We work with credit for a living, and we’ve heard just about every credit card-related question out there. In this post, we’ll answer some of today’s most common credit card questions.
So, does checking your credit score actually hurt your credit? Why are some credit cards made of metal? And can credit card companies really close your account for inactivity?
Read on to find the answers to these questions and more!
Q: How do you get a credit card if you have bad credit?
A: If you have truly bad credit – like a credit score in the 500-550 range – your best option is likely a secured card. A secured card is a lot like a credit card, with one important difference: Unlike a traditional credit card, a secured card requires a cash deposit, which serves as both collateral and as your credit limit (if you put down, say, an $800 cash deposit, the limit on your secured card is $800). A secured card can function as a stepping stone to help you build or repair your credit score. If you use your secured card responsibly and pay your balance off in full every month, many credit card lenders will let you switch over to a traditional, unsecured card.
Q: Can you get a credit card if you have NO credit history?
A: Most lenders will be wary of an applicant with no credit, so it’s in your best interest to try and build up some sort of credit history before you apply for a credit card. Here are a few options to consider:
- Open a secured card. As we noted in the question above, all you need to get a secured card is a cash deposit, which means your lack of a credit history won’t be an issue. Use your secured card to establish responsible use, and you can eventually transition to a regular card.
- Become an authorized user on someone else’s card. A few things to keep in mind: First, not all credit card companies treat authorized users the same way, so make sure that your activity will be reported. And second, the main account holder’s activity will affect your credit history, which means their late or missed payments will essentially become yours.
- Apply for a store credit card. Store cards are typically easier to get than other types of credit cards. That said, store cards also typically have lower limits and higher interest rates. If you go this route, make sure you keep your balance low and pay it off in full every month.
Q: How many credit cards do you need to build or boost your credit score?
A: This might come as a surprise, but it doesn’t matter how many credit cards you have. What does matter? Responsible use, which means keeping your usage low and paying your balance in full every month.
Q: Is it possible to negotiate credit card debt?
A: Most credit card lenders will be willing to negotiate when it comes to things like your interest rate, monthly payments, and fees – especially if you have a good track record as a customer.
Q: What’s the difference between a charge card and a credit card?
A: Charge cards and credit cards look nearly identical, and many of them have similar perks and bonuses, like cash back rewards, travel points, and so on. But don’t let appearances fool you. There’s a huge difference between the two: Credit cards allow you to carry a balance from month to month. Charge cards require you to pay your entire balance in full each month.
It’s worth noting that charge cards are becoming less common as years go by (in fact, the only major charge card still around today is American Express – and even that lender now has pay-over-time options). It’s also worth noting that we encourage everyone to treat their credit cards more like charge cards: Just because you can carry a balance doesn’t mean you should.
Q: What is APR?
A: APR stands for “annual percentage rate.” In credit card lingo, APR refers to your interest rate, which is the finance charge you’ll pay for carrying a balance on your card. A credit card APR can fall anywhere between 15 to 25 percent. Typically, the higher your credit score, the lower your APR will be (and vice versa). That said, if you pay your balance in full every month, you’ll never have to worry about APR.
Q: What’s the benefit of using a credit card instead of a debit card?
A: Many credit cards allow you to earn cash back, rack up airline miles or travel points, or even get discounts on certain types of purchases. Debit cards that offer rewards have become basically nonexistent over the last decade, so if you’re looking to get the most bang for your spending buck, credit cards can sweeten the deal.
In our opinion, though, the most important benefit of choosing credit cards is fraud protection: If a scammer or cybercriminal gets their hands on your credit card and racks up a bunch of fraudulent purchases, you’re only liable for the first $50. And that’s assuming they’re even able to make those fraudulent purchases – most credit card companies have sophisticated algorithms that raise red flags when they detect unusual behavior, out-of-character spending, or purchases from odd locations. Fraud protection for debit cards, on the other hand, varies from bank to bank. You might be on the hook for a few hundred dollars, or your bank may decide not to cover any of the fraudulent spending.
Q: What is a credit card “charge-off”? How does it work?
A: A “charge-off” happens when your credit card issuer decides that you’re unlikely to pay your credit card debt (this usually happens if you miss around six months of credit card payments). Essentially, they give up trying to collect the debt and write it off as a loss. But keep in mind this doesn’t mean you’re off the hook: It’s likely that your credit card company will pass your debt off to a third-party debt collector. And your credit score will take a serious nosedive.
