There are a list of factors you should keep in mind when you’re getting a new credit card. Whether it’s your first credit card or not, you need to make sure that you follow certain steps and take some important measures to make sure that the card serves its purpose your best suited way. Here are some of the mistakes people make while applying for a credit card and the ways to avoid such mistakes.
Top 5 Mistakes People Make While Applying for a Credit Card
1. Choosing the wrong card
One of the worst mistakes one can make while choosing a credit card is opting for a card that doesn’t suit one’s requirements the best. Whether it’s your first card or the 5th one, you need to do a proper research on your own and with the help of the internet to compare the list of cards available. It’s recommended that you don’t get swayed by the advertisement or choose the first card you come across. A credit card serves as one of the most dependable tools for your daily expense requirement and it is vital that you conduct a proper research before finally settling down with a card.
Let’s look at an elaborated example to understand why it is important to evaluate your needs in order to find the best credit card available for you.
If you want a credit card for your everyday grocery shopping, you need to filter the search accordingly. A card that gives you air mile redemption or other travel benefits will not be your perfect choice for this category. For example Hong Leong The Store & Pacific Card gives you cashback on every transaction related to groceries completed at The Store & Pacific. Similarly HSBC Amanah MPower Visa Platinum Credit Card-i gives you 8% cashback on your monthly grocery and petrol purchases.
|Card Name||Major Benefit||Suited For Grocery|
|HSBC Amanah MPower Visa Platinum Credit Card-i||Cashback of 8% on purchases of petrol and groceries||Yes|
|Citi Cash Back Card||10% cashback on transactions related to grocery, GRAB rides, dining, and petrol||Yes|
|HSBC Premier Travel Credit Card||1.1 Air Mile per RM1 spent overseas||No|
|Shell-Citi Gold Credit Card||Cashback of 8% on petrol purchases made at Shell Fuel Stations||No|
The table shows that there are some cards that are specially designed for your specific requirement. In order to get the best deal out of your card, you need to evaluate your needs and start the search for your card accordingly.
2. Not Understanding the Card’s Working Mechanism
Another mistake people often make while selecting a credit card is by not understanding the mechanism of card’s working or its full potential. Your category specific credit card gives you the maximum benefit at certain retail outlets and with a specific range of purchases. Let’s look at an illustration of Citi Cash Back Platinum Card below:
|Retail Category||Cashback Rate||Cashback Earned Per Month|
|Grocery||10% cashback||Capped at RM15|
|GRAB rides||10% cashback||Capped at RM15|
|Petrol purchases||10% cashback||Capped at RM15|
|Dining||10% cashback||Capped at RM15|
|All other retail purchases||0.2% cashback||No monthly limit|
As you can see, Citi Cash Back Platinum Card earns you a high range of cashback with a certain range of shopping categories. This includes purchase of grocery and petrol, GRAB rides, and dining. The card also earns you an unlimited cashback of 0.2% on all other retail purchases. This cars also helps you benefit from a range of partner privileges and comes with an automatic crediting of cashback without a need to accumulate cashback.
In this card, if you decide to get a new cashback card, you need to understand what kind of purchases are eligible for the cashback earned and how to earn it. This can help you find your best suitable card without a problem.
Let’s take a look at another example that talks about a rewards card.
Alliance Bank Platinum Card earns you Timeless Bonus Points (TBPs) with a range of retail transactions made using it. These points can help you enjoy multiple benefits. Here is the working mechanism of this card:
|Retail Category||Rewards Earning Rate||Benefits of Timeless Bonus Points|
|Overseas retail purchases||3x Timeless Bonus Points||3,000 TBPs = 1,000 BIG Points 6,000 TBPs = 1,000 Enrich Miles|
|Petrol transactions||2x Timeless Bonus Points|
|Grocery purchases||2x Timeless Bonus Points|
|Utility||2x Timeless Bonus Points|
|Other domestic retail transactions||1x Timeless Bonus Points|
In this example, Alliance Bank Platinum Card helps you earn TBPs with all retail transactions. You can use these points to gain discounted airfare with your choice of airline partner by redeeming the air miles of the airline partner.
Once you opt to get a card, you should also see if your card comes with a joining benefit like fee waivers, additional cashback, and other benefits.
