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.
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:
Related: When and How to Move Beyond Your First Card
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.
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.
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.
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.
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.
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
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.
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.
On a lighter note, remember that credit card rewards points can expire. Periodically check your accumulated points and explore redemption options.
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:
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…
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:
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.
Read also: A Guide to Choosing and Applying for Credit Cards