EASY credit has long been a fact of life for many Singaporeans. But now the floodgates are being opened to vast numbers of people who would normally never manage to get their hands on plastic.
Eighteen-year-old youth and those with no or low income can now apply for a ground-breaking card that does away with the standard $30,000 minimum annual income requirement.
Regulatory changes have allowed Citibank to launch the card, which offers a maximum credit of $500, a fraction of the typical limit of two months' pay.
Applicants under 21 need the consent of their parents, but the bank will not require parental income information. However, the bank is playing it safe: If the minimum monthly payment is not made, the card will be blocked.
The Citibank move - which could admit more than 900,000 people to the ranks of new credit card users - has sparked debate over whether Singaporeans, particularly teenagers, can be trained to use credit responsibly.
It is a pressing issue as more of such products are in the pipeline, with OCBC Bank and United Overseas Bank saying they will introduce similar cards soon.
Some people are concerned about the danger of raising a generation of young adults who chalk up debts even before they leave school.
So what are the legal issues facing those under 21 and what surprises could arise if you or your teenager miss a credit card payment?
- Photo illustration/ PETER WILLIAMS & WANG HUI FEN
'Every time I whip out my £1,500 credit-limit card, phrases like 'annual interest rate' and 'interest charged from date of purchase' swirl in my head. And I end up reaching for my debit card instead.'
- MS TAY, 20, who was given a pre-approved card by Lloyds in London - Her story here.
Common questions
Q What are the legal issues for teenagers who sign up for cards with a low credit limit?
A With Citibank's Clear card, applicants under 21 need parental consent and their parents will be responsible in the event of a payment default. This means that parents give their personal guarantee for their child's card debts. This ensures that they are aware of the risks and allows them to monitor their child's expenses.
If the cardholder defaults, the usual procedure to recover the debt kicks in, regardless of the cardholder's age. This includes counselling and the structuring of payment plans, with legal action as the last resort.
Q In a default, does the bad payment go into the credit bureau's records?
A All credit card payment behaviour - good and bad - is captured at the credit bureau, regardless of age. The credit history of an individual is kept on record for six years.
A positive record can work in favour of a person if he applies for credit facilities, allowing him to fare better than a person who does not have any credit payment records, says Ms Wong Ting Mei, OCBC's head of credit cards.
On the flip side, Mr Kuo How Nam, the president of Credit Counselling Singapore, cautions that a bad record, which is accessible to all potential lenders, will return to haunt defaulters in the future when they apply for a car, renovation or home loan.
Q Why let a child get a credit card as opposed to a supplementary card?
A The banks believe that, for young adults, owning a credit card with a low credit limit is a great step towards learning cash-flow management and financial discipline.
In the case of the Citi Clear card, this is because it will be blocked immediately if the customer defaults on payment, says Ms Alice Fok, Citibank Singapore's marketing director of credit cards. 'It will help them build up their credit history early, on a manageable credit limit of $500.'
However, Mr Kuo believes it is not necessary for young adults to take up such credit cards as they can make do with a debit or supplementary card.
While Citibank does not allow a separate credit limit for supplementary cardholders, other banks like OCBC are prepared to do so.
'I think credit cards are great inventions if used wisely. To some extent, they give young cardholders some experience in handling finances, but there will always be people who are careless and impulsive,' Mr Kuo says.
Given the high interest charge associated with the Clear card, he cautions that, unless cardholders are very careful, they are going to find out the hard way how costly it is to miss payments.
Q What are the differences between credit and debit cards?
A A debit card is linked to a specific current/savings account and so is limited to the amount of cash available.
Unlike debit cards, the new credit card offered by Citibank has a credit facility of $500 and can function as a convenient payment tool. One advantage is the 55-day interest-free credit period, provided the user pays in full by the due date.
