Only around 2% of Filipinos have a credit card. In the Philippines, the majority of the populace despises the concept of credit cards. Credit cards have always had a negative stereotype, not just in the Philippines, but all over the world. However, financial experts believe that when a person understands how to effectively use their credit card, they can improve their financial situation twofold.
A credit card is not something that only the rich should have. It’s a great tool for all social classes. As long as credit card holders treat their cards as another more convenient way of paying with the money that they have, then all will be well in the long run.
One of the most predominant reasons why people don’t get credit cards is the stigma that revolves around it. In the Philippines, credit cards are likened to debt traps and most, if not all, families discourage each other from getting one. This has led to people denying invitations to get their own credit cards.
We believe that the only time that they do become a “debt trap” is when the cardholder does not know how to be disciplined with their card.
That being said, with the correct mentality, a credit card can be a powerful instrument to supplement a person’s finances beyond what it would be without one. Take a look at exactly how a credit card can help you out and why it’s a necessity for most people!
Credit cards from different banks have different fees, terms, and conditions. What they do have in common are their conditions when it comes to paying back the credit that people owe. With credit cards, you are given a grace period of 30 days where you can use up a set amount of money as long as you pay them back on or before the due date. If you fail to pay in full, a percentage of your initial credit will be added to what you owe. The cycle goes on until you pay your balance in full.
Basically, when you use your credit card recklessly, you will fall into debt. When you disregard monthly statements and pay only the minimum amount; when you exceed your credit limit, and when you let yourself be tempted to shop just because you have a credit card, you will fall into debt.
However, with a disciplined and thrifty mindset, you can easily avoid these situations.
When you have a credit card, you are forced to be more meticulous with what you buy. Having a piece of plastic that lets you buy big-ticket items at any time, but can be damaging when you abuse it, will make you think twice before you buy things.
It makes you prioritize spending wisely instead of always indulging in every craving that you get.
One thing to take advantage of is the credit limit that credit cards have. When you apply for a credit card or are sent one by a bank, there will be a set credit limit that ranges from 20,000 to even 1,000,000.
This will help out in setting up a budget for your monthly expenses. Bear in mind that even if your credit limit is at 40,000 or 200,000—you don’t have to use it all up. You should try your best to use only about 30% of your credit limit.
For example, if your credit limit is at 30,000, you should have your budget ceiling at 10,000. Using just about 30% of your credit limit has its advantages, particularly in the improvement of your credit score, which will be discussed later on. But a more important reason to use only 30% is so that you’re sure you will be able to pay your dues on time. When you always pay your dues on time, you won’t need to think about the card’s interest rate. Bear in mind that as long as you don’t have any dues, the interest rate won’t take effect.
Another significant point of limiting your expenses to 30% is to have emergency funds that are within your credit limit. A financially savvy person will always have emergency funds at the ready.
Credit cards can be of great help in educating people on how to be smart with their money. As an iteration of a loan, it can also be used to show the dangers of prolonging debt. Buying things when you don’t have the money can lead to many problems. Especially when your source of income is not enough to support the debt that it might accumulate.
With credit cards, particularly secured credit cards, you can discover the ins and outs of loans. Most of the things that you should know about how credit cards work are already provided and explained to you by financial institutions, the rest you can learn by reading their terms or by browsing guides on the Internet.
At the end of the day, credit cards can help you learn a lot about loaning and the concept of credit. Once you understand how it works, you can focus on how to use the card in a way that will benefit you instead of the bank.
Most credit cards have some sort of protection in the form of insurance and asset protection. The most notable being travel insurance when you use the credit card to pay for a flight or for when you’re overseas. Bear in mind that not all credit cards have insurance with them. Always check out the features that credit cards have.
Another thing you should look at is the purchase protection that they have. Depending on the terms, you are protected from theft, damaged items, or faulty purchases when you use a credit card. This is mostly used for online and overseas transactions. When eligible, you will get a new item or be compensated for the damaged or stolen item depending on the store.
Credit cards are better known for their fraud protection. If you think that your credit card details have been compromised, it only takes one call to freeze and deactivate it.
It’s also quite common that it’s the bank that finds out you’ve become a victim of credit card fraud thanks to their fraud monitoring. The majority of banks monitor the expenses of their cardholders mostly to catch fraud. This is because when fraud happens, it’s the bank that will have losses, not the cardholder.
Major credit card networks have a zero-liability policy. This means the cardholder will not pay anything for what happened. Even if your credit card was used to pay for something already, it won’t be placed under your statement.
Another security measure that has recently been implemented is chip cards. These chip cards are also known as EMV cards which stand for Europay, Mastercard, and Visa.
Chip cards encrypt account information differently whenever it’s used. It has a relevant additional layer of security when compared to the old cards which only have static data that is easier to extract.
In the unfortunate circumstances that you get scammed, one call can freeze the card. After the problem has been sorted out, you will be given a new card with a different card number and CVV.
One advantage of using your credit card is their monthly statement. It will list down all of your purchases for that month, when and where you bought it, and its exact price. This is very important, especially when you’re very particular with your finances.
Credit cards would usually issue statements through emails, but there are still some that make use of paper statements as well. Both have their advantages and disadvantages.
Paper statements are permanent. Once delivered, the cardholder has easy access to it. Because it’s physically available to you, you will be more inclined to review it when it’s delivered. These are also easier to keep and organize. Bear in mind that some statements found online are only temporarily available—they would usually be just available for around 30 to 90 days.
