7 Credit Card Myths—Busted!

Who hasn’t caught an episode of MythBusters on the Discovery Channel? It’s an entertaining production focused on debunking urban myths in a tongue-in-cheek style. Myths arise about many of life’s experiences and that includes the ubiquitous credit card. Today, we will look at seven common myths regarding credit cards, and then we’ll debunk them.

Separating Fact from Fiction

Myth # 1—My credit card has no limit

No such thing! Every credit card has a limit. Your card issuer just doesn’t reveal what that limit is. This gives you the illusion of being special. Sooner or later, you will bump up on that limit. I can only hope it doesn’t happen when you are picking up the tab for dinner with your boss…

Myth # 2—Opening a new credit card will lower my credit score

Actually, it may help! Credit scores, in part, are based on credit utilization. Just opening a new credit card increases the overall amount of credit available to you. If you don’t use the card, this has the effect of reducing the percentage of utilization, which helps your credit score.

Myth # 3—Refusing a credit limit increase will damage my credit score

It just ain’t so! Credit card issuers like to make more credit available to good customers and the offer is a compliment. Declining to accept the offer is of zero consequence to your credit score. Not to get too far into the weeds here, but a limit increase reduces your percentage of utilization, and that is a positive thing for your credit score … provided you don’t use all of the additional available credit.

Myth # 4—Canceling some of my credit cards will improve my credit score

Where did this come from!? Again, we are talking about credit utilization ratios. Canceling cards reduces your available credit relative to your existing balances. This raises your credit utilization percentage which damages your credit score. Don’t do it!

Myth # 5—My limit is “X” … so I must be able to afford it

Credit card issuers have no crystal ball and no moral imperative to look out for your best interests. Credit limits are set based on scores, debt-to-income ratios and other factors. By simply granting a limit of “X” the credit card issuer is not making the assertion that you can afford it. While it is true that they try to establish limits leading to favorable repayment outcomes, they don’t know you and they cannot foresee what financial crises may pop up in your life.

Myth # 6—I’m pre-approved for this card … so I am guaranteed to receive it

Really? I don’t think so! This is a marketing ploy and often a cruel one. Pre-approved should be changed to read pre-screened. All that means is that you have been selected as a likely candidate to apply for the credit card. You will still need to meet the credit standards of the card issuer before you ever swipe that plastic.

Myth # 7—Entering my PIN backwards at the ATM alerts the “popo” to a robbery

No clue how this got started, but it is patently false. Think about it … people have PINs such as 7007, 1111 and other numerical palindromes. If this myth were true, these people would all be behind bars for falsely reporting a crime … duh!

This Has Been Fun…

So here are three more myths, just for grins.

Bonus Myth # 1—Pre-paid and debit cards help my credit score

If it were only true! But it isn’t. Pre-paid card issuers do not report to the credit reporting agencies, and why should they? You are spending your own money, not borrowed money. The same is true with debit cards.

Bonus Myth # 2—You shouldn’t borrow from one card to pay another

Robbing Peter to pay Paul is not always a bad thing. If you find yourself in a temporary financial squeeze, it is okay to borrow from another card to make the payment. Skipping a payment or being late on a payment can really hurt your credit score. Isn’t a balance transfer the same as using one card to pay another? We do that all the time!

Bonus Myth # 3—There is nothing wrong with making the minimum payment

Yes …and no! It’s okay if you are in a bind and can’t pay more, but it should not be something that you practice regularly. Paying only the minimum will barely cover the interest on the account and principal reductions are tiny!

What about You?

Did you believe any of these myths in the past? Have we missed any myths that you would like debunked? Let us know!

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7 comments

  • leon /

    I have read that you shouldn’t pay your credit card and always keep a balance. Is that tru?

  • JDF /

    What is your take on cancelling credit cards that have random fees attached to them? When I was rebuilding my credit 4-5 years ago, I was approved for 2 cards that came with a monthly fee, I think $6 per month or so per card. Fast forward to present day, having reestablished good credit, I have an issue with paying a fee on cards that have zero balance. What do you think?

  • H. D. Carver /

    I would agree that having established a good score, continuing to pay almost $150/year between the 2 cards that you do not use is not the best use of your money. Why not request limit increases on a couple of cards that you do use to preserve your present level of credit utilization and offset any reduction in your score?

  • H. D. Carver /

    Leon, I am assuming you meant to say you should not pay a credit card off and that keeping a balance is recommended. It is okay to pay a card off Leon. The damage can occur when you close the account. Paying off a card and closing it are two different events. Paying off a card and leaving it open with a zero balance is perfectly acceptable, unless, of course, you are paying high fees for the privilege like our friend JDF.

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