if you own a credit card, you are authorized to charge purchases against a pre-approved line of credit. Credit cards may be issued by banks, retailers, and other credit grantors. Some card issuers charge an annual fee to cover account-servicing costs, others do not.
After making purchases with a credit card, they become payable after a Grace Period during which no finance charge is imposed. Afterward, the balance due may be paid in full or paid down in monthly installments with interest. This is commonly known as revolving credit.
Some card issuers charge credit card interest from the purchase date whether the cardholder's account has an outstanding balance or not. Credit card interest rates, interest calculations, annual fees and repayment terms may vary considerably among cards.
Credit Cards: Pros and Cons
Credit has both advantages and disadvantages. By understanding your responsibilities and using it wisely, you can capitalize on the advantages and reduce the disadvantages.
Advantages
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Ability to buy needed items now
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Don't have to carry cash
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More convenient and widely accepted than checks
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Creates a record of purchases
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Receive loyalty points and other rebates
Disadvantages
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The cost of the item may be higher if you incur interest
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Using a card may incur fees
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Financial difficulties may arise if you lose track of how much you spend each month
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Provides an avenue for increased impulse buying
How Are Charge Cards Different?
Charge cards are a little different from credit cards. Charge cards usually have no charge limit, unless the local banking regulations impose one.
You can usually charge as much as you want, but you are required to pay off your entire balance when your bill arrives.
If you don't pay your charge card bill in full, your account may be suspended and you will be charged interest rates on the outstanding balance as well as any additional fees. Your bill may also be sent to the collections department.
How they works.
A credit card user is issued the card after approval from a provider (often a general bank, but sometimes from a captive bank created to issue a particular brand of credit card, such as American Express Centurion Bank), in which they will be able to make purchases from merchants supporting that credit card up to a pre-negotiated credit limit. When a purchase is made, the credit card user indicates their consent to pay, usually by signing a receipt with a record of the card details and indicating the amount to be paid. More recently, electronic verification systems have allowed merchants (using a strip of magnetized material on the card holding information in a similar manner to magnetic tape or a floppy disk) to verify that the card is valid and the credit card customer has sufficient credit to cover the purchase in a few seconds, allowing the verification to happen at time of purchase. Some services can be paid for over the telephone by credit card merely by quoting the number embossed onto the card (the credit card number), and they can be used in a similar manner to pay for purchases from online vendors.
Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, and the total amount owing. The cardholder must then pay a minimum proportion of the bill by a due date, and may choose to pay more or indeed pay the entire amount owing. The credit provider charges interest on the amount owing (typically, a fairly high rate much higher than most other forms of debt). Typically, credit card issuers will waive interest charges if the balance is paid in full each month, which allows the credit card to serve as a form of revolving credit.
As well as profits through interest, card companies charge merchants fees for money transfer. When the companies formally or informally prevent these fees from being passed on to credit card users but instead require them to be spread among all customers, this raises the possibility of a harmful market imperfection through the mechanism of the Tragedy of the commons. Australia is currently acting to reduce this by allowing merchants to apply surcharges for credit card users. Credit card companies generally do provide a guarantee the merchant will be paid on legitimate transactions regardless of whether the consumer pays their credit card bill. However, credit card companies generally will not pay a merchant if the consumer challenges the legitimacy of the transaction and will fine merchants who have a large number of charge backs.
The credit card was the successor of a variety of merchant credit schemes. The concept of paying merchants using a card was invented in 1950 with Diners Club's invention of the charge card, which is similar but required the entire bill to be paid with each statement. Credit card service was first offered in 1951.
In recent times, Credit card portfolios have been exceedingly profitable to Banks, in lieu of the booming economy of the late nineties. However in the case of Credit cards, High returns goes hand in hand with risk.
Features
As well as convenient, accessible credit, the cards offered consumers an easy way to track expenses, which is necessary both for monitoring personal expenditure and the tracking of work-related expenses for taxation and reimbursement purposes. They have now spread worldwide, and are offered in a huge variety of permutations with differing credit limits, repayment arrangements (some cards offer interest-free periods, while others do not but compensate with much lower interest rates), and other perks (such as rewards schemes in which points "earned" for purchasing goods with the card can be reclaimed for further goods and services).
In addition, some countries such as the United States limit the amount that a consumer can be
held liable for fraudulent transactions which shifts the liability to the merchant. This encourages the use of credit cards for electronic and mail order transactions, collectively called "card not present" transactions. They have spread far and wide beyond their initial market of the wealthy businessman and are now ubiquitous amongst the middle class of most Western countries.
