Malaysia: 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 landed on this page, chances are you’re pretty new to credit cards and are considering getting one for yourself. In this day and age, getting a credit card seems like a rite of passage for anyone in their adulting phase… 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.
You’ve never had a credit card before… so should you even get one?
If this is your first time getting a credit card, you’ve probably heard of the many warnings against using credit cards. We’re not going to sugar coat it for you - the truth is that credit cards can easily get you into debt, but that only happens if you don’t practice good financial habits.
Back in the day before credit cards came with all sorts of rewards and benefits, there was little to no reason to use it. But today, having a credit card makes a lot of sense. When managed wisely, you’ll get to reap a world of benefits that cold hard cash won’t be able to do for you.
Here are the advantages to using a credit card:
1. It’s fast and 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. It’s not gross
With contactless payment (tap-and-pay), you don’t have to exchange dirty notes during your transactions. This is particularly important in these Covid-19 times!
3. It’s safe
Credit card providers typically offer some form of protection over payments done with the card.
4. It allows for instalment plans
Depending on the provider, you can buy big ticket items with a 0% interest rate.
5. It allows you to buy now and pay later
We’re sure you’d know this by now. A credit card lets you make an expensive purchase and only pay back later on.
6. It provides you with emergency cash
If you ever need cash, you can head to the ATM to withdraw money using your credit card.
7. It’s super rewarding
Cashback, points, air miles, shopping discounts… you’ll get them when you use your card.
8. It’s great for your credit score
If you’re responsible with your credit card usage, you can actually build a healthy credit score. Your credit score is the three most important digits of your life, and impacts you in more ways than one. If you’re unfamiliar, you must read more about it here.
But to be transparent, there are some disadvantages to using credit cards, too:
1. It’s easy to get into debt
You know this one already. It’s fun when you tap and pay for cool stuff, but if you’re not paying attention to your outstanding balance, you’ll be in a rude awakening soon.
2. Expensive cash advances
In emergency situations where you need to use your credit card and withdraw cash from the ATM, you’ll be charged a high interest rate (about 17-18%) and a transaction fee.
3. You can be at risk of fraud and scams
Even with safety and security features, there are always people out to scam others. It’s important that you don’t simply divulge your credit card information to other parties (e.g. card number, 3-digit at the back of card, 6-digit verification pin that comes through SMS).
4. Can be bad for your credit score
Only if you miss payments or don’t pay the full amount.
5. There are hidden charges and fees
Arm yourself with knowledge of these fees because they can subtly add to your owing.
- Annual fee: A fee charged yearly for the privilege of owning a credit card. Many cards do waive these fees but at a term set by the issuer.
- Cash advance fee: Up to 18% interest rate if you ever need to borrow emergency cash.
- International ATM withdrawal fee: A one-time transaction fee on top of the bank’s currency rate.
- Balance transfer fee: Up to 5% if transferring balance from one credit card to another. Not so important for you at the moment, as you’re looking for your first credit card.
- Late fee: The fee which the issuer imposes on you if you miss out on paying your credit card bill on time.
Credit card vs. debit card: What’s the difference?
There are also times when you’ll ask yourself… why would you need a credit card if you can just use a debit card? In the evergreen debate of credit card vs debit card, here’s what you need to know in a nutshell.
While credit cards are pretty much an avenue for you to borrow money to pay for something in advance, debit cards basically deduct your existing money from your savings/current account. The great thing is that you don’t borrow any money, so you won't ever be in debt. But this also means that you won’t get rewarded when you spend - and if you’re going to spend, might as well get rewarded for it, right?
Having a debit card will do nothing for your credit score, as it doesn’t gauge how well you repay your debt (since you will have no debt by using a debit card). It also doesn’t allow for instalment plans, so if you’re going to buy something that comes with a big price tag, you’ll probably need to save up for it however long it takes.
