Are you planning to get a credit card for the first time? With different types of credit cards available, you need to learn how to compare credit cards to see which one is suitable for you. Learn more by reading this quick beginner’s guide to choosing your first credit card.
If you've found your way to this page, chances are you're relatively new to the world of credit cards and are contemplating getting one for yourself. In this day and age, obtaining a credit card may seem like a customary step in one's journey into adulthood... or is it?
But before you make the jump, it’s important to first make an informed decision on whether or not you’re ready to get your first credit card. Take this article as your first credit card guide, as we’ll equip you with what you need to know before you get your first credit card.
How To Choose The Right Credit Card For Yourself
If you didn’t know, there are many different types of credit cards, and with that, there are also many different types of credit card rewards. You have to find one that suits your lifestyle and preferences so that you can really get the most benefit out of it.
So, how to choose your first credit card? Generally, there are a few types of credit cards and these are four popular types best suited for first-timers:
- Cashback - Converts the money you spend back into cash rebates. The amount you get back depends on the cashback rate of the credit card.
- Rewards - Point accumulation with every Ringgit you spend. Can be used to redeem vouchers and items later on.
- Islamic - Shariah-compliant with the prohibition of gharar (overcharging) and riba (interest). Comes with takaful coverage and the convenience of paying Zakat.
- Airmiles - Designed to let you earn air miles every time you spend. Comes with loyalty programs offered by airlines.
Most first-timers would either go for a cashback or rewards-based credit card. If you’re wondering which is the right option for you, just ask yourself - would you prefer to get money back as is, or would you rather get a gift or a voucher after accumulating points? There’s no correct answer - just choose one that you’d rather have.
As this is your first credit card, you may want to look for a card that has zero annual fees. Most cards typically come with annual fees (some as low as RM30, some as high as RM1,300), but some can be waived according to the terms set by the issuer (e.g. swiping more than 12 times a year, swiping a minimum of RM50,000 a year). A card with zero annual fees will make it fuss-free for a newbie like yourself.
To compare all credit cards with zero annual fees, just click here.
8 things to remember when it comes to using your first credit card
As we mentioned at the beginning, having a credit card is a huge responsibility on your end. As a first-timer, you really need to be prepared to control the power that will soon be in your hands. We don’t really want to quote lines from a spider superhero movie, but with great power truly does come great responsibility.
1. Avoid Purchases Beyond Your Means
If you find yourself using your credit card simply because you lack the means to afford something, it's a red flag that you may be misusing it. Always ensure your spending aligns with your financial capabilities to prevent accruing unnecessary debt.
2. Don’t inflate your lifestyle - you don’t need to prove anything to anyone
Just because you have the power to spend more, doesn’t mean you should. Don’t start buying RM20 lattes every morning, unless you can afford it.
3. Always pay your bills on time, and in full
Even if you follow the first two tips, never neglect the importance of paying your bills punctually and in full. Delayed payments can trigger high interest charges, typically around 15%, which can snowball into future statements, causing financial strain.
4. Your Credit Score: Make or Break
Your financial goals, be it purchasing a car, or a house, or funding a business venture, may depend on your credit score. Responsible credit card repayment is pivotal in maintaining a positive credit score, and ensuring your loan applications are approved.
5. Monitor Your Credit Utilization
Strive to keep your credit utilization ratio at around 30% (credit used versus credit limit). A lower ratio positively impacts your credit score. For instance, if your credit limit is RM12,000, aim to maintain a credit balance of no more than RM3,600 as prudent practice. Keep track of your credit utilisation
6. Build a Financial Safety Net
It's never too early or too late to start saving for an emergency fund. While a credit card can assist in emergencies, you'll still need to repay borrowed funds. Begin saving a portion of your income to comfortably settle any future credit card utilization during unforeseen circumstances.
7. Always check your credit card statement
Whenever your statement comes, check each line to ensure that there are no discrepancies. If you’ve been charged for something you did not authorise, get in touch with your bank immediately to see how you can rectify the situation.
8. Don't Forget to Redeem Your Rewards
On a lighter note, remember that credit card rewards points can expire. Periodically check your accumulated points and explore redemption options.
You’ve never had a credit card before… so should you even get one?
If you've never owned a credit card before, you might have encountered numerous cautionary tales about their usage. Let's be clear - credit cards can indeed lead to debt, but only if you fail to practice sound financial habits. In the past, when credit cards lacked the multitude of rewards and benefits they offer today, there was little incentive to use them. However, in the contemporary landscape, having a credit card can be a smart choice. When managed prudently, it opens up a world of advantages that cash alone cannot provide.
