Your first credit card will be the first credit-building tool that you’ll get. How you use that card will dictate your spending habits for most of your life.
Because of this, making sure that you have the right credit card is one of the most important things a first-time cardholder should do.
If you’re looking for your first, or just another credit card, here are a few important factors that you should consider.
Before choosing a credit card, you should first ask yourself the question, “What am I going to use this for?”
Knowing how you intend to use your credit card is the first step in becoming a responsible cardholder.
Depending on your preferences, you might want to focus on getting cards with different highlights.
For example, if you plan on always paying the credit card bill in full every month, then you don’t necessarily have to look at the APR or the interest rate because they won’t matter to you.
In this case, you should find the best card that has no annual fee or is at the lower price range. You should also prioritize credit cards with longer grace periods so you have less chance of getting hit by the monthly finance charges.
If you plan on carrying a balance, your priority then shifts to looking for cards with the lowest possible interest rates. Often there are cards that have a very low introductory interest rate, these are good options for you to choose from.
For credit cards that will be used for most, if not all of your expenditures (not just to build up credit), choose the ones with high credit limits or those with great rewards programs. The higher limit will help you budget your money better and also help prevent reaching or exceeding it. While the rewards program will offer you exclusive items that you get by only using the points that you collect.
You can also keep credit cards as an emergency safety net. For these conditions, you can settle with a card that doesn’t have any luxurious add-ons, just focus on low fees and low interest rates.
Thanks to the point above, we can assume that we would primarily want credit cards with low-interest rates. These rates usually appear as an APR, or the annual percentage rate.
These can either be fixed rates or variable rates.
Fixed rates are just that, fixed. You know exactly what the rate will be every month. However, this can change—you should be notified way ahead of its implementation.
Variable rates, on the other hand, usually fluctuate because they’re tied to another financial indicator known as the prime rate. In these cases, it’s best that you always keep an eye on the interest rates of your card, just so you won’t be surprised about your balance every month.
Your Credit Score
For those that have already built up their own credit score, it’s only natural that you consider it when looking for credit cards.
To put it more precisely, all credit cards in the Philippines that you can apply for are limited to those that think your credit score is in a suitable state.
The better your credit score, the more options will be open to you. Often, this will lead to better credit cards with lower interest rates, higher credit limits, and better reward programs.
On the other hand, having a bad credit score will severely limit the credit cards that you can choose. When it’s in a really bad spot, you might only have the choice of getting a secured credit card—those that require collateral to be used.
That being said, secured credit cards are also great for building up credit. In the Philippines, credit card applications can be fairly strict. However, it’s quite easy to apply for secured credit cards.
To reiterate, you should keep in mind your credit score when choosing a card because it can either help you get better ones, limit you to mediocre options, or help you build up your credit score from the ground up.
Specific Type of Credit Card
It’s good to note that there are a number of different credit cards in the Philippines that focus on different things. Depending on your preference, you can choose between those that have good reward programs, or those that can help reduce interest paid on existing debt.
Most of these cards have already been discussed in a section above, but here’s a short summary of the more common choices:
- Balance Transfer Cards – These are best used if your goal is to consolidate credit card debt. They can help reduce the interest paid on your initial balance.
- Cards with 0% APR – If you’re planning on purchasing a big-ticket item after you get the credit card, these will help you save a lot on interest.
- Cashback Card – Choose these if you want to get your rewards as additional credit that can be used to reduce your monthly bills.
- Rewards Cards – These include cards with intricate reward programs, and airline mile cards. These cards specialize in earning points or miles for the use of the cardholder.
- Business Card – Mainly used by people who want to use credit to start up a business.
- Secured Credit Cards – The best option for people who want to rebuild or increase their credit score.
This is the maximum amount of money that the issuer is willing to let you borrow. For most banks, this is an agreed upon amount that is based largely on your credit history.
The limit can range from around PHP20,000 to as much as a few million pesos.
You should be careful not to max out your credit limit as it will have a negative effect on your credit score.
In some cases, credit card companies have cut the credit limit of customers to an amount that’s even lower than their current balance.
Ideally, you should only spend at most 30% of your credit limit to maintain a good credit score.
Fees and Penalties
With amazing benefits, perks, and rewards, come a number of fees and penalties to balance things out.
Most credit card issuers have multiple charges for things such as transactions, balance transfers, cash advances, and even credit limit increase inquiries.
Aside from those, there are also a few penalty fees for when you pay your bill late or go over your credit limit.
In essence, there’s a lot of ways that financial institutions can slowly drain money from you when you’re not aware, or actively ignore these fees.
Be extra careful with these when choosing a credit card. Look at the ones with reasonable fees for activities that you might do a few times. Stay away from credit cards that have additional charges such as those that ask you to pay extra for rewards programs. Bear in mind that there are so many other cards that offer these programs for free.