Feb02
The Three Most Common Myths about Credit Cards
There are some credit card myths that, regardless of how many times they are debunked, still manage to enter the minds of many credit card customers.
The best line of defense when managing our credit card accounts is to become informed and educated consumers. In other words, don’t let misunderstanding and ignorance ruin your credit and cost you big in terms of higher interest rates and declined loans.
Here are the three most common myths about credit cards:
Myth 1: As long as I pay my card’s minimum balance my credit will be great – Many consumers think that as long as they continue to pay their minimum balance on their credit card that they will enjoy a great credit score. This may have been true just a couple years ago, but many consumers have learned the hard way that it just isn’t a good payment history that determines your FICO score. Another factor that contributes greatly to your FICO score is your debt-to-income ratio. And if you have many cards that are either maxed or close to being maxed then your debt-to-income ratio becomes skewed, thereby making you a larger credit risk and lowering your FICO score.
Myth 2: The best way to get the lowest interest rate is to transfer my balances every time I get a balance transfer offer – Many of us have played the balance transfer game over the last few years. You know the drill: you accept a balance transfer offer with a low interest rate and transfer all of your higher interest rate balances to that card. Then, once the introductory period has ended and your interest rate has increased, you find another card to do the same thing. Doing this in today’s market may not be such a good idea, though, as your FICO score is directly related to how many credit card accounts you open during a given time and how many credit card accounts you have open during any given time period. In addition, if you close an account every time you open a new one, you don’t have the opportunity to log a payment history, which therefore also negatively affects your credit score.
Myth 3: The new credit card legislation will protect me from all sneaky credit card practices – Sure, the new credit card legislation has eliminated some of the sneaky practices commonly used by credit card companies in the past. However, don’t expect the legislation to protect you from every underhanded practice. The bottom line is that there are still creditors out there who will find a way to make money; and it is up to you remain aware of any changes to your credit card account.
