Credit Card Guide

What is a credit card?

It’s just a piece of plastic, but this tiny card has the ability to lend you money to make purchases on credit and to give you cash advances.

Each credit card comes with a maximum spending amount, known as the credit limit, which hinges on your monthly income. Some cards also come with a minimum spending amount. But wait, don’t go spending away! Remember, every time you swipe that card, you’re actually borrowing money, even if you don’t see it being transacted.

This means you’ll have to pay the money back, plus any interest rates you may have incurred. Read your copy of the credit agreement carefully so that you know what you’re getting into.

Why get a credit card?

The main reason you should get a credit card is to boost your credit rating. When you owe an institution money, such as your loans and student debt, you get a credit file, which documents the credit you accrue and your ability to pay it off.

Your credit history stays on the file for seven years – so if you can build it up well, you’ll be eligible for bigger, better loans several years down the road.

What are the eligibility criteria?

Your ability to get a credit card is influenced by your monthly income. Age is also a factor. Credit card issuers – in other words, the creditors, usually banks – typically peg the minimum age at 21 years old for primary credit cardholders, and 18 years old for supplementary card holders.

Your credit rating will also affect your ability to score a card. The bank may reject your application if they decide that your credit rating isn’t up to par with the card you’re trying to apply for.

Benefits of having a credit card

Banks offer various incentives for you to choose their credit card. They make it easier by letting you gain more cashback or points from items that you frequently purchase, provided you choose the correct package.

Specific cards, such as travel credit cards, even pack in travel insurance to make the deal more lucrative. Below are some benefits you stand to gain from using a credit card:

  • Cashback
  • With this option, you’ll get a certain percentage of the amount you spent on your purchases per month. For example, if you get a card that offers 5% cashback on petrol expenditure on weekends, and you paid for RM300 worth of petrol this month, you gain cashback worth RM15. These monthly cashback bits eventually add up.

  • Loyalty or reward points
  • Perhaps you prefer redeeming items offered by the creditor with points that you’ve collected from all your credit purchases. This is where reward points come in. They can remain active for several years, and some creditors even offer non-expiring points, so you can let them grow to a decent amount and then exchange it for something you like.

  • Purchase protection
  • Say you bought something from a retailer, and it was faulty. If you purchased the goods and services via credit card, then you’re in luck, because your purchase will be protected by your credit card issuer, and you can claim a refund from them for the faulty item.

  • Flexible credit
  • Many cards offer an interest-free period, which is a period wherein you needn’t pay interest on the outstanding balance on the card.

    You can take advantage of this feature to pay off your debts sans interest by transferring your balance to a new, interest-free card, then polishing off your slate within the interest-free period. Using this feature, you can also make bigger purchases and pay for it in installments without incurring interest rates.

Credit card considerations

In general, here are several things you need to take into consideration when credit card shopping:

  • your eligibility for a particular card
  • your most frequent purchases
  • the type of incentive you’re hoping to gain
  • the interest rates
  • the interest-free period, if available
  • the minimum and maximum credit limit
  • the maximum amount of cashback or points you can receive

You are ready for a credit card if:

  • you are able to pay off the balance at the end of the billing cycle
  • you can manage your money – both debit and credit – responsibly
  • you can handle more debt (or stay out of new debts)
  • you’re looking to improve your credit rating
  • your monthly income or salary meets the minimum income requirements for a particular credit card

Documents required to apply for a credit card

For employees, you’ll usually be asked to bring a photocopy of your MyKad and your latest salary slip, or your latest income tax return, or Form EA, or EPF statement.

For the self-employed, you’ll usually be asked to bring a photocopy of your MyKad, a photocopy of your Business Registration Form, your latest income tax return, and bank statements for the past six months.

Any further questions?

If you’d like to know more about credit cards, refer to our credit card FAQ for more information.

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