Security
The relatively low security of the credit card system presents many opportunities for fraud. However, this does not imply that the system is broken. The goal of the credit card companies is not to eliminate fraud, but to reduce it to manageable levels, such that the total cost of both fraud and fraud prevention is minimised. This implies that high-cost low-return fraud prevention measures will not be used if their cost exceeds the potential gains from fraud reduction. This opportunity for fraud has created a black market in stolen credit card numbers, which must
generally be used quickly before the cards are reported stolen.
Three improvements to card security are being introduced to the more common credit card networks at the time of writing. An additional 3-4 digit code is now present on the back of most cards, for use in "card not present" transactions. The on-line verification system used by merchants is being enhanced to require a 4 digit Personal Identification Number (PIN) known only to the card holder, and the cards themselves are being replaced with similar-looking tamper-resistant smart cards which are intended to make forgery more difficult. The majority of smartcard (IC card) based credit cards comply with the EMV (Europay Visa MasterCard) standard.
Controversy
There is some controversy about credit card usage in recent years. Credit card debt has soared in recent years, particularly among young people. The major credit card companies have been accused of targeting a younger audience, in particular college students, many of whom are already in debt with college tuition and loans. Credit card usage has tripled since 2001 amongst teen-agers as well.
The benefits of using Credit Cards
Using credit cards gives you a number of benefits that you don't get when paying with cash or cheque. The following are the 10 key benefits of using credit cards.
Convenience
Credit cards offer no-hassle shopping - no cash, no checks, no additional identification.
Security
Lost cash can be used by anyone. If you lose a credit or debit card, report it to the bank that issued the card as soon as possible and you may be protected from unauthorized use of your card. However, different banks may have different liability policies, consult your bank if they offer any liability waiver.
Emergency Protection
A credit card will get you through almost any emergency you can think of. It's like a security blanket that will cover you, in most situations.
Universal Acceptance
Some credit cards are accepted at as many as over 20 million merchant locations worldwide. Try that with a personal check! If you need cash, you can get it at ATMs or banks around the world that accept your credit or debit card.
Simplified Record-Keeping
Credit cards give you a record of all your transactions for the month, so keeping track of where your money goes is easier.
Consumer Protection
When you purchase goods or services with a credit card, you have more clout if a product is not satisfactory because your card issuer may intervene on your behalf. Once you have already paid by cash or check for an item, the merchant may not be too interested in making adjustments. Consult your card-issuing bank clearly what are their policies regarding cardholder's disputes with merchants.
Value-Added Benefits
Many credit cards offer rebates, cash refunds, contributions to your favorite charity, or other special value-added benefits that you won't get with paying by cash.
Flexibility
You're at the mall and see something you really need that's on sale for a limited time. You don't have the cash to pay for it right now, but you hate to miss out on the big savings. A credit card allows you to take advantage of sales and special offers, and then pay for your purchases according to your personal spending plan.
Easier Budgeting
With a credit card, you can plan to finance a major purchase and pay it off on a schedule that fits your budget.
Essential for Mail, Phone or Internet Purchases
A credit card is essential for renting a car or booking a hotel room. Wherever you travel to around the world, a credit card is the universal guarantee of your good financial standing. A credit card also simplifies and speeds up mail ordering and currently is the only way to make Internet purchases.
Choosing a credit card
Today's consumers are presented with an array of credit card choices --- cards with low interest rates or no annual fees, rebate cards, gold cards, platinum cards, and more.
How do you choose? Consider the impact a credit card can have on your financial health before deciding on one. The annual percentage rate (APR), fees, late payments all affect the overall cost of credit. Bear in mind your bill-paying habits could also affect your total cost of credit.
Credit information from the issuing bank or financial institution should be your guide through the credit card menu. Read all the terms including the fine print of any offer. Shop around for the card that is best for you.
Go through this check list before you choose a credit card:
Do You Pay in Full Every Month?
Many consumers choose to pay their credit cards in full each month. They use credit cards as a convenient way to track their spending and to make purchases without using cash or checks.
For these card users, the interest rate on a credit card may matter less than the size of the annual fee and the rebates they earn when they use the card. Cardholders who pay the balance in full each month might want to consider a co-branded card. These cards may have relatively high interest rates, but if you pay your bill in full, these rates may not affect you. These cards also provide extras such as rebates, cash rewards, and free or discounted merchandise. But beware that the extras may not last the lifetime of the card.
Think a rebate card might work for you? Read the offers thoroughly to find out how much you have to charge to earn rebates. If you don't think you will charge enough within the specified time to collect rewards, the higher interest rate and annual fee might not be worth it.
