Lifestyle

Credit Cards: A Closer Look

We all know how many credit cards we own and how much we owe, but how much do we really know about these plastic little demons that can so perilously affect our credit rating and our financial present and future? Here are some myths that you may or may not be aware of, but either way, at least for now, they won’t add to your interest rate.

Myth #1: One Credit Card Is All You Need

This may have been the case a few years back, but it is certainly not true now because card companies are slashing cash limits and closing accounts even for many with good credit histories. According to Gerri Detweiler, a personal-finance adviser for Credit.com, an independent education website: “You need at least two credit cards (excluding store cards), since you never know when an issuer will slash your limit or close your account… If you already have more than two cards, as lots of people do, don’t rush to close the extra accounts. Keep them, as long as you’re using them responsibly.”

Your main card should be a no-fee cash-back that offer rewards, which will give you a rebate of up to 5 percent on most purchases. The second card should be a backup, to be used only for emergency expenses. Pick one with an interest rate of 12% or lower and a cash limit of  $5,000 or more. Use the backup card occasionally or it will become inactive.

Myth #2: Paying an Annual Fee Is a Waste of Money

This is not always true. Sometimes benefits offered with cards with annual fees far exceed the yearly cost. Usually, this concerns travel-related cards that offer generous waivers. These include Delta’s Gold Sky Miles and the American Express card.

Myth #3: There’s No Harm in Signing Up for Store Cards

Consumers are tempted by the many promotions, discounts and other perks offered by retailers, and some of the store cards are worth keeping. Be careful though. Every applicant for a loan is affected by opening store cards because each new application triggers an inquiry into credit rating and many applications can give the appearance of being a risky borrower.

Myth #4: Just One Missed Payment Won’t Damage Your Credit Score

Au contraire, my friends. According to Liz Pulliam Weston, the author of Your Credit Score: “Your score could plummet more than 100 points, especially if you have a great score (700 and up). The higher it is to begin with, the harder the fall can be.”

Myth #5: Save Money If You Transfer a Balance From One Credit Card to Another With a Lower Interest Rate

Balance-transfer offers provide numerous benefits that can simplify your financial obligations, but they are not for everyone. Transfer fees have gotten higher over the last few years, which could mean that a transfer of $10,000 would cost $500. There are a few excellent deals reserved for consumers with spotless credit histories and these include, among others, Citi Platinum Select MasterCard. Make sure you know the answers to the following five questions before you transfer funds: how long the special introductory rate will last, what your monthly payment will be, the balance transfer fee, the penalties charged for late payments and whether the teaser rate applies to new purchases.

These are just a few warnings and pitfalls along the stony path to financial freedom.

Do your homework and you will never come up short.

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  1. ty i was looking for it for ages now!