That shiny piece of plastic burning a rectangle-shaped hole in your wallet is one of life's trickiest necessities.
On the one hand, you can't make it much farther than 25 without some line of credit to show for yourself.
On the other, credit cards are often intimidating: whole episodes of Oprah are dedicated to really good people with decades' worth of credit card debt they didn’t mean to accrue. You're a good person. Does that mean you are going to accrue a Kilimanjaro-sized mountain of debt as well?
The problem: credit cards and the companies that supply them are notoriously evasive when it comes to laying out their terms and conditions after they reel you in with catchy commercials. Here are 5 big credit card myths that, year after year, keep confusing consumers.
5 Most Confounding Credit Card Rumors
- Smart debit card spending will help boost your credit score. If it swipes like a credit card and buys like a credit card, it's basically a credit card… right? Debit card users who are smart spenders (meaning they never overdraw their accounts) sometimes assume that this will positively reflect on their credit score.
- Leaving a monthly balance will improve your credit score faster. Let your credit card issuer make some money off your account every so often by not paying the bill in full. In return, you'll be rewarded with good credit faster than if you had paid in full every month.
- Spending over your limit is okay as long as you pay it all back on time. Those once-in-a-lifetime, big ticket items are worth going over your credit limit every once in a while. And since you're a great customer who always pays back on time and in full it doesn't matter.
- No-limit credit cards mean you can spend, spend, spend! No limits, no problems. Without a limit, Louis Vuitton, Lamborghini and a Learjet can be yours with just one swipe.
- Identity theft is impossible if you have "See ID" instead of a signature on the back of your credit card. Any schmuck can forge a signature. But could he or she forge your face? Didn't think so.
Nope: Never overdrawing your checking account is a savvy shopper's mantra, and indicates that you are a responsible spender. But it won't affect your credit score, and neither will accidentally overdrawing. Two separate cards, two separate functions.
Nope: Leaving monthly balances simply equals more interest income for credit card companies. The truth is the speed at which you establish credit has absolutely nothing to do with whether you carry a monthly balance or not. Pay those credit card bills on time and in full—always!
Nope: Even if you're lucky and your credit score doesn't immediately take a hit, every time you exceed your limit (even by a couple of dollars) you'll be charged with an annoying over-limit fee. $30 or $40 might not seem like a lot, but it's the same thing as taking a couple of Jacksons and lighting them on fire.
In addition, occasional over-spending gives your credit card issuer a reason to bump up your interest rate, which can go as high as 30% or more. And that hurts.
Nope: Credit cards famous for catchphrases claiming "no present spending limits" (we're looking at you AmEx) do actually have spending limits that are based on your income, credit history, and spending habits. A good customer with a no-limits credit card who only spends $4,000 a month won't necessarily be able to go out and buy an island one day without some serious conversations with their credit card rep.
Likewise, those big spenders who carry around mysterious and exclusive black cards also have credit limits. It just seems limitless: those cards require minimum yearly charges of around $250,000 to be paid on time in full, and the limit is so astronomical it would be hard to try to outspend it.
Nope: Good try – crooks with your credit card would have a tough time without the proper ID. The problem : "see ID" isn't actually a valid signature, and thus your card could be considered invalid at a retail store.
Beyond that, how many clerks actually look at the signature anymore?
Beyond that, if you card is stolen and used, writing "see ID" has no legal bearing and you might still be liable for charges up to $50. You're better off signing that puppy and just keeping really good track of it.
The first step to achieving and maintaining good credit: knowing what's fact and what's fiction in the credit card industry. Arm yourself with this credit knowledge – and then start spending.