Credit cards might offer convenience and security, but they aren’t without their drawbacks. If you’re a heavy credit card user, or thinking about applying for a new card, it’s important to make sure you aren’t putting yourself at risk for credit problems down the road. Even cash back and rewards credit cards come with certain caveats, and consumers need to pay close attention to the terms and conditions before signing on the dotted line.
Unfortunately, many cardholders also hold false beliefs about how these pieces of plastic work. Here are six credit card myths, debunked.
1. Chip cards are much safer than magnetic stripe cards.
You’ve probably already received a chip card to replace your old credit card, thanks in part to new regulations that shift fraud liability from card issuers to merchants. As of Oct. 1, 2015, merchants that don’t process EMV cards are liable for fraudulent purchases made in their shops and could be on the hook for additional fees and penalties. However, it’s a myth that chip cards keep consumers completely safe from theft and cyber crime.
While EMV cards were designed to increase security and decrease card theft, they might not be as safe as you think. Jerry Irvine, chief information officer of Prescient Solutions and a member of the National Cyber Security Task Force, warns that lost or stolen chip cards are still vulnerable to hacker attacks because they often don’t require users to enter PINs.
“‘Card not present’ transactions are also still vulnerable,” he said. “These are transactions made over the phone, the internet, via mail, etc., where the client is not at the physical location with the vendor, so the card is not present for the transaction. As a result, the client still has to provide their full credit card information, along with personally identifiable information such as address, phone number, etc.”
2. It’s OK to max out your credit card, as long as you pay the balance in time.
Even if you pay your balance in full each month, repeatedly charging the limit on your card can hurt your credit score. Bethy Hardeman, Credit Karma’s chief consumer advocate, explains that using a large portion of your available credit affects your credit utilization ratio — one of the biggest factors determining your credit score.
“Try to keep your balances across all of your credit cards under 30 percent, although less is better,” said Hardeman.
3. You can’t change your interest rate.
If you signed up for a 0% APR offer and are now dropping back to the regular interest rate — or if you started out at a higher-than-average rate — don’t assume you are stuck with that figure forever.
Lynnette Khalfani-Cox, also known as The Money Coach, explains that cardholders have the right to ask for changes in various terms, such as interest rates and due dates. It’s a myth that interest rates are permanent, so call your card company to negotiate the best possible options.
4. You’ll be stuck with fees as soon as you go over the limit.
It’s no secret that consumers sometimes go over their credit card limits unintentionally. After all, it’s easy to spend too much when you use your card for a majority of purchases and don’t keep track of spending. While many shoppers assume fees are inevitable when they exceed their limits, the truth is that you can sometimes avoid getting hit with fees.
In many cases, consumers have to authorize card issuers to allow transactions exceeding their limits. For example, Discover’s website says that the company can’t charge you a fee unless you call and confirm you are purposely going over the limit. Fees and terms vary by credit card issuer, but there’s a good chance that they won’t come at you by surprise if you make a mistake and spend more than intended.
5. You lose protection when using a credit card while traveling.
On the contrary, credit card holders often retain their protection when traveling overseas. According to Mikel Van Cleve, a certified financial planner at USAA Bank, many of your purchases will be covered by liability protection if your card is lost or stolen when you’re out of the country.
“Credit cards can actually be a smart way to protect against the uncertainties of travel,” he said. “If your travel plans change, some cards also offer trip cancellation insurance that will reimburse you for purchases made on the card.”
6. Using credit cards traps you in a debt cycle.
While cards with high annual fees and terms can make it difficult for users to maintain low balances, the truth is you can use credit cards responsibly. You can easily compare credit card terms and interest rates online. Additionally, you can see how quickly interest accumulates when you don’t pay off your balances in full each month.
Further, you can protect your budgets — and stay out of debt — by taking advantage of 0% APR offers and rewards credit cards. The key is to pay off your balance in full as soon as possible and be mindful of your spending habits, so you don’t continue to use the credit card or carry a high balance when the card kicks back to standard rates.