Credit Cards in Jamaica

Intro

What Is The Credit Card Market like in Jamaica?

Although many may think using a credit card is easy, I don’t take it for granted that everyone knows the benefits and pitfalls of having one. I have been using credit cards for years and wanted to provide some advice on using one if you already do or plan to in the future and just do a quick look at the use of credit cards in Jamaica.

First let’s start with the data. This information is from the World Bank’s Global Findex Database  and the latest data set available for Jamaica is for the year 2014, so that year was used for comparison across a few key countries. In the dataset, Jamaica and Mexico are considered ‘Upper Middle Income’ countries, while the United States, Canada and the United Kingdom are considered ‘High Income’ countries and Haiti is considered a ‘Low Income’ country.

Not surprisingly, the data shows that Jamaica’s credit card data usage is low compared to the High-Income countries, but higher than Haiti. Only 14% of Jamaicans owned a credit card compared to 60% in the neighbouring United States. Only 10% of Jamaican adults indicated that they had used their Credit Card in the last year.

 Source: World Bank- Global Findex Database -https://globalfindex.worldbank.org/

 Males are more than twice as likely to have a credit card than a female in both Jamaica and Haiti, whereas in the other countries the rates of ownership are closer, as seen in the graph below:

 Source: World Bank- Global Findex Database -https://globalfindex.worldbank.org/

There’s no doubt that the number of credit card users has increased since 2014 though, especially if we examine the increase in the credit card volumes at Point of Sale Machines according to the Bank of Jamaica. Since 2014, there has been a 33% increase in the volume of credit card transactions from 17.4 Million in 2014 to an estimated 23.1 Million in 2019. 

  Source: Bank of Jamaica – http://www.boj.org.jm/statistics/econdata/stats_list.php?type=15

Credit Card Interest Rates

The average credit card interest rate over the last six (6) quarters is about 40.37%. What many may not realise is that the interest rate that is quoted is actually a nominal rate that is convertible daily. Unless you are really into the theory of interest that may mean nothing to you, but in layman’s terms that means that interest is charged per day. If you were to convert that to an effective annual interest rate it would translate to 49.7% per annum. The effective annual rate is a more accurate in determine what your interest charges are because it takes the period (daily, monthly etc.) into account, whereas the nominal rate does not.

  Source: Bank of Jamaica – Quarterly Credit Conditions Surveys http://www.boj.org.jm/publications/publications_show.php?publication_id=20

In examining the rates and benefits across the different financial institutions, the lowest rate in Jamaican dollar denominated cards is from JN Bank at 34% and in $US denominated cards Scotia has the lowest rate at 18% (which is subject to meeting certain requirements). The cards with lower fees in general will have less benefits. Some cards have no annual fee, like the Scotia Visa Classic (that only charges a fee of $2,500 if your purchases are less than $30,000 monthly) and the CIBC Visa Cashback. The largest annual fees are seen in $US denominated cards, but for the Jamaican denominated cards the highest fee is $15,728 from CIBC First Caribbean.  The benefits vary but in general include reward points, cash back and airline miles. The information in the table below is for Jamaican denominated cards as at Dec 31, 2019 and were sourced from either the bank’s websites or telephone calls to them. Please confirm any rates and benefits below with the financial institution.

To access a credit card, the requirements are similar across the Jamaican financial institutions: Proof of income, ID, credit report etc.

Using a credit card responsibly

My advice to maximize the use of a credit card without putting yourself in uneccessary debt is as folllows:

1. Pay in full: The first step in using a credit card responsibly is to pay the full amount of your balance by the due date. I know this is easier said than done, but the key is to avoid spending what you do not have. Using a credit card to the max and then only making the minimum payment may be tempting, but avoid running up unnecessary debt as doing so will save you heartache (and financial pain) in the long run. If you can only make the minimum payment ensure you do so on time to avid late charges.

2. Build credit history: A credit card is actually a great tool to build your credit, especially if you aim to purchase something much larger like a house in the future. A low-limit credit card is a good thing for young adults to start building their credit history and show that they are committed to making repayments on time. This will only work if you make the payments by the agreed date! Recall my article on credit reports in Jamaica. Their use is growing in a more meaningful way every day.

3. Pay Less Interest: Each time you do not make the full payment, your credit card company charges you interest. Interest is charged as at the date you conduct the transaction and at rates of 40+% those interest charges can add up! One thing many people don’t realise before getting a credit card is that if you do not pay a portion of your outstanding balance (if it is even 1 cent short) then you pay interest on the ENTIRE balance. E.g. if your credit card statement says you owe $100,000 and you pay $99,999 by the due date, then the interest you are charged is on the full $100,000. You want to pay as little interest as possible by a) paying in full, b) not spending what you cannot pay back.

4. If you do have credit card debt: Pay down the highest interest rates first OR consider debt consolidation if it has reached an unmanageable level. An unsecured loan at a rate of 20% would mean you are paying less than half the interest that you would be paying on your credit card.

5. Avoid cash advances, ATM withdrawals and those cheques that come with your credit card: because the interest rate for using those features are higher. There is always an option with lower interest rates than a credit card. I understand their may be emergencies, but do not give away your hard earned money to unnecessary fees and charges.

6. Check your credit reports annually to ensure your repayments are being recorded correctly. I wrote an article on this here https://financialcentsibility.com/credit-reports-in-jamaica/

7. Monitor your spending. Check your credit card statements each month if you can, to ensure you are not being charged erroneously. If your bank has credit card transaction notifications sign up for it! I have been able to thwart scammers by calling to cancel my card as soon as I saw transactions from Russia coming through in my email and text notifications. In my article on budgeting, I discuss my daily expense tracker that I use to monitor my credit card transactions and compare to my credit card statement. https://financialcentsibility.com/how-to-budget-in-2020-templates-included/

8. Get Rewards. If you use your card responsibly and pay in full every month, and you have a card that provides rewards like cash back and airline miles then the benefit of those cards can sometimes be larger than the annual fee that the credit card company charges! So it works out as a net benefit to you, but you must use the card responsibly!

All the best for 2020 and good luck in achieving your personal finance goals!