How do Credit Cards in the Philippines Work? Beginner’s Guide

Most of us probably know how to use a Credit Card. But really, is it a good idea to get a credit card? Certainly, not everyone knows how to take advantage of the interest-free credit, know what a Minimum Amount Due is, and what happens if you totally refuse to pay your credit card dues.

In this post, I’ll answer your CREDIT CARD queries:

  • Is it a good idea to get a credit card?
  • How to take advantage of INTEREST-FREE CREDIT.
  • How to understand your billing cycle and grace period.
  • The difference between TOTAL AMOUNT DUE and MINIMUM AMOUNT DUE, and why a minimum amount due exists.

At eto, may SECRET ako! Atin atin lang ah?

Ever wondered why after refusing to pay your credit card bills in your previous bank, you noticed you are always having a pretty hard time applying for credit cards and loans in other banks? I’ll be answering those later so make sure to read until the end!

I’ve been in the banking industry for 5 years. In this post, I’ll be sharing some of the finer details a responsible cardholder like you should know. With almost everything being sold online, people are used to paying via credit card, which is why most of us are planning to get one too, for convenience. However, some of us acclaim that having a credit card is like putting ourselves into a “debt trap,” that causes people planning to get puzzled. The reason why people have a different perspective about this is because credit cards are not the same in terms of how it is being used by each owner.  And so, the idea of being erudite and prudent is very important. In this article, I provided 15 points about credit cards basic facts, and clarifications in the form of questions and answers:

How do Credit Cards in the Philippines Work? Beginner’s Guide

1. Do I need a Credit Card in the Philippines?

In reality, it is possible to live without a credit card. You’re totally fine living without it. Trust me. However, it would be challenging to build your credit score or pay bills and loans without one. It may also be a challenge if you want to buy some expensive goods in the mall without cash upfront. So the answer is YES.

2. How to use a Credit Card in the Philippines?

None of us wouldn’t waste time planning to get a credit card if it didn’t have a function, would we?

A credit card is a payment card issued by its financial company that allows the owner to borrow funds for paying goods and services like bills, etc. without actual cash. You may use it for almost anything – groceries, online shopping, subscriptions, Cash Advance, and more. In other words, it’s like how the iconic commercial tagline goes, “BUY NOW, PAY LATER!

3. What are the Advantages of having a Credit Card in the Philippines?

There are a lot of perks that a credit card could offer, depending on how you use it.

  • Forgot your cash at home? You can still buy an item using your credit card
  • If you decide to pay your dues on time, you won’t be paying any finance charges. Interest-free credit, that is! It’s like the bank just lent you some money and since you returned it on time, you won’t be paying any interest charges. Nalugi pa sayo ang bangko!
  • Reward Points. Remember, each rewards program has its own system for earning, managing and redeeming rewards. Let’s say for frequent travelers, having a rewards card that offers points or miles that can be used for flights or hotel rooms can be very beneficial. Your rewards might even cover for an entire vacation, but of course, that depends on your spending habits.
  • Some companies prefer credit cards as the primary idea of payments. Hotel reservation is the best example.
  • You can easily take advantage of travel promo opportunities

4. Are there Disadvantages in having a Credit Card?

  • Not paying dues on time can cost you a high-interest charge, especially when the interests build up.
  • Exceeding your credit card limit can cause you some fees.
  • You are tempted to spend money that you haven’t earned yet.
  • High probability of phishing and fraud.

5. How to be a responsible credit card holder in the Philippines?

  • Using your credit card with only the amount you can pay in full for when your next credit card bill arrives
  • Knows how the billing cycle works (more on this later)
  • Knows what the statement date and payment due dates are (more on this later)
  • Paying your credit card bill in full before the due date
  • Controlling your credit card spending, like refraining from making impulsive purchases.
  • Knows how much is the credit limit and manages not to not exceed it. Let’s say your credit limit is P20,000. You try to be conservative by spending at least 30% of your limit which in this case is P6,000.

6. What is the difference between a Credit Card and a Debit Card in the Philippines?

These two may look identical, but mind you, they work very differently!

A few similarities are:

  • They possess the same format of having 16-digit card numbers. They also have expiration dates.
  • They require PIN codes to access purchases
  • Debit cards provide the same convenience as credit cards do. You can use your debit card for transactions online and at stores that accept Visa or Mastercard.

The differences between the two cards rely on their functions.

Credit card

  • allows you to use money from borrowed funds of the bank which you can use to pay for goods and services. In return, you will have to pay the money you borrowed by paying them back in monthly intervals
  • is not connected to any savings or debit account
  • has a credit limit imposed by the bank where in cases that you exceed this limit, you are subject to a finance charge.
  • Allows you to have a supplementary card. Let’s say you want to give your child her own credit card, you may request a supplementary card to be issued for her. Do take note that you, as the parent, is still responsible for your kid’s purchases.

