Credit Card 101

Credit cards are tricky tools of trade. While they do make shopping easier, quicker, and more convenient, these little pieces of plastic also come with their own share of hassles: payment due dates, identity theft, interest rates, and the like. Learn how to avoid these unwanted circumstances and use your credit card to its full potential.


THE GOOD
Pro plastic. Paper may trump plastic in saving the environment, but when it comes to spending money, plastic is oftentimes the way to go. Credit cards offer many advantages, states Iain Jamieson, Visa country manager for the Philippines and Guam. “Having credit comes in handy when making expensive or unexpected emergency purchases. It gives you the flexibility to pay at a later date. In some cases, you may even earn rewards—movie tickets, free products, flyer miles—when making a purchase.”

Convenience. Credit cards allow you to purchase almost everything, from essentials such as groceries and gasoline to big-ticket items such as appliances and jewelry. “The installment facility of card issuers makes it less burdensome for large purchases, as it allows cardholders to make a purchase without having to shell out the full amount at that time. This way, one can manage his finances to cover the monthly amortizations,” says Elizabeth Legarda, executive director of the Credit Card Association of the Philippines (CCAP).

Security. There is a sense of security when you don’t carry around a lot of cash, as lost or stolen cash is pretty much considered gone. Credit cards, on the other hand, can easily be reported when they’re lost or stolen, without you having to lose a single peso!

Furthermore, in some cases, cardholders have the right to dispute purchases with merchants for unsatisfactory products or services - given a formal and proper process - and remove their liability for fraudulent charges when reported promptly.

 

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Financial assistance. Most credit card companies allow you to automatically charge monthly bills to your card, eliminating the hassle of handling several individual payments. You can also use monthly credit card statements, which give a conveniently itemized view of regular expenses, to help in budgeting.

“Some banks even allow you to check up-to-date credit card activity and balances online. This helps you keep track of your available credit, payment due dates, purchase activity and more,” says Jamieson.

Custom cards. With the slew of offers available, it’s easy to find a card that best suits your needs and spending style. For example, if you’re a frequent traveler, find a card that rewards you with flyer miles. If you’re on the road most of the time, a card that offers a rebate on gas purchases would be a better choice.


THE BAD
Irresponsible spending. Along with the advantages of a credit card also come responsibilities. Cardholders must understand all of the contract’s terms and conditions, and stay on top of payments. “Using a credit card is like taking out a loan,” explains Jamieson. “If you don’t pay your card balance in full each month, you’ll pay interest on that loan. And if you spend beyond your means, the resulting interest and debt can become significant.”

The worst part? Any late payments and outstanding debts are not easily forgotten. These are all recorded in your credit history, or financial profile, which can be seen any time you want to get a loan, insurance, a new house, or even a job.

Credit costs. The main disadvantage to credit card usage is its cost in interest and fees. Wise use of credit means understanding those costs and acting accordingly. Keep track of your spending to ensure that you can pay your credit card bill in full when it comes due each month.

Identity theft. Unlike the upfront payment method of cash, credit cards are personal—they are linked to your financial and identifying information. “If you fall victim to identity theft, it’s important that you act quickly and contact your issuing bank immediately,” advises Jamieson. “These steps will go a long way toward minimizing any damage to your financial wellbeing.”

 

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THE STEPS TO TAKE
Choose wisely. Make sure to first assess your financial lifestyle, including regular expenses, spending habits, and how you plan to use your credit card. The next step would be to understand and assess these alongside the card’s terms and conditions: all incurred fees, annual percentage rates (APRs), payment period, credit limit, rewards, etc.

Stay within budget. “Realize that credit cards are not licenses to spend, but rather a convenient mode of payment and a most accessible source for emergency funds,” clarifies Legarda. “Keep track of all purchases, and pay at least the minimum amount due on your monthly bill to avoid late and interest charges.”

Furthermore, take note of any purchases made using a special installment plan (SIP), reminds Grade Anonuevo, a medical technologist and mom. These payments are automatically included in your monthly bills, so “a regular monthly bill of P2,000, for example, will actually require a higher amount to be paid when the SIP payment is factored in.”

Play it safe. You can avoid credit calamities, such as fraud and identity theft, by safeguarding both your card and account number. Make it a point to sign your new card as soon as you receive it, keep all credit cards, receipts, and a record of account numbers in a safe place, and be cautious when disclosing or writing down any credit card information to other parties.

“Never divulge personal financial data. Your issuing bank will never call to ask for important information over the phone, so be wary should you receive such calls
or letters,” says Legarda. “If you have a personal identification number (PIN) for ATM transactions, make sure to memorize it and not use easily-identified combinations,
such as birthdays.”

Act fast. If you come across any problems—errors on your bill, disputed charges, lost or stolen cards, etc.—make sure to report it to your credit card company as soon as possible, preferably within 24 hours. The faster you report the problem, the sooner problems can be averted.

 

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Travel tips. One advantage of cardholders is not having to tote around large amounts of cash while in transit. Before embarking on travels, however, “it’s best to advise your issuing bank so your transactions can be safely monitored. Keep a complete record of credit card and bank contact numbers at home, in a safe place,” says Legarda.

 

Online shopping. Just like credit cards, online stores make shopping easy, quick, and convenient. Make sure to protect your card details and passwords as much as possible, and keep a record of your transactions.

“To ensure that you’re logging onto a secure site, check that the URL address starts with an ‘https’ rather than the standard ‘http,’” says Legarda. “Moreover, there should be a padlock icon located at the lower right portion of the web page.”


Photo by Robert Scoble via flickr creative commons