Here are the advantages of using a credit card:
- It’s efficient
Pay for what you’re charged without the hassle of finding notes and coins. Plus, a card lets you buy just about anything online.
- 2. Enhanced Security
Credit card providers typically offer various forms of payment protection, ensuring your financial security.
- Flexible Installment Plans
Depending on the provider, you can make installment purchases with a 0% interest rate.
- Buy Now, Pay Later Convenience
A credit card empowers you to make substantial purchases and settle the payment at a later date.
- Emergency Cash Access
In case you find yourself in need of cash, your credit card allows you to withdraw money from an ATM.
- Generous Rewards
Utilizing your credit card often translates into enticing rewards such as cashback, loyalty points, air miles, and shopping discounts.
- Beneficial for Your Credit History
Assuming responsible usage, a credit card can assist in building a positive credit history.
But to be transparent, there are some disadvantages to using credit cards, too:
- Ease of Accumulating Debt
While it's enjoyable to make quick and convenient payments for various items, failing to keep a close eye on your outstanding balance can lead to a financial wake-up call.
- Costly Cash Advances
In emergency situations necessitating cash withdrawals from ATMs using your credit card, you may incur a steep interest rate (typically around 17-18%) along with a transaction fee.
- Vulnerability to Fraud and Scams
Despite the presence of safety and security features, there are individuals intent on defrauding others. It is crucial not to casually share your credit card information with third parties, including your card number, the three-digit code on the back of the card, and the six-digit verification pin received via SMS.
- Impact on Your Credit Score
Missing payments or failing to settle the full outstanding balance can negatively affect your credit score.
- Hidden Charges and Fees
Be well-informed about these fees, as they can subtly contribute to your overall debt:
- Annual Fee: Charged yearly for card ownership, although many cards offer waivers based on the issuer's terms.
- Cash Advance Fee: Imposes an interest rate of up to 18% if you need to borrow emergency cash.
- International ATM Withdrawal Fee: A one-time transaction fee in addition to the bank's currency exchange rate.
- Balance Transfer Fee: Up to 5% when transferring a balance from one credit card to another. This may not be a significant concern as you search for your first credit card.
- Late Fee: Incurred if you miss the deadline for paying your credit card bill.
Credit Card vs. Debit Card: Unveiling the Distinctions
The age-old debate of credit cards versus debit cards often leaves people pondering: "Why opt for a credit card when a debit card seems sufficient?" Let's break it down for you.
Credit cards serve as a means to borrow money upfront for your purchases, offering you a temporary financial avenue. On the other hand, debit cards directly deduct the amount from your existing savings or current account. The advantage here is that you're not accumulating any debt, ensuring you stay clear of financial liabilities. However, this also means you miss out on the rewards that often accompany credit card spending. After all, if you're going to spend, why not reap some benefits along the way?
Debit cards, unfortunately, don't contribute to building your credit score, as they don't gauge your debt repayment history (since you aren't incurring debt with a debit card). Moreover, they don't facilitate installment plans. So, if you're eyeing a substantial purchase, you'll likely need to save up for it over time.
So, are you ready to get your first credit card? If the answer’s yes, let’s get right to the first step…
Make sure you meet the minimum salary for credit cards in Malaysia
Before diving into the world of credit cards, it's crucial to ensure you meet the minimum salary requirements in Malaysia.
As a general guideline, credit card applicants in Malaysia are typically required to have an annual income of at least RM24,000 (equivalent to approximately RM2,000 per month) to be eligible for a credit card. If your income doesn't quite reach this threshold yet, it's advisable to wait until you can achieve a higher earning level to enhance your chances of approval.
It's important to note that your salary also plays a role in determining your credit limit. The credit limit represents the maximum amount you can charge to your credit card and serves as a safeguard against excessive spending. In most cases, banks set the credit limit at approximately twice your monthly salary.
Moreover, to qualify for a credit card, you'll need to provide:
- Proof of income, typically in the form of a 3-month payslip
- Employee Provident Fund (EPF) statement.
Even if you earn a substantial monthly income, lacking proper documentation like a payslip or EPF statement can lead to rejection by the bank. This is because the absence of consistent proof of employment poses a risk for the bank. They may wonder whether you will make timely payments or repay the borrowed amounts.