Saturday, 23 September 2023

Top 10 Credit Card Myths & Misconceptions | Understanding What is True & False

31 Jul

Hi there, it's Ernest from Trip Astute In this video, we're going to discuss our top 10 credit card myths and misconceptions, and explain why most of these ideas are not true

(light chiming music) Earning points and miles is a great hobby, but I know a lot of folks still think that is some sort of scam, or that it's just too good to be true While some of this is based on misinformation, a lot of these doubts are based on false assumptions that people have about credit cards Even on our channel, we get questions all the time that revolve around some of these ideas, especially on how credit cards can affect your credit score So today, we're going to review our top 10 credit card myths and misconceptions Number 1: Credit cards lead to debt

This one can actually be true I've spoken a lot about how it's important to be responsible with your credit cards if you want to engage in this hobby Like a lot of things in life, the credit card is a tool but it can be easily abused and cause a person to go into debt If you're using credit cards to earn points and miles, it's important to make sure that your financial house is in order That means tracking your budget and spending so you can pay your bill in full

If you're carrying a balance then you're essentially negating the value that you would earn from points Number 2: Applying for a new credit card will hurt your credit score This one is also somewhat true, though it's not as bad as a lot of people think When you apply for a credit card, you will often get a hard credit inquiry which is different than when you use a service like Credit Karma or Credit Sesame The number of hard credit inquiries can have a negative impact on your score, so you'll often see a bit of a drop when you apply

However, your score is also influenced by the amount of available credit that you have So by getting a new card, you're increasing the amount of available credit and also lowering your credit utilization, which is the amount of credit that you're actually using Assuming that your spending level doesn't change, this should cause your credit score to increase over time Number 3: Having too many cards hurts your credit score This is also a common misconception

I think it's rooted in the same idea as the previous tip about applying for cards However, like I mentioned earlier, having more available credit and a lower credit utilization usually means that your score will go up Number 4: You should never pay an annual fee This is definitely false We did an entire video on why it's sometimes worth paying an annual fee, especially if you're able to get value from the card

If you haven't seen our video, definitely check it out Number 5: You must carry a balance in order to build your credit history I know a lot of older folks have this misconception I think there was a time when this was actually true However, this is no longer the case

You can build your credit score by making sure you pay your bills on time and using your credit responsibly Number 6: Your minimum spend timeline starts the moment you activate your card Contrary to what a lot of people think, this is not true I actually didn't even know about this until not too long ago The clock actually starts when you're approved, so your window to complete your minimum spend is often less than you may think

For more information about meeting your minimum spend, check out our playlist on the topic Number 7: American Express cards have no spending limit Several of the traditional American Express cards like the Green, Gold, and Platinum cards are considered charge cards and not credit cards This has led a lot of folks to believe that there is no credit limit since you have to pay the full balance every month This is actually false though

If you check the American Express Platinum card's fine print, you'll see that no preset spending limit doesn't actually mean unlimited spending The limit is based on your usage, your payment history, along with your credit record and income Number 8: If you stay at a specific hotel brand or fly a specific airline, you should get their co-branded credit card This can sometimes be true However, with the rise of flexible points programs, it can often be better to earn points that you can use with different travel partners

For example, I can earn three Hyatt points per dollar using my Hyatt credit card when staying at the Andaz hotel However, I can also earn three Chase Ultimate Rewards points using my Sapphire Reserve card, which I can then transfer to Hyatt, or a bunch of other airlines and hotels In this case, I actually prefer to use my Sapphire Reserve as I like having that extra flexibility with my points Number 9: You should close a credit card before getting a new one This is also false, and I think it's rooted in the misconception that having too many credit cards is a bad thing

Much like what I explained earlier about getting more credit and lowering your credit utilization with your new card, the reverse is also true When you cancel a card, you will often lower the amount of available credit that you have which can increase your credit utilization It's like shrinking the size of a pie so it looks like you're eating more, even if you're actually eating the same amount There are tricks to get around this like converting cards to no annual fee versions in order to keep the account open So check out our "Top Credit Card Mistakes" video for more information

And finally, number 10: It's better to use your debit card for daily purchases This one is totally subjective A lot of people tell me all the time that they just prefer to use their debit card to pay for things While there's nothing wrong with that, there are some compelling reasons to use your credit card instead It's not just the points that you're not earning, but also the protections that you get when using your credit card

When you use your debit card, you're actually pulling money from your bank account If there's a dispute or your information is stolen, you may not have access to the affected money until the bank completes their investigation and verifies information I've heard a lot of horror stories with this situation, so I personally prefer to use my credit card Having a payment dispute or false charge on a credit card seems much easier to resolve and is less likely to involve me having my funds frozen until there's a resolution For those of you who collect points, what do your friends and family think of your hobby? Do they think you're nuts? Do you get asked about these myths all the time? I'm curious whether you all experience the same things that I do

If you're interested in applying for any of the cards mentioned in this video, check out the credit card offers page on our website for the latest offers We do get a percentage if you use our link It doesn't cost you anything extra, but it does help us to continue building content for this channel If you enjoyed this video or found it useful, please hit the "like" button and consider subscribing Also, sign up for our newsletter on our website for travel articles, updates, and giveaways, like our 2,000 subscriber giveaway that's happening right now

Until next time, travel safe and travel smart

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