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There are many things that people think are true about credit cards that are not true at all.  This type of misinformation can cause people to make bad financial decisions and to accumulate unmanageable debt, which can lead to financial devastation and bankruptcy.  Here are some of the most common myths about credit cards today.

Myth 1 – Just Pay The Minimum

Many people make only the required minimum payment on their credit cards each month, reasoning that they will just pay whatever the credit card issuer says to pay as the minimum and they will eventually pay off the debt.  Most of these individuals do not understand that the minimum payment amount will only cover the monthly fees charged to the account and one-percent of the actual balance, as required by federal law.  This means that if you stopped charging purchases to the credit card today and made only the minimum payments each month, it would take you at least 100 months – 8.3 years – to pay off your balance.

Myth 2 – Go For The Rewards

Most of the people who hold a credit card with a rewards program specifically targeted that credit card because they desired the rewards associated with the program.  What many of these people do not understand is that the rewards are still costing them plenty – through program fees, account fees, finance charges, and interest charges associated with the credit card.  With some of the more popular rewards programs, you would have to spend a minimum of $5,000 with the credit card each year to earn a reward equal in cost to the annual rewards program membership fee.

Myth 3 – Paying With Cash And Paying With Credit Costs The Same

Many people make no distinction between paying for an item with cash and paying for that same item with a credit card because the total on the register is the same in both cases.  The truth is that this is only correct if the person pays off the balance of their credit card each month.  If a balance is carried on the credit card, then the cost of that purchase will increase quickly due to finance charges, interest charges, and fees related to carrying a balance on the credit card, adding 20% or more to the original cost of the item purchased.

You hear it all the time at the checkout counter.  “Would you like to apply for a (store name) credit card?”  Sometimes it seems as if every store now has its own store branded credit card that their customers can use to purchase products at their locations or other locations around the city.  These credit cards are typically billed as a fantastic deal for the consumer, but are store branded credit cards really the deal that they are said to be?

Discounts Associated With The Credit Card

Most of the people that sign up for store branded credit cards do so because the store is offering a deal or a discount with the approval of the credit application.  This discount is applied to the purchases made on the day that the application is submitted.  Although this can be a significant amount if you are purchasing a large quantity of items, the money that is saved during the initial transaction is often dwarfed by the amount of interest paid on the balance of the credit card during the first year that the account is opened.

Limited Amount Of Credit Available

The amount of credit given for a store branded credit card is typically much lower than the amount of credit issued with a general purpose credit card that can be used anywhere.  Because the credit limit is so low, often under $1,000, it is very easy for a larger purchase to cause the person to use more than 40% of their available credit, which can negatively impact their credit score.  The only thing that will restore the credit score points lost by maxing out a store branded credit card is paying the balance down below that 40% threshold.

Usage Restrictions

In many cases, a store branded credit card can only be used at the stores that issued them and on the website of the company.  Unfortunately, many people do not do all of their shopping at a single store and must get multiple store branded credit cards to be able to use credit in each of these places.  Having several credit accounts with several different retailers increases the chances that a payment date will be missed and can result in penalty fees and higher interest charges.

Did you know that credit cards are a fairly new invention?  In the recent past, people always saved up for the things that they wanted and paid for these items with cash that they withdrew from their bank account.  Today, people wipe their plastic for all sorts of purchases that our grandparents wouldn’t have thought of, like fast food meals or gasoline purchases.  There are many things that you probably didn’t know about credit cards that the credit card companies would rather keep under wraps, but knowing the truth about these financial products will help you make better decisions about your own finances.

1 – Interest Rates Have No Maximum

Every card holder’s agreement for every credit card marketed contains a clause that states that the credit card issuer can change the interest rate for the credit card at any time for any reason that they consider valid.  Although the new credit card laws issued state that these companies must now give a certain amount of notice before an interest rate hike and give the borrower the option to pay off the balance under the original terms, the new laws do not say anything about a limit to the interest rate that is charged.  Many of larger banking institutions are headquartered in states that have no usury rate, so they can charge their customers whatever interest rate they choose without any fear of legal repercussions.

2 – Paying Off A Credit Card Rarely Happens

The individuals that are using credit wisely attempt to pay off the balance of their credit card every month, but the vast majority of credit card users carry a balance on their credit cards from month to month and many of these individuals only pay the minimum due each month.  What many people do not realize is that the typical minimum payment only covers the fees charged for that month and 1% of the principal balance.  This means that it could take someone decades to pay off a credit card and that is only if they do not use the credit card again while they are paying it off.

