Like leprechauns and the Loch Ness monster, credit cards can be the subject of some pretty tall tales. The urban legends circulated about these small pieces of plastic are repeated so often that it’s hard to tell what’s true and what’s not. Here, we shed a little light on the most common credit card myths.
Credit card companies can increase your interest rate without telling you. This is half true. If you do something that puts you at fault, like pay your bill late or go over your limit, the credit card issuer can raise your interest rate without telling you. In other situations, the issuer gets 15 days to notify and give you the opportunity to opt out. After July 10, 2010, that time limit goes up to 45 days.
You must show your ID when you’re using your credit card. This is not true. In fact, the merchant agreements with Visa, MasterCard, American Express and Discover state that the merchant should not ask to see identification, but simply compare the signature on the back of the card to the signature on the receipt. Showing your ID to a sales clerk might feel like an added layer of protection, but it really puts you at greater risk of identity theft by sharing your date of birth, address, and other personal information with a stranger.
You must have good credit to get a credit card. Not true. Sure, there are some credit cards that require you to have a high credit score. But the credit card market includes a wide range of products. People who have bad credit can apply for a secured credit card or even a prepaid credit card.
You’re responsible for charges made if your credit card is stolen. The Fair Credit Billing Act, a federal law, limits your maximum liability for fraudulent charges to $50 (if you report the fraud to the credit card company within 60 days). If you report the card as lost or stolen before any charges are made, you are not liable for anything.
Closing a credit card is the best way to get back at your card issuer. Most people get angry at their credit card issuers from time to time, but closing your credit card never hurts them. Worse, it can end up hurting your credit score, especially if you close the credit card while it still has a balance. You hurt the credit card issuer more by paying your credit card balance in full each month. That way they don’t receive interest payments on your balance.
You need to have a credit card with all major card issuers. There are some merchants that don’t accept certain credit cards, but there’s no benefit to your credit history by having a credit card with all the issuers. On the contrary, applying for too many credit cards can put a damper on your credit score.
You must have a credit card to build a good credit history. This is not true. Using a credit card responsibly is just one way to improve your credit score. You can also build your score by making timely payments on installment loans like student loans and car loans.
You can’t get a credit card if you’re under 18. Legally, you’re not able to sign a contract until you’ve turned 18, but some credit card issuers might give a credit card to a minor who has a job or has been emancipated. Minors can also get credit cards if they have a creditworthy adult co-sign for the card.