While we explored the general benefits of a credit card recently from a financial perspective, we’ll go through the application process and how a credit card assists in building a credit history and tracking expenses this week.

While a typical bank account requires the normal Know-Your-Customer (KYC) documentation for it to be opened, a credit card application tends to require additional items. These might include an employment letter, salary slip for the last three months, bank statements and a credit bureau report. If you’re not a client of the bank, you might be required to do an application form giving information about your income, expenses and other relevant risk details.

This is done by the bank to understand your income, your liabilities and credit history if one exists. There are three credit bureaus in Jamaica — Creditinfo Jamaica Limited, CRIF Information Bureau Jamaica Limited and Credit Information Services Limited. While the commercial bank might charge you up to $3,000 to get your credit report, you can apply for a free credit report once a year at any of the credit bureaus. Creditinfo allows you to use your mobile phone to apply for your free credit report and receive it via e-mail. However, you won’t receive a score with that report unless you pay $1,150. It’s best to review your credit reports each year and report any errors you might see to ensure your information is accurate.

When the bank receives your credit report and reviews your application at the adjudication stage, they will determine if you should get a secured or unsecured credit card. A secured credit card is one where the bank holds a fixed deposit against the credit limit of your credit card. If your account goes into arrears, the bank can draw down on that fixed deposit to clear the balance owing. An unsecured credit card is one where the bank relies on your creditworthiness to repay your credit card balance owed. The one benefit of a secured card is a lower interest rate compared to an unsecured one. For example, Sagicor Bank Jamaica’s PriceSmart Visa Gold credit card offers a 12.50 per cent rate on the secured card and 49.50 per cent on the unsecured card.

Once the bank approves you for a credit card, you can go ahead and use it instead of your debit card and pay off the statement balance in full every month to avoid interest charges. If you have a secured credit card, you can ask your bank about moving to an unsecured credit card after a year once your account has remained in good standing.

The biggest benefit of a credit card tends to come from the ability to track all your expenses and build a credit history for future business with financial institutions. If you’re doing all your transactions with a credit card, you will see them reflected on your monthly statement and likely be able to group them on your bank’s online platform as well. This also acts as a way for someone to build a credit history if they don’t pay utilities or have a credit arrangement with a vendor such as a hire purchase location, telecommunications company or student housing firm. A credit history is used by a bank when determining future loans such as a mortgage or a general unsecured loan. If your credit history is great and you’ve been allocated a good score, you can negotiate with a bank or financial institution on the terms of a loan or financing arrangement. If it’s not great, you might encounter difficulties in securing more favourable terms including lower interest rates at the negotiation stage.

As a credit card user, you’d prefer to be a transactor versus a revolver. A transactor is someone who pays their statement balance in full every month, avoids interest charges, is considered less risky by creditors and tends to be a benefit to your credit score. A revolver is someone who doesn’t pay in full every month, pays interest charges, is considered riskier by creditors and tends to have a reduced credit score as a result. As mentioned in last week’s article, optimising your credit card to manage cash flow allows one to fully benefit from a credit card without any significant downside.

While some persons fear credit cards because they think that they’ll fall into significant debt, a user will be fine once he/she manages his/her spending accordingly and don’t spend to the limit without a plan. Some financial institutions such as Bank of Nova Scotia (Jamaica) Limited offer the option to schedule payments on their online banking platform. Thus, if your electricity bill is due on the 29th, you can schedule that payment to be charged against your credit card on the 27th. You can also schedule your credit card repayments as well so that your cash stays in your bank account longer and you can earn more interest on your money. Although FirstCaribbean International Bank (Jamaica) Limited doesn’t allow persons to pay bills using their credit cards on their online banking platform, one can still use their credit card to pay their bills on the vendor’s platform. So, you can use a Silver Visa Card to pay your Jamaica Public Service Company Limited bill on their mobile application or online portal. Also, this card doesn’t have an annual fee which still benefits the user when paying their bills.

If you are having difficulties paying your credit card bill at a specified time because of when your salary is paid, ask your bank to adjust your billing cycle so that you have room to pay down the balance and not have to be worrying about late fees or interest payments. A debt consolidation loan might just be the next best thing to reduce some of the pressure you face with a large credit card balance. As my friend said to me before, credit card interest acts up his allergies which is why he always pays on time and builds a solid credit history.