Credit Card Ins and Outs: A Primer
Ever wonder how credit cards actually work? Now’s your chance to find out. GoBear Malaysia takes a deep dive into the world of cashless payments and how your credit card comes into the picture.
Credit card features
A credit card represents what’s known as a ‘line of credit’; a certain amount of money that the credit card issuer (usually a financial institution) is willing to lend the cardholder. As the credit card is used, the issuer commits itself to pay for the purchases the cardholder has made up to the amount that the bank has predetermined (i.e. the ‘credit limit’). Every month, the bank will issue a statement reporting all the expenditure on the card since the date of the last statement (‘billing cycle’), and the cardholder may either pay the minimum payment – currently 5% of the statement balance of RM50, whichever is higher – or any amount beyond that. Usually, cardholders pay off either the minimum payment or the statement in full.
In the past, credit card transactions were conducted offline. To this day, credit cards have embossed numbers; this is to allow merchants to use credit card imprinters to create sales slips, which are then presented to their acquirer (usually their bank) for payment. Today, most transactions are conducted electronically, and payment is authorised immediately.
All credit cards come with a ‘revolving’ line of credit; the total credit amount can be drawn on again and again indefinitely. Most credit cards allow what’s known as a ‘balance transfer’, or to transfer outstanding balances owing on other credit cards to the single card. This is usually (but not always) done when applying for a new card, as many credit card issuers have lower (or zero) interest for a period of time when a new cardholder performs a balance transfer. For more information on how low-interest balance transfer programmes work, click here.
Other than the balance transfer programme, credit card issuers run a number of other reward and incentive schemes to attract people to their particular credit cards. These include cashback programmes, which give cash rebates for each use of the card, or reward point programmes, which give points for each use of the card that can then be redeemed later, or even airmiles for frequent flyer programmes. In addition, a number of credit card issuers have low-interest credit cards for those who make at least the minimum payments promptly.
As you can imagine, credit card security is a big concern for both issuer and cardholder. All card in Malaysia now come with EMV (Europay, MasterCard and Visa) chips as well as the traditional magnetic strips, and from July 2017 onwards, will require Chip-and-PIN transactions (where cards are inserted into the chip reader rather than swiped, and instead of the receipt being signed, a PIN is keyed in) whenever possible.
Credit card types
Any single credit card usually uses one particular credit card network. The major credit card networks in use worldwide are:
- Visa (USA-based)
- MasterCard (Europe-based)
- China UnionPay (PRC-based)
- American Express (USA-based)
- Diners International (USA-based)
Two other types of cards also use the global networks above; namely, debit cards and charge cards. Debit cards act in all ways like credit cards, except that they don’t have a line of credit and all transactions are done with the cardholders’ own funds; either in the bank accounts linked to the debit card, or the balance on the card itself in the case of prepaid cards. Charge cards are a mix between debit cards and credit cards; they must be paid back in full every billing cycle, but otherwise still provide you access to funds beyond your own during that time.
Looking for a good credit card doesn’t have to be hard, either. Just use GoBear Malaysia’s comparison services and pick the credit card that suits your fancy most.