Credit Cards 101: How Does A Credit Card Work?

Emma Lam

Emma Lam

Last updated 11 April, 2024

New to finance and curious to know the magic behind credit cards? Here's the lowdown on how credit cards work to get you started.

For many working adults, upgrading from a debit card to a credit card often signals a notable milestone in adulthood. Although both cards might look similar, you might be wondering, "How does a credit card work exactly? What sets it apart from debit cards?"

Besides the obvious distinction between debit and credit, credit cards provide a range of benefits that help you save money or earn rewards on both retail and non-retail transactions – like health or car insurance premiums, utility bills, education fees, and more. Moreover, responsibly using credit cards also builds towards a good credit score.

If all this sounds unfamiliar and confusing, don't worry. Keep reading and we'll take you through all the credit card basics you'll need to know.

Table of contents


What is a credit card?

A credit card allows cardholders to "borrow money" from the card issuer to purchase goods and services, pay fees and bills, and in some instances, even withdraw cash via cash advances. Of course, this owed amount will be billed to you for repayment at the end of each cycle.

Essentially, think of credit cards as a type of temporary loan.

In Singapore, credit card issuers include banks like Citibank, HSBC, UOB, OCBC, DBS/POSB, CIMB, Maybank, and more.

Traditionally, credit cards came in the physical card form but nowadays, thanks to the prevalence of mobile wallets, many offer digital versions too.

🤓 Fun fact: Digital card versions have become so popular to the point that some credit cards even specifically grant cashback, miles, or rewards points on mobile contactless payments (e.g. Apple Pay, Google Pay).


How does a credit card work?

Unlike a debit card that directly deducts from your savings account, a credit card enables the cardholder (you) to borrow money from the credit card issuer (bank) up to a set limit for purchases, which you repay later.   

Each credit card transaction amount is deducted from the existing card limit until it's reached or the end of the billing cycle rolls around – whichever comes first. Typically in most cases, it's the latter.

A credit card's billing cycle varies according to the credit card issuer, either by statement month or calendar month.

At the end of each cycle, the card issuer generates a card statement detailing all transactions made during that period – displayed as your credit card balance. This owed amount is to be repaid by the due date lest you start incurring a hefty interest on the outstanding balance.

Note how we specified outstanding balance, and not just overdue balance?

Well, just because you can make a minimum payment on your credit card bill first and pay off the remainder later, doesn't mean you should. 👀

Failure to pay off your credit card balance in full incurs an interest charge ranging from 25% to 27% p.a. on the remaining balance, which will carry over to your next statement. Your credit card limit will only be partially restored by the minimum amount paid rather than to the full limit, thereby reducing the amount of credit available for you to spend on the next month.

Repeatedly only paying the card bill's minimum amount will accumulate unnecessary debt, credit card fees (e.g. late fees), and damage your credit score over time.

Meanwhile, paying off the owed balance fully restores your credit limit to the original amount and the billing cycle repeats as normal, with no interest incurred. 

💡 Pro-tip: Depending on your spending habits and preferences, you can opt for a cashback, miles, or rewards credit card.


How to use a credit card?

The short answer? Just whip it out, and swipe or tap to pay. 🤭

The long answer? Learning how to use a credit card responsibly is more than that. 😰

Jump to:

Spend strategically on bonus categories

Every credit card earns bonus rewards or rebates on select eligible categories. These categories are either fixed by the bank or decided by the cardholder out of several options.

For example, the Citi Cash Back Card earns up to 8% cashback on private commutes, petrol, dining, and groceries worldwide while the Maybank Family & Friends Card earns 8% cashback on five out of 10 preferred categories (e.g. Groceries).

TeamCashback-VS-TeamMiles-KV2.1_BLOGARTICLE_800x250

🆚SingSaver's Cashback vs Miles Campaign (Round 2) 🆚: Are you Team Cashback or Team Air Miles?

Be one of the first 400 to receive rewards of up to +S$740 Vouchers or up to +74K Miles when you sign up for any participating Cashback or Miles Credit Card, respectively, within the promo period. The team with the most applications wins the rewards! Promo runs from 24 May, 12pm - 6 June 2024. T&Cs apply.

Plus, get up to 31x chances to win a Pair of RETURN Business Class Tickets to Tokyo, Japan (worth 120K Max Miles) in the Grand Lucky Draw when you successfully apply for participating products. Promo runs from 24 May, 12pm - 6 June 2024. T&Cs apply.

SingSaver's Exclusive Offer: Receive the following rewards when you sign up for a Citi Rewards Card (Team Air Miles):

Citi_CC_KV2_BLOGARTICLE_800x250

Get a Dyson Supersonic (worth S$699) or Apple iPad 9th Gen 10.2 Wifi 64GB (worth S$508.30) or Sony Portable Theatre System HT-AX7 (worth S$759) or S$350 eCapitaVoucher or S$300 cash via PayNow upon activating and spending a minimum of S$500 within 30 days of card approval. Valid until 6 June 2024. T&Cs apply.

