There are so many credit card myths floating around, it can be difficult to determine what information to pay attention to and what to ignore. While myths like “close your unused cards” or “always carry a balance,” may seem reasonable, such advice can actually hurt your finances. In this article, we’ll set the record straight and give you the tips to use your credit cards like a pro.
1. You must pay an annual fee to get a credit card.
One reason many people stay away from credit cards is because they’re worried about paying an annual fee. However, you can find many credit cards without annual fees. Several of them offer great perks even rivaling those of annual-fee cards.
- Here’s the truth: You don’t necessarily have to pay an annual fee for a credit card.
Pro tip: Negotiate your annual fee
Even if your credit card does have an annual fee, your credit card company might waive it if you ask. Call your provider when you see the charge on your monthly credit card statement and ask them to remove the fee.
Some providers want to make sure you’re happy and won’t switch to another card, so customer support could waive this fee if you ask or threaten to cancel. Not every company will do this, but it could be worth a shot.
2. It’s never a good idea to get a secured or store card.
Secured cards get a bad rap because they’re different from unsecured credit cards. And many people don’t hold store cards in high esteem, either.
But both card types can be especially useful for consumers who have trouble getting most other cards. Issuers of secured and store cards are generally more willing to take on customers with less-than-perfect credit.
Once you get a store or secured card, you can slowly build your credit by making payments on time. Once you’ve increased your credit score, apply for an unsecured card.
- Here’s the truth: A secured or store card can help you build your credit score — especially if you keep getting denied for unsecured cards.
3. Using a credit card is largely detrimental.
Building strong credit is one of the most beneficial financial moves you can do for yourself. Credit plays an important role in many of the big decisions you’ll need to make in life, such as choosing a mortgage or car loan.
Plus, the best credit cards out there can score you big rewards just for using them. What’s more, credit cards are one of the safest ways to pay for things – even more so than cash. No wonder there are nearly 480 million credit card accounts in the US.
- Here’s the truth: Properly using a credit card can prove far more helpful than paying in debit or cash.
4. I got a credit card when I was 17, so my teen can too.
That’s not entirely inaccurate, but it’s not the whole truth. By current credit card laws, the minimum age to get a credit card without help is 18. Even then, those under 21 must prove their ability to pay their card bill independently.
It’s still possible for underage teens to get a credit card, but only if someone adds them as an authorized user to a card.
- Here’s the truth: If your teen is under 18, they can’t get a credit card on their own.
5. Forget about American Express — you can’t use it anywhere.
Back in the day, you might have seen plenty of signs that read, “Sorry, we don’t accept American Express.” There’s a long story for why that was the case, but it essentially boils down to American Express charging retailers high fees.
Though it’s true that fewer retailers accept American Express than Visa or Mastercard — the most widely accepted networks in the world — American Express has been gaining ground.
- Here’s the truth: Nowadays, if a US retailer accepts Visa or Mastercard, there’s a good chance it’ll accept American Express as well.
Pro tip: Amex acceptance worldwide
Amex still lags behind competitors in worldwide acceptance. If you’ll take your Amex card abroad, have a Visa travel card or Mastercard credit card as a backup.
6. You should carry a balance on your card and only pay the minimum.
This is one of the most pervasive credit card myths, and it’s dangerous. Many people give this advice claiming it’ll help your credit. In reality, carrying a balance doesn’t help your credit score. Not paying your balance in full actually lowers your score because it increases your credit utilization ratio.
One argument for keeping a balance on your card is to show lenders you’re using your credit. You should certainly keep your credit card active, but that doesn’t mean you have to maintain a balance. Use your credit card at least every one to three months.
- Here’s the truth: It’s best to pay off your credit card in full every month.
Here’s another reason you shouldn’t carry a balance on your credit card
If you keep a balance on your credit card, it’s usually a bad idea to make only the minimum payment each month. This puts you in danger of ballooning interest payments.
Overall, it’s best to keep your balances low relative to your total credit. Most experts recommend you keep your credit utilization ratio under 30%. And if you can pay your balance in full each month, even better.
7. Never use your credit card online.
You may think using your credit card online isn’t safe because your information could be stolen. The truth is, you can safely shop online with a card as long as you follow a few precautions.
