SECTOR SERVICE: Using credit wisely amid the crunch

Annelle Sheline
7 Min Read

Although the global credit crunch provides an unlikely context for attracting new customers, credit card use in Egypt continues to rise.

The convenience of credit cards, the ability to buy high priced items on credit, as well as the products available on the increasingly web-based world market appeal to consumers in Egypt and elsewhere that credit use has yet to become widespread. However, it is credit card merchants themselves that have the most to gain from attracting new customers in relatively untapped markets such as Egypt.

Credit merchants actively work to reassure consumers unaccustomed to using money they do not have on-hand and to assuage concerns heightened by the credit crunch.

To some extent, Egyptians lingering suspicion of credit-based systems is well-founded, as companies benefit in the short term from the fees owed by credit card debtors. However, as the past year has so effectively demonstrated, cultivating savvy and responsible card users strengthens the integrity of the credit system and improves economic security.

Obtaining a credit card in the wake of the credit crunch is therefore perhaps the best time to learn to manage credit responsibly, as awareness of the dangers of irresponsible credit use remains high among credit merchants and banks.

Citi Group provides the following terms and tips for tyro card holders to better understand how to benefit from the freedom provided by buying on credit without risk of debt.

First, know the basics. While credit cards represent the most common form of personal credit, other options exist. Loans for example, come in two forms. Secured loans are guaranteed by collateral, or an item of equal or greater value than the loan amount, while unsecured loans are based on personal credit history. Installment loans, such as mortgages, are paid in fixed monthly amounts over a set period of time.

Other forms of card-based payment involve less risk of debt than credit cards. Debit cards withdraw money directly from the customer s bank account; when the money runs out, the card no longer functions. Charge cards require full payment of the amount borrowed at the end of the month.

In contrast, credit cards allow the user to temporarily borrow money and repay it in full or part at the end of the payment cycle, typically every month. Credit card holders may borrow up to the amount specified by their available credit line limit, or the maximum amount they are permitted to charge per payment cycle.

Thus, only credit cards provide the potentially dangerous possibility of delaying repayment, enticing customers into accruing increasingly pricey interest rates. Credit card companies that once tried to walk the tightrope between collecting debtors fees and promoting wise borrowing habits are now more likely to come down on the side of responsibility than profit.

Yet the system itself remains one in which borrowing money you do not possess remains intoxicatingly simple.

Citi Group issues the following recommendations: Keep interest rates at their lowest by making payments in full and on time. At the very least, pay the required monthly minimum. Set up an account with an online payment system or that automatically withdraws payments from the bank. Remember, a grace period is not an extension of the payment due date. If no balance exists, this is the period in which the customer may pay new balances before interest charges apply.

Maintaining a good record extends to more than keeping your interest rates low. Credit bureaus regularly receive information about customers payment behaviors, which they use to determine eligibility for granting loans and mortgages. Employers may also request credit data when hiring potential employees. In order to boost your chances of receiving a loan or getting a job, Citi strongly encourages credit card users to maintain as few credit accounts as possible, to avoid transferring balances unless a better rate is definitely available, and to check personal credit reports at least once a year.

If you do find yourself spending more with your card than you would with cash, be prepared to put it away or destroy it until you are confident you can stay within your budget and credit limit. Despite the alleged dawning of an “era of financial responsibility, credit card companies ultimately rely on customers to regulate their own spending behavior. Should debts accrue, it is the customer who suffers most.

10 tips on using credit wisely

1. Shop around for the best credit terms.2. Understand the terms of the agreement before you accept a loan or credit card.3. Save money each payday for emergencies.4. Set a monthly limit for charges and stick to it.5. Shop as carefully with credit as you do with cash.6. Don t take on monthly credit payments unless you re certain you can meet them.7. Pay bills promptly and in full to keep finance charges low.8. If you charge day to day expenses, pay them in full each month.9. Keep credit card information (including the phone number of the issuer) in a safe place in case your cards are lost or stolen.10. Keep copies of your sales slips and compare the charges when bills arrive.

To read the other stories in our monthly special focus on Egypt s banking sector, click here:

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