Sunday, April 4, 2010

Managing Credit Cards

I have read an article about credit card frauds a few weeks ago, highlighting the one-sided condition that the credit card owner is liable for any fraudulent purchases on his/her card until the credit card theft/loss/scam was reported. For credit card owner, it would be easier to learn if the credit card was lost or stolen, but nearly impossible to know if it was duplicated (or “na-racha”) until he/she receives the billing statement.

On the predatory policy of local credit card issuers, the card owner is presumed to have used the credit card regardless of the amount, place and time used, unless proven otherwise which may take years to resolve. While investigation or resolution is ongoing and the credit card owner refuses to pay, the finance charges and late payment fees pile up, the card owner would neither be able to open a bank account nor get a new credit card due to bad credit standing.

A week after reading that article made me reduce the credit limits of my 2 credit cards to just almost a quarter of their previous limits. I seldom reach even half of my credit limits anyway, and lower credit limit means lower risks, even if my credit cards got lost or “na-racha”. I would ask for reinstatement of my previously higher credit limit only when I need it, or when our government enact laws for more consumer protection, like what the citizens of the developed countries are enjoying.

As much as possible, below are my practices in managing my credit cards to avoid credit traps:
  1. Choose a credit card that imposes finance charges only for unpaid balances, unlike those who also include your current purchases on computation of finance charges.
  2. Choose a credit card that imposes a lower finance charge.
  3. Choose a credit card which is very lenient on annual fees. This is the reason why I still maintain my Amex card for 10 years now, even if I seldom use it, because they always waive my annual fees.
  4. If a credit card would not waive the annual fee, or would waive it on condition that you use it for a minimum amount or period of time, I terminate it. It’s a buyers’ market and there are lots of credit card companies begging for business.
  5. If I give in to their tempting offers of free items (e.g. wristwatch, ipod, shoes, etc.) when applying for new credit card, I make sure that I spend only what is necessary to get the freebie, lock the card somewhere, then terminate it after its holding period.
  6. Choose a card which can give either regular rebates on your usual purchases (e.g. fuel) or free meals for your purchases. This is why I maintain my BPI Petron card for gas rebates and free fastfood meals. However, don’t use your card just to rack up freebies or airline mileages, like what happened to some who are heavily in credit card debt.
  7. Maintain at most only 3 credit cards at low credit limits each. If you could survive with only one or zero credit card, the better. Less access to credit, more excuse against impulsive buying or dining, less risk of draining your finances.
  8. If I get supplementary or extension cards, I assign them a credit limit which I could risk to pay, in case the supplementary card owner went on shopping binge or defaults on his/her payment to me.
  9. As much as socially possible, I refuse to allow friends or even relatives to “ride” with my card, or use my credit card to pay for their purchases. If they don’t have credit card or their cards are suspended/maxxed out, it usually means that they are not credit worthy, and I would probably end up paying for their purchase as involuntary gift.
  10. Always pay the total amount due if I can, to avoid finance charges which could sum up to 46+% in one year, if I only pay the minimum 5% amount due. That means setting aside some cash before the due date arrives.
  11. If I maintain more than 1 credit card, I totally pay the one with the highest finance charge first.
  12. If I don’t think I could pay the substantial total amount due in 2 or more months, I avail of the other credit card’s offer of balance transfer in 6 months or less, where interest rate is still lower at about 12% per annum.
  13. If I want an early exit out of credit card trap, wherein I survive by just paying the partial balances due on 2 or more credit cards each month, I try to pay the card with the smallest total balance first until I pay in full all the cards. Small victories gave me psychological motivations to keep up the fight against credit trap.
  14. As much as possible, I use my credit card only on reputable establishments and at secure online payment websites. I also try to observe where the cashier swipes my credit card.
  15. I never gave the 3-digit security code of my credit card to anyone, especially over the phone, except during secure online payments where its necessary.
  16. On the new replacement card I received last month, I put “ID with Photo Required” instead of my signature on the back of the card. I think its more secure than writing my signature which is more prone to forgery.

The points I raised above could only be summarized in 2 words – prudence and discipline. If I don’t have both, I probably wouldn’t had escaped from credit card trap 3 years ago.

How about you? Do you have credit card tips or practices that we can add on the list above?
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  1. Very helpful!

  2. While in HK last March, I used my 3 credit cards in a span of 24 hours, on Friday night of 18th until Saturday afternoon of 19 March 2011. When my bills arrived, here's what I found on their varying foreign exchange rates, from HK$ to PHP:

    Citibank Visa - HK$1 = Php 5.838
    BPI Mastercard - HK$1 = Php 5.690
    BDO Amex card - HK$1 = Php 5.722

    Today, I tried to negotiate a lower exchange rate with Citibank, but they said its non-negotiable with Visa's global exchange rates. Unfortunately, my biggest purchase in HK is a netbook using the Citi Visa card, so I ended up paying 3% more due to forex loss.

    Lesson learned? Avoid using Visa cards when travelling abroad. Bring your Mastercard or Amex card instead.

  3. Hi Noelism! Just want to ask if you know airfare promo from Manila to Sydney Aus, one-way to depart on May 22? We want to buy the cheapest fare good for 3 persons (2 adult and 1 child ).


  4. Sorry, I've no idea on current airfare promos. You could check with local airlines (CebuPac, PAL) or Jetstar and Air Asia. But with only 17-days window to your departure, I don't think you could get airfare promos. You could also try the travel agencies' web promos, when they want to sell the bulk tickets they bought from airlines.

  5. Here's another modus operandi, probably in collusion with an insider or former employee of a credit card company:

    An officemate of mine has been complaining to her credit card issuer, for invalid purchases in hundreds of thousand pesos. To make the story short, someone used her name to call the credit card company, reporting her lost credit card and asking for a replacement to be delivered on another address. Then the scammer used the newly-replaced card to make large purchases.

    Makes you doubt the privacy of your personal data, and the way these credit card companies validate the callers' identity. Quite scary.