In fact, it’s better to use your credit card than your debit card for online shopping. If there are fraudulent purchases on your credit card, easily reverse them by contacting your card issuer. It’s more difficult to do so with a debit card.
- Here’s the truth: When used judiciously, a credit card can be an excellent way to make payments online.
Tips to shop online safely
- When you shop online, look at your browser’s address bar and check for the “https://” at the beginning of the web address. This means the website encrypts your information — an important feature when you’re sending financial data.
- Shop only on your personal computer on a private Internet connection. You have no idea who might access your information on a public computer, and hackers can intercept your data on a public Wi-Fi connection.
- If you have a Visa card, its free program, Verified By Visa (VBV), adds another layer of protection when you shop online. It uses passwords to prove your identity every time you use your card online.
8. Don’t sign the back of your credit card.
Ask some people the question, “Should I sign the back of my credit card?” and they’ll tell you no. Instead, they’ll advise you to write “See ID” in the place where your signature should be.
The idea is if a thief steals your card and uses it at a cash register, the merchant will ask for their ID. Seeing that the thief doesn’t have a matching ID, the merchant will refuse to process the transaction.
That sounds great in theory, but oftentimes merchants don’t look at the backs of cards. Furthermore, low-dollar transactions may not require a signature at all.
- Here’s the truth: Writing “See ID” on a credit card is a poor idea. You should sign your card.
Why sign the back of your card?
Signing the back of your card keeps a thief from signing their own name in a blank signature box. And technically, your signature is what seals your contract with your credit card company, giving you the right to use the card and qualifying you for special consumer protections.
9. Build a perfect credit score very quickly.
Yes, there’s a link between credit cards and credit scores. Keep debt low on your card and make on-time payments consistently, and you’ll likely see your credit score steadily go up. But improving your credit takes time — usually a long time.
You might hear stories from people who get a great credit score in as little as a month. But their experience isn’t necessarily going to be yours, and there’s no hack or quick fix.
The perfect credit score is 850, and it’s not easy to achieve. You must have been working with credit for many years through credit cards, loans and other forms of credit, have no late payments and carry a very low balance on your cards.
- Here’s the truth: It takes a very long time to build a perfect credit score. Getting a credit card is just the beginning.
10. Maxing out your credit card is no big deal.
While you won’t necessarily see a financial penalty for maxing out your credit card, doing so can ultimately harm your credit score. That’s because your credit score is affected by a figure called your credit utilization. This number tells credit bureaus how much of your available credit you’re using each month.
Scoring a high percentage can make it look like you’re in financial straits, reckless with your money or otherwise a lending risk. As a result, your credit score will take a hit.
- Here’s the truth: You should use no more than 30% of your available credit each month.
11. You’ll always have the same APR from when you signed up for your card.
You may be excited to see your initial APR when you get your card. But be careful: It might not last forever.
Many people forget about the introductory APR, which is a special interest rate you get when you sign up for a card. If a card offers “0% APR on purchases for 12 months,” you won’t pay interest for a year. But if you still carry a balance after that time, you’ll start paying interest.
Beyond intro APRs, card issuers have other ways to change your interest rate. Here are the ways they can do so:
- You’re late on your payments. If you’re delinquent on your bill, your issuer may assess a penalty APR — typically around 30%. This interest rate could apply to your existing and new balances.
- Your APR is pegged to the prime rate. Your issuer will probably give you a variable interest rate that changes based on the prime rate. This is the interest rate banks give to their largest, most creditworthy clients. Unfortunately, this is pretty much out of your hands.
- The issuer deems you a higher-risk member. From time to time, your issuer assesses your risk profile. If it sees red flags — such as a big drop in your credit score — it may raise your APR. Before it does, however, it must notify you at least 45 days in advance.
- You’ve been a cardholder for at least 12 months and your issuer wants to raise your rates. As long as your issuer gives you at least 45 days’ notice, it can change your APR.
The Credit CARD Act of 2009 introduced many changes that protected consumers in the credit card industry. One of them is the requirement of a 45-day advance notice for most APR changes.