Pay_To_Upgrade_Rewards_Campaign_BLOGARTICLE_800x250-1

Plus, upgrade your rewards when you top up S$999 for an Apple MacBook Air 13” (M3 chip) 256GB (worth S$1,599) or an Apple iPhone 15 Pro 128GB (worth S$1,664.25). Alternatively, top up S$1,488 for a Samsung Galaxy S24 Ultra Titanium Gray 12+512GB 5G (worth S$2,128). Valid till 6 June 2024. T&Cs apply.

Citi Rewards Card-1 uob ladys card new

Similarly, the Citi Rewards Card earns 10X Citi ThankYou Points or 4 miles per S$1 (mpd) on eligible online transactions. In contrast, the UOB Lady's Card earns UNI$10 per S$5 or 4 mpd on an enrolled category of choice (e.g. Travel) per quarter.

Meanwhile, all other retail spend will usually net you the base rewards or rebate rate (e.g. 0.4 mpd, 0.3% cashback). 

Thus, it literally pays to strategise which credit card to use for specific spending. To effectively do so, take some time to reflect on your spending habits.


Track cashback, miles, and rewards points 

Once you've identified your major types of expenses and applied for an appropriate credit card, you should start keeping tabs on your accumulated rebates and rewards.

Although it's not necessary to track your card rebates religiously, knowing how much you roughly have in the bank (no pun intended) is important to ensure your hard-earned miles and points don't expire before you get the chance to redeem them.

It could be as straightforward as setting up a monthly spreadsheet or a monthly reminder to check your account balance. 

💡 Pro-tip: Cashback tends to not expire, but miles usually do – except for a few travel credit cards. For example, HSBC Rewards points expire at the end of 37 months whereas Citi Miles never expires.


Pay credit card bill payments on time

As seen in the previous segment, paying your credit card bills on time is not to be taken lightly. Only paying the minimum amount is not encouraged either, unless you don't have any other choice. 

But if it resorts to that predicament, you should probably re-evaluate your expenses and ability to afford a credit card.


Pay for big-ticket purchases

Do you have an upcoming major life event, like a wedding or HDB BTO renovation, that requires serious funding? These are no doubt costly and usually involve a large sum of money.

In these situations, rather than relying on loose change or cash to cover these big-ticket purchases, credit cards such as unlimited cashback cards come in handy.


Improve your credit score

Poor credit card usage will negatively impact your credit score, but why? 

All your transactions or purchasing activities are recorded and reported to the credit card issuer through your credit card. In turn, this determines how banks regard you as a borrower. 

The Credit Bureau Singapore (CBS) is responsible for collecting and aggregating information of all participating members, including cardholders and card issuers alike, to inform the total credit risk profile of borrowers.

In short, your credit score consists of:

  • Number of credit applications & amount of credit used
  • Late payments on loans
  • Duration of credit history
  • Available credit
  • Number of credit card applications and banks' inquiries

These combined factors will dictate the willingness of a financial institution to lend you money, and the amount lent.  


Great for emergencies

Credit cards are great when you're in a pinch because they remove physical cash from the equation – allowing you to go cashless, pay for online transactions easily, and cover repairs or other unexpected costs.

We guess you can count them as part of your emergency fund plan. 🤷🏻


How to pay credit card bills?

Credit card bills can be paid through various methods:

Method
How to pay?
Why this method?
Online and mobile banking
Through bank's internet banking or digibank app to pay bills any time
Convenient and efficient
 
Note: Transactions might take up to a few days to fully process, so allocate enough time in advance to make payment.
Other bank's internet banking
Through Fast and Secure Transfers (FAST) payments
Useful if you own multiple bank accounts
ATM
Select the appropriate payment option to the right card issuer
Multiple ATMs islandwide
GIRO
Set up a GIRO agreement with your bank
Automates credit card bill payments monthly
 
Prevents forgetful or overdue payments
Cash deposit machines
Deposit exact cash amount for outstanding bill payment into machine
Only offered by some banks like Standard Chartered
 
Recommended if you prefer to pay by cash
⭐ For step-by-step instructions, check out our How to Pay Credit Card Bills guide.

What are the different types of credit cards available?

There are three types of credit cards in Singapore: Cashback cards, miles cards, and rewards cards. 

Cashback credit cards

Cashback cards are ideal for those who prefer the thrill of earning cashback or cash rebates on eligible spending to offset payments. These cards usually require a minimum monthly spend to qualify for their bonus cashback rate. 

Otherwise, your transactions for that month will only earn base cashback.

