May 23, 2017 | Updated: July 23, 2020 | Posted by: Moneymax | Credit Card


 

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Credit cards provide a convenient way to pay for purchases and online shopping.  As a source of short-term financing[1], credit cards have a borrowing limit, and banks will earn interest from your credit card balance if you do not completely pay off the balance at the end of your paying cycle which usually is the end of the month.

Before the banks approve you for a credit card, there are credit card requirements you must fulfill. The most basic requirements could be pay slips from the past six months as well as a certificate of employment to prove that you have the economic means to repay any borrowing using the credit card.

The two biggest network processors of credit cards are Mastercard and Visa, but both are widely accepted, so it does not matter much which you choose.

Advantages of having a credit card

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If you use your credit card strategically, you can earn rewards and various bonuses depending on the type of credit card you signed up for. Some credit cards provide rebates and others miles rewards which mean you collect points which you can exchange for free flights with the bank’s partner airlines. You can compare the different credit cards in the Philippines using this credit card comparison tool to find out the best rewards available to make the right decision for your lifestyle.

As such, credit cards are a handy financial tool for people, who are good at managing their expenses and have discipline in paying bills.

A lot of retailers (e.g. appliances or electronics stores) also do easy payment schemes where you can divide the full amount into several months. To do this, you will need a credit card to allow you to do these easy payment schemes.

Credit cards are useful for various online activities. You can shop online; pay your bills, purchase digital goods and subscriptions and book services such as flights. As the world becomes more digitized, credit cards offer you access and convenience to the online world.

If you are an entrepreneur, a credit card can be useful for you because sometimes your cash inflows can be delayed while you need to get some bills paid immediately or else your vendors might slap you with late payment fees. Credit cards can come to the rescue in these situations. Once you get your cash inflows, you can use it to pay your credit card balance at the end of the month, and you will not get any interest charge payments.

Disadvantages of a credit card

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People have often described credit cards as loaded guns, and rightfully so. If you lack discipline, credit cards will wreak havoc on your life by chaining you to a lifetime of debt. It is critical you pay more than the minimum[2] at the end of the month. Of course, ideally, you pay off the entire balance at the end.

If you do not know how to control your shopping impulses, you will end up maxing out credit card limit and burdening your finances absurd interest rates on top of your unpaid amounts. These late payment charges are very expensive.

If you use your credit card abroad, you might incur foreign transaction fees[3].

While it is unlikely you can get jailed for not paying your credit card debt, your standing with banks will get affected, and you might not be able to access other loan facilities.

Fortunately, banks have innovated, and some of them provide prepaid credit cards. The idea is that you top up the credit card with funds coming from your savings or current account. A prepaid credit card is the most logical option for you if you are an impulse buyer.

Doing your credit card homework

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While credit cards issued by competing banks tend to be similar, you should still do your homework before getting one. Find out which credit card would fit your lifestyle the best. Banks are getting innovative and trying to customize credit cards to the different customer segments so choose carefully.

Finally, it is not a good practice to have multiple credit cards. There are regular fees to pay and so if you cannot maximize its benefits, then you are just giving free money to the bank.

So think carefully about your idea of getting a credit card. Don’t be blindly attracted to the offers of the bank’s free umbrellas or shopping vouchers upon signing up. Study the credit card options available to you and see which one fits you perfectly.
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