There have been quite a few “legends” that loom loud and large concerning credit card use, and the companies that issue these as well as the practices in place that govern such use. Some of the reasons for confusion or lack of consumer knowledge is the subject can be overwhelming. Plus card companies can be very close-minded when giving out information and can be fairly arrogant about proclaiming themselves as experts and therefore can do no wrong. This leads to a lot of misunderstanding and beliefs held that aren`t true. Here are 21 “facts” you should be knowledgeable about when dealing with credit cards.
No. 1 – An account does not affect credit scores until it is activated.
Although consumers change minds, unfortunately as soon as a prospective card issuer pulls a consumer credit report it becomes part of the permanent record. This results in a ding to your report of about five points.
No. 2 – Unsolicited credit card offers can be stopped by sending them back.
Once on a list, it is almost impossible to be removed. You can be removed from future lists sold to marketers by calling 1-888-5-OPT-OUT or going to OptOutPrescreen.com. You will have to provide your SS# and additional ID.
No. 3 – Identification is necessary for credit card transactions.
Agreements with all major credit card companies specifically prohibit asking for identification, Merchants do so based on their own requirements. However, when complying, it is the consumer risking identity theft and its consequences, not the merchant or card issuer.
No. 4 – Consumers in attempts to avoid identity theft, can write “Ask for ID” on the back of a card.
Check with No.3, but know that merchants are not supposed to accept a card not signed.
No. 5 – There are no buying restrictions with “No-Limit” cards.
Almost every card has some kind of limit. The supposed “No-Limit” card is actually based on the consumer`s spending patterns and income.
No. 6 – Paying off the balance each month on time has no effect on credit scores.
Although paying the balance in full is a great benefit for your bank account, paying on time helps improve or maintain a good credit standing. However, credit scores will be affected by the amount of available credit being used.
No. 7 – Having a high-limit card is not good for a credit score.
This is false. In the event a consumer learns that their credit scores cannot be higher due to having far too much available credit, this translated to the fact that score is a really good one. Do not fret if an issuer rewards you with higher limits.
No. 8 – Card companies cannot arbitrarily change rates.
Companies can no longer, as if July 2010, change rates on existing balances but can place new rates on future purchases. Rates may change despite paying on time.
No. 9 – Reward cards are all the same.
Shopping around will lead consumers to find there are great differences among all the reward cards available. The best reward cards are “cash-back” having no annual fees and an expected rebate of at least 1 percent.
No. 10 – Middle-class families always have been dependent upon credit cards.
This notion is false since widespread usage goes back only about 25 years. Plastic was not used by the nation`s grandparents – or parents for that fact – making everyday sustenance purchases or buying a candy bar at the corner store.
No. 11 – Banks make their money off finance and various fee-produced revenues.
The truth is that more than half the credit card accounts open today do not generate revenue through penalty and finance fees. Issuers do receive a fee each time a card is swiped but an industry guarded secret is that one-half of cardholders pay about two-thirds of the finance and penalty-driven revenue.
No. 12 – Due to the high competition, the credit card industry needs no government regulation.
Not true – at least the part about competition. The top three card issuing companies, Chase, Citibank and Bank of America, are in control of 60 percent of the users. In fact, choices have actually dwindled in the past 20 years.
No. 13 – The CARD Act is all-inclusive credit card consumer protection legislation.
This law has addressed some of the worst abuses such as changing the monthly payment cycle from 14 to 21 days. It also compels the issuer to provide a 45-day notice, instead of 15, before raising interest rates.
No. 14 – Consumer reports illustrate ‘unfair and deceptive’ practices by card issuers.
A report issued by a money blog has stated that the 12 largest banks in the U.S. demonstrate “unfair and deceptive” practices as outlined by the credit laws that went into effect February 2010.
No. 15 – Companies do not tell consumers up front what their interest rate of terms will be.
Granted, companies use the “lowest” rates when marketing services. However, this is always disclosed as available to consumers with good credit rating. Consumers with good credit ratings will not be surprised receiving inflated rates covering other irresponsible credit card users.
No. 16 – The credit reporting system reveals only “half-truths”.
The reporting system in the U.S. is seriously flawed. This is especially true since the system does not provide easy methods for consumers to fix reporting mistakes. Some issuers do nit report on-time payments while others do not report a consumer`s credit limit.
No. 17 – Card companies will raise rates when consumers pay late even once.
Not true. Late payments happen to almost everyone, getting delayed in the mail or online payment systems not working or address changes not going through correctly. Issuers look for a consistent pattern and although late fees typically are charged, interest rates do not go up for this reason.
No. 18 – Companies do charge outrageously high late charges, over-limit penalties and balance transfer fees.
Through the mid-1990s, the normal late charge usually did not exceed $10. According to online sources, the typical late fee today is $35. Over-the-limit fees are about $30. Usually, cards offering transfer balance options have low, if any, actual fees to conduct this transaction.
No. 19 – Card companies issue multiple cards with lower limits to low credit scorers.
Low limit cards in the range of $200 to $500 are issued to specific customers with far less than perfect credit histories.
No. 20 – Card companies charge interest before the check clears.
This is a so-so truth. Payments made by checks do need to be presented to issuing banks. But, a check received for payment by the issuer on the due date, although on time, may not be applied to the account during the interest cycle.
No. 21 – All a credit card consumer needs to worry about is on-time payments.
On-time payments are important aspects affecting a consumer`s credit standing. But they are not the only considerations. Credit points will drop if consumers max out a card or even come close to a card`s limit.
Understanding the “truth” about credit cards use will make a “borrower” an informed consumer. The key is to research offers, read the fine print and ask questions before opening an account.