Also, check whether the company charges interest from the date of the transaction. If so, those high rates may cause you to pay interest on this type of card, even if you pay your balance in full every month.
Do You Plan Ahead?
You're planning to redecorate, and you spot exactly the furniture you want on sale for hundreds of dollars less than you thought you'd have to pay. You've been having a good year, and you'll be getting your annual performance bonus in a few months. Your plan: charge the furniture to your credit card, pay what you can afford each month until bonus time, then pay off the entire amount.
It's a good plan if:
1. you're sure the bonus will come,
2. you limit your spending to the amount of the bonus (don't treat it like an endless supply of money),
3. you've found a card with a credit limit high enough to accommodate the purchase and with a reasonable interest rate over the period of time you'll need to pay off the balance.
4. If the interest you are paying in the interim is less than the money saved from the discount.
Using a card offering a low introductory rate can be one choice for financing large purchases over a short time if you are certain you will pay off the balance and are comfortable with the terms.
Some retailers may allow customers to open credit account with them, but credit cards issued by financial institutions usually have lower rates than store cards.
Do You Plan to Maintain a Balance?
Some credit card users regularly maintain a balance on their cards. Most card users always pay more than the minimum and they shop for the cards with the lowest rate in order to minimize the amount of interest to be paid every month. Shopping for the lowest interest rate is generally a good strategy for users who expect to carry a balance from month to month.
Do You Need a Gold or Platinum Card?
Gold and platinum cards are the premium tier of credit cards, offering a blend of high credit limits and exclusive benefits. Issuing banks usually require gold and platinum cardholders to meet higher standards of income and creditworthiness. The cards sometimes have higher interest rates, so if the value-added enhancements of a gold or platinum card are attractive to you, you may want to pay the balance each month to reduce your cost of credit.
The higher credit limit and other perks offered to users of gold cards are especially attractive to frequent business and/or leisure travelers. Typical value-added services include rental car damage coverage, travel accident insurance and an extended warranty on items purchased with the card.
Platinum is another choice from the credit card menu. Platinum cards may provide an even richer package of perks than gold cards, and the qualifying standards may be set higher. Some charge an annual fee. It's important to consider a card's terms and ask yourself which perks you'll really use before committing to gold or platinum.
Is a Co-branded or Affinity Card Useful to You?
Did you know that your dream vacation could get closer each time you charge a purchase on your credit card? Did you know that whenever you use your credit card you could contribute to your alma mater?
Sound interesting? Co-branded and affinity credit cards not only help you earn free air travel, but they can also help you support your favorite educational or cultural institution.
Co-branded and affinity cards carry the name of a third party on the card, in addition to the name of the bank or financial institution that issued the card and the card brand. Both co-branded and affinity cards offer additional value from each transaction made with the card. The difference is who benefits.
Co-branded cards
With co-branded cards, you typically benefit by accumulating points for discounts with every charge. Airlines pioneered the co-branded concept more than 12 years ago, awarding tickets, upgrades, and discounts based on frequent flier miles earned for charging tickets to the airline's co-branded credit card. There are many co-branded cards issued by banks in Asia Pacific, with co-brand partners ranging from department stores, airlines, travel agencies to retailers, etc.
Today in some countries, as high as 35 percent of all cardholders have a co-branded card. Co-branded cards sometimes have no annual fee and higher credit limits, but they may also have higher interest rates and annual fees than regular credit cards. If you usually carry a balance on your card, you need to determine if the rebates you earn are worth the higher interest.
Affinity cards
With affinity cards, a third-party organization - an alumni association or a charity or a museum, for example - receives a portion of each transaction made with the card. Some affinity card partners, like professional sports teams or environmental protection foundations, may also offer perks like discounts at selected stores or a free gift with the first purchase you make with the card.
Choosing Wisely - Using Wisely
"Know yourself" should be the motto of anyone shopping for a credit card. A bit of research and a good deal of self-analysis of your credit needs and bill-paying habits should lead you to the right card. Regardless of which card you choose, use your card wisely, and repay your debts on time.
Understand your Credit Cards
You haven't had a vacation for a long time, you've been thinking of a holiday to your dream destination after months of stressful work, but with a price tag of RM2,000, it seems unreachable. One day, you find a special off-season deal at a travel agent at only RM1,000.
With opportunities like these, your credit card can be the most powerful budgeting and money management tool you own. That small but mighty piece of plastic allows you to snap up the things you want when they are on sale -even if you don't happen to have the cash on hand when you run into a bargain. And if an expensive emergency should arise, you can even use your credit card to get a cash advance.
But a credit card is a responsibility and, if misused, can get consumers in over their heads.