3. Ignoring the Terms and Conditions
The long and detailed version of the terms and conditions associated to your credit card hold all the useful information regarding your card’s usage. One of the biggest mistakes people make while taking up a new card is ignoring the terms and conditions of the card. These conditions may be related to the card’s usage locally and overseas and the benefits you can earn with its usage. Let’s take an example of HSBC Amanah MPower Visa Platinum Credit Card-i. The card earns you cashback every time you use it to buy grocery and petrol. But there are some terms and conditions applied to it that are as follows:
|Retail Category||Cashback Rate||Minimum Spend Requirement||Cashback Limit|
|Petrol||8%||RM2,000 per month||RM50 per month|
|All other categories||0.2%|
In this case, the maximum cashback you can earn on a monthly basis is capped at an amount of RM50. Also, in order to earn a cashback at the rate of 8%, you are required to spend at least RM2,000 in total every month.
This explains why it is important to check the details of the benefits you can enjoy with a card. You are always recommended to read the conditions attached to these benefits. You should always check the requirements to earn the cashback, the retail transactions excluded from the cashback, and monthly cap on the cashback while choosing a cashback card. Also check if the card comes with an interest-free period, complimentary insurance, and other benefits.
4. Not Checking the Fees, Charges, and Penalties Associated with your Card
Another common mistake people make while choosing a new card is not checking the cost of the card. There are several fees and charges associated with credit cards. This mainly includes monthly payment instalment, annual fee, retail finance charge, cash advance fee, over-limit fee, and overseas transaction fee etc. Let’s look at rewards cards offered by Citibank and fees and charges associated with them:
|Annual Fee (principal card)||Citi Prestige Card: RM1,000.|
|Citi Rewards Card: RM600.|
|Citi Rewards Platinum Card: RM100.|
|Citi Gold Card: RM195.|
|Citi Clear Card: RM90.|
|Citi Choice Card: Waived.|
|Annual Fee (supplementary card)||Citi Prestige Card: Waived.|
|Citi Rewards Card: RM150.|
|Citi Rewards Platinum Card: Waived.|
|Citi Gold Card: RM100.|
|Citi Clear Card: RM60.|
|Citi Choice Card: Waived.|
|Retail Interest Rate||15% p.a. to 18% p.a. depending upon the payment behaviour during the last 12 months.|
|Cash Withdrawal Fee||For Citi Prestige Card: No charge.|
|For all other cards: 5% of the cash amount or RM20, whichever is higher.|
|Cash Advance Interest Rate||18% p.a.|
|Late Payment Fee||Citi Prestige Card: No charge.|
|All other cards: RM10 or 1% of the amount due (max. RM100).|
|Minimum Monthly Payment||5% of the outstanding balance or RM50, whichever is higher.|
There are a number of credit cards that come with no annual fee and low retail interest rates. Let’s look at some of the cards with no annual fee:
- Citi Simplicity+ Credit Card
- Standard Chartered Visa Platinum Credit Card
- HSBC Amanah MPower Platinum Credit Card-i
- RHB Visa Infinite Credit Card
- CIMB Cash Rebate Platinum Credit Card
Also, there are some credit cards that come with retail interests lower than 15% p.a. For example Alliance Bank You:nique Card comes with an interest rate starting from 9% p.a. if you make timely repayments for a period of 12 months.
5. Applying for Multiple Cards at a time
Another common mistake made by individuals planning to get a new card is applying for multiple credit cards at a time. Doing the same would make it difficult for you to manage your finances. Holding multiple lines of credit card would directly mean that you will have multiple payments to make every month. This increases the possibility of missed or late payments on your card. This would directly affect your credit score.
What to do After Getting a Card?
If you avoid these mistakes while applying for a new credit card, you can get the best card based on your needs. But the process doesn’t stop here. There are some things you need to keep in mind even after finding your perfect card.
- Don’t miss any payment: Your payment behaviour directly affects your credit score. If you miss the payment deadlines on your card, your credit score may drop. It is highly recommended that you do not miss out on payment deadlines on your newly approved credit card. Missing deadlines also impose a late payment charge that gets calculated on a daily basis.
- Don’t pay just the minimum amount due: One of the most commonly occurring mistakes is when individuals pay just the minimum amount due on their credit card. Always remember that paying just the minimum due amount every month will not help you reduce the total outstanding amount and you will fall into a never-decreasing pile of debt.
- Don’t over-utilise your card: Another thing you need to keep in mind when you get a card is never to exceed the credit limit assigned to your card. Every credit card comes with a set limit of credit you can use. If you use more than the set limit, you will get charged with an over limit fee.
- Keep a close eye on the latest promotions: The banks offering credit cards keep releasing a range of promotions time to time. These promotional offers give you discounts, privileges, and multiple other benefits associated to the card’s usage. In order to get the best of your card, you are recommended to keep a close eye on the latest promotions released by the bank related to your credit card.
A credit card comes with a range of benefits and features that can help you on a daily basis. But there are some responsibilities you need to take when you own a credit card. Try to avoid the mistakes made during the selection of your credit card to gain the maximum benefits every day.