Finder’s free service makes comparing credit cards simple. Someone new to the world of credit cards may find the varieties offered in the market mind-boggling. Here’s a comprehensive guide from Finder to help you navigate your choices and understand the features and fees that come with this convenient source of credit.
How credit cards work
A credit card is a form of unsecured credit issued by banks in Hong Kong that allow users to make purchases without having to use cash. You can also use them to withdraw money from ATM machines for a fee.
All credit cards come with a credit limit which is assigned depending on the bank’s assessment of your ability to make repayments. This is usually tied to your annual income.
Credit cards are different from EPS cards which are tied to actual money in your savings account. When you use a credit card, you are essentially borrowing money from the lender to pay the retailer first, before you repay the bank at the end of your billing cycle. You will receive a statement at the end of each billing cycle that tells you the total amount you owe the bank. By making the repayments promptly, you will not be charged any interest fees.
There are many types of credit card available that enable users to earn various types of rewards, air miles and cashback. These schemes give customers great incentives to sign-up for a card and earn rewards or save money simply by charging their purchases to their card.
Comparing credit card features
Let’s take a look at the types of credit cards in Hong Kong.
A rewards card can be a worthwhile way to get something back from your spending. Whether you’re a frequent traveller, an online shopper or you like to eat out, you can find a rewards credit card to suit your lifestyle.
- The major draw of this type of card is earning points that can be redeemed for rewards. Depending on the card you use and the promotions in place, you may be able to earn bonus points when making certain types of purchases or shopping with a particular retailer.
- What you can redeem your points for will vary from card to card. Some allow you to redeem points for flight rewards, hotel stays, or shopping vouchers. Others can be used for cashback, to redeem merchandise or even to donate to charity.
Like a rewards card, a cashback card gets you something back on your spending. Cashback cards pay back a percentage of your credit card spending, usually as a statement credit. You could receive, for example, 2% back on every dollar you spend.
- Cashback cards have the benefit of being straightforward: you don’t need to worry about using your reward points before they expire.
- Some cards offer higher cashback rates for certain types of spending, such as using your card in local restaurants or overseas.
- Your cashback is credited to your account automatically, so you don’t need to do anything to claim it.
- With the right card, cashback is effectively a permanent discount on all your spending – as long as you repay your balance before interest charges start.
There are a lot of ways to get a return on your credit card spend. For the savvy traveller, air miles can be a very attractive alternative to broader rewards cards or cashback cards.
- Used for the right flights or flight upgrades, redeeming air miles can offer good returns on every dollar you spend compared to other types of credit card rewards.
- You can often transfer your air miles into other points programmes, including car hire or hotel loyalty programs.
- Air miles are usually awarded on all of your credit card spending, so no matter where you pay, your air miles card will earn you something back.
- Look out for cards that offer accelerated earnings when you use your card for certain types of spending, such as paying for things in local retailers or overseas spending.
Many credit cards offer discounts at selected stores when you pay with your card, or offer an accelerated reward earning rate at specific stores. If you regularly shop at certain retailers getting the matching card can save you a lot of money.
- Expect to see significant discounts in the order of 10% to 20% with some cards and retailers, or offers rewarding you with vouchers when you spend a certain amount, such as HK$1,000.
- Accelerated rewards earnings rates are essentially the equivalent of a discount: earning 6X the rewards when you shop can work out to be a significant return in percentage terms.
If you like dining out think about a card that offers discounts on dining, or a higher cashback or rewards earning rate on your restaurant spend.
- The savings on eating in a restaurant when you pay with a credit card that offers solid dining benefits can be very attractive, including 2-for-1 one dining offers and discounts of up to 50%.
- You could qualify for other benefits too, such as kitchen tours at exclusive restaurants.
- Credit card dining benefits cover a wide range of restaurants, so there’s likely to be a card that offers discounts and benefits at your style of eatery.
Consolidate an existing debt at a lower APR with a balance transfer card.
- Manage your debt by reducing the interest you are paying on it to as low as 6%, enabling you to repay what you owe faster.
- Beware of the revert rate. When the introductory low APR ends, you could find yourself confronted with a much higher interest rate.
How credit card interest works
As you spend on your credit card, your debts will also begin to collect interest if you’re unable to pay the whole balance back by the end of the statement or interest-free period. This interest charge is called an APR, or annual percentage rate, and it usually hovers between 35% and 40%. If you’ve used your card for retail purchases the APR will be different to if you have used it at an ATM to make a cash withdrawal. Some credit cards charge higher APRs for cash withdrawals, while some charge lower ones.