Your Cardholder Agreement: No Secrets Here
One of the greatest things about credit cards is that there are no secrets. If you've got a card in your wallet, the issuing bank has already sent you everything you need to know about using the card. If you're shopping for a card, issuing banks will be glad to send you the information you need with your application. Then, it's up to you to read, understand, and live by the rules.
Remember, READ AND UNDERSTAND THE TERMS AND CONDITIONS of your cardholder agreement, which is essentially a contract between you and the bank.
Know Your Rights
Understand clearly your rights as a cardholder and what sort of protection or liability waivers the issuing bank may provide.
Ask questions such as:
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What is the procedure for increasing or reducing my card's credit limit?
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What happens if my card is lost or stolen and unauthorized transactions are made?
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What protection do I have if the goods or services I paid for with my card are defective?
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Does my card provide any extra or emergency services when I am traveling overseas?
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Does my card offer me insurance coverage when I travel?
Understand Your Responsibilities
As a responsible credit card user, you should understand the terms used by your issuing bank. Among those you're likely to find are the following:
Miscellaneous Fees
Some card issuers require an annual fee - the amount you must pay to get a card or to renew it every year. Some banks also charge fees for submitting an application, for being late with a payment, for taking out a cash advance, for exceeding your credit limit, or for maintaining a zero balance. Read your statement carefully so that you know all of the terms and conditions.
Grace Period
This is the number of days the bank allows you to borrow their money interest-free. Grace periods vary, usually from two weeks to 25 days, depending on the bank that issues the credit card. This period is usually applied to new purchases, but only if there is no old balance being carried forward. After the grace period expires, if you haven't paid your balances in full, interest can be accrued from the date of purchase.
Some cards do not offer interest-free grace periods, and you start incurring interest from the date of any purchase.
Cash Advances
The issuing bank or financial institutions treats cash advances like loans, not like purchases or merchandise. When you take a cash advance, interest begins to accrue differently - sometimes without a grace period and at a higher rate. Check with your card-issuer for cash advance fees and interests.
Interest Calculation
When you use your credit card, the issuing bank or financial institution is really giving you a loan for the amount of your purchases. The bank charges a fee - called interest - for using its money. The credit card company pays the travel agent or the furniture store within a few days of the transaction, and you must begin repaying the loan when your monthly statement arrives in the mail.
All interest charges can usually be avoided by paying the balance in full within the time limit specified on your statement. Check the fine print though, because some banks charge a fee for maintaining a "RM0 balance" or don't have a "grace period".
If you choose not to pay all you've borrowed from the bank - banks call that "revolving the balance" - interest will be charged. Obviously, the quicker the balance is paid in full, the less interest is paid. Be sure to learn about the terms and policies of your credit card. Interest rates will vary by card, some may begin charging immediately without any "grace period". Some start charging interest from the date of transaction or the date when the transaction is processed in the system. Others may start charging interest from the date on your statement.
Banks use various methods to calculate interest, and it's up to you to learn how your bank computes these charges. Unlike a house mortgage or a car loan, credit card interest can be charged by the day or by the month.
If you do not pay the balance in full, interest on the unpaid amount, or revolving balance, will be added to the total amount owed. When this happens, you are paying interest on interest, also called compound interest. Any new purchases you make can be included in the total balance immediately and will begin to accrue interest from the date of purchase. If you have a large balance, paying only the minimum amount each month can be an expensive way to use your credit card.
Try to anticipate your credit needs. A few months before the holidays or before you head off on that dream vacation, start paying down your balance by sending in more than the minimum payment. When you begin charging holiday gifts or charging for your vacation, you won't be piling new bills on top of old ones, and there will be less chance of exceeding your credit limit.
Be sure to know what your APR (annual percentage rate or interest rate) is, and always include the cost of credit in your budgeting or money management.
How Interest Works
Credit card interest rates are set yearly, but calculated monthly. Some credit card interest may be calculated daily and charged monthly. For example, let's say your card has an APR of 18%. If your total purchase is about RM100, it would cost you approximately an additional RM18 in interest if you choose to stretch your payments over a full year, and you do not charge additional purchases on top of your balance. And if your card "compounds" the interest (a practice of charging interest on the monthly interest accrued), the total interest will be several dollars more than the annual rate.
To calculate your monthly interest charge, the bank takes the 18% APR and divides it by 12 months for the year. That comes to 1.5% of the average daily balance for the month.
The average daily balance is a method of leveling out the amount you owe, which may fluctuate from day to day because of payment and purchases. The calculations to determine average daily balance sound complicated, but they're really rather simple.