TeamCashback-VS-TeamMiles-KV2.1_BLOGARTICLE_800x250

🆚SingSaver's Cashback vs Miles Campaign (Round 2) 🆚: Are you Team Cashback or Team Air Miles?

Be one of the first 400 to receive rewards of up to +S$740 Vouchers or up to +74K Miles when you sign up for any participating Cashback or Miles Credit Card, respectively, within the promo period. The team with the most applications wins the rewards! Promo runs from 24 May, 12pm - 6 June 2024. T&Cs apply.

Plus, get up to 31x chances to win a Pair of RETURN Business Class Tickets to Tokyo, Japan (worth 120K Max Miles) in the Grand Lucky Draw when you successfully apply for participating products. Promo runs from 24 May, 12pm - 6 June 2024. T&Cs apply.

Receive the following rewards when you sign up for a Citi Cashback Card (Team Cashback):

Citi_CC_KV2_BLOGARTICLE_800x250

SingSaver's Exclusive Offer: Get a Dyson Supersonic (worth S$699) or Apple iPad 9th Gen 10.2 Wifi 64GB (worth S$508.30) or Sony Portable Theatre System HT-AX7 (worth S$759) or S$350 eCapitaVoucher or S$300 cash via PayNow upon activating and spending a minimum of S$500 within 30 days of card approval. Valid until 6 June 2024. T&Cs apply.

Pay_To_Upgrade_Rewards_Campaign_BLOGARTICLE_800x250-1

Plus, upgrade your rewards when you top up S$999 for an Apple MacBook Air 13” (M3 chip) 256GB (worth S$1,599) or an Apple iPhone 15 Pro 128GB (worth S$1,664.25). Alternatively, top up S$1,488 for a Samsung Galaxy S24 Ultra Titanium Gray 12+512GB 5G (worth S$2,128). Valid till 6 June 2024. T&Cs apply.

Citi_Cashback_Platinum_Mastercard

For example, the Citi Cash Back Card requires at least S$800 spend per month to earn its maximum 8% worldwide cashback on private commutes and petrol, and 6% cashback on dining and groceries. 

SingSaver's Exclusive Offer: Receive the following rewards when you sign up for a Citi Cashback+ Card:

Citi_CC_KV2_BLOGARTICLE_800x250

Get a Dyson Supersonic (worth S$699) or Apple iPad 9th Gen 10.2 Wifi 64GB (worth S$508.30) or Sony Portable Theatre System HT-AX7 (worth S$759) or S$350 eCapitaVoucher or S$300 cash via PayNow upon activating and spending a minimum of S$500 within 30 days of card approval. Valid until 2 June 2024. T&Cs apply.

Pay_To_Upgrade_Rewards_Campaign_BLOGARTICLE_800x250-1

Plus, upgrade your rewards when you top up S$999 for an Apple MacBook Air 13” (M3 chip) 256GB (worth S$1,599) or an Apple iPhone 15 Pro 128GB (worth S$1,664.25). Alternatively, top up S$1,488 for a Samsung Galaxy S24 Ultra Titanium Gray 12+512GB 5G (worth S$2,128). Valid till 2 June 2024. T&Cs apply.

Citi Cash Back Plus

On the other hand, its unlimited cashback counterpart – the Citi Cash Back+ Carddoes not have any minimum monthly spend. Instead, all eligible spend nets a consistent 1.6% limitless cashback across the board, except for a few spend exclusions.


Miles credit cards

If you're an avid traveller and want your spending to contribute to your next holiday, miles credit cards are perfect for you. Each eligible transaction earns you bonus air miles (see: frequent flyer miles) and base miles on all other spend.

Miles credit cards like the DBS Woman's World Card and HSBC Revolution Card give 4 miles per S$1 (mpd) on select online transactions whereas travel credit cards like Citi PremierMiles Card and HSBC TravelOne Card give you 2 mpd and 2.4 mpd on foreign spend respectively.


Rewards credit cards

Rewards cards are similar to miles cards since they often offer reward points which can be redeemed for airline miles. In essence, they double up as miles cards. For example, the Citi Rewards Card earns bonus 10X ThankYou Points on select online spend, which is equivalent to 4 mpd. 

TeamCashback-VS-TeamMiles-KV2.1_BLOGARTICLE_800x250

🆚SingSaver's Cashback vs Miles Campaign (Round 2) 🆚: Are you Team Cashback or Team Air Miles?

Be one of the first 400 to receive rewards of up to +S$740 Vouchers or up to +74K Miles when you sign up for any participating Cashback or Miles Credit Card, respectively, within the promo period. The team with the most applications wins the rewards! Promo runs from 24 May, 12pm - 6 June 2024. T&Cs apply.