3 – Rewards Programs Are Costing You

Many people sign up for credit cards because of the perks and rewards that they will get from using the credit card, but many do not realize that these perks are not free.  You are paying for these rewards through the interest payments, finance charges, and membership fees associated with the credit card account.  An analysis of one popular credit card rewards program showed that the credit card holder would have to spend at least $5,000 annually to break even with the membership fee for being in the rewards program.

There are a number of actions that you can take with credit cards that are guaranteed to lead you down a path of debt disaster.  Many people perform these actions without thinking as a normal habit, never realizing that these activities could be causing their debt levels to increase or cause their efforts to pay down their debt to stall.  Being able to recognize these bad habits for the budget busters that they are will help you eliminate these habits from your typical behaviors.

Charging All Of Your Purchases
Many of the people that charge all of their everyday purchases do not track these purchases as carefully as they would with other payment methods, which can lead to overspending easily.  Also, these individuals tend to carry a balance on their credit card from month to month, meaning that they are paying interest each month on past purchases.  This increases the total price of purchasing the item versus paying cash for these same items.

Not Paying Your Bill On Time
Not paying your bill on time can have more consequences than wasting your money on late charges.  Late payments can trigger a dramatic rise in the interest rate charged for using the credit card, often pushing the interest rate above 20%.  Late payments on a credit card can also result in the interest rate of other credit products in your name increasing dramatically underneath a clause in nearly every credit card agreement called a Universal Default Clause.  These increased interest rates can cost you hundreds of dollars in interest payments each year.

Paying The Minimum Due
It is nearly impossible to pay off the balance of a credit card by only paying the minimum each month when the payment is due.  In some cases, the minimum payment marked on the bill barely covers the interest and finance charges that are added to the balance each month, keeping you paying on the credit card for years with little to show for your efforts.  Paying more than the minimum will reduce the amount of interest you are paying each month and will help you pay off the credit card much more quickly.

Opening Store Credit Cards For Discounts
No company is in the business of losing money, so you better believe that you will end up paying more for the store credit card than you will be getting with the discount being offered.  The credit cards can generally only be used at a specific store, causing the consumer to spend more with them and less with competitors, and the interest rates for these credit cards are generally higher than for general purpose credit cards.

Now that the economy is experiencing a tentative recovery, people are once again being flooded with offers to apply for credit cards from various creditors.  Although some of the rules governing credit cards have changed recently, there are still traps for the unwary written into many credit card agreements.  By knowing the general information that applies to most credit cards, you can avoid the actions that cause most of the issues associated with credit card use.

Credit Card Purchases Cost More

One thing that many people do not understand is that purchases made with a credit card will almost always cost you more than if you would have paid for the purchase with cash.  This is because you are still paying the full price of the item as well as the finance fees and interest charges required by the creditor for borrowing the money to make the purchase.  These fees will continue to accumulate as long as the purchase cost remains on the credit card, so the longer you take to pay off the credit card, the more it will end up costing you.

In order to minimize the amount of money that you are spending in fees to the creditor, it is best to limit your purchases with the credit card to major purchases and emergency situations.  This allows you to have the flexibility to pay for an expensive purchase over time or handle a financial crisis quickly.  For all other purchases, it will be best to wait until you have the cash available to buy the things you desire.

The Interest Rate Is Not Fixed

Many people who sign up for credit cards do not realize that the interest rate that they begin with is not always the interest rate they will end up with.  Although current credit card laws have reduced the creditors’ ability to hike your interest rate at a whim, there are still plenty of legal reasons why a lender can increase the interest rate of a credit card dramatically.  In some cases, the lower interest rate is an introductory interest rate that expires after a specified period of time.  In other cases, the increased interest rate is the result of a late or missed payment.  An increase in the interest rate for the credit card can cost you hundreds of additional dollars each year.

Important Information Is In The Terms And Conditions Of The Agreement

The biggest mistake you can make when it comes to credit cards is to ignore the terms and conditions included in the credit card agreement.  All of the important information about interest rates, penalty fees, and payment requirements are included in the terms and conditions and applying for the credit card indicates that you agree with the information included in the terms and conditions of the agreement and agree to be bound by them.  Before signing up for any credit card, you should read the terms and conditions carefully to ensure that you know exactly what you are getting into.

One of the most important investments you can make for your future is to pay down your high interest credit card debt as quickly as possible.  Many experts agree that this is the best way to spend money that is not going towards immediate necessities and utility bills.  Paying down your high interest credit card debt is one of the best returns on your money that you can get because of the many benefits associated with the elimination of this expensive type of financial obligation.

