How to Decode Your Credit Card's Fine Print

Don't apply for a credit card without reading the fine print. Here are four important parts of the terms and conditions, written in plain English.

If there’s one thing to be said about credit cards, it’s that their terms and conditions are fairly complex. Most people know the basics of how credit cards in Singapore work, but end up skipping the intimidating fine print.

A study done by J.D. Power found that 85% of Singaporean credit card users don’t fully understand their card's terms and conditions.To be specific, cardholders don’t understand foreign currency and transaction fees (58%) and interest rates (49%).

Rewards complicate matters even more. The same study found that only 32% of cardholders actually know how to earn rewards with their credit cards.

We get that trying to comprehend credit card terms can be frustrating, but you should never apply for a financial product without understanding the fine print. Here are the four main things to watch out in your terms and conditions, written in plain English:

Conditions for Earning Rewards Points

Each credit card has its own system for earning cashback or rewards points. For some, it's as simple as getting 1% cashback or 1 point or for every S$1 you spend. Others require you to shop at certain establishments to earn higher cashback or points.

When checking the terms and conditions of a rewards card, watch out for:

Points Per S$1 Spent

This should be prominently displayed on the credit card provider's page. You want a rewards card that earns high cashback or points per S$1 spent on things you would normally purchase anyway, like coffee or clothes for work.

For example, a shopaholic will love the Citibank Rewards Card. It gives you 10x reward points when you shop for clothes, bags, shoes at ANY departmental stores locally, overseas and online! On the other hand, a DBS Takashimaya Visa Card only gives you 5% rebates when you make purchases at Takashimaya Store. For everything else, you need to spend S$5 to get 1 DBS point, translating to only 0.2 point per S$1.

Special Deals and Promotions

Make the most out of your rewards card by paying attention to their partner merchants for accelerated points. For example, the HSBC Revolution Card gives 10x reward points if you shop online every Wednesday.

Some deals and promotions are seasonal. For example, in May this year, American Express cardholders had priority to purchase Taylor Swift’s 1989 concert. Banks would usually inform you the special deals and promotion through their emailers and SMSes, so be sure to sign up for these alerts.

Limits and Minimum Spend

Most cashback or rewards cards put a cap on how many points you can earn a year. See if yours has any limits. The most straightforward cards in the market are American Express True Cashback and ANZ Optimum World MasterCard Credit Card for there are no minimum monthly spend and maximum cashback cap for these cards.

Keep a look out for cards with high cashback rate because it usually comes with a condition.

For example, Standard Chartered SingPost Platinum Visa Card gives 7% cashback for online shopping. However, you need to charge at least $600 a month to your card to earn that high cashback, otherwise, you will only receive 0.2%. A cashback cap of $60 per month is applicable as well.

The Rewards Catalogue

At the end of the day, your points can only be used to claim rewards from the catalogue. Make sure these rewards actually suit your needs and interests.

In addition, know how many points you need before you can redeem for one item. Each bank has different redemption scheme.

For example, ICBC requires you earn a sky-high amount of points - 6000 points – before you can redeem for a $10 voucher. Contrastingly, UOB only requires you to earn 750 points to earn a $10 voucher. This redemption rate differs for each product too.

foreign transaction fees

Foreign Transaction Fees

Using your credit card for overseas spend is not always a great to collect rewards or air miles.

When you charge an amount in foreign currency on your credit card, it will be converted to US dollars before it converts again to Singapore dollars. This rate is not based on what you see at the moneychanger, but on prevailing wholesale interbank rates or government-mandated rates.

The rates used will be according to the date of the transaction. And due to market fluctuations, this might be different from the rate in effect of the transaction date.

Let’s not forget for a second about the transactional fees that banks charge to convert these fees. They are usually around 1% of what you’ve charged.

So pay attention to how much your card provider charges for foreign transactions. Visa, MasterCard and Amex also have their own charge systems for foreign transaction fees. So depending on which you’re using (and which bank), read the terms before you commit or charge an amount in foreign currency.

How Interest Works

When a credit card advertises 25% p.a., what does that really mean? Most Singaporeans assume it comes down to a monthly surcharge of 2.08% on their outstanding payments, but this is not accurate.

Say your credit card payment of S$3,000 is due on the 20th of the month but you missed it. You’ll be charged a daily interest of 25% per annum--and let’s not forget this compounds. Your daily interest is 0.068%.

So if you pay off on the 21st, you’ll have to pay S$3,204. But if you miss it again, the 0.068% is on what you’ve accumulated on the 21st, which amounts to S$3,421.87.

If you can’t pay the entire bill, don’t miss the minimum payment. It’s usually around 3% of the bill or S$50, whichever is higher. When you miss paying even the minimum, the interest rates on your credit card increases by 4% p.a.

So if it was 25% before, it’ll now be 29% p.a. There’s no way you’ll want to pay that much money.

Interest-Free Periods

Did you know that some banks have interest-free periods? This means you have a chance of avoiding interest if you missed a payment.

For example, DBS has credit cards with grace periods of only 20 days. Some other banks might give you more days, some less. They might even differ from card to card, though they’re from the same finance institution.

You can also add monthly dates to your calendar so you never forget a payment. Or you can do what the SingSaver.com.sg team does by adding a Giro payment service to automate payment.

About J.D. Power in the Asia-Pacific Region

J.D. Power has offices in Tokyo, Singapore, Beijing, Shanghai, Malaysia and Bangkok that conduct customer satisfaction research and provide consulting services in the automotive, information technology and finance industries in the Asia Pacific region. Together, the six offices bring the language of customer satisfaction to consumers and businesses in Australia, China, India, Indonesia, Japan, Malaysia, Philippines, Taiwan, Thailand and Vietnam. Information regarding J.D. Power and its products can be accessed through the Internet at asean-oceania.jdpower.com.