WE reach a certain point in our young adulthood that we feel like having a credit card is going to make life more convenient and more put-together. Besides, when we start to earn our own money, we also start to have extra spending areas like buying plane tickets, concert tickets, shopping, and so much more. Usually these transactions are easier cashless and through credit cards. For a young adult, this makes us feel liberation and control over things.
But as with any other things, the use of credit cards must be in moderation so as not to drown in debt. The last thing you want to do is to spend your 20s paying off debts.
I asked a friend who used to work as a Sales Assistant for BPI Credit Cards. Leanne Abigail Jorda worked in that department for three years before being transferred to another position. Working in the bank for more than three years, she had encountered questions on credit cards from people in their 20s opening an account for the first time.
Today, she’s sharing with us the important things we need to know about credit cards so as to help us make this decision.
1. What are the things a young professional in their 20s would need to know about applying for a credit card? What are the things needed to be considered?
Most banks only consider two things: (1) How much your income is; and (2) How long you have been employed or how long your business has been operating, if you’re a business owner. These are the basic qualifications to have a credit card. Each bank has their own set of limits for these.
Tip! Apply for a credit card when there is a free annual fee for life promo, although some banks temporarily stopped this during the pandemic.
2. Considering that PH banks may have different requirements, what are the general/basic requirements asked of the applicants when they apply for a credit card?
General requirements are Philippine government issued IDs and proof of income (payslip, income tax returns (ITR), or certificate of employment (COE)). For self-employed individuals they should submit their latest business permit and ITR. At times, banks also require latest audited financial statements (AFS).
3. What's a credit limit and what do they need to know about it?
A credit limit tells you the maximum amount you can use your credit card with. We will not know how much your credit card limit will be until AFTER you are evaluated by the banks' Credit Team.
This is the most-asked question every time someone asks me about credit cards. They would ask how much their credit limit is and they usually get disappointed when I say I don’t know yet. Haha. But I really don’t. It’s up to the head office to evaluate.
Your credit limit replenishes every month, based on how much you have paid.
Scenario 1. If your credit limit is P10,000, you used P10,000 and then you did not pay anything at all for this month, this means that your credit limit will remain at 0.00
Scenario 2. If your credit limit is 10,000, you used 10,000 and then you paid P5,000 for this month, this means that your credit limit for next month will be P5,000.
Scenario 3. If your credit limit is 10,000, you used 10,000 and then you paid P10,000 in full for this month, this means that your credit limit will go back to being P10,000.
This is how it works in a nutshell. It gets complicated when charges, interests, and dates are involved. Be careful because other banks will give you a penalty if you will go over your limit.
4. How often should we pay credit card balance? What about its interest? What do we need to know about it?
All credit cards are due monthly. You have to memorize your cutoff date (aka statement date) and your due date. Those are the two most important dates to mind when you have a credit card.
Your cutoff date for this month until the day before your cutoff date of the next month is called a CYCLE. (For example, your cutoff date is every 8th of the month. Jan8-Feb7 is one cycle). We generate your Statement of Account (SOA) after your cutoff date. And every statement has a due date. It depends on each bank but for BPI, your due date is every 20 days after your cutoff.
Every bank holds different rules when it comes to interests. BPI, for example, will not charge you any interest if you pay in full, and on time. If you swiped P10,000, you only get to pay P10,000 as well, if you pay out before your due date. This is what we mean by "No interest on new purchases."
But that is only true for BPI. Not all banks share the same rule. Others put a finance charge right away upon swiping, others charge you when you have multiple payments in one cycle. All banks collect late payment charges. It really depends. So make sure to read and understand the Terms and Conditions sheet that banks give you before you sign the forms.
5. As someone working in the bank, what advice can you give these 20s applying for a cc for the first time?
Do not get a credit card if you don’t need it. A lot of young professionals in their 20s get this mistake easily, like me haha. We get a card, we feel like we can buy the world, we swipe here and there nonstop. Before we know it, we have used up our credit limit and we cannot pay it in full. We then opt to pay only the minimum amount every month, and then the charges pile up, and here we go, the debt seems to be unending. Three years later, our cards are still unpaid with used up credit limits.
You would not want to be drowned in credit card debts in your 20s and suffer for it for the rest of your career life. You would not want to be a slave of credit card charges haunting you every payday, collecting half of your pay every month.
Be careful in cancelling credit cards as well. Because believe me, banks see all your Philippine credit card records. By the time that you are more financially stable and you actually need a credit card, you will be denied because of a negative data record from your bad handling of your credit card when you were younger. Negative data will also put you at risk when you apply for loans, insurances, etc in the future. So be careful. Credit card is a serious matter and responsibility. It is not something you can apply and cancel merrily whenever you like.
If you are new in the workforce, do not expect to get a credit card approval on your first try. If at least you get approved, do not expect a high credit limit right away. Remember, having a credit card is a privilege. It is not a right nor a bank's responsibility to give to all its customers. You have to earn it. That's what the qualifications each bank has set are for.
Use cash as much as you can. Reserve your credit card for emergency situations like the hospital, school tuition, etc. Leave it at home!