Debit Card

  • is connected to your savings account or checking account. When you swipe your debit card for purchases, it automatically deducts the available balance of the account linked to it.
  • The amount you can use for purchases is only limited to the available balance in your account

7. Which is Better? A Credit Card or a Debit Card?

It highly depends on why you are using the card and how careful you are in handling it.

If you want to improve your credit score, having a credit card is the answer. If you use your card wisely, there’s a huge possibility of having your annual fee waived, gaining low fees and low-interest rates.

Also, when the bank sees that you are an excellent credit card payor, you may be perceived as a good candidate for other loans such as personal loans, mortgages, and even car loans.

On the other hand, a debit card is used to grant you (the owner) an instant access to your money with no interest rates. But personally speaking, I lean towards debit cards to get a good control of my spending since I know that my purchases can never go beyond the amount in my savings account.

8. Are Credit Cards More Secure Than Debit Cards in the Philippines?

How do Credit Cards in the Philippines Work? Beginner’s Guide

This may be arguably correct. But first, hear me out. I am more of a debit card user, for psychological reasons. But in cases of theft or reporting a lost card, credit cards are a little more advantageous.

Using a debit card instead of a credit card has certain risks. Since debit cards are linked directly to your savings or checking accounts, unauthorized transactions can deduct large sums of money from your account.  It would be such a hassle and a nightmare if you find your account balance drained to zero, wouldn’t it?

With a credit card, if a hacker steals your card information, you’re MORE LIKELY to recover your money if it has been taken from a credit card than a debit card. Since this isn’t linked to your bank accounts and if you use all your power defending and proving to the bank that your past transactions are indeed a cause of theft, they may release you from the responsibility of paying the amount due.

But hey! Notice that I used the words “more likely.” With numerous unsolved credit cases due to theft in the country, getting your cash back might take several months because the bank has to investigate the incident first.

9. What can I do with a Credit Card in the Philippines as a beginner?

You can use it to buy everyday things such as:

  • Gas
  • Groceries
  • Online shopping deals
  • Furniture
  • Gadgets
  • Dine-outs at restaurants
  • Travels and hotel bookings
  • Online subscriptions like Netflix
  • In some banks, it can be used as a secondary ID when applying for a savings or checking account.

Moreover, your credit card billing statement can be used as a proof of billing which is requested by some companies.

10. What are the important credit card terms I should know?

Familiarize yourself with these 4 concepts first then later on, we’ll be explaining them through an illustration.

Statement of Account (SOA)

This is a detailed summary with the list of all the financial transactions you made in a specific billing cycle. This is delivered to you after the end of every billing cycle.

Billing cycle

A period of which your credit card bill is generated. It usually runs for one month or within 25 to 31 days.

Credit limit

The maximum amount you can use for purchasing.  If your purchases exceed this limit, you will be charged with a fee. So if you want to refrain from exceeding this, you may request to have your credit limit lowered.

Billing cycle payment due date

The date in which you are required to pay for your credit card Total Amount Due.

11. How does a Billing Cycle & Grace Period in Credit Cards work In the Philippines?

A lot of people have no idea on how their credit cards work.  Don’t worry, I got you covered! Have a look at the illustration below.

How do Credit Cards in the Philippines Work? Beginner's Guide

The billing cycle is the interval for which you are liable to pay the Total Amount Due. In the example above, it is from July 6 to Aug 5.

Using the illustration above, let’s say your payment due date is every 30th of the month (Aug 30). Your Billing Statement Date is every 5th of the next month (Aug 5).

Your bill generated on Aug 5 will show all transactions done in the last 30 days.

If you buy something on July 9, that will appear on the bill generated on Aug 5.

If you buy something on Aug 4, that transaction will still appear on the bill generated on Aug 5.

What is a Grace period?

A grace period is the number of days left where you have to pay your balance in full without paying any finance charge.

Refer to the illustration again. If the grace period is 25 days, in that case, you will enjoy no interest for the next 25 days from the recent billing date which is Aug 5.

Interest-free Credit

So based on our example, how many days can you actually enjoy interest-free credit?

The answer is 55 days! How’d we come up with that answer?

Your billing cycle is 30 days and grace period is 25 days. So if you purchase anything on the first day of your billing cycle, which in our example is July 6, it will appear on your bill of 5th Apr.  That’s 30 days gone. Plus, you still get 25 days to pay off your loan. Do the math and you get this :

30+25 days = 55 days of no interest on your credit.

However, if you purchase something near the end of your billing cycle, like Aug 4, then that will appear on the bill generated on Aug 5. You can still pay that off in the next 25 days, so in this case, you have 26 days of interest-free credit. Neat, huh?

**Note: This may differ from some billing statements. This is just a guide, so kindly check your own bill to know how to take advantage of the interest-free credit.

12. Total Amount Due versus Minimum Amount Due?

How do Credit Cards in the Philippines Work? Beginner’s Guide

Admittedly, I was one of those who got misled by paying just the Minimum Amount Due. Yes, it may look like a great deal and such a fair amount compared to the Total Amount Due. But after reading this portion of the post, consider yourself warned. Okay?