If you decide to transfer your debt from one card to another — maybe another card offers a better APR — you’ll also accrue a balance transfer interest rate, which is usually the same as either the purchase rate or the cash advance rate. Some cards offer promotional rates on balance transfers, so this is something to keep in mind during your comparison.
Each month, you’ll receive a statement that will detail the transactions you’ve made, the total outstanding balance you have and any interest you’re accruing. While you’re only required to pay a minimum repayment each month (typically 1% to 1.5% of your total balance, plus any interest and charges), it’s best to pay as much as you can. If you pay your entire balance in full, you can usually take advantage of up to 60 interest-free days in the next statement period. If you don’t pay your entire balance in full, the remainder will start to collect interest. If you miss the minimum repayment, you could be charged late payment fees.
What other features I should look out for?
For those who are new to credit cards, there are some key features worth mentioning so that you can optimise the use of your credit card and learn about the related fees and charges involved.
- Interest Free Period. The interest-free period is the amount of time payments can sit on your credit card without accruing interest charges. It is usually a period of between 50 and 60 days.
- Rewards. One perk of credit cards is that you can earn various types of rewards when you use them for payments. Reward types include cash rebates, discounts on partner retailers, earning air miles, which can then be redeemed for free flights or upgrades, as well as reward points which you can exchange for vouchers or goods.
- Security. There are a number of security features that come with credit cards that help to make your transactions safe and prevent fraud. All banks require customers to activate their new credit card before they can use it to prevent any intercepted cards being used. Other security features include transaction alerts when your pre-defined limit has been reached and passwords when you use a card to make online purchases.
What are the costs of a credit card?
- Repayments. You’re free to repay as much as you like as often as you like. You’re required to make the minimum repayment when your statement is issued. The minimum repayment is usually 1% to 1.5% of your outstanding balance, plus any interest and charges. You will pay a late payment fee if you don’t make the minimum repayment by the statement due date.
- Annual fee. This is the cost to own a credit card. The annual fee ranges from HK$0 to thousands of dollars depending on the credit card type. The credit card annual fee is deducted from your available credit and accrues interest at the purchase rate if it isn’t paid in the first statement period.
- Interest rates. No interest charges are levied on your purchases if you pay off the card balance within the interest-free period. Beyond that, credit cards in Hong Kong typically charge an interest rate of 35%-40% per annum on your card balances. As the interest is compounded and charged on a daily basis, it can accumulate quickly if you keep rolling over your balances from month to month.
- Other fees. Other fees you may run into include late payment fees, over-the-limit fees (a fee for spending past your credit limit), foreign currency transaction fees and cash advance fees.
Credit card application tips
While applying for a credit card doesn’t have to be complicated, it can come with certain risks.
- Assess your needs. Before you begin your search, spend some time considering what you want, need and can afford with your next credit card.
- Compare your options. Once you’ve decided what type of card you want, it’s time to begin comparing your options.
- Are you eligible? Know the requirements for the card application, such as if you need a minimum income, and if there is a minimum age limit?
- Know your credit score. You should obtain a copy of your credit report before applying, so you can correct any possible errors on it and see exactly what the bank will be seeing when they assess your application.
- Lower your credit utilisation ratio. If you already have credit card debt, it’s wise to pay off your existing balances before submitting a new credit card application.
- Don’t apply for multiple cards at once or within a short period. You may be tempted to apply for a second card just in case your first one doesn’t get approved, but don’t. Each credit enquiry that a lender makes about your credit history leaves a new mark on your credit file for two years.
Step-by-step guide to apply for a credit card online
Who is eligible for a credit card in Hong Kong?
Make sure you confirm that you meet the eligibility criteria before you submit your application, as rejected credit card applications can have a negative impact on your credit score. Eligibility requirements usually include:
- Age. Cardholders must be at least 18 years of age.
- Residential status. Most credit cards require cardholders to be resident in Hong Kong.
- Minimum income. The minimum income requirement will vary between cards, but they usually start at HK$150,000 p.a. for most basic credit cards and between HK$240,000 and HK$600,000 for higher-tier products.
- Credit history. Hong Kong credit card issuers require applicants to have a good credit history.
Understanding your credit score
In Hong Kong, your credit score is calculated by consumer credit reporting company TransUnion, based on your record of past repayments of loans and credit card debts.
The score ranges from A to J, with J considered to be a poor credit score indicating a high risk of default. Conversely, A is an excellent credit score, indicating the lowest risk that you will not repay the money.