We set the record straight on the most common credit card myths in Singapore.

It’s common to hear horror stories about credit cards in Singapore. Basic financial prudence teaches that we should avoid loans and debt, and many think those are synonymous with credit cards. But in reality, most cardholders don’t create debt with their cards.

Truth is, there’s no logical reason to be scared of this tiny piece of plastic. Here are some of the most popular credit card myths we Singaporeans believe in, and the facts to set it straight.

Myth: Credit Card Interest Rates Will Suck You Into a Never-Ending Debt Cycle

Ask any Singaporean why they live in fear of credit cards, and they’ll say it’s because of interest rates. There’s always that friend of a friend who got trapped into a never-ending debt cycle because the interest kept piling up.

Fact: Credit Cards Don’t Charge Interest if You Make Full Repayments

Credit cards have an interest rate of about 2% per month. However, the interest is only applied on outstanding debt at the end of the billing cycle.

When you use a credit card to pay, you have around 27 days to make full repayment. If you do so, there is no interest levied (2% interest on $0 is $0.) Most credit card holders use their cards this way – as of 2015, only one in five Singaporean credit card holders had rollover debt (did not pay in full.)

Even in the off chance you cannot make full repayment, you can use a balance transfer facility. This is when you transfer the debt onto another credit card and are charged 0% interest for a given period (often six months). This gives you time to gradually pay off the full amount without incurring interest.

Myth: Credit Cards Will Ruin Your Credit Score

Some Singaporeans believe that staying away from credit cards and all sorts of loans will keep their credit score high. If you have no debt, then there’s no way for your credit score to drop, right?

Fact: Credit Cards Can Actually Improve Your Credit Score

If you pay back your credit card on time, you can get the much-desired AA rating on your credit report. This will help you to secure critical financial loans later, such as your home loan or car loan.

If you never use any loans, your credit score will be rated as Cx. This means there is no record of how reliable you are when it comes to borrowing. Banks are more comfortable with an AA rating than a Cx rating, as they would rather have proof of your responsibility.

Even if you don’t make full repayments (which we don’t encourage, please pay in full whenever possible), your credit score will remain intact if you pay the minimum amount. This is either S$50 or 3% of the amount owed, whichever is higher.

Myth: You Can’t Save Money with Credit Cards

Psychologically, it’s easier to spend on a credit card because it does not represent actual money. Instead of focusing on the cost, buying on credit lets you focus on the benefits of your purchase, and you don’t see the result of your spending until the end of the month.

With that in mind, it seems like credit cards are only good for encouraging reckless shopping, doesn’t it?

Fact: You Can Save Money with the Right Credit Card

If you use credit cards purely as a mode of payment and you pay them back in full every time, you will save money on your transactions. This is because credit cards often come with special offers, such as discounts and vouchers.

Credit cards also give rewards in the form of points and air miles; these can be exchanged for freebies like airline seat upgrades, or storewide vouchers. If you are going to spend the money, you may as well get as much out of it as you can.

Some credit cards in Singapore also give cash rebates or cashback, often around 6% of the amount charged. This can be a useful way to save if you are not a big fan of vouchers and giveaways.

Related Article: Cashback vs Rewards – How to Choose the Best Credit Card Perks

Myth: Credit Cards Encourage You to Spend Beyond Your Means

Most credit cards come with a credit limit of two or four times your monthly income. Many Singaporeans see this as an invitation to buy things they would not normally be able to afford if they were paying in cash.

Fact: You Can Lower Your Credit Card Limit to Control Spending

Did you know that you can call up your issuing bank and ask them to lower your credit limit?

A simple way to control your spending is to limit your credit to less than your monthly income. This ensures that, no matter how much you spend on the card, you are assured of being able to pay it back.

If you couple mindful spending with meticulously tracking your transactions, using a credit card can even double as a budgeting aid.

Myth: You Can Lose Your Home if You Can’t Pay Your Credit Card

Many Singaporeans tend to imagine the worst in case they can’t meet their card’s minimum payment. What if the bank takes my house? My car? My first-born child???

Fact: Credit Cards are Unsecured Loans and Don’t Require Collateral

Most credit card holders never get to the point of default (this is when the bank writes off a debt as an unrecoverable loss). But even in the improbable situation that it happens, you should realise that a credit card gives you unsecured loans.

Unlike a home loan or car loan (these are secured loans), there is no collateral involved. You do not have to pledge your home, car, or other assets to back your credit card debt.

The bank is taking on a risk and trusting you when they issue you the card. And in many ways, the banks have more to be worried about than you do.

Your eldest child will be fine.

Read This Next:

5 Logical Reasons to Stop Being Afraid of Credit Cards
What Really Happens When You Can’t Pay Your Credit Card?

By Ryan Ong
Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.

The post 5 Credit Card Myths Singaporeans Should Stop Believing appeared first on Financial News, Reviews and Advice.