Q: Is it a good idea to consolidate credit card debt?
A: Maybe. The good thing about consolidation is that it can help you streamline your finances. Depending on the situation, it may also help you get a lower interest rate, which will help you pay less over the long haul. But consolidating your loan can be risky, too. For example, if you opt for a balance transfer, you run the risk of racking up additional debt, especially if you don’t change your spending habits. Personal bank loans often come with fees, and home equity loans can put your house in jeopardy if you can’t pay back what you borrowed.
Q: Should I cancel a credit card after I pay it off?
A: Definitely not! While it’s tempting – especially after you’ve paid off a high balance – it’ll do more harm than good. Here’s why: One of the factors that determines your credit score is utilization, which is basically the amount of available credit you’re using at any time. Leaving your newly paid off credit card open gives you more wiggle room in the “available credit” department, which will in turn help you boost your credit score. If you close it, your credit score will probably take a tumble.
Worried about the temptation? Don’t think you can resist the urge to overspend and rack up new debt? Cut up the physical card, but leave the account open.
Q: What’s the deal with metal credit cards?
A: Honestly? It’s all about status, which is why you’ll typically see these cards marketed toward jet-setting executive types (it’s also why metal cards typically come with loads of extra fees). The only real benefit is impressing strangers and sales clerks with the hefty “clank” of your card hitting the counter. But you know who won’t be impressed? TSA workers. Your fancy metal card is likely to cause undue issues the next time you go through airport security.
Q: I want to apply for a credit card. How do I choose one?
A: It depends on your priorities and goals, but here are a few factors that might influence your choice:
- Rewards. If you travel a lot, consider a card that lets you earn airline miles or hotel points. Prefer something more flexible? Opt for a card that gives you cash back on everyday purchases.
- Interest rate. Of course, ideally, you should pay your balance off, in full, every month. But if you’re shopping around for a credit card anyway, why not choose one with the lowest interest rate? In general, the rates you get will depend on your credit score – just another good reason to use your cards responsibly!
- Terms and fees. Some credit cards come with annual fees, and the “fine print” can vary from card to card. Shop around, do your homework, and make sure you know what you’re signing up for.
- Customer service. Check out reviews and ratings for each credit card company. Are representatives courteous and responsive? Any horror stories about rude employees or errors processing payments? A quick Google search will turn up a lot of great information.
- Fraud protection. In this era of phishing, skimming, identity theft, and data breaches, you’ll want a credit card company that has your back.
Q: How can I use a credit card to build credit?
A: It’s pretty simple: The best way to build up a stable credit history is to use your credit card responsibly. Make a few purchases a month, and pay off the monthly balance right away. Don’t overspend. Don’t carry a balance.
Q: Can my credit card account be closed due to inactivity?
A: Yes. It sounds strange, but it makes sense if you think about it from the credit card company’s point of view. Credit cards are a business, after all, and issuers make money off of interest and transaction fees. If you’re not using your card, you’re basically just hanging out, taking up space (or, in this case, an available line of credit) that could otherwise be helping them turn a profit. In many cases, this can be grounds for your credit card company giving you the boot.
Yes, this is legal. And, no, they don’t have to notify you first.
Of course, closing a credit card – for any reason – isn’t great for your credit score. The good news is that it’s pretty easy to keep a credit card active: Make a small purchase once a month or so, then pay it off immediately. Or put things on autopilot and use your card to pay a small, recurring bill (like your Netflix subscription) each month.
Q: Does it hurt your credit to check your credit score?
A: No. You can check your credit score to your heart’s content – it won’t hurt anything.
Q: If I pay my credit card balance in full, will my credit score go up?
A: In general, yes. Of course, credit cards are complicated beasts, and other factors – such as late or missed payments, your credit utilization, and your debt-to-income ratio – also come into play. But a zero-balance credit card is nothing but benefit.
Q: How long will negative credit information stay on my credit report?
A: Negative information such as missed or late credit card payments, or charge-offs will stick around for about seven years. Interestingly, “hard” credit inquiries – like the kind needed to get a car loan or buy a home – also remain on your credit report, but only for two years. The good news is that, unlike the really negative stuff, hard inquiries don’t have as much of an impact on your credit score.
Looking for more information about debt, personal finance, or budgeting? The friendly team at American Credit Foundation is always happy to answer your burning credit card questions.