Finding a credit card that suits your spending requirements is no easy task when you consider the numerous options available in the market.
But asking the right questions about fees, interest rates, credit limits, late payment penalties and perks can make the decision easier.
“The person should be able to comfortably pay all bills on time and pay all expenses without any issues before applying for a credit card. If they don't already do this, a credit card could mean spiralling debt,” says Alison Soltani, founder of savings website Leap Savvy Savers.
“If something happens and you have a major unexpected expense, can you pay that plus your credit card? To do that, you need to have some savings in an emergency fund.”
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Credit cards act as ultra-short-term loans from a bank. A customer has a credit limit depending on their income, current debt burden and credit score.
When you use your credit card, the merchant takes the money from the bank and you are required to pay the lender back the next month.
Usually, a statement is issued between the fifth and eighth day of each month, calculating all your spending for the previous month. Typically, you have 21 to 25 days to pay the balance, after which you will be charged interest.
Credit cards differ from debit cards. Debit cards are linked to your current or savings account and vendors take payment from your money.
More credit card holders are carrying card balances from month to month, a Bankrate survey of 2,350 US adults found last year.
Nearly 50 per cent of cardholders fell into the credit card “debt revolver” category, up from 39 per cent in 2021 and 47 per cent in July 2023, the survey found.
Generation X leads the pack, with 55 per cent saying they carry a credit card balance, followed by millennials at 51 per cent, Generation Z at 48 per cent and baby boomers at 44 per cent, the findings showed.
Emergency or unexpected expenses were the leading cause of credit card debt, with 43 per cent of cardholders saying they were carrying a balance due to an unexpected or emergency expense, according to Bankrate.
We asked personal finance experts for their advice to help you find the ideal credit card that fits your spending habits and financial goals.
1. Ask your why
Ask yourself why you are taking a credit card in the first place. If it is for borrowing money because you cannot afford something that you want right now, then stay away from them, says Rasheda Khatun Khan, a wealth and wellness expert, founder of Design Your Life and the author of Millionaire Mindset – 6 Steps To A Wealthy Life.
If you struggle managing your monthly expenses, having a credit card is more likely to get you into debt, she warns.
If your reason is to benefit from its reward system, then a credit card can be of value to you only if you are already good at managing your expenses and, most importantly, are able to use the credit card like a debit card.
This means that the money will come out of your current account at the end of each month to pay it off in full, she says.
2. Understand your spending habits and needs
Before diving into the sea of credit card options, it is crucial to understand your spending habits and financial needs, says Joseph El Am, general manager of StashAway.
“Are you a frequent traveller, a big spender on groceries or someone who rarely uses credit? Identifying your spending patterns will help you choose a card that aligns with your lifestyle and maximises your benefits,” he says.
Ms Soltani says credit cards offer a variety of benefits and conditions, so it is important to shop around for the best card.
For example, if you are a person who spends money regularly at the cinema and restaurants, then a card with mall discounts might suit you, she says.
“If you tend to overspend on online shopping, consider how you will avoid this when you have a credit card. Perhaps you will ensure that your card details aren't saved or keep things in your cart for a week before purchasing,” Ms Soltani says.
“If you tend to overspend at the mall, maybe you decide not to take it with you. Ensuring that you have healthy habits in place before you apply for a credit card will keep you in a strong financial position.”
3. Interest rates
The annual percentage rate (APR) is the interest rate you will pay if you carry a balance.
While it is advisable to pay off your balance each month to avoid interest charges, knowing the APR is essential, Mr El Am says.
“Cards with lower APRs are preferable. At the moment, we are in a very high interest rate environment,” he says.
“It is, therefore, crucial to understand what the APR is you are signing up for in case you miss out on a payment.”
Always check the provider’s policy if you fall behind on card payments, says Rupert Connor, partner at Abacus Financial Consultants.
“If this should happen, then usually the bank will use the security cheque deposited by the individual while requesting a loan to clear the debt. In case the cheque bounces due to an insufficient balance, the bank will have the right to file a criminal case,” he says.
“Following the complaint, the individual may be banned from travelling outside the UAE. If three payments are missed in a row, then the credit card limit will be cancelled and the collections department will take over the case.”
4. Fees
Be aware of the various fees associated with a credit card. These can include annual fees, foreign transaction fees and late payment fees, StashAway’s Mr El Am points out.
Sometimes, a card with an annual fee may offer more rewards or benefits that justify the cost.
It is important to weigh these fees against the potential benefits. Always check with your banks as some fees can be waived off if you meet certain requirements, he says.
“If one pays off their balance every month, a low or no annual fee is more important than a low interest rate [since the balance will be paid off before interest on purchases is assessed],” Mr Connor says.
“But, if a balance is usually carried from month to month, it is probably best to focus on credit cards with a low APR, even with an annual fee.”
Always check whether the card has foreign transaction fees. If using a card overseas frequently, the best card would have low – or no – foreign transaction fees, Mr Connor says.
These fees can be as high as 3 per cent of the transaction amount.
5. Credit limit
The credit limit is the maximum amount you can charge to your card. It is determined based on your creditworthiness.
“A higher credit limit can be useful for those who make large purchases or want more flexibility,” Mr El Am says.
“However, it's crucial to manage this responsibly to avoid falling into debt.”
Mr Connor says that UAE banks have been known to offer extremely large credit limits.
This is evaluated by various factors such as age, monthly salary, current debts, credit history, payment history, and credit score, he says.
If a further loan or mortgage is required, a reduction in the credit card limit may be required.
6. Credit score requirements
Credit cards have varying credit score requirements. Premium cards often require a high credit score while others are more accessible, according to Mr El Am.
Knowing your credit score will help you apply for cards that you are more likely to be approved for, avoiding unnecessary hard inquiries on your credit report, he says.
Download the Al Etihad Credit Bureau app to keep track of your credit score.
“A credit card can be good for improving your credit rating if you pay it back in full and on time. However, an application for credit may temporarily lower your score,” Ms Soltani says.
“If you are about to purchase a house, it might not be the best time to apply. But if you have some time before making a large purchase, then applying for a credit card can be a good thing.”
7. Fraud protection
Ask the credit card provider what happens if there is fraudulent activity on the card. Will they provide support in these cases, Ms Soltani says.
Mr Connor recommends researching what type of fraud protection can be expected from the card issuer.
“In the UAE, credit card holders are protected by liability limits for unauthorised transactions,” he says.
“If a cardholder reports fraudulent activity promptly, they are generally not held liable for fraudulent charges made on their credit card, but this is not always the case, so choose wisely.”
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8. Rewards and benefits
Many credit cards offer rewards such as cashback, hotel points or air miles. These can be extremely beneficial if they align with your spending habits, Mr El Am says.
“For example, a card offering high cashback on gas would be ideal for someone who drives frequently, or if you are an Emirates frequent flyer, it would make sense to get a credit card that gives you additional Skyward miles to enjoy the airline’s benefits,” he says.
“Additionally, some cards offer sign-up bonuses, free travel insurance or access to airport lounges.”
However, Mr Connor warns that rewards cards can sometimes have higher interest rates and/or higher annual fees.
Try to identify the trade-offs and consider which is more valuable for personal finances, he recommends.
Also, consider how the rewards rate and cashback perks match spending habits, he says.
Ms Khatun recommends that you “shop around” and compare different credit card providers to see what reward system is best for you.
“Most people just go with their own bank. However, it’s worth shopping around to get the best deal.”