Electronic statements are the more convenient option between the two. Instead of being mailed to your door, e-statements are just sent through your email. You’ll have access to your statement anytime and anywhere. Depending on the bank, you can also see your statement be updated in real-time. You may want to have a dedicated email for this, however, or risk flooding your email inbox with multiple emails for every purchase. You might miss a payment just because you thought your statement email was just another purchase update.
The significance of your login details also increases with the use of e-statements. With digital threats rampant anywhere you go, you have to be extra careful with your personal details. You need to have a very secure password if you are to protect your credit card information and statement.
Credit Score Improvement
Credit cards are the primary way in which people can improve their credit card score. Other than that, the only way to establish and increase your credit score is through the loans that you’ve had in the past such as mortgages, car loans, and similar things.
Of course, the improvement of your credit score can be accelerated with the responsible and disciplined use of your cards. There are many tips and suggestions which are said to improve your credit score in the long run.
For example, as mentioned above, it would be best to limit your expenses to just below 30% of your credit limit. If you can keep it at a lower amount, around 10% to 15%, then it could have a more positive effect on your credit score.
You may also want to request an increase to your credit limit. This effectively decreases the percentage of your credit limit that you use, and also positively influences your credit utilization rate, which also affects your credit limit.
Paying on time and in full is also a notable thing to do to help maintain and slightly increase your credit score. You might also want to make smaller payments instead. Through micropayments, you can keep your credit card balances relatively low
Easy Access to Money
The reason why people get a credit card is for them to have access to funds while they don’t have the money yet. Bear in mind that credit cards are technically instant loans that can be paid later. This is very convenient especially for people who only receive their salaries once a month. That means you have to budget your cash for thirty days before you get your next salary.
Bear in mind that the majority of people can and have lived with just budgeting with cold hard cash. However, having a credit card will remove the need to always have cash on hand. Instead, you can pay with most, if not all of your expenses with a small piece of plastic. It removes the need for a bulky wallet.
The only downside is that if a certain shop only accepts cash, your credit card won’t do you any good. That being said, this can easily be solved by having your debit card with you as well, or a small amount of cash for such things.
Early Knowledge of Sales and Discounts
Most credit cards have their own promotions with the help of different retail partners. Select credit cards have different discounts in different industries. Most discounts can be used in hand-picked restaurants, retail outlets, department stores, and groceries. Very rarely do credit card companies publicize their promotions. Instead, they only post these details on their website.
Credit cardholders with better credit scores would usually be notified of these promotions and even some exclusive privileges. Better discounts and more outlet sales are promoted to the people that card companies believe are more responsible with their credit.
It’s important to know that different credit cards are partnered with different stores and restaurants. Some of them even have rotating categories for which they provide significant discounts. It might be notable for you to check these out when it comes to choosing a credit card.
Loads of Rewards
Though not as important for some people, it’s the rewards that can really make a credit card worth getting. There are three main types of rewards that cater to different people. In the Philippines, the most common type of reward would be cashback. Reward points and airline miles are there, but the majority of cardholders have yet to understand the importance of collecting and efficiently using these.
Here’s a short discussion about the three types of rewards.
Just as its name suggests, cashback is the concept of getting cash back for your every purchase. This would usually come at a small percentage, usually ranging from 1% to 5%. Some credit cards have a set cashback percentage for every purchase, while others have bigger ratios for select expenses.
Bear in mind that cashback doesn’t always mean the money will be returned to you. Instead, most credit cards either issue them as additional credits on the credit card. Otherwise, it would usually be deposited back into your debit account.
These are a form of currency exclusive to banks which you earn by using a credit card. Most of the time, you get a ratio of your expenses in points. For example, the Metrobank Travel Platinum Visa lets you earn 1 point for every PHP17.00 that you spend using it. These points can be used to redeem many kinds of items and services. From cellphones and appliances to 2-day stay at a luxury hotel.
The quality of your rewards depends on the credit card company. Don’t expect the same items to be available on different cards.
For frequent travelers, airline miles are the most efficient rewards to get. While most of the time you can also redeem airline miles using your reward points, some credit cards earn you airline miles directly, such as Citi Premier Miles and PNB-PAL Mabuhay Miles World Mastercard.
Airline miles can be used to redeem domestic and international flights in varying seat classes. That means you can fly in business class and first-class seats for free!
With enough airline miles, you can experience around the world trip and the only thing that you will need to pay are the taxes and surcharges if there are any!
Although not everyone believes it, credit cards are one of the most important financial tools that any person liable for getting one could have. How first-time credit card holders react to getting one is the most crucial moment. If they see the credit card as a means to satisfy their desires, they’re done for. But if they see it as a financial tool that should be studied, then they will be able to maximize it.
People can learn financial discipline and the importance of money through efficient use of a credit card. You’ll be provided with a lot of security and protection, as well as rewards depending on your credit score. When used efficiently, a credit card can be more than just a means to pay for something more conveniently.
In the Philippines, credit cards are not as popular as we think they should be. If not for the stereotype that credit cards automatically lead to debt, it might be used more. It’s not the credit card that causes debt, it’s the spending behavior of the people. If an individual uses the credit card recklessly, then it’s only natural that they’ll fall into debt.
However, if you become smart with your spending and you make sure to maximize the rewards that you earn, you will get so much more than you bargained for. With the right research and very efficient use of the card, you can get flights and hotel stays for free, be notified of very good retail sales, and eat for way cheaper!
Credit cards are very important because when used properly, they can improve your financial situation by significant levels.