Credit Cards

Smart Tips on Using Credit Cards
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Credit cards are one of the major payment methods for our everyday spending. Using a credit card to shop entitles you to interest-free repayment period, it also avoids the hassle of carrying a large amount of cash. However, you need to understand the banks’ terms and conditions, and their fees and charges when spending with credit cards. As a wise bank customer, you should remember the following tips when using your credit card:
- Dos:
  - Consider your actual needs before shopping with your credit cards to avoid over-spending.
  - Understand the terms and conditions of credit cards, including the credit limit, interest-free repayment period, minimum payment amount, other payment terms, and fees and charges.
  - Be aware of any conditions attached to a welcome offer as you may be liable for the costs if you fail to meet such conditions.
  - Understand clearly the terms and conditions of credit card promotional offers. Some offers may apply only to certain types or brands of cards issued by a bank, while others may require customers to pre-register or first spend a certain amount at designated shops during the promotional period.
  - Study the credit card fee schedule carefully to understand the applicable fees and charges as well as their calculation methods.
  - Depending on individual customers’ circumstances, some banks will consider granting waivers of annual fees on credit cards. Customers can submit applications to banks for their consideration.
  - Use the Annualised Percentage Rate (APR) to compare banks’ interest charges and other fees on retail purchases and cash advances.
  - Understand the banks’ credit card charges for foreign currency transactions before travelling. Be aware that such charges vary among banks. If you wish to settle foreign currency transactions in Hong Kong dollars, you should ask the merchants about the exchange rate and the fees to be applied to the transactions because such transactions may involve a higher cost.
  - Read carefully the notifications issued by banks, as they are required to notify their credit card customers in advance for a specified period if they wish to change their related fees and charges, their credit limits and their key terms and conditions.
  - Be aware of banks’ billing cycles and their means of issuing monthly statements. Read the statements carefully, and check whether every transaction is correct. Be aware of bank notifications via SMS messages, etc. and promptly inform your bank if you notice any suspicious or unauthorised transactions, regardless of the amount.
  - Understand the chargeback mechanism from your bank.
- Don'ts:
  - Do not apply for a credit card simply because of the welcome gifts. Avoid unnecessary spending just to meet the conditions of a new card offer.
  - Do not over-spend simply because your credit cards have a high limit. You can ask your bank to lower the credit limit if you think it is too high. You can also consider opting out of the "over-the-limit" arrangement.
  - Do not disclose your credit card number, card expiry date, security code (printed next to the signature panel on the back of the card) or one-time password (OTP) to a third party to avoid unauthorised transactions using stolen data.
  - Avoid repayment of the minimum payment amount or partial repayment only as this will incur finance charges. If you fail to settle in full payment of your credit card bill on or before the due date, new transactions will immediately incur the finance charge. If you often repay the minimum payment amount only, you should reconsider your repayment ability.
  - Avoid overdue payment as this will incur a late charge. A poor repayment history will also affect your credit record and future loan applications.
  - Do not make cash advance transaction with your credit card without careful consideration. Banks normally charge a higher interest rate on cash advances than on the outstanding balance of retail purchases. Also, there is generally no “interest-free” repayment period for cash advances, which means interest will be incurred daily from the date the cash advance is made until it is fully repaid.

Interest Expenses of Repaying the “Minimum Payment Amount” Only

Do not underestimate the interest burden if you only repay the “minimum payment amount” or make partial repayment.

For example: Assume there is an outstanding balance of $20,000 in your credit card account without further transactions, annual fee and other fees, and a monthly interest rate of 2.5% (Annualised Percentage Rate (APR) of 35%).

Repayment Amount Per Month	Time Required to Clear the Outstanding Balance	Total Expenditure (Principal + Interest)	Interest
Minimum Payment Amount (less than $849)	26 years	$67,536	$47,536
$849	3 years	$30,565	$10,565

Note: A similar illustration appears in banks’ monthly credit card statements.

