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5 Common Misunderstandings About Credit Cards … and What You Should Know to Protect Yourself

When it comes to credit cards, there are a lot of misconceptions and confusion about how they work. Many people believe that just having a credit card makes them vulnerable to identity theft or debt, when in fact the opposite is true. 

By educating yourself about how credit cards actually work, you can take steps to protect yourself from common pitfalls and make the most of your plastic payment method. 

What’s more, these misunderstandings can put you at risk for costly fees and other unwanted consequences. If you’re someone who uses credit cards regularly, it’s important to have a clear understanding of these common misconceptions and the best ways to protect yourself.

  1. If You Pay Your Debt In Full, You Appear Debt Free

Paying down your credit card debt in full each month to avoid paying interest has always been the wisest approach to avoid problematic credit card debt. You won’t be accruing any debt, but the credit reporting companies won’t reflect that.

Even before you receive your statement, each bank will list your current balance as a debt. The bank will still show as debt all charges made after your previous statement period ended if your balance is published the day after you have paid your statement in full.

Your credit score shouldn’t be impacted as long as the amount reported isn’t an unusually high proportion of your available credit.

  1. Applying for a Credit Card Can Affect Your Credit Score … Even if Your Application is Rejected

Two things happen when you choose to apply for a credit card. A “pull” is the first request made for your credit history. A few pulls here, and there have little impact on your credit. However, several pulls in a short period of time suggest that you are having trouble with your finances.

Additionally, getting more credit will reduce your credit utilization percentage if you don’t take on more debt. Since a smaller ratio will raise your credit score, many cardholders claim that when they get a new card, their credit score goes up a little bit without increasing their debt.

  1. It Is Illegal for Merchants to Add Credit Card Surcharge

Although it is illegal for retailers to charge you a fee for using your credit card, most states’ laws don’t really apply to this. In the US, businesses enter into arrangements with credit card processors that forbid these surcharges.

You have likely discovered that some businesses continue to impose these fees despite their agreements.

Although retailers have pushed for legislation to forbid such contracts, as of right now, merchants are still required to sign them in order to accept credit cards. Your only option when dealing with these surcharges is to report a merchant’s breach of contract to the credit card networks.

  1. You Can Improve Your Credit by Canceling Your Credit Cards

Consumers run into credit card debt problems all too frequently. Many of them will then cancel their cards to repair their credit histories. This can help you avoid extra debt, but only as a last resort.

Unfortunately, just canceling your account will lower your credit score. Your credit score will suffer if you reduce the amount of credit you have accessible without lowering your debt.

Some people may find relief in keeping their accounts active while just slicing their cards in half to prevent use. Of course, making a quick phone call will get you a new card.

  1. Keeping Too Many Cards Affects Your Credit Score

The misconception is based on the idea that using every card will result in you accruing more debt. This may be the case if you have poor spending and financial management skills.

However, those who are adept at managing their cards would undoubtedly benefit from having many cards. 

Every card includes a unique set of deals, savings, and reward points that can be used on purchases. No single card can meet every demand. In contrast to the requirements of a shopaholic, someone who travels frequently would choose a travel card.

Settling for one card may sound like a great idea, but it isn’t. As long as you use your credit cards responsibly, their advantages will always outweigh their disadvantages.

When using credit cards, getting accurate information is the best way to protect yourself. Take advantage of the above tips to protect yourself.