Credit Card Myths You Shouldn’t Believe, Part II

Stymied by credit card myths? You might be, if you don’t keep your eyes wide open.

Credit cards are a basic part of modern financial life, and so are the credit card myths they inspire. In Part I of this article, I imparted some preliminary warnings about these myths (which can cost you money and hurt your credit if you’re not careful), and debunked two. Let’s look at four more dangerous misconceptions.

Myth #3: Having a credit card will help my credit score.

It’s not as cut-and-dried as that. Since credit cards operate on the borrow-and-payback system typical of most credit, they can help your credit score, as long as you always pay your bills on time. If the issuer reports even one late payment, your score will take a hit.

Oh, and if you have good fiscal discipline and don’t use your credit cards much? Your spending habits don’t get reported to the credit bureaus, so having the card won’t benefit you. You actually have to spend with it. As for debit cards, that money comes straight out of your bank — so no benefit there, either.

Myth #4: If I pay the minimum payment, I’m cool.

Sure you are. The issuers carefully calculate your minimum payment to make their payout last as long as possible, so they can charge you extra fees and interest. Even small balances can take forever to retire if you pay the minimum. Adding even a few extra bucks monthly can cut years off the schedule.

Myth #5: My card has no spending limit! Vegas, baby!

Seriously? Sorry; even the black AmEx card (once another credit card myth until demand forced American Express to issue them) has a spending limit. The issuer just doesn’t have to disclose it…and it may be a floating limit based on their discretion. Welcome to the world of Non-Preset Spending Limits.

By not telling you what your limit is, even if they don’t come right out and claim there’s no spending limit, the issuer draws you in with the idea their card is more exclusive and therefore better than the next. But that only lasts until you suddenly, embarrassingly, get declined on a purchase.

And there goes your credit score.

Myth #6: Stores can set minimum credit card limits if they want.

Technically, no. It’s illegal. But because no one enforces the rule, it happens everywhere, especially for purchases of $5 or less. Some merchants don’t even know they’re not supposed to do it; and if they did, they wouldn’t care. They don’t want to be stuck with the 2%+ surcharge on small purchases.

Don’t bother to complain. Instead of trying to explain to the cashier that this is just one of those cheesy credit card myths, pay in cash or take your business elsewhere.