In effect, the bank adds together the balance on your credit card for each day of the month, and divides the total by 30, the number of days in the month. For a more complete explanation of how the average daily balance is calculated, see the chart.
Yearly Rate = 18%
Monthly Rate = 1.5%
STATEMENT 1
(Based on a RM100 purchase on the first day of the billing cycle)
Previous/beginning balance = RM100
Balance subject to finance charge = RM0
Finance charge = RM0
Payment made 25 days into cycle = RM50
Ending balance = RM50
STATEMENT 2
Previous/beginning balance = RM50
Balance subject to finance charge
(RM100 x 25 days/30 days = RM83.33)
(RM50 x 5 days/ 30 days = RM8.33)
(RM83.33 + RM8.33 = RM91.66 or RM92)= RM92
Finance charge (1.5% of RM92 = RM1.38) = RM1.38
Ending balance (RM50 + RM1.38 = RM51.38) = RM51.38
Let's say you decide to pay the RM100 charge for your dress in two monthly payments of RM50. You receive your credit card statement and see the charge listed. Approximately three weeks after you receive your statement, you mail in your payment of RM50. It arrives at your bank 25 days into your credit card cycle. You make no additional charges and next month's credit card statement arrives.
You see your previous balance of RM50, an interest charge of RM1.38, a balance subject to finance charge of RM92, and an ending balance of RM51.38. Meaning the total cost of purchasing the dress, assuming you pay the ending balance in full, is RM101.38.
But how did the bank arrive at RM1.38 in interest?
If you had paid the RM100 charge in full by the due date on the statement, you would have paid no interest, leveraging the bank's "grace period" - generally 14 to 25 days from the date of purchase. But because you paid only RM50, interest is accrued from the date of purchase using the average daily balance method.
So in calculating the average of your account's daily balance, the bank looks at the number of days carrying any given balance. Since your first RM50 payment was received 25 days into the credit card cycle, you carried a balance of RM100 for 25 days (RM100 x 25 days divided by 30 days in the month = RM83.33, the average daily balance for 25 days).
After your first payment was received, you then carried a balance of RM50 for the remaining five days in the month (RM50 x 5 days divided by 30 days in the month = RM8.33, the average daily balance for 5 days).
If you add both average daily balances from above, you get your balance that is subject to a finance charge of RM92. Therefore, the 1.5% (the monthly interest rate) of RM92 is RM1.38, your interest charge.
How Much Can You Afford?
The 20-10 rule makes a good "rule of thumb" for understanding how much credit you can afford. The 20 refers to: never borrow more than 20 percent of your yearly net income (not including your housing or mortgage debt). The 10 refers: monthly payments should not exceed 10 percent of your monthly net income.
Note:
This is intended as an educational guide. The information presented is not intended to advise you of strategies applicable to your specific situation, but rather to highlight issues for your consideration. Therefore, you should always consult your financial or tax advisors.
Credit Card Issuer in Malaysia
| Affin Bank Berhad | www.affinbank.com.my |
| Alliance Bank Malaysia Berhad | www.alliancebank.com.my |
| AmBank Berhad | www.ambg.com.my |
| Bank Islam Malaysia Berhad | www.bankislam.com.my |
| Bank Simpanan Nasional | www.bsn.com.my |
| Bumiputra-Commerce Bank Berhad | www.bcb.com.my |
| Citibank Berhad | www.citibank.com.my |
| EON Bank Berhad | www.eonbank.com.my |
| Hong Leong Bank Berhad | www.hlb.com.my |
| HSBC Bank Malaysia Berhad | www.hsbc.com.my |
| Malayan Banking Berhad | www.maybank2u.com.my |
| MBF Cards Malaysia Sdn Bhd | www.mbfcards.com |
| OCBC Bank (Malaysia) Berhad | www.ocbc.com.my |
| Public Bank Berhad | www.publicbank.com.my |
| RHB Bank Berhad | www.rhb.com.my |
| Southern Bank Berhad | www.sbb.com.my |
| Standard Chartered Bank Malaysia Berhad | www.standardchartered.com.my |
| United Overseas Bank (Malaysia) Berhad | www.uob.com.my |
The company has ten marketing offices complete with warehousing facilities around the world. This includes Australia, Canada, United Kingdom, Unites States, Japan, Hong Kong, Singapore, China, Thailand and Malaysia and a network of exclusive distribution agents in the rest of the markets.
Since 1970s, the company has diversified extending its business to the design, manufacture and marketing of precious jewellery and also 925 hallmarked sterling silver. Under the names of Selberan and Comyns, each individual company strives to create things of beauty, maintaining the tradition of excellence and innovation synonymous with Royal Selangor.
