personal finance tips

[Finterest] Credit card 101: How does it work, and which one is for you?

Lance Spencer Yu

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[Finterest] Credit card 101: How does it work, and which one is for you?
Rappler talks with UnionBank to explain the benefits of credit cards for different market segments, guidance on getting started, and tips for responsible usage

MANILA, Philippines – More Filipinos have credit cards now than ever before.

As of March 2024, there were more than 13.9 million cards in force across the Philippines based on the Credit Card Association of the Philippines’ (CCAP) 1st quarter survey. This was 2.1 million cards (17.8%) more than the same period last year, CCAP executive director Alex Ilagan told Rappler.

Not only are there more cards in the market, but Filipinos are using credit cards to pay for more of their expenses as well. Credit card receivables jumped by 30% to P744.7 billion as of March 2024, compared to the same month in 2023.

If you’re unfamiliar with how credit cards work, the entire concept could feel intimidating. After all, every swipe of the card means another thing that you’ll have to pay at the end of the day.

To help simplify and explain how a credit card works, Rappler spoke with UnionBank cards product management head Carissa Sindiong.

What is a credit card?

Essentially, credit cards are issued by banks or financial institutions to allow you to borrow money up to a certain limit to pay for goods and services. When you use a credit card, you are basically taking out a short-term loan, which you agree to pay back by a specified date.

In this way, credit cards can make you more liquid. Most people only receive their salary twice a month. That means come petsa de peligro, the debit card linked to your bank account might run too dry to buy yourself a treat. With a credit card, you can still purchase items right away and pay for it at a later date when your salary arrives. When you put big purchases on plastic, you can also sometimes avail of installments to easily pay the amount over several months. (On a side note, some banks are starting to use recycled plastic for their new credit cards.)

But that’s only one way to use credit cards. Sindiong said that they can also help you as a “payment tool.”

“To simplify, it’s really a tool for customers to effectively manage their finances. It helps you track your expenses,” Sindiong told Rappler. “The fact that you don’t have to put out cash, you don’t have to count coins, you don’t have to count bills – all you have to do is just tap it at a merchant.”

Having a credit card is a good way for you to go digital and cashless. You can pay for bills and purchases more conveniently online, and you can just tap your card at stores instead of bringing around a bulky wallet. Most bank-issued credit cards also allow customers to neatly line up their expenses at the end of the period in a mobile app or even in a spreadsheet. (READ: How long can you go cashless? Filipinos last for 10 days on average)

Which card is for you?

Nearly every major bank in the country has an extensive suite of credit cards available for new customers. So how do you decide which one is for you?

Sindiong told Rappler that the right credit card will depend on the stage of life that the customer is in, as well as their personal preferences and the features and benefits that they find most relevant.

“We have cards ranging from someone who’s starting out with credit cards for the first time, getting to know how to use it, how to maximize it, all the way until those who are pretty savvy already managing credit cards and are out there to maximize the benefits and features that they can actually enjoy with the card,” she said.

Usually, customers can earn points every time that they spend a certain amount on their credit cards. These points can be redeemed for cashbacks, discount vouchers, donations, and other rewards. Each credit card offers unique point conversion rates and promotional offers.

For instance, UnionBank has four popular credit cards that are tailored to different customers: shoppers, value-minded customers, frequent flyers, and high net worth clients. First-time cardholders may want a straightforward, no-frills card that just allows them to buy things on credit. On the other end of the spectrum, there is also the UnionBank Reserve credit card, which is offered on an invitation basis only and has been given out to less than 2,000 customers.

Banks also have co-branded credit cards that encourage you to use them for specific purchases. For example, you might get a credit card that earns you extra rewards for fueling up at a specific gas station, or that gives you cash rebates for buying groceries at a particular supermarket chain.

Creating cards for every customer segment has allowed UnionBank to consistently grow its cards in force to up to 1.7 million as of June 2024, putting it among the top five largest credit card issuers in the Philippines.

What should you keep in mind?

Getting a credit card – or multiple ones – comes with its own set of responsibilities. Remember, at the end of the day, you still have to pay the entire amount that you’ve charged to your card. And if you don’t pay your card balance in full every month, it’ll only grow.

“As a cardholder, you need to be able to understand the basics of managing a credit card – your card terms and conditions, the fees that come with the credit limit granted, your due dates and remembering to pay on time,” Sindiong told Rappler.

Customers can benefit from setting up notifications in their respective bank apps to remind them to pay their balances on time. And if a customer holds multiple credit cards with the same bank, Sindiong said that they could also request for the bank to help them manage their statement due dates. For example, a common request is to have one card to be due on the 15th while the other would be on the 30th.

The UnionBank cards product head also advises customers to spend within their means and credit limit, and to pay in full and on time so that they can avoid fees and interest charges.

“They at least need to pay the minimum amount due to ensure that their account stays at least active. And then they definitely need to pay more than the amount due if they want to be able to pay off the balance eventually because the fees and interest do add up and do build up over time if they’re just paying the minimum amount due every month,” Sindiong said during the interview on Monday, June 24. – Rappler.com

Finterest is Rappler’s series that demystifies the world of money and gives practical advice on how to manage your personal finance.

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Lance Spencer Yu

Lance Spencer Yu is a multimedia reporter who covers the transportation, tourism, infrastructure, finance, agriculture, and corporate sectors, as well as macroeconomic issues.