So, are you ready to get your first credit card? If the answer’s yes, let’s get right to the first step…
First things first, make sure you meet the minimum salary for credit cards in Malaysia
As a general rule of thumb, credit card applicants in Malaysia must earn RM24,000 annually (approx. RM2,000 monthly) in order to be eligible for a credit card. If you don’t meet that requirement yet, it’s best to wait until you can earn more so that your application can get approved.
Your salary will also dictate your credit limit. Your credit limit is basically the maximum you can charge to your credit card, and is usually put in place to stop you from going overboard. In most cases, banks would give you a credit limit of 2x your monthly salary.
Also, in order to qualify for a credit card, you’ll need to show proof of income - typically a 3-months’ payslip, or in some cases, your EPF statement. If you’re running around doing odd jobs that pay you, say, RM50,000 a month but without a proper payslip or EPF statement, the bank may still turn you down because there’s no consistent proof of employment.
Without that, you’ll be a risk for the bank to take. “What if this person doesn’t pay on time? What if this person never pays back?” Nobody would want to lend even a pen to someone who can’t return it!
At time of writing, there are 54 different credit cards with various rewards for Malaysians with a minimum salary of RM2,000/month. If you’re interested, you can browse them all here.
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:
1. Cashback - Converts the money you spend back into cash rebates. The amount you get back depends on the cashback rate of the credit card.
2. Rewards - Point-accumulation with every Ringgit you spend. Can be used to redeem vouchers and items later on.
3. Islamic - Shariah-compliant with the prohibition of gharar (overcharging) and riba (interest). Comes with takaful coverage and the convenience of paying Zakat.
4. 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.
You might also be interested in: Quiz: What’s Your Credit Card Type?
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 very important things to remember when it comes to using your first credit card
Like 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 buying things you can’t afford
If you’re using your credit card because you have no other means to afford buying something you want, that’s a sign that you’re probably using it the wrong way. Make sure to always spend within your means so you don’t incur debt.
2. Don’t inflate your lifestyle - you don’t need to proof 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. Don’t spend above your income, and you should be fine. It’s not worth being in debt just so you can have the fanciest lifestyle and the latest gadgets.
3. Always pay your bills on time, and in full
Even if you disregard the first two tips above, make sure you pay your bills on time and in full. Money problems start when you delay your payment. Pay for things either immediately or within the 30-days statement cycle, or you could face high charge interests (typically 15%) which will be carried forward into your next statement, and the next statement, and the next statement…
4. Remember that you can make or break your credit score
As you move forward in life, you may want to buy a car, buy a house, or get money for your business ideas. Whatever it is, banks will look at your credit score to determine whether or not to lend you any money. If you’re bad with your credit card repayment, you’ll destroy your credit score and have your applications denied!
5. Keep track of your credit utilisation
Try to keep your utilisation percentage to 30% (credit used : credit limit), as a lower ratio would reflect positively on your credit score. Here’s an example. If your credit limit is RM12,000, try to keep your credit balance to no more than RM3,600 as good practice.
6. Start to create a financial buffer
It’s never too early or too late to start saving for your own emergency fund. Although you have a credit card to save you in emergencies, you’ll still need to repay what you borrow from the bank. Start saving a portion of your income so that you can easily pay off any emergency credit card utilisation in future.
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. Remember to check your rewards
Onto something a little less scary, remember that credit card points can expire. Check in periodically to see how many points you’ve accumulated, and what you can redeem.
Read also: 10 ingenious money tips from Malaysian dads
After this, should you consider a second, third, fourth credit card?
Let’s take it slow first. Start off with one credit card and see if you can manage it well. If you’re piling on debt, it would be wise to reassess your financial management before taking up another credit card.
You may also ask - why would anyone need a second credit card? Actually, many people have more than one credit card, and that’s mainly because different cards have different rewards. There are different merchants that would favour different banks, so if you have more credit cards, you’ll be able to reap more rewards from a wider variety of merchants.
Some people also take up more credit cards to game their credit score. With more credit cards, their credit limit increases. If they keep their utilisation rate low, this would reflect well on their credit score. Regardless, this would be a conversation to have with yourself later on in future. As for now, it’s on to you to manage your first credit card wisely!