Friday, June 3, 2011

Credit Card Definition and How It Works

A credit card is a convenient payment mode as it can be readily used for making purchases at merchant outlets. However, if you do not use your credit card carefully or settle your monthly statements on time, you may owe more than you can repay and find yourself having financial problems.

The following pages will provide you some tips on how you can shop for a credit card that best meets your needs and how you can use your credit card effectively and wisely.

A credit card is a payment instrument that enables you to make purchases of goods and payment for services instead of using cash. You can use the credit card at any merchant, locally or internationally, which displays the same credit card brand as that on your credit card.

When you use your credit card, the credit card issuer will pay the merchant on your behalf first and bill you later. Once you get your monthly statement, you are required to settle at least the minimum repayment amount by the due date. An interest free period (usually 20 days) is granted by the credit card issuer where you do not have to pay any interest on the outstanding amount. The credit card issuer will impose finance charges (interest) on the outstanding amount if it is not paid by the due date.

A credit card can also be used for cash advances at Automated Teller Machines (ATMs) and at respective credit card issuer counters. However, a cash advance fee may be charged for each cash advance transaction on top of the finance charge. There is also no interest free period for cash advance. The finance charge is calculated from the cash advance date.

The credit card issuer will send you a monthly credit card statement with details of your purchases including cash advances (if any), the total outstanding balance, the minimum payment amount and the payment due date.


You can apply for a credit card from institutions issuing credit cards, as long as you are 21 years old or above, earn an income of at least a minimum of RM18,000 per year and comply with any other requirements set by the credit card issuer.

To support your application, you may be required to submit the following:

* A photocopy of your Identity Card (IC)
* Job appointment letter
* Latest income tax statement (Form J)
* Bank statements
* Previous months pay slips

If you are self-employed, you may be required to submit your business registration details and other documentary proof of income, and be subject to other requirements such as placement of a fixed deposit.


An application for a credit card is similar to that for a loan. The credit card issuer will need to carry out a credit assessment on you based on the information you have provided. The length of time taken to process your application would depend on the credit card issuer’s internal procedures.

Once your application has been processed, you will be notified whether your application is approved or rejected. If your application is successful, the credit card will be sent to you through registered mail or you will be requested to collect the credit card at the credit card issuer’s head office or branch. You will also be given a Personal Identification Number (PIN), which for security purposes will be sent to you separately from the credit card. You will need to use your PIN when you make cash advances with your credit card at the ATMs.


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