You might think you know the truth about credit cards. After all, your mom probably warned you to be careful if you got one because it’s an easy way to get yourself into serious debt. But there’s more to know about credit cards than the obvious.
1. Interest rates can change.
You probably know that it’s best if you pay the balance on your credit card in full each month. But maybe it’s not always possible if you have an emergency like a car repair or hospital bill.
You may not be worried if you know that your credit card carries a low interest rate, but it may not be the same rate as the last time you checked. A bank can raise its interest rates any time for any reason, though it is required to give you a 45-day notice, according to the Credit Card Accountability Responsibility and Disclosure Act of 2009.
You may also have heard your bank can seriously jack up your interest rates if you make a late payment. But did you know that the act requires them to lower your rates back to what they originally were if you make payments on time for six months?
Interest rates on credit cards also generally increase when the Fed raises interest, and banks don’t have to give you notice of this. However, this generally doesn’t affect your payments as much as other factors do, since it is often a small percentage.
2. Cash Advances Are Bad News.
If you desperately need money and a cash advance is the only way you can get it, then it’s good to take advantage of this option. However, if you have any other alternatives, it’s probably better to go with those.
Cash advances are expensive and they can haunt you for a long time. The act of simply taking the money out of the machine usually costs money — $10 or 5 percent of the amount. Also, according to the Credit Card Insider, banks are allowed to start charging you interest on a cash advance as soon as you take the money. With an ordinary purchase of goods or services, there is no interest charged in between the time you buy the item and the time you pay the bill, as long as you pay it in full.
Also, the interest rate is usually much higher than the rate you are currently paying — sometimes up to 25 percent. Further, Experian explains that taking cash advances can indirectly hurt your credit rating.
3. How much you use your card can affect your credit.
In this day and age, it’s hard to keep a secret. Your cable company knows what channels you’re watching, law enforcement can look at what you’re Googling and your neighbors can see when you come and go. Whatever you dot, there will be a paper trail, even if it’s only a metaphoric one.
You know there is a record of what you buy each month, and this is mostly for your convenience as a consumer. If you sometimes run up a big bill or even max out your cards, it shouldn’t be a big deal as long as you can eventually pay for it. Right?
In a way, yes. It would be a much bigger deal if you couldn’t pay for it. But even if you do pay your bill in full each month, your credit can still be affected by these purchases. If you use more than 30 percent of your available credit each month, it will show up as a high utilization rate, which can taint your reputation as a consumer even if you make your payments on time.
If it’s too late and you have already become enmeshed in this situation, Credit.com says the best thing to do is to pay down your balances so that your credit history doesn’t show that you are always on the edge.
4. Credit cards can save you money on insurance.
If you’ve rented a car before, you’ve been subjected to the scare tactics the agents read you when they try to sell you some expensive extra insurance you don’t need. “OK, sign here saying you decline our once-in-a-lifetime offer and that you fully understand that operating this car without buying insurance from us can cause death, disability, dismemberment, deformity, delinquency, denial, disease, depths of despair, dengue fever, demonic hallucinations and spider bites.”
Most credit cards offer some coverage in car-rental situations, including collision and theft. They don’t usually cover personal injury or liability, but your own car insurance policy probably does. Call your insurance agent and check into this ahead of time so you can avoid being pressured to make last-minute, uninformed decisions while standing at the car-rental counter.
5. You aren’t responsible for charges you didn’t make.
Beware of credit card myths and facts you may find online or elsewhere. The Fair Credit Billing Act limits your responsibility for erroneous charges on your credit card to $50. And you don’t even have to pay the $50 if the charges were made after you reported it stolen.
Of course, we often are unaware when our credit card number is being used by thieves until we see the bill. If your purse is snatched on a city street, you might be able to report your credit card stolen before it is used, but such scenarios are uncommon. More often, it is just the number that is stolen and not the physical card itself, so it can be hard to notice.
What’s important to understand is that paying for further protection is not necessary, and is even, in fact, wasteful. You may field calls from your credit card company or from third parties trying to sell you a “protection plan,” and they may use rental-car-company scare tactics to get you to buy in.
Don’t fall for it. When they tell you the plan protects you from being responsible for fraudulent charges, tell them that you already have that protection. That will probably help bring the phone call to an end more quickly.
Don’t confuse this type of protection with other kinds offered by credit card companies, however. One offer protects you from late charges and interest fees for a period of time if you have been injured or in an accident. Others allow for protection from making payments on items you ordered that were lost or stolen. Although these offers don’t qualify as outright scams, most experts say they are not worth the money. Look into them carefully and weigh your options before signing up.
The truth about credit cards is that they are powerful tools. They can save you from disaster or help bring one on. Few consumers read the fine print that comes with a credit card agreement, or the changes to the terms they frequently send you in the mail. Thus, credit card myths and facts can abound. How do you know what to believe?
Start by getting your information from reputable websites — preferably from a .gov or a legitimate news source. And if you can’t find the information you want, call your credit card company and ask them.
You don’t necessarily need to sit down and study the fine print on your contract, but if you’re planning to use your credit card in a way that you have not done previously, it’s best to ask questions. Examples are using your credit card overseas, taking out a cash advance, getting your credit card company to intervene on your behalf over a disputed purchase and using roadside assistance.
Rely on Every Buck Counts to help you sort out the truth about credit cards.