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.
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.
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.
What are the associated costs? Typically the higher the rewards the higher the card costs, so be careful. While some rewards cards charge no ongoing annual fees, others charge higher annual fees up to HK$450 and beyond. The more features the card has, the higher the fee is likely to be.
Are there limitations?Your card provider might not let you earn more than a given number of points in a calendar year, and your points can also expire after a set time frame.
What are the other perks? Most rewards cards are affiliated with Visa or MasterCard, and you can use these cards in over 200 countries and territories worldwide. Many rewards cards also offer extra perks, such as complimentary rental car insurance. Compare your options to see which features work best with your lifestyle and spending habits.
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.
The cashback on your card might be capped. Note that the advertised rate of cashback does not always cover all the spending on your card, some providers limit the headline percentage of cashback to a maximum amount of spending, or a maximum dollar amount of cashback per month or year.
Compare the cashback amount you are awarded against the other fees and charges levied on the card. You may be better off with a card that charges no annual fee, or a card that forgoes any foreign exchange charges when you are travelling.
Other types of rewards cards might offer a better return if you have a good way to use the rewards currency or air miles you receive.
Be sure to repay any spending on your cashback card in good time as interest charges can quickly erase any cashback benefits.
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.
Rewards seats on flights are not as flexible as bookings on the open market. Even if the air miles required to book your flight or flight upgrade appear to be a good deal, you may struggle to find availability on popular routes unless you book very long in advance, so planning is key to making the best out of your air miles credit card.
Air miles programmes are not regulated, you can find that the value of your miles suddenly drop if an airline decides to change their redemption rates.
You will be required to pay the taxes and charges associated with a flight when you redeem your air miles. Air miles will only cover you for the airfare charged by the airline, keep this in mind when you calculate the benefits of your air miles earnings.
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.
Look out for shopping cards that cover entire categories of retailers rather than just one or two specific retailers. This way you have more opportunities to save when you shop.
Be realistic about your potential for savings and only apply for a card with shopping benefits so that you can save on your existing spending, don’t significantly increase your spending just to take advantage of the savings on offer.
Don’t focus only on discounts paid on the spot, take into account accelerated rewards too.
Offers are likely to change throughout the period you are holding the card, and you may find the offer that attracted you the most has expired when it comes to renewing your card. Always look at the entire credit card package.
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.
Take note of the restrictions on dining card benefits. Two for one offers are attractive, but sometimes exclude certain days of the week and have other restrictions in place such as a requirement to order two courses, for example.
Alcoholic drinks and other beverages are not always included in discounts and offers.
Often dining discounts are available via other marketing channels too, so consider the dining benefits on the card in the context of the overall credit card package.
Credit cards are rarely designed around dining benefits alone, so evaluate all the other aspects of the credit card offer.
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.
What is the balance transfer offer? There are a few ways to compare how competitive an offer is. The introductory APR you’ll be charged on a balance transfer card is usually low or 0%, so this is something you’ll want to consider. The length of the balance transfer period also differs, though it generally falls between six and 24 months. You’ll want to choose a balance transfer offer that will allow you to pay off your debt before the offer ends.
What’s the revert rate? If you don’t think you can repay your existing debt within the promotional period, consider whether the revert APR will attract more interest and how this will impact the savings you’ve made.
How much can I transfer? Many providers set limits on the percentage of the credit limit you can transfer. If your existing balance exceeds the limit, you may want to consider a card with a higher credit limit.
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.
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.
Sally McMullen is Finder's credit cards and frequent flyer editor by day and a music maven by night. She's also one half of the Pocket Money podcast. Her byline can be spotted on Yahoo Finance, Dynamic Business, Financy and Mamamia as well as Music Feeds and Rolling Stone. Sally has a first-class Honours degree in Communications and Media Studies (majoring in Journalism and Professional Writing) from the University of Wollongong.
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