Credit cards are lifestyle enablers if used wisely

If managing money is a skill, making judicious use of credit cards may well qualify as a virtue. This is so because credit cards come loaded with a host of promotions such as loyalty programmes, reward points, raffle draws, cash-back offers, discounts in select hotels, dining vouchers, movie tickets, golf club membership, access to airport lounges, and the list goes on.

There is no doubt that credit cards are wonderful lifestyle enablers if used wisely. The add-on perks are a great way to get the maximum out of deals, as the more you spend the more bonus points you get, which can be redeemed for a host of other, thus saving your money.

However, using credit card benefits sans due diligence has its downsides too, as in many cases one has to spend through his card to be eligible for such benefits. In an effort to get as many reward points as possible, often, a credit card user tends to indulge in impulsive buying, ends up blowing his budget, and thus mounting heaps of debt.

Additionally, since not all the benefits are rolled in one credit card, many individuals very often acquire multiple cards to maximise the benefits that may make it difficult to manage credit card debts, believe experts.

"Credit cards can be very advantageous when you use them well. However, if not used properly, they can turn counter productive. So you must make sure when you're going to pay your credit card bills," Richard Shepherd, Head of Credit Cards, Standard Chartered Bank UAE, says.

So what is the best way to get the most out of credit card promotions without burning a hole in the pocket, and what precautions do users need to take?

Read terms and conditions

One of the best ways to avoid last-minute surprises when using credit cards is to go through the fine print and understand the terms and conditions of the cardholder agreement – the contract between the cardholder and the bank that has issued the card, say experts.

"Promotions are aimed for the customer and the customer benefits directly from them," Mustafa Ramzi, Head of Cards, HSBC UAE, says. "A customer can get the most out of a loyalty programme by knowing how to accumulate the points faster. [However], the customer also needs to be aware of all the terms and conditions of the offer."

Another way to avert credit card delinquencies arising out of unbridled spending by the user is to ensure proper compliance of risk management methodology by the credit card sales representatives, say experts.

"It would be better to have the reward system to reflect not just issuance of new cards but the default as well," Janany Vamadeva, analyst, HC Brokerage, Dubai, says. "This would encourage the sales team to focus on the paying capacity of users too because sales teams are out of the picture once the card is issued and the credit teams only follows up. Banks should devise a methodology to involve the sales team in the follow up to some extent."

Another way to avoid credit card default is to block the card notwithstanding the original limit given if the customer misses a few payments so that losses are reduced. As for personal loans, most banks already follow this. For instance, they request for salary transfer and ask for personal guarantors from their home country when they leave the country on loss of job, she adds.

Don't go overboard

One golden rule to get the best from promotions is to understand the them, say experts. Credit cards are considered a necessary option of payment today and penetration of card transactions is very high in the UAE market, especially with the increasing number of debit cards in the past few years. When used and managed properly, credit cards offer significant advantages to users, says Anil Chander, Head of Cards and Business Strategy, Rakbank.

He says, for customers to take advantage of the benefits, it is important they have the understanding of the features and promotions.

"For starters, customers must make a distinction between a credit card promotion, which is only a temporary time-bound benefit, and a product feature, such as cash-back or a loyalty programme, which is a more enduring benefit," says Chander. "When choosing a credit card, customers must opt for the card that is most advantageous in terms of product offerings, and one which caters to their specific needs and preferences."

Also, banks must sustain open and effective communication with customers to keep them informed of product offers and promotions. In addition, credit card holders need to pay close attention to the details and duration of promotions or benefit claim periods, and to manage a payment schedule that works for each customer.

Terms and conditions must be carefully read by customers to be aware of possible limitations on offers, such as time frame, Chander adds.

Finally, he says, taking advantage of features and promotions goes hand in hand with sound financial planning, where judicious spending needs to be a conscious decision so that the customer ensures benefits outweigh their expenditure. The decision to pay off one's credit card bills on time is sound financial planning on the customer's behalf, but will normally have no effect on the quantity or amount of rewards.

Five points to remember while using credit cards

Don't store card PIN on mobile phones

Random numerical combinations are difficult to remember no matter how good your memory is. That is probably why most card holders plead guilty to saving PIN on mobile phones, and some even go as far as writing it on card sleeves or even on the back of the card itself. Pickpockets who get their hands on others' cards and phones can easily check for this common practice. Cardholders, therefore, need to change their PIN to a combination that is more easily remembered.

Sharing is not caring

Although it is widely known that credit and debit cards must be used by their owners only, many people share their cards in the UAE unaware of the issues and complications this causes for banks in tracking fraudulent or unauthorised purchases. A safer alternative is to issue supplementary cards for dependent family members.

Sign your card

Even though a signed credit card is helpful in avoiding fraudulent purchases, especially in the case of card theft, few cardholders actually sign their cards. Many merchants verify signatures with those on the back of cards to ensure consistency, and reserve the right to report questionable discrepancies. It is important to stick to one signature to avoid confusion.

Hold on to your receipts

Credit and debit card receipts are useful as proof of purchase and when going over monthly bank statements, however, many people throw transaction receipts right away. It is important to avoid this, especially with receipts of ATM transactions, which are often found around ATMs, giving away confidential account information. It is also advisable to review bank statements for credit and debit cards on a monthly basis to help identify possible transaction disputes. Card users should also be careful to check the amount on receipts before signing them.

Beware of dodgy websites

The arrival of internet banking has opened a massive window for online shopping. Even though security measures have been beefed up in recent years and standards have become extremely stringent with regard to fraud protection, few people live up to their part of the bargain and avoid dodgy merchant sites by checking for the secure lock icon that appears on the internet browser, plus the message and logos that confirm certification by Visa and/or MasterCard. Online shoppers must also keep in mind that the website address of a secure site typically starts with https:// instead of the standard https://. Finally, it is important to remember that credit card details should only be shared to perform transactions and not to provide personal profile information.

Source: RakBank

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