Getting your first credit card doesn’t have to be intimidating and confusing. Follow these 3 tips to help you find the right card and use it wisely.
I recently started a new job which requires me to travel a lot. One thing I realised during these travels was that credit cards are not only useful for emergencies; they help in situations where they are the only means of payment.
Once, I was traveling across India on one of the local airlines (Indigo) and had a couple of dollars on me. I hadn’t eaten all day and was running late for the flight. In the rush I forgot to withdraw money from the ATM before getting on. I figured that I would grab something in the flight, but the money I had on me wasn’t enough and they wouldn’t accept payment by a debit card! So I sat through the 3-hour flight cursing my luck and while I sipped on water, which was thankfully free.
Horror stories from friends about exorbitant interest fees or getting “robbed” by hidden terms and conditions discouraged me from getting a credit card. However, this small incident made me realise how useful this tiny piece of plastic can be. When I decided to get my first credit card shortly after, I made sure to do my research. Here are some things I discovered:
1. Pay your balance in full to avoid interest
If one makes the payments on time, there is no interest charged at all! Interest is only charged if you cannot pay off your balance in full every month. This means you should only charge as much as you can afford to pay off every month. If you can only afford to pay $300 a month, set yourself a maximum purchase limit of $300, and avoid charging any more than this on your credit card. Keeping a budget can help you determine the amount you can afford to charge every month.
2. Ask to have your annual fee waived for the first year
Many credit cards come with an annual fee, especially if they have a good rewards programme. But if you look closely, many of them waive the first year fee! As for credit cards that don’t offer the annual fee waiver up front, it’s a simple matter of calling the bank and ask if they’re willing to make an exception. If you ask nicely, most of them do!
3. Compare credit cards to find the best option
Finding the right credit card was intimidating at first, but comparing my options (and consulting my colleagues here at SingSaver.com.sg) helped me make my decision. Some of the things I considered were the following:
Annual income requirement
Can I even qualify for the credit card I want, given my annual income? This was the first thing I would check.
Rewards, cashback, or air miles?
These are the three main credit card types to choose from, and which one you pick depends on your preferences or needs. For those who love to shop or dine out, it makes sense to get a rewards credit card that gives discounts to your favourite stores or restaurants. Spending on your card also let you earn points, which you can then convert to air miles or use to redeem cool things from the bank’s rewards catalogue.
Air miles credit cards are very similar to rewards cards, except instead of earning rewards points, you earn “miles”. With enough air miles, you can get huge discounts on air tickets or hotel accommodations. Sometimes you can even get them for free!
Meanwhile, cashback credit cards are ideal for those who set aside a significant part of their budget on petrol, groceries, and other everyday expenses. As I don’t have a car and or spend much on groceries, I didn’t spend much time comparing them.
It’s not a requirement, but having a really nice welcome gift makes the decision-making process a lot easier! Sometimes they come in the form of actual items, but they can also be things like larger cashback or bonus air miles.
After a lot of deliberation, I finally chose the American Express Platinum Credit Card. Having just started my job, most of the popular restaurants and bars in town were well beyond my reach. This card allowed me to enjoy discounts as high as 30%, on a meal for three people, in some of my favourite restaurants.
Luckily, Dancing Crab @ Orchard Central and Escape Restaurant & Lounge the two restaurants I absolutely love, along with a host of others, are also included in the list where cardholders can enjoy discounts. When it comes to going out drinking, my card allows me to get complimentary drinks and 1+1 offers on some of the best bars in town such as The Mad Men Attic Bar and Zui Hong Lou. If needed I can even convert all my reward points into air miles without any charge, which is a huge bonus. If all of this wasn’t enough to convince me, I also received a Galaxy Tab and a Tumi luggage just for applying for the card!
It’s been 6 months since the airplane incident and 2 months since I’ve been using my Amex credit card. Overall, my experience has been extremely positive. Not only can I go anywhere without the fear of running out of money, but I get to save quite a bit on my favourite restaurants. And as long as I stick to my budget and pay my balance in full each month, I don’t have to be afraid of high interest rates.
With a little bit of research and a lot of self-restraint, it’s easy to find the right credit card and reap its benefits.
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By Srivardhan Kejriwal
Srivardhan is a graduate from the Singapore Management University and an analyst at SingSaver.com.sg. He’s interested in personal finance and enjoys writing money saving tips.