Saturday, October 18, 2008

Credit Card Myths

OK, so maybe you don't believe the story about your friend's uncle's co-worker who got a Kentucky Fried Rat in his bucket of chicken. Or the tall tale about the baby alligators that got flushed down toilets across New York City years ago only to now roam fully grown in the city's sewers. But are you as sensible when it comes to credit cards? There are a number of myths floating around about credit cards and their use. Let's separate credit card fact from credit card fiction.

One of the leading stories is that credit cards are only available to those with great credit. This is entirely false. While there are credit cards that are only accessible to those who have a solid credit history, there are plenty of credit cards for those individuals who have either average credit, bad credit, or no credit history. If you happen to be one of these people, offers a number of options for you. Additionally, you may want to consider a prepaid debit card, which can be used anywhere that accepts credit cards. In fact, getting a credit card and then building a good relationship with your lender by consistently paying off your balance each month can actually help you to improve your credit score.

Another commonly held belief is that Visa credit cards have the best merchant acceptance of any credit card. This is also not true. MasterCard and Visa credit cards are on fairly equal ground when it comes to U.S. merchant acceptance. Discover credit cards have a formidable worldwide merchant network (although not quite as many domestically as Visa), while American Express credit cards are typically accepted more often in Europe and Asia.

Some people worry that should a criminal get hold of their credit card and begin to ring up charges, the cardholder will still be responsible for paying for the merchandise or services. The truth is that most credit card companies only make the cardholder pay for the first $50 charged in such a case. And, many credit card companies have a zero liability policy if you report the theft immediately, meaning you don't have to pay anything for unauthorized purchases made with your card if you are quick to notify the lender.

A separate but also commonly held belief is that getting a higher credit limit is always a good thing. You can call and ask your lender for a higher limit, and, in certain cases, a bank will raise your credit limit without even asking. However, potential lenders may look at having unused credit as a bad thing, because with a higher credit limit comes the possibility that you could end up deeper into debt. And, if you do get a higher credit limit, you will still want to be careful not to run a balance from month to month that is over 50% of your available limit. The ideal balance range is between 25% and 50%. Anything above that level could suggest you are a risk for repayment.

The old wives' tale that you should carry one of each of the four major card types can also be put to rest. With Visa, MasterCard, Discover, and American Express credit cards each having nearly global acceptance by merchants (see myth #2), if you hold one of these credit cards it should be possible to use your plastic almost anywhere you go.

Other so-called "experts" (even if they mean well) may try to tell you that you can close your credit card account by simply cutting up your credit card. But if you want to close your credit card account, reach for your phone, not your scissors. Look for your lender's phone number on the back of your credit card or on your credit card statement and give the credit card company a ring. Then speak with a customer service representative who can help you close the account in question.

A related myth states that closing a credit card account will remove it from your credit report. Sorry to tell you, but this is not the case. The credit reporting industry has a way of remembering your old credit card accounts, even if you do your best to forget them. Previously closed accounts will still be listed on your credit report, denoted as closed by the customer, but shouldn't be of concern.

While rumors and myths have a way of spreading, you can help put a stop to some of these commonly-help inaccuracies about credit cards. Be sure to share your newfound knowledge with the next person you encounter who is convinced one of these credit card myths is the real deal.

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