How to Read a Monthly Credit Card Statement?
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Be aware of the distribution method and the issue date of a monthly credit card statement. Read and check whether each transaction of the statement is correct. In case of any suspicious or unauthorised transactions, inform your bank promptly.
- Credit Limit
  The maximum amount approved by a bank to a customer for spending with a credit card, or for cash advance through the credit card.
- Payment Due Date
  The date by which a customer needs to pay.
- Minimum Payment Amount
  The sum of all interest, fees (including annual fee) and at least 1% of the outstanding principal, or a specified amount (e.g. $50), whichever is higher.
- Annualised Percentage Rate (APR)
  The APR, expressed as a yearly percentage rate, is a benchmark for comparing the interest rate and fees for different banking products (e.g. credit cards, personal loans, etc.). It reflects the actual cost of borrowing.
- Finance Charge
  A finance charge will be levied if a customer fails to repay the outstanding balance of retail purchases or cash advances on the payment due date.
  - Finance Charge on Retail Purchases
    Interest will be incurred over the existing outstanding balances and new purchases for the month. Customers can enjoy an interest-free period on new purchases for the month if there is no outstanding balance.
  - Finance Charge on Cash Advances
    Cash advance means a cash withdrawal at an Automated Teller Machine or a bank branch from a customer’s credit limit on his or her credit card account. There is generally no interest-free period for cash advances. Interest is incurred daily from the date the cash advance is made until it is fully repaid.
    
    Banks also charge a handling fee for cash advances, which is normally equal to a certain percentage of the cash advance amount or a flat fee for each cash advance transaction, whichever is higher.
- Late Charge
  If a customer fails to make the minimum payment amount by the payment due date, a late charge will be levied. The amount is normally equal to the minimum payment amount or a certain percentage of the minimum payment amount. Minimum and maximum charges may be imposed. In any case, a late charge should not exceed the minimum payment amount.
- Other Fees
  Other fees may include the over-the-limit fee. It will be charged by a bank when the total outstanding balance of a credit card account exceeds the credit card limit*. It is normally a flat fee.
  - Banks have to provide channels for customers to opt out of the over-the-limit arrangement.
    
    For customers who have not opted out of this arrangement, banks should not impose more than one over-the-limit fee per billing cycle.
- Rewards Programme
  Banks generally offer reward programmes to encourage customers to spend more by using credit cards. Such programmes are subject to specific terms and conditions. The bonus points accumulated are subject to a validity period. For more information, please refer to the monthly credit card statement or check with the relevant bank.
Note: The format of the statements and the calculation methods of the fees and charges by different banks may vary. For any queries on your credit card statement, please contact the relevant bank.
Smart Tips on Credit Card Chargeback Protection
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- What is Credit Card Chargeback Protection?
  Credit card chargeback protection is a protection mechanism provided by credit card associations to consumers. Generally speaking, where consumers use credit cards to make lump-sum payments upfront, and have disputes over the transactions later on, consumers can request card issuing banks to assist in applying for refunds of the payments.
  
  Examples of disputes:
  - The merchant closes down
  - Goods purchased do not match the description
- Smart Tips to Consumers
  All prepayments involve risks. Think carefully before prepaying.
  
  Chargeback protection is generally not applicable to instalment payment plans (IPPs) on credit cards.
  - An IPP on credit card is effectively a loan provided by the bank to the consumer to pay the merchant in full for the purchase of goods or services, while the customer repays the bank through his/her credit card by instalments.
  - If a merchant goes out of business, the customer still has the obligation to service the remaining instalments to the card issuing bank in accordance with the IPP agreement.
  Terms and conditions of IPPs may vary by card issuing banks. It is better to understand them thoroughly and assess your own situation before signing any agreements.

General Process Flow of Chargeback Mechanism
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Step 1:
The consumer approaches the card issuing bank to raise a chargeback request.

Step 2:
On behalf of the consumer, the card issuing bank raises the dispute and chargeback request with the merchant acquirer through the credit card association. The merchant acquirer or the merchant may accept or reject the chargeback request, in accordance with the rules of the respective credit card association.

Step 3:
Chargeback request accepted:
Transaction payment will be refunded to the consumer via the card issuing bank.

Chargeback request rejected:
The consumer may submit the disputed transaction, via the card issuing bank and in accordance with the rules of the respective credit card association, for arbitration by the association.
- Remarks on Raising Chargeback Requests
  - Consumers may need to provide information like transaction receipts and agreements.
  - Chargeback requests are subject to the rules of the respective card associations, including the chargeback time limit within which consumers must file the requests.
  - Different credit card associations have different rules. These include the chargeback time limit, and when the limit starts counting. Check with card issuing banks for details.