  • Total Amount Due – It is the TOTAL billing amount which you need to pay within the due date. If you pay this amount in full, you will no longer incur interest charges. In the example above, it is P8,068.51.

As I mentioned in the beginning of this post, it’s like borrowing money from the bank and returning it on time at no additional costs. Kumbaga nalugi pa nga ang bangko sa pagpapahiram ng pera sayo.

  • Minimum Amount Due- It is the amount which you have to pay to avoid the late payment charges and to keep your card active.

Remember this!  If you pay for only the MINIMUM AMOUNT DUE – which in the example above is P1,000 – you are going to get CHARGED for the remaining balance.

I know, I know. It’s so confusing, and yet, tempting to just pay P1,000 instead of the whole P8,068.51. But you see, this is what majority of new card holders dont know! This is where credit card issuers make a killing on card holders who just pay the minimum.

So if you really want to enjoy and take advantage of an interest-free credit, then better pay the whole TOTAL AMOUNT DUE on or before the payment due date.

13. Why is there a Minimum Amount Due?

Are the credit card companies tryna lure you with false pretensions so you get fooled into paying a lower amount to get charged?

Well, not really. In some instances, such as financial emergencies, you may not have enough funds to pay the whole bill. In such cases, the credit card company provides you an option to just pay a  minimum amount due just to keep your account active and running.

14. How does a Cash advance work in the Philippines?

Let’s say, you plan to ride a bus back home. Upon checking your wallet, you lack cash. What’s worse, you left all your debit cards at home. Banks are closed so there’s no way you can withdraw over the counter.

GCASH payment? Naah! Not all buses accept those yet.

You ransacked your bag and all you have is a handy dandy credit card.

But buses don’t accept credit card payments, right?

What are you to do? Well, would you know. Your credit card can be a lifesaver in cases like this.

You can make a CASH ADVANCE. Just go to the nearest ATM , select the Cash advance option, enter your code, then withdraw your cash. Voila! You already have cash right in the palm of your hand.

In other words, a cash advance grants credit cardholders a short-term cash loan. Similar to monthly credit card balance, cash advance must be returned.

However, since this is similar to “buying cash”, expect to be charged for this convenience.

15. What happens if I don’t pay my credit card in the Philippines?

If you don’t pay your whole dues on time, you are going to incur high compounding interest charges on the remaining balance. And this cycle can go on and on until you pay your dues in full.

But what if you NEVER pay your credit card bill? Here comes the nightmare. Once the credit card bill has not been paid, it will damage your credit score. Worst, you will be receiving demand letters. In case you still refuse to pay, they may pressure you in doing so through lawsuits and summons.

In the Philippines, there is no law citing that failure to pay your credit card debts will result to imprisonment. However, you should know that your assets and other properties may be liquidated to pay off your debt. This is also one reason why credit card companies require a client to open a savings account first and maintain a substantial amount in it before being issued a credit card.If you fail to pay off your bill, they have every right to deduct your credit card bill amount from your savings account.

16. Bonus Question:

“I never paid my credit card bill in my previous bank. That was a long time ago. Now, why can’t I get approved for a credit card in my current bank(s)?”

Here’s what banks won’t tell you.

Banks have an internal system called Negative File Information System (NFIS) which allows some employees to again access on a client’s adverse records. Basically, it includes names of clients who have had their credit cards closed due to mishandling or unpaid credit card debts, clients with closed checking accounts for not paying the overdraft fees, negative findings with previous loans , court cases, and many more.

This is a bank’s way of determining what kind of a payor you are. Most banks (if not all) have access to the NFIS. So if you fail to pay your credit card bills in BANK A over a certain period of time, BANK A may tag you as a client with negative findings. Once BANKS B, C and all the other banks you apply a credit card with, find your records, you may have any credit card and loan applications denied most of the time. But of course, for every rule, there is an exception.

Is it a Good Idea to Get a Credit Card in the Philippines?

Personally, I really do find credit cards beneficial. If you would sum up my entire post, it would show that the pros of having a credit card definitely outweigh the cons.

Also, being a responsible credit card holder boils down to knowing the ins and outs of handling one. I hope that this post has helped you gain clarity on how Credit Cards in the Philippines Work.

How do Credit Cards in the Philippines Work? Beginner’s Guide


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How do Credit Cards in the Philippines Work? Beginner’s Guide

By Ameena Rey-Franc

Recognized as one of the Top Finance Blogs in the PH. Ameena Rey-Franc (founder of TTP) is a former Banker and BS Accountancy graduate turned Blogger, Keynote Speaker, and entrepreneur. Currently an RFP delegate, she is also the Author of a book about Financial Resilience and has held seminars for reputable companies like GrabFoodPH, Pru Life UK, VISA, JPMorgan Chase& Co., Paypal, Fundline, Moneymax, and many more. The Thrifty Pinay's mission is to empower women to LEARN, EARN, and be FINANCIALLY-INDEPENDENT no matter what life stage they are in.