Just a Few Credit Card Myths

They might sound sensible, but believing a credit card myth can cost you a lot of money in fees and hurt your credit rating.

Here are some of the most pervasive credit card myths to watch out for:

Writing 'See ID' on the back of your cards will stop a credit card thief.

The Reasoning: The "Ask for ID" or "See ID" prompt reminds salespeople to confirm that the name on the credit card matches that of the person holding it. And why write your signature in that little white space when it could be copied and used on checks, legal forms or other documents? There are even reports of law enforcement personnel recommending this precaution.

The Truth: An unsigned credit card is invalid, technically, according to the agreements that card issuers have with retailers. Moreover, many clerks don't even check for signatures at all, meaning that they're unlikely to see "See ID" on the back of your card, even if it is there.

If you do give a clerk an unsigned card or one with "See ID" written instead, they're supposed to have you sign the back of the card and check the signature against your driver's license or passport. This may trip up the fraudster a bit -- after all, a thief is unlikely to be able to mimic your signature on command -- but that's only if the cashier bothers to take the time to compare that signature to the one on the driver's license.

So what about the liability issue? Does writing "See ID" absolve you if the card is taken and used? No, because no matter what's on the back, you're only liable for up to $50 charged when a card is stolen, and some companies waive that for their cardholders," Writing 'Ask for ID' might encourage a retailer to ask for your ID, but it has no legal bearing.

There's no credit limit on your American Express card, so you can buy anything you want.

The Reasoning: Years of powerful advertising from American Express have probably left at least one of their messages in your mind: "No preset spending limit." So when the Am Ex card arrives in the mail, you can activate it and buy plane tickets to Rio -- or your own Gulfstream jet to take you there, right? After all, there's no limit on your account.

The Truth: Am Ex has changed; it no longer issues only charge cards -- the type that allow you to rack up a lot of debt, as long as you pay off the entire debt every month. They issue credit cards, too, which allow you to carry a balance.

In addition, when you inspect the marketing info from American Express, the phrase "no preset spending limit" usually comes with an asterisk. In the fine print, you'll find wording to the effect that this "... does not mean unlimited spending. Your purchases are approved based on a variety of factors, including current spending patterns, your payment history, credit record and financial resources known to us."

There is no preset spending limit. It's dynamic. It can change based on your financial situation and how you use the card. In other words, if you don't already make high-dollar purchases with your credit cards, expect Am Ex to question why you're suddenly buying a $3,500 designer suit when you stated on your application that you earned just $30,000 a year. The best thing to do when you're going to make a purchase that's out of the ordinary for you is call and let them know, so you can discuss the details.

You might need one of each of the big cards in your wallet.

The Reasoning: People do wonder if the place they're going will take the card(s) they have. The rivalry between American Express and Visa has perpetuated this for years, as evidenced by TV spots for Visa that showed flashy restaurants and exclusive hotspots "... that don't take American Express."

Some places are picky: Go to a Sam's Club, and you can only use Discover and its own branded card, while rival Costco only accepts American Express.

The Truth: If you have two of the big four, you're not likely to have any problems, and millions of people just get by with one. It's much simpler.

Although their advertising can make you want all these great cards, it's probably not great financial sense to have them all. Remember: All those cards with your name on it don't make you rich and powerful, and in the end, you could become poor because of them.

You can boost your credit score by paying more than you owe.

The Reasoning: Paying more than you owe does temporarily bump up the amount of available credit on your card. It's also true that using a smaller percentage of the credit available in your accounts -- known in the industry as keeping a "low utilization ratio" -- helps your credit score. Lastly, it's thought that early credit scoring models may have given people a boost when they paid a personal or car loan a month early, so some may think that the same thing would apply to their credit card accounts.

The Truth: Even though you may be below zero on an account, it's assumed that's a temporary situation, whether you've got a credit of $100 or $1,000, it still shows as a zero balance for scoring purposes.

Using your debit card wisely can help your credit score.

The Reasoning: Debit and credit cards look alike, both bearing Visa, MasterCard or other logos. They're treated virtually the same by retailers. Thus, both should have an impact on credit scoring.

The Truth: Having a bank account with a debit card and maintaining it properly shows that you're a responsible consumer, but it is not taken into account in credit scoring models.

Retailers can set a minimum amount you can charge on a credit card when you buy something from them.

The Reasoning: In a small store or restaurant, it's not uncommon to find a sign that says, "$5 minimum for credit card purchases." If this wasn't allowed by the credit card companies, surely they'd crack down on it.

The Truth: Retailers who set minimum charges are breaking their agreements with the card companies. Because retailers pay interchange fees -- which vary, but average about 2 percent of the sale -- plus possible transaction fees on each credit card purchase, it's easy to see why a store owner would want to discourage lots of small credit card sales. But when they do so, they risk losing their ability to accept cards. You're allowed to charge any amount on your card, even a penny. The problem is that the retailer wants you to charge enough to make it worth his while.

If you need to use a card for a small transaction that's against store policy, you can object, although you may be invited to take your business elsewhere. The other thing to do is contact the credit card company. They want to know about retailers who do this as it violates their contracts with them."

If you go over your credit limit and pay it back before the due date, you'll be fine.

The Reasoning: Lots of people go over their credit limits. After all, credit card companies don't want to embarrass you and lose you as a customer, so they rarely decline your purchase. As long as you're a good customer and you keep the overage reasonable, they won't hit you with an over-the-limit fee.

The Truth: It's true that credit card companies don't want to decline your purchase when you go over your limit. And if you're buying something that puts you a few dollars or more over the top, there's a good chance they'll give you the green light. But remember, every time you pass that credit limit, even for a short period, you could give the issuer a reason to boost your interest rate to penalty rate levels -- sometimes more than 30 percent.

You've also triggered one of those nasty fees that can eat up your account. Taken over time, those fees can add up and hinder your ability to draw down your debt. It just makes sense for the company. They know you don't want to have the card declined, so they quietly penalize you the $30 or $40 over-limit fee.

To avoid it, try calling before your purchase to see if they can give you at least a little increase in your credit line.

Understanding these common myths will help you protect your credit and possibly save you a ton of money in credit card charges. You can visit our website, http://www.theinsiderssecrets.net/ too find other articles and web links that will give you helpful tips on personal finances, credit, car buying and financing.