- Here’s the truth: Your credit card interest rate can change. If applicable, check when your intro APR expires. And keep an eye out for communications from your provider.
12. You can exceed your credit limit as long as you pay your balance before your due date.
Though your card issuer may not decline a purchase that puts you above your credit limit, that doesn’t mean you should make it.
Earlier, we talked about how your issuer can assess a penalty APR if you pay late. It can do the same thing if you exceed your credit limit. Furthermore, it may assess an overlimit fee, which will typically set you back $25 to $40.
Lastly, going over your credit limit could negatively impact your credit score, which you always want to protect when possible.
- Here’s the truth: It’s never a good idea to exceed your credit limit.
13. You can’t negotiate your credit card terms.
This isn’t true — you absolutely can. You might be surprised to hear that cardholders sometimes find success getting their interest rates lowered. Or having their annual fees or other fees waived once in a while.
Some cardholders score other perks from their issuers, such as bonus rewards.
Your issuer wants to keep your business for as long as it can, so it wants you to be happy. If you feel you need a few tweaks to your card terms, don’t hesitate to ask your issuer. At worst, you’ll get a no — but a yes can mean a boost to your bottom line.
- Here’s the truth: You’re always welcome to negotiate terms with your issuer, who may be happy to offer incentives to convince you to stay.
14. If you miss a payment, your credit score will automatically take a hit.
This is a very common myth, but luckily you get some leniency here.
The truth is, credit card issuers aren’t allowed to report late payments to the credit bureaus until at least 30 days after you’ve missed your due date. Some issuers don’t report late payments to the bureaus until 60 days after your due date.
So, all hope isn’t lost if you’re late — but get your payment in as soon as you can. Your issuer will likely assess a late fee, but this could be a small price to pay compared to the potentially major effects of a negative credit-report entry.
- Here’s the truth: Your score doesn’t automatically take a hit for a late payment. Issuers can’t report late payments until at least 30 days after your due date.
15. Close credit cards if you’re not using them.
This is very reasonable-sounding advice, but it’s not always accurate.
When you close a credit card, you no longer have access to its credit line. This means your total credit among all your cards goes down.
Here’s the downside: If you’re currently carrying credit card debt, a reduction in your total credit means your credit utilization will increase. This has a negative effect on your credit score — and potentially a big one, as credit utilization makes up 30% of your FICO score.
If your credit card is one of your oldest credit accounts, canceling can also lower your score. Length of credit history makes up 15% of your FICO score.
- Here’s the truth: You don’t necessarily have to close unused credit cards. It may be worth keeping them to keep your credit utilization low and help with your average age of accounts — especially if the cards have no annual fees.
16. Don’t close any of your credit cards.
While closing credit cards can affect your credit score, this doesn’t mean you should never do it. It might make sense, for example, if you’re paying a high annual fee on your credit card.
Keep in mind that canceling your card may shorten your account history and increase your credit utilization, both of which can negatively affect your credit score. However, this might not be a major problem if you won’t be applying for credit for a long time.
- Here’s the truth: It’s fine to close credit cards as long as you do so strategically. Consider the annual fees you’re paying, as well as potential effects on your credit utilization and average age of accounts if you were to cancel certain cards.
17. Carrying more than one credit card negatively impacts your credit.
Carrying multiple cards doesn’t directly decrease your credit. Rather, it might indirectly affect credit factors, which is where this myth might have come from.
For example, applying for multiple cards means issuers will initiate hard credit inquiries on your report — each of which will ding your score. New credit cards may affect your average age of accounts.
What’s more, having multiple cards may make it more difficult to keep track of your payments, which could cause you to miss due dates.
- Here’s the truth: Having multiple cards isn’t the exact factor that affects your credit. Rather, you want to watch out for the indirect effects, such as hard inquiries, impact on average age of accounts and whether you’ll be able to keep up with payments.
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Before following any credit advice, do your own additional research.
Try to stay within your credit limit and watch out for fees, card theft, APR changes and other slowdowns on your way to excellent credit. You don’t want to pay for a costly credit mistake for years after following questionable advice.
Now that you’ve left the credit card myths behind, take a look at some of the best credit cards on the market.