Reduced Interest Payments

One of the most beneficial benefits of paying down your high interest credit card debt is the reduction in the amount of interest that you are paying to borrow the cost of the items you have placed on your credit card.  In most cases, credit card interest rates will be the highest interest rates that a person is paying over all of their financial obligations which means that the person is paying the credit card company more to borrow their money than they are paying any other source and getting virtually nothing in return because they still have to pay back the balance as well.

Credit card interest rates are applied to the total balance on the credit card, so having a lower balance means that you will be paying less in interest charges each month.  Paying less in interest means that if you continue paying the same amount each month, more of your money is going towards paying down the actual charges on the credit card, eventually leading to the credit card being paid off.

Lower Monthly Payments

The minimum payment required by the credit card agreement is based on a percentage of the total balance on the credit card, which means that as the balance on the credit card decreases the minimum payment due will decrease as well.  Although you should try your best to continue paying the same amount each month so that you can bring down the balance of the credit card faster, in the event that an unexpected financial issue occurs the credit card payment will not be as much of a burden on your finances and it will be easier for you to pay the minimum payment.

Increased Credit Score

One of the calculations that is used to compute your credit score is the percentage of your credit that you are using compared to the total amount of credit you have available.  The highest credit scores go to the people that are using less than 30% of their total available credit and each percentage point over this margin can result in a linear reduction in your credit score.  Keeping balances on your credit cards low results in a higher credit score which increased your chances of obtaining additional credit if needed and qualifies you for a lower interest rate on many different types of credit products.

Many people believe that missing a credit card payment is a minor thing and that if they make the payment as soon as they have the money, the penalties for missing that payment will be minimal.  In reality, there are a number of penalties associated with missing a credit card payment and the effects of that missed payment can be felt for a long time after the payment has been made.  In order to be able to make informed financial decisions about using a credit card and making the required payments, it is important to know what the penalties are for missing a credit card payment.

Late Payment Fee

The first penalty of missing a payment date for a credit card account is the late payment fee that is assessed to the account.  This fee is charged directly to the account shortly after the deadline for making the payment has passed and is added to the principal balance of the account.  Different financial institutions charge various fees for missing a payment on the credit card accounts they hold, basing the fee on the type of credit card held and the balance of the account at the time of the payment default.  These fees typically range between $25 and $39 per occurrence.

Increased Interest Rate

Many credit card companies use the fact that a payment has been missed on the account to justify raising the interest rate on the account to the highest rate charged by the company.  By missing a payment, the account holder has become a credit risk to the company and in order to recoup as much of their money as possible as quickly as possible, the interest rate is immediately raised.  It is not uncommon for the interest rate assigned to a credit card account to increase by 10% or more due to a single missed payment on the account.

Blemish On Credit History

When a payment is missed on a credit card account, the company reports the default to the three major credit bureaus for inclusion on the account holder’s credit history.  This entry will remain on the account holder’s credit history for at least seven years and can only be removed if the account holder is able to prove that the entry was made in error. 

Drop In Credit Score

Once a missed payment has been reported to the three major credit bureaus, the account holder’s credit score will be recalculated to reflect the account holder’s drop in credit worthiness.  Up to 30% of the credit score calculation is based on the person’s credit history so the credit score can drop by a significant percentage based on a single missed payment on a credit card account.

Getting the lowest credit card interest rate that you qualify for can be a difficult endeavor because of all of the criteria that goes into calculating the interest rate for a credit card.  Different credit card issuers have different qualifications and different interest rate ranges for many of the different types of credit card products that they sell, making it even more difficult for a person to determine whether they are getting the lowest market rate or if they are being taken advantage of by the lender.  There are several criteria that nearly all creditors take into consideration when calculating a credit card interest rate and knowing where you fall within these standards can help you determine whether you are getting the lowest credit card interest rate for your current situation.

Credit History

One of the biggest factors in the credit card interest rate offered to you by a creditor is the information contained in your credit history.  Your credit history can reveal to the credit card issuer whether you are a credit risk and do not pay your bills on time or whether you are responsible with the credit that you have and should be extended additional credit.  The more of a risk you seem to be, as indicated by the information in your credit report, the higher the interest rate charged for the credit card will be.

Most creditors are interested in reviewing the late and missed payments that appear on your credit report for as many as 7 years after the actual event.  A large amount of late or missed payments show that you are having difficulty managing your money properly and have a good chance of defaulting on any additional credit that is extended to you.  Late and missed payments on your credit history will result in a higher interest rate for credit card products.

