How do credit cards work?

Credit cards can be incredibly convenient for big purchases or to pay bills. Understanding credit card basics and using them wisely can help you to maximise savings, avoid additional charges and build your credit history.

This short guide covers the most common questions about how credit cards work and what to consider when applying for a credit card.

A credit card allows you to buy things now, and pay for them later – either in full to avoid paying interest, or in monthly instalments. You’re able to spend up to a certain amount on the credit card. This is known as your credit limit. 

When you've used your card, a minimum payment is required monthly by the due date. Failure to do so in a timely manner will incur finance charges on the remaining unpaid balance.

The credit card issuer will usually send your monthly credit card statement at least 20 days before your credit card payment due date.

Want to book a holiday or buy a new sofa? You can choose to split your purchases and enjoy flexible, interest-free repayments, such as with HSBC PayLater. The HSBC Spend Instalment also allows cardholders to combine multiple credit card transactions into a single instalment plan (minimum SGD500) and spread the repayment over 12 months, interest-free. A processing fee of up to 5% may be levied for Spend Instalment.

Without credit history, banks are unable to assess how well you can manage debt. A credit card can help you build up your credit score and create a good record of paying off debt. 

When it comes to applying for larger loans like a mortgage, this can help prove you're responsible. Your credit score may be harmed if you don’t keep to the terms of your credit card agreement.

Explore: Should I save or pay off debt?

If you're using an HSBC TravelOne Credit Card, you may also redeem your card's points instantly[@cards-instantly] with a wide range of airline and hotel partners via the HSBC Singapore app. 

On top of that, selected credit cards like the HSBC Visa Infinite Credit Card and the HSBC TravelOne Credit Card come with lounge access for added convenience and comfort when you travel.

Credit cards can be one of the safest ways to pay. You can also set up security notifications and One-time Password (OTP) alerts for credit card transactions. Misplaced your credit card? With HSBC, you can block it temporarily with one tap through the HSBC Singapore app.

Plus, you can turn on push notifications for the HSBC Singapore app so you'll receive alerts for your credit card. This way, you can stay on top of your card transactions more easily.

Some cards offer extended warranties and purchase protection. Items purchased with a credit card may be covered for damage or theft, for up to three months. Terms and conditions vary by lender. Travel with peace of mind with the HSBC Visa Infinite Credit Card. The premium luxury lifestyle card comes with complimentary worldwide travel insurance coverage of up to SGD2.75 million for both you and your family.

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It's a good idea to build up an emergency fund. However, a credit card can help cover repairs or unexpected expenses should something happen.

There are some transactions, such as cash withdrawals, which you may still be charged interest on, even if you repay your balance in full each month. Always check your credit card terms and conditions to see what types of transactions you’ll be charged interest on. 

Before you apply, choose the card best suited for you based on your needs and spending habits. Here are some extra pointers to take note of when considering credit cards:

With a credit card you may be able to spend more than you’re comfortable with. Before taking one out, consider how you’ll handle any temptation and whether it’s the right option for you. If you decide it is, then you could set yourself some rules for spending. These can be simple things such as to only spend within a certain amount each month, or to only use it for emergencies or big purchases.

You won't need to worry about interest if you're planning to pay your credit card off in full every month. But if you’re going to carry a balance, it may be worth looking for a card with the lowest interest rate available. Keep in mind that you don’t want to be setting yourself up with long-term debt. Carrying a debt indefinitely is not what a credit card should be used for.

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Some credit cards charge an annual fee and charge for certain types of transactions, such as cash advances, making a balance transfer or using your credit card overseas. 

Paying in a foreign currency with your credit card? The amount may be changed into your local currency automatically, for a fee. This is called dynamic currency conversion (DCC). 

You could also be charged a fee if you go over your credit limit or make a late payment. This could harm your chances of getting credit in the future.

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A minimum annual income of SGD120,000 is required for all applicants of the HSBC Visa Infinite credit card. Some credit cards may have additional eligibility requirements, for example the HSBC Premier Mastercard Credit Card is only available to HSBC Premier customers.

Before applying for any credit card, check the terms and conditions and the eligibility requirements. An application that’s refused may impact your credit score.

If you're a foreigner employed in Singapore, it may be helpful to prove your credit worthiness by providing your credit history from your home country/region. When you apply for a credit card online at HSBC, you may choose to provide your information and consent for us to access your overseas credit history. We'll use the information when processing your credit card application.

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