Are you tired of missing out on exciting opportunities due to limited funds? Do you wish to have more financial flexibility and convenience? If so, then credit cards in the UAE might just be the solution you’ve been looking for!
In this beginner’s guide, we’ll dive into everything you need to know about credit cards in the UAE. From understanding the basics to selecting the right card for your needs, we’ll equip you with the knowledge to make informed decisions. So, let’s embark on this credit card journey and unlock the possibilities that lie ahead!
Understanding Credit Cards in the UAE
Before we delve into the nitty-gritty details, let’s start with the basics.
Credit cards are payment cards that allow you to make purchases on credit. When you use a credit card, you’re essentially borrowing money from a financial institution, usually a bank, to make a purchase. In the UAE, credit cards are widely accepted, making them an essential financial tool for both residents and expatriates alike.
How do Credit Cards Work?
You typically need to apply for a credit card with a bank or credit card issuer to get a credit card. You must provide personal information, such as your name, address, income, and employment details. The issuer will evaluate your creditworthiness based on factors like your credit score and income to determine whether to approve your application.
Once your application is approved, the credit card issuer will assign you a credit limit. This is the maximum amount of money you can borrow using a credit card.
After activation, you can use it to purchase at physical stores, online retailers, or over the phone. The merchant’s payment terminal or online payment gateway requests the credit card network (such as Visa, Mastercard, or American Express) to authorise the transaction. The network contacts the card issuer to verify if the transaction can be approved based on your available credit limit and other factors.
Billing Cycle
When you purchase using a credit card, the amount is not immediately deducted from your bank account. Instead, the issuer keeps track of your purchases over a specific period called the billing cycle. The billing cycle is usually monthly.
During this period, the issuer accumulates all your transactions and provides you with a statement at the end of the cycle. It also specifies the minimum payment due and the due date, which is the deadline for making at least the minimum payment.
Repayment Options
You have several options for repaying the credit card balance. You can choose to pay the full balance, the minimum payment, or any amount in between. It’s generally advisable to pay the full balance to avoid interest charges. If you don’t pay the full balance, the remaining amount will accrue interest, which is the cost of borrowing the money.
Interest Charges and Credit Card Fees
If you carry a balance on your credit card beyond the grace period (usually around 21 days from the statement date), the issuer will charge you interest on the outstanding amount. The interest rate, also known as the Annual Percentage Rate (APR), varies depending on the credit card and your creditworthiness. Credit cards may also have associated fees. We will get more about this below.
Types of Credit Cards in the UAE
Standard Credit Cards
These are the most common types of credit cards in UAE, providing a line of credit based on your income and creditworthiness. Standard credit cards offer a range of features and benefits, including convenience, security, and the ability to build a credit history.
Rewards Credit Cards
If you love earning rewards for your everyday spending, rewards credit cards are a great option. With these cards, you can earn points, cashback, airline miles, or other exciting rewards for each purchase you make. Some cards even offer bonus rewards for specific categories such as dining, groceries, or fuel.
Travel Credit Cards
Designed for frequent travellers, these cards offer exclusive travel benefits that can enhance your travel experience. From airport lounge access and travel insurance to discounts on flights and hotels, travel credit cards provide added convenience and savings for the jet-setters.
Cashback Credit Cards
With cashback credit cards, you can earn a percentage of your spending back as cash rewards. Every time you use the card, a portion of your purchase amount is credited back to your account, allowing you to save money on your everyday expenses.
Islamic Credit Cards
For individuals seeking Sharia-compliant banking solutions, Islamic credit cards adhere to Islamic principles and do not charge or pay interest. These cards offer alternative financing methods, such as profit-sharing or fee-based structures, while still providing the convenience and benefits of traditional credit cards.
Credit Card Fees and Charges
Annual Fees
Many credit cards in the UAE charge an annual fee for card usage. However, some cards offer fee waivers for the first year or waive the fee entirely based on your spending. It’s important to consider the card’s benefits and rewards against the annual fee to determine its overall value.
Interest Rates
If you carry a balance on your credit card, interest will be charged on the outstanding amount. It’s important to understand the interest rates associated with your card to avoid accumulating unnecessary debt. Some credit cards offer introductory low or 0% interest rates for a certain period, which can be beneficial if you plan to make a large purchase or transfer a balance.
Late Payment Fees
Failing to pay your credit card bill on time can result in late payment fees. It’s crucial to make timely payments to avoid these charges and maintain a good credit history. Setting up automatic payments or reminders can help ensure you never miss a payment.
How to Choose the Right Credit Card in the UAE
Now that you have a solid foundation of credit card knowledge, it’s time to choose the right card that aligns with your financial goals and lifestyle.
If you’re new to credit cards, it is crucial to consider these factors because the right card can significantly impact your financial well-being and credit history. Here are some factors to consider:
Credit Score
Your credit score plays a crucial role in determining your eligibility for different credit cards. If you have a limited credit history or a low credit score, you may need to start with a secured credit card or a card specifically designed for people with limited credit.
Annual Fees
Some credit cards charge an annual fee for the privilege of using the card. Consider whether the benefits and rewards offered by the card outweigh the annual fee. If you’re just starting out, it may be wise to opt for a card with no annual fee.
Interest Rates
Credit cards typically charge interest on outstanding balances. Look for cards with lower interest rates, especially if you anticipate carrying a balance from month to month. However, if you plan to pay off your balance in full each month, the interest rate may be less important.
Rewards and Benefits
Many credit cards offer rewards programs, such as cashback, travel rewards, or points that can be redeemed for merchandise. Consider your spending habits and choose a card that aligns with your preferences. For example, if you travel frequently, a card with travel rewards and perks like airport lounge access may be beneficial.
Introductory Offers
Some credit cards offer introductory promotions, such as 0% APR for a certain period or bonus rewards for spending a specific amount within a timeframe. These can be attractive if you can take advantage of them, but make sure to consider the terms and conditions beyond the introductory period.
Credit Limit
Determine the credit limit you require based on your monthly income and spending habits. Opt for a credit limit that allows you to comfortably manage your expenses without exceeding your financial capacity. It’s important to strike a balance between having enough credit to meet your needs and not overspending.
Rewards and Benefits
If you’re someone who enjoys perks and rewards, consider a credit card that offers rewards tailored to your preferences. Whether it’s cashback, travel benefits, or discounts at your favourite stores, find a card that maximises your reward potential. Evaluate the redemption options and ensure they align with your lifestyle and spending habits.
Fees and Penalties
Read the fine print and understand any fees or penalties associated with the card. Examples include late payment fees, foreign transaction fees, balance transfer fees, or fees for going over your credit limit.
Cardholder Protections
Consider the security features and benefits offered by the card. Look for cards that provide fraud protection, purchase protection, extended warranties, or travel insurance coverage.
Conclusion
Congratulations! You’ve now gained a comprehensive understanding of credit cards in the UAE. From the different types of cards available to the factors to consider when choosing the right one, you’re well-equipped to embark on your credit card journey. Remember to use credit responsibly, make timely payments, and stay within your financial means.
With the right card in your wallet, you can enjoy the convenience, flexibility, and rewards that credit cards in the UAE have to offer. So, go ahead, explore the options, and unlock a world of possibilities with your new credit card!
