(Time for another guest post, this one that attempts to answer some of the most common credit card myths. Given the number of mistaken conceptions there are about credit cards floating around out there, in spite of the best efforts of personal finance writers like myself, any attempt to debunk a few more myths is well appreciated. So, thanks to Odysseas Papadimitriou for contributing this informative post.)
While they might not be quite juicy enough to make it onto Snopes.com—the Web’s foremost authority on urban legends—these personal finance myths certainly shouldn’t be taken lightly. Both your money and your credit standing are at stake, and with the abundance of information available about how to handle each, it can be difficult to determine what is and isn’t factual. It’s therefore no wonder why 41% of Americans give their personal finance acumen a grade of C or worse, according to the National Foundation for Credit Counseling’s 2011 Financial Literacy Survey, and 76% say they “could benefit from a financial professional’s advice and answers to everyday financial questions.” I don’t know about you, but my parents certainly wouldn’t have been pleased with those grades or that lack of confidence in something as important as financial management. So why don’t we shed some light onto a few of the biggest credit card myths out there and help set the record straight?
1. Myth: You can change the amount of time negative information stays on your credit report
Explanation: Negative information about credit accounts, including charge-offs and late payments, remains on your major credit reports for seven years. There is nothing you can do to change or influence these time frames unless the information is inaccurate. Services claiming the ability to do so are scams.
2. Myth: Some credit cards allow unlimited spending
Explanation: There is a limit to the amount you can spend on any credit card. Many of us are led to believe otherwise, however, out of a combination of wishful thinking and credit card company encouragement. Some charge cards and credit cards for excellent credit have a feature called No Preset Spending Limit (NPSL), which many take to mean “no spending limit.” Issuers perpetuate this myth by not informing customers of their credit limits and by reporting proxy limits to the major credit bureaus.
3. Myth: You can’t be sued for time-barred credit card debt
Explanation: You might know that you’re legally bound to pay back debts younger than your state’s statute of limitations for written contracts, like credit card and loan agreements. What you might not know, however, is that a lawsuit for money you owe can be brought against you even if the statute of limitations has expired and your debt becomes what’s known as “time-barred.” It’s up to you to bring this fact to the court’s attention. If you do and your debt is time-barred, the suit will be thrown out. If you don’t or your debt isn’t actually time-barred, you could very well lose a court decision.
4. Myth: Leaving a small monthly balance will help your credit score
Explanation: It’s quite common for people to think that by leaving a small balance each month and allowing their creditors to collect interest revenue, they’ll garner some sort of preferred customer status. This, they believe, will result in access to additional credit and being reported favorably to the major credit bureaus, both of which benefit your credit score. Unfortunately, this is untrue, and all a revolving monthly balance will get you is unecessary interest costs.
5. Myth: All credit cards are protected by the new credit card law (CARD Act)
Explanation: Technically, the CARD Act only applies to consumer credit cards, and even though a Card Hub study revealed that so-called business credit cards are actually more closely tied to individual consumers than to individual businesses, they are not included within the scope of the law. Some issuers, most notably Bank of America, have taken it upon themselves to apply major CARD Act provisions to their “business credit cards” though. If you want a business credit card that you can revolve debt on without worrying that your interest rate will rise unexpectedly and for no reason, get one of the best credit cards for small businesses.
By Odysseas Papadimitriou, founder of Card Hub, the leading online destination for the best credit card deals on the market.