Plus, get up to 31x chances to win a Pair of RETURN Business Class Tickets to Tokyo, Japan (worth 120K Max Miles) in the Grand Lucky Draw when you successfully apply for participating products. Promo runs from 24 May, 12pm - 6 June 2024. T&Cs apply.

SingSaver's Exclusive Offer: Receive the following rewards when you sign up for a Citi Rewards Card (Team Air Miles):

Citi_CC_KV2_BLOGARTICLE_800x250

Get a Dyson Supersonic (worth S$699) or Apple iPad 9th Gen 10.2 Wifi 64GB (worth S$508.30) or Sony Portable Theatre System HT-AX7 (worth S$759) or S$350 eCapitaVoucher or S$300 cash via PayNow upon activating and spending a minimum of S$500 within 30 days of card approval. Valid until 6 June 2024. T&Cs apply.

Pay_To_Upgrade_Rewards_Campaign_BLOGARTICLE_800x250-1

Plus, upgrade your rewards when you top up S$999 for an Apple MacBook Air 13” (M3 chip) 256GB (worth S$1,599) or an Apple iPhone 15 Pro 128GB (worth S$1,664.25). Alternatively, top up S$1,488 for a Samsung Galaxy S24 Ultra Titanium Gray 12+512GB 5G (worth S$2,128). Valid till 6 June 2024. T&Cs apply.

Citi Rewards Card-1

Thus, rewards credit cards offer the flexibility to accumulate points for redeeming rewards or converting them into frequent flyer miles. 


What types of credit card details should you be aware of?

At this point, we pretty much know how credit cards work but... do we know what's on a credit card? 🤔

shutterstock_376808911_credit card front and back

On the front, you can expect to find the following personal information:

  • Card Number
  • Cardholder's Name
  • Date of Expiry
  • Credit card chip
  • Credit card payment processing network (e.g. Visa, Mastercard, AMEX)

On the back, you can find its unique three- or four-digit card security code (CVV) which protects against credit card fraud. Every online transaction made with a credit card requires a CVV verification and prevents any unauthorized transactions from going through.


Types of credit card fees and charges

Each credit card demands different fee amounts and charges; but at their core, they share the same card fee classifications and charges.

Card fee and charge
What it is
Annual fee
The membership fee for credit card ownership; differs from card to card 
 
Most entry-level credit cards bear a S$196.20 annual fee (with a first-year waiver)
Late payment charge
The amount imposed on an overdue credit card bill payment
Minimum monthly payment
The least amount due each monthly billing cycle
Overlimit fee
The amount imposed when you exceed your credit card's monthly credit limit
Interest on purchases
The interest imposed on any unpaid amount (including late payment charges) until the outstanding balance is fully paid off
Interest on cash advances
The interest imposed on the cash advance amount withdrawn until the outstanding balance is fully paid off
Foreign currency transaction fee
The fee imposed upon converting foreign currency into local SGD during a transaction
Usually 2.25% from credit card issuer + 1% from Visa/Mastercard/AMEX
Dynamic currency conversion fee
The 1% fee imposed on foreign transactions paid in local SGD in situ, instead of the foreign currency

 

⭐ For exact fees and charges per card, refer to our individual credit card reviews.

Frequently asked questions (FAQs)

What's the difference between debit cards and credit cards?

A debit card directly deducts each transaction amount from your linked savings account. If your account has insufficient funds, the transaction will be declined. Debit cards can also double up as ATM cards to withdraw physical cash from ATMs. Overall, debit cards are effective deterrents against overspending.

Conversely, a credit card acts as a short-term loan that enables a cardholder to "borrow money" from the card issuer (bank) monthly (billing cycle). Once the cycle ends, a card statement will be issued to you reflecting the owed amount. Failure to fully pay the outstanding balance will incur hefty interest charges.

What are the benefits of using a credit card?

In general, credit cards offer several benefits. 

  1. They allow you to go cashless.
  2. They offer rebates such as cashback, rewards points, or frequent flyer miles on your spending. This allows you to save more, redeem exclusive rewards, and enjoy travel perks like complimentary airport lounge access or free travel insurance in the long run.
  3. They also provide a buffer for sudden expenses and emergencies, allowing you to manage your emergency fund cash flow effectively.
  4. They're great for building and improving your overall credit score which affects your future success in applying for mortgages or car loans.


Read these next:

Should I Use My Credit Card to Pay For Everything?
A Singaporean’s Guide To Stop Overspending — Simple Money-Saving Hacks You Can Follow To Get Your Budget Under Control
The Consequence of Your Child Going Cashless Too Early

Although she struggles *slightly* in resisting good deals and sales, Emma is on a lifelong journey to understand what financial independence as a Z-llennial means. That said, her inner child is still very much alive… with animals and gaming being her weaknesses.

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