Credit card myths

By Jeremy M. Simon

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 fale. While there are credit cards accessible only to people wiithh solid credit histories, 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, you may want to consider a prepaid debit card, which can be used anywhere that accepts credit cards. Consistently paying off your balance each month will help you to improve your credit score.

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 swiftly, 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 more than 50 percent of your available limit. The ideal balance range is between 25 percent and 50 percent. Anything above that level could suggest you are a risk for repayment.

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. 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. 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.

Published: June 5, 2006

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