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Understanding Credit Card’s Fine Print in 10 Minutes

Before you sign the thin line to get your card, you must fully understand your credit card’s fine print. Here’s how.

So you finally decided to get your very first credit card. So, of course, you are excited to use it for shopping galore. Why? There are cashback, rebates and rewards. Thus, you’ll maximise the perks only the majestic card can provide.

But do you know how your credit card actually works?

If you are walking blindly in a narrow alley, you will probably end up hurting yourself. You don’t know where you are going. The same goes for using a credit card.

Without fully knowing how it works, you can’t enjoy its full benefits. In addition, you will even waste your hard-earned money. So however complicated it may seem, never skip reading the credit card’s fine print.

Importance of Credit Card’s Fine Print

credit card's fine print

Credit: https://www.midascommunications.com/news/pci-compliance-call-recording-explained/

J.D. Power Reports conducted a study in 2015. He discovered that 85% of Credit Card primary holders do not understand the terms of their credit cards.

Moreover, they are not fully satisfied with their credit cards. That’s why there are unlike those who know how to use their full potential.

Interestingly, Singaporeans are travel-savvy. Yet the study reveals that they do not understand some of the credit card’s fine print. Typically, it is the section about the foreign currency and the transactional fees.

Added to the complexity of the rewards program, most people just focused on the perks. But, most importantly, they look forward to the Cashback reward.

You need quickly understand how your credit card works. Therefore, you must know the usual four parts of the credit card’s fine print.

Credit Card Foreign Transaction Fees

You pay for the signature shirt you bought in Thailand. Your mind hurries to convert the actual price into Singaporean Dollars. But, then, you will be surprised why it didn’t match your bill.

When you use your credit card in another country, the amount charged by the merchant is first converted to US Dollars. Afterwards, it gets converted to Singaporean Dollars. The conversion will largely depend on prevailing wholesale interbank rates and government-mandated rates.

Aside from the uncertainty of the conversion amount, your bank will charge you a transactional fee. Usually, it is 1% of the purchased amount. Then, you will also have a charge from Visa, MasterCard or Amex. But this time, it is on its own charge system. That is the reason why you will be charged higher than expected.

Credit Card Rewards

Don’t get excited with rewards points yet. First, you have to know how many points you will earn for every dollar you spend. Different cards have their own terms. If you do not understand it, you might lose some points you could have accumulated.

Some cards require you to spend on their specific partnering merchants. Others even double your points according to their terms. Therefore, it is practical to watch out for seasonal promos, especially during holidays.

It seems easy, right? However, do not get carried away with collecting rewards points. Also, you have to check the maximum number of points allowed to accumulate within a year.

Make sure the rewards and freebies you earn suit your interest and lifestyle. So you can further enjoy the perks. Though you may have accumulated many points, you can only redeem those included in the bank’s rewards catalogue. Banks have different redemption schemes. For example, it requires a number of points before getting your reward. The same goes for a high cashback rate.

For example, UOB requires their holders to earn 750 points to avail of a $10 voucher. ICBC, on the other hand, requires 6000 points in exchange for its $10 voucher.

Credit Card Interest-Free Periods

Credit card holders have grace periods for them to pay their bills. There is no charge with an interest rate despite missing the scheduled payment date. DBS gives a 20-day grace period while others provide more. Also, if you fail to pay the full amount in time, you will not be charged with any interest. That is why you have to know your credit card’s grace period.

Credit Card Interest Rates

You have to be careful when calculating the charged interest rate. It is better to depend on the effective interest rate per annum. It is more accurate than the monthly rates.

Does a credit card advertises 25% per annum? Your monthly surcharge will be 2.08%. So say if your credit card payment is $2,000 due on October 5th. But you missed it. You will have a charge with a daily interest of 25% per annum.

You have to divide the 25% by 365 days to get the daily interest. It means that your daily interest is 0.068%. Multiply the total bill amount for your daily interest. Then, you will get the additional fee you have to pay because you failed to pay on time.

If you fail again, you have you multiply 0.068% by your new outstanding balance. Then, add it up again. Furthermore, it only applies if you can pay the required minimum payment.

If you fail to pay the required minimum payment, the interest rates on your credit card increase. It is by 4% per annum (25% + 4% = 29% will be your new interest rate).

Computing Interest:

  • The credit card payment is $2,000 due on October 5th, but you missed it.
  • You have a charge with a daily interest of 25% per annum
  • 25 divided by 365 days = 0.068% will be your daily interest
  • $2,000 x  068% = $136
  • You have to pay $2,136 on October 6th
  • If you missed again: $2,136 x  068% = $145.25
  • You have to pay S$2,281.25 on October 17th

If you need to make an immediate payment in cash, you can get the best personal loan from Cash Mart. Cash Mart is a licensed moneylender who makes sure that you understand everything about the contract before you sign. This way, you will know to best to use your loan and keep your credit score healthy.