How to pick the right credit card?

Residents in the UAE are spoilt for choice when it comes to handling expenses while maintaining their lifestyles

Expenses are inevitable in a bustling cosmopolitan country such as the UAE where high living costs see residents shelling out more than half of their monthly pay cheque to keep up with daily necessities. The case is far worse for those with families, where spends are doubled.
More than often, residents turn to banks for a credit card to ease the financial strain. The variety of cards with options tailored to different lifestyles leave people spoilt for choice. A credit card, however, is not a solution to expenses, but a temporary support that must be used with care. Swipe-happy and irresponsible users can easily find themselves in a pinch, especially when they are unable to pay back the funds close to the billing date.

Never asked for a card but received one in the mail anyway? Banks often send complimentary credit cards or an upgrade to existing customers to encourage spending habits. If you receive one without asking for it, call up your bank to find out its current status and cancel immediately to avoid any unnecessary interest charges, hidden fees and changes to your credit limit.

Interestingly, around 35 per cent of conventional credit cards are targeted at customers with salaries under Dh10,000, according to a study by UAE-based finance information website, souqalamal.com. On the other hand, 53 per cent of Islamic credit cards require a minimum of Dh5,000 as monthly salary. These findings show that credit cards are accessible to a majority of residents living in the UAE.
But how does one choose a credit card? There are a number of factors to take into consideration before signing off an agreement to which bank offers the highest dispensable amount:
Spending habits: The first and foremost step is to identify your spending pattern. This will help you determine the best kind of card to complement your budget and lifestyle. The questions you should ask yourself include what, where and how much do you splurge?
Rate of interest: Banks in the UAE offer varying flat rates of interest in their credit card portfolio, but keep in mind that some cards come with benefits such as shopping vouchers or airline privileges. Find out if you are able to pay the monthly outstanding bill on time before being lured away by rewards. 
Credit limit: This is the amount your bank would be willing to offer you if you qualify for it. Before you daydream about exotic getaways or exciting personal investments, keep in mind that you need to stay as far away from the max credit limit. Going overboard would not only cost you a penalty fee, but it would also negatively affect your credit score.
Fees and penalties: Aim for cards that have reasonable fees. More than often a great offer that's too good to be true may be dampened by sneaky, hidden charges. Opt for credit cards that offer zero transaction fees on balance transfers, for instance, or those that offer a zero per cent interest for a certain period of time. Also note the fees you may have to shell out for late payments, going over the credit limit, etc.
Rewards: Everyone enjoys receiving a little something in return for their purchases, and rewards based off credit card purchases are aplenty. Look for cards that endorse your regular haunts or favourite stores to make the most out of your swipes. However, when choosing a card, remember that there are many rewards cards available in the UAE at no extra charge, so do not let little returns be your sole reason to choose a specific credit card.  

Card lingo (so you know what your teller's talking about!) Interest-free period: A stage when a credit card user is not charged any fees. Outstanding balance: The amount of money owed to the bank. Credit shield protection: In the case of an unforeseen event such as death or permanent disability, the credit shield protection covers the remaining debt (outstanding balance). Finance charge: The amount charged as fee for using the credit amount. This comes in the form of a flat fee or a percentage based off the amount borrowed. Insurance: A contract or an agreement formed between the bearer and a company that would guarantee compensation against unforeseen circumstances such as death, damage, loss, etc. The company received a specific premium in exchange. Charge card: Unlike a credit card where balances are carried forward, a charge card requires users to pay the full amount at the end of the billing month. Credit report: A detailed analysis of an individual's credit history. This acts as a supporting document to determine one's creditworthiness for a loan or any other finance-related activity.

What you must know about your credit card
Source: Souqalamal.com

• Banks at its discretion can set a card limit and may notify the cardholder. The bank has the right to reduce or change the card credit limit at anytime without informing the cardholder.
• The bank shall debit the cardholder account with the amounts of the card transaction, charges, finance charges, cash advance fees, late fees and any other amount arising.
• The cardholder needs to acknowledge that if he/she fails to pay the minimum payment, which is due in full, the bank can charge late payment fees to the card account.
• The cardholder is not allowed to transfer funds from one card account to another in settlement of the dues on other card account.
  
  
  
  - farhana@khaleejtimes.com

Farhana Chowdhury

• farhana@khaleejtimes.com