Credit Score

Another factor that can alter the credit card interest rate offered to an individual is their personal credit score.  A person’s credit score is a numerical calculation that takes a number of different dynamics, such as percentage of credit used and length of time different credit products have been open, to place the person on a sliding scale of financial stability.  Individuals that have used their credit wisely, have made all of their payments on time, and have not maxed out all of their credit products will fall on the higher end of the credit score scale and be offered the lowest interest rates for credit cards.  Individuals that have had trouble making their payments, use most of their available credit, and have racked up high debt levels will have a much lower credit score and will have to pay higher interest rates to obtain the credit cards they desire.

The frequency of credit card use has risen in recent years and now a high number of individuals carry credit cards in their wallet or purse.  In many cases, it is now required to have a credit card to make certain types of purchases and reservations.  These credit cards issued by banking institutions come with various rates, terms, and rewards, which will be determined by the individual’s credit score and the personal preference of the individual applying for the card. 

Different Types Of Credit Cards

Most banking institutions offer a wide variety of credit cards to individuals throughout the United States.  The most frequently obtained type of credit card is the general purpose credit card, which is used by the card holders to make common, everyday purchases.  The banks issue MasterCard and Visa branded credit cards along with reward cards that allow individuals to earn points towards travel or cash back rewards. 

Some credit cards offer a cash back reward that can be 1% to 3% of the purchases that are placed on the card.  There are some credit cards that give card members 1% cash back on all purchases, except those made at gas stations or grocery stores which earn a higher cash back rate.  This cash back reward can be sent to the card member as a check or as a credit back on the credit card. 

Some credit cards automatically send a check to the card member once the amount of points in the card member’s account reaches a certain number.  Other credit cards allow the card member to accumulate points over time and these accumulated points can be redeemed at any time for a check for the cash back amount, gift cards from participating companies, or travel vouchers.

Using The Credit Cards Wisely

Purchases that are made on a credit card that are not paid off within a 28 to 30 day period will be subject to finance charges and interest payments.  The longer you take to pay off the balance of the credit card, the more money it will cost you in finance charges, fees, and interest.  Credit cards should never be used with the intention of taking a long time to pay off the balance as this is a surefire way to destroy your financial security.  If you must use a credit card to make a purchase, pay off the balance of the card as quickly as possible to reduce the fees that you will pay to the bank for borrowing the money.

Options For Payments

The payments for credit cards can be made in a number of different ways.  Many people choose to make their payments by check, mailing in the payment using the envelope provided with the credit card bill.  Many banking institutions also offer the option to make a payment by bank draft over the phone, but there is typically a service charge billed to the credit card account for using this method. 

Recently some banking institutions have begun to offer methods to make payments online at the bank’s website.  Using this method ensures that the payment will not arrive at the bank late due to delays in the mail or due to sending the payment late.  Making all of your payments in a timely manner is the best way to ensure that you don’t get hit with a penalty interest rate that can be as high as 30%.

Credit is very important in today’s economy and many individuals are seeking the best credit card offers for their needs.  One of the easiest ways to search for the best credit card offers is to use online websites to view the features of the credit cards that you are interested in.  To find the best credit cards online, there are several things that you should keep in mind. 

What Are The Features Of The Credit Card?

Not all credit card offers are created equal and the differences can either cost you a great deal of money or save you a great deal of money.  It is important to review all of the features of the credit card, including the interest rate, fees, and repayment options available for the credit card.  The terms and conditions section of the credit card information will contain all of the information that you need to make an informed decision about the suitability of the credit card.  Only websites that provide this information should be included in your search.

The best credit card for you will depend on your financial situation and previous credit history.  It is important to understand that many credit card offers are based on the credit score of the person applying for the credit card, which can vary greatly from person to person.  A credit score is used to determine a person’s credit worthiness and their dedication to repaying the money that they have borrowed. 

What Is The Interest Rate?

The best credit card offer will have the lowest interest rate for the longest amount of time with the highest credit limit.  The credit card with the lowest “teaser” interest rate is not always the credit card with the best interest rate long term.  Many of the credit cards that offer an introductory 0% interest rate will reset to an interest rate that is higher than the industry standard when the introductory period is over.  In many cases, these credit card holders pay an interest rate of 20% or more after the introductory rate has expired. 

What Fees Are Charged?

The best credit cards will offer the highest credit limit without charging a great deal of hidden fees.  These hidden fees are usually disclosed in the terms and conditions of the credit card offer and can quickly add up to hundreds of dollars, all charged directly to the credit card and reducing the available credit limit.  These fees include annual fees, account set up fees, account maintenance fees, and any other fees that the credit card company chooses to charge.  The best credit cards will not require the payment of any of these fees.