While credit cards are common financial tools for many people, there are still a number of urban legends about their nature and use. Credit card myths are sometimes so ingrained in the public conscience that it is hard to dislodge them. Fortunately, consumer protection groups and even some credit card providers are working hard to help everyone understand the nature and function of the cards and thus minimize the impact of credit card myths.
Perhaps the most common of all credit card myths is that an individual must have good credit in order to obtain a card. While it is true that good credit makes it possible to command a better rate of interest, there are a number of companies that offer high-risk credit card services. This is true of many of the credit cards that are promoted as being helpful in re-establishing good credit after some type of financial disaster. Often, the initial line of credit is lower. In some cases, the credit cards are secured with a deposit into a savings account. The balance in the savings account acts as collateral that the card issuer can seize in the event that the holder of the card fails to pay off the credit card balance in a timely manner.
Another of the most common credit card myths is that higher limits are always a good thing. The fact is that many credit card companies will increase limits in order to entice users to max out the cards. This can quickly lead to a situation where the individual carries a level of potential debt that is out of balance with the amount of income and assets in hand. When this is the case, the debt to credit ratio rating for the individual may inhibit the ability to secure a mortgage or a car loan.
A third of the more common credit card myths is that closing accounts will hurt your credit rating. The fact is that even if you pay off and close a credit card account, it will still remain on your credit report for a number of years. Most credit reporting agencies will note that the account was closed by the end user, which actually may be construed to be favorable.
Many people assume that credit card companies post payments immediately upon receipt. This is among the credit card myths that can lead to a lot of problems for consumers. While there are credit card companies that immediately post payments upon receipt, it is not unusual for there to be two to four business days between receipt and posting. If the posting date occurs after the due date for the current payment, the APR may be changed to a higher rate of interest on future purchases and use of the card. The result is that the consumer ends up paying more for the privilege of using the card.
One of the most effective ways to find the truth behind various credit card myths is to talk with your banker or a financial counselor. This can help you get a handle on exactly how your particular credit card program works, what your responsibilities are, and how to manage the use of the card to best effect.