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Finding the best credit card for you

THERE are basically two kinds of credit card users - those who always pay their monthly bill in full; and others who regularly carry a balance from month to month. How you can benefit fully from your credit card depends very much on what type of user you are. Of course, everyone would want a credit card that has the lowest charges, such as a cheap interest rate and no annual fees. But beyond that, there are additional features that the different types of users should look for when shopping for a credit card.

For someone who expects to pay their bills in full each month, additional benefits and incentives like reward points and rebates would probably be high on their list. Those who expect to carry a monthly balance and see their card as a short term personal credit line may want to know how finance charges are calculated, as well as the fees involved when making a cash advance, for example.

To help you choose the right credit card for you, here are a few things to consider:

1. Interest rate

Credit cards issued in Malaysia use a three-tier rate structure, with the lowest being 15 per cent and the highest, 18 per cent. The finance rate you would be paying is based on your preceding 12-month credit card payment history. You get to enjoy the lowest rate if you never missed making your payments by the due date over the period. If you had missed one or two payments, the rate charged will be higher at 17 per cent. More than two missed payments over the period and you will be looking at 18 per cent a year. So, it is especially important for first time credit card holders to ensure that they pay their monthly bills promptly to get to enjoy lower rates after 12 months. The difference in the finance charges can be significant if you regularly carry a balance.

You may want to also find out how the outstanding balance is calculated. The average daily balance method is the norm.

Do note that the interest rate structure is the maximum allowed by Bank Negara. There are credit cards being offered at lower rates but expect more stringent conditions. Having a solid credit history is ultimately in your own best interest, and the three-tier rate structure is supposed to help you achieve that.

You may have come across credit cards being offered at a low introductory rate. What you should ask is how long is the introductory rate for, and how high is the interest rate after that? These questions also apply if you are considering transferring the balance from your existing credit card to a card that is offering a low introductory rate for balance transfers. Some fees may also be applicable for balance transfers. Be mindful that if you miss, or are late with your payment, you may no longer get to enjoy the introductory rate, so do check the terms and conditions.

2. Grace period

If you regularly pay your credit card bill in full, you may want to look at the grace period and plan your purchases and payments accordingly. The grace period is the number of days you have to pay your bill in full without incurring a finance charge. Usually this is 20 days from the statement date, provided you paid your previous balance on time and in full. If you time your purchases correctly, you could enjoy up to 50 days of free interest. The interest-free grace period however only applies to new purchases. If you carry a balance on your credit card from the previous month, you will not get the benefit for new purchases. Also, for cash advances and balance transfers, interest charges start right away.

3. Other fees and charges

Joining fee This one-time charge can cost more than RM100 in some cases. It may not seem much to some, but free would be better, right?

Annual fee

Note that you still have to pay the annual fee even if you have not used your card during the year. The fee vary depending on the type of card and can be as high as a few hundred Ringgit. Some credit cards waive the first year's annual fee, or for as long as five years even. There may be conditions, such as using the card a number times within a specified period. Others let you pay the fee using the reward points that you have accumulated. Do consider carefully if you have to increase your card usage more than usual just to satisfy the conditions to enjoy the fee waiver. You do not want to end up having to pay more.

There may also be an annual fee for supplementary credit cards issued to your spouse or children.

Cash advance fee

Typically, the fee ranges from three to five per cent of the total cash advanced. This fee is in addition to the finance charges imposed on the amount of cash advanced to you. The finance charge usually starts immediately. Some credit cards also have a limit on the amount advanced. Cash advances from your credit card are very costly, but they do serve a purpose during financial emergencies. Just don't treat your credit card like you would your regular ATM card.

Late payment charge

Missing to pay at least the minimum payment by the due date will incur a late payment charge, on top of the finance charges on your outstanding balance. Late payment charges can be as high as one per cent of the total outstanding balance, with a RM10 minimum usually. Some credit cards cap the maximum amount payable, so look for the lowest.

4. Credit limit

Your initial credit limit is usually determined by your annual income and credit record. Some credit card issuers automatically increase your credit limit based on your usage pattern and payment history. Others would only do so upon request. What you want to know is how fast you can get it approved, which can be handy especially if you travel a lot.

5. Acceptance of the card

You would want a credit card that is widely accepted. Some credit card issuers may require you to inform them early if you plan to use their cards overseas.

6. Buyer protection

What happens if you lose your credit card and someone else uses it illegally? Check how much you would be liable for in such circumstances. Also ask if other types of buyer protection are provided for purchases made on the card, such as free extended warranty on electronic items, or free replacement of goods due to accidental loss or damage.

7. Rewards

These typically involve accumulating points which can be redeemed for gifts. Usually you get one point for every RM1 spent on the card. But you may need 20,000 points to redeem a RM200 gift item. If you expect to accumulate a lot of points, you would want them to never expire. You would also want a wide selection of goods and services than can be redeemed with the points.

Some cards also offer a cash rebate at the end of the year, which can be as much as one per cent. But the most generous benefits would be from the discount privileges, ranging from 10 to 50 per cent usually. A good selection of outlets that offer special discounts for purchases on your credit card is therefore essential.

If the rewards offered are a key criteria for you when choosing a credit card, find one that can also help your existing point or mileage accumulation programme. For example, if you fly often and plan your holidays around your airline frequent-flier points, you may want a credit card that can help you collect these points faster.

8. Customer service

Are excellent and friendly customer service important to you? It should be because you would want your enquiry to be promptly attended to. Such as when requesting an increase in your credit limit or to discuss a charge in your credit card bill. More important, how efficient are they when it comes to replacing a lost or damaged credit card? You may also want the convenience of checking your balance online, as well as make automatic payments.

9. Insurance

Some credit cards offer free insurance, like personal accident coverage. Many people don't actually check the terms, and for how long, just because its free. Some cards also provide free travel-related insurance coverage.

Finally

Choosing a credit card can be a balancing act. Do not let one factor alone, like the finance charge, sway your decision. And always READ THE FINE PRINT.

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