Answers to the Top 10 Credit Card Questions

A credit card is a financial tool that can benefit the user’s financial profile if used properly. 

A good credit score saves thousands of dollars in interest as well as offers several financial perks and benefits.

Access to a line of credit is helpful if an emergency arises between paydays. Credit cards are also becoming the only acceptable form of payment for car rentals, hotel stays, and other goods and services. But many people have unanswered questions that prevent them from applying for a credit card.

The Top 10 Credit Card Questions and Answers

1. Is there a method to choosing which credit card to apply for?

Borrowers should not apply for the first card they are offered. Each credit card application places an inquiry on the credit report; too many inquires can lower the score. Consumers should first figure out what they want the most from their credit card account. Once they decide, they can search for cards with those features that offer the lowest interest rates and fees.

For instance, will the card be used to make one large purchase? The best choice is a card with a low or zero percent introductory annual percentage rate. These cards give the borrower at least 12 months to pay off the balance without paying interest. A large purchase takes many years to pay off with cards that keep the interest meter running each month.

Another factor to consider is if the rewards are beneficial to the user. A frequent traveler will want a credit card that offers flyer miles. Dining and entertainment awards appeal to people who socialize often or wine and dine business associates. Of course, cash back is a popular no-brainer that everyone appreciates.

2. Why should I check my credit first if the lender is going to run a credit check too?

Consumers should always stay on top of their credit in case the file contains errors or missing information that needs to be corrected. A borrower who knows their credit score ahead of time can make better choices since they know their options. Credit card companies offer the best rates, terms, and rewards to applicants with good credit. People with bad credit may get approved but will pay a high price for use of the card. If an individual is aware they have a low credit score, they might choose to decide to improve it and then apply for a credit card later.

3. Can a credit card payment due date be changed?

Borrowers run into problems when a credit card payment comes due at the same time as a lot of other bills. It is possible to ask the issuer to change the due date rather than risking their credit with late or missed payments. A large number of credit card companies allow customers to change the date if the customer has a good payment history with all payments up to date. The new due date should be a day in the month when larger bills like rent or mortgage are not due, although the 29th, 30th, and 31st do not occur every month.

Not all credit card companies let customers change their payment date but there is a way to keep current. If the assigned due date presents a financial hardship, the best strategy is to get ahead of the schedule. This means sending the payment early, using the paycheck from which fewer bills are paid. Some people have the payment automatically debited from their account so they won’t forget to make the early payment.

4. How can a cardholder get the best use from their credit card rewards?

Each card has different rules that determine when and how incentives can be redeemed. The terms and conditions should be carefully read ahead of time. It is important to keep up with dates that bonuses will expire; once the date has passed the company will not honor the benefit. Borrowers should also make sure to use the card for purchases to meet terms of rewards based on spending a certain amount during a timeframe.

5. What are the advantages of paying the balance in full every month?

Credit cards are unsecured loans that accrue interest. For each billing cycle that has a balance, interest is added to the amount owed. Credit cards have the highest interest rates compared to other credit, even for people with good credit. Carrying balances from month to month can stretch one purchase out into years of payments. Paying off the balance also lowers debt, which improves credit.

6. Why is it a bad idea to “max out” a credit card?

Although credit card issuers give their customers a maximum credit limit, spending up to the limit is not a good idea. Maxing out credit cards increases the credit utilization, which should be 20 to 30 percent of available credit. High debt lowers the credit score and can lead to stress caused by overwhelming debt. Even though it may be tempting, it is best to resist the offer to indulge in overspending.

7. How do balance transfer credit cards work?

Balance transfer credit cards are useful to people with a lot of credit card debt. They typically come with low to zero interest for a certain period of time. Users take advantage of this “free” time and transfer their high interest card balances to the new card. Ideally, they are able to pay off the balances from the old cards before interest kicks in.

The cardholder should not use the balance transfer card to make new purchases. The additional debt can make it impossible to pay the balance in full before interest sets in, which defeats the purpose of getting the new card. Borrowers should also shop around for cards that offer the lowest balance transfer fees.

8. What are the consequences of missing a payment?

Missed credit card payments are reported to credit bureaus. Payment history makes up 35% of credit scores. Skipping payments also costs money in the form of late fees and added interest. Although minimum payments increases the time it takes to pay off purchases, it is far better to make a timely payment than miss the due date altogether.

9. Is there any recourse for a missed credit card payment?

Fortunately, many credit card companies recognize that their customers are human beings who make mistakes or have unforeseen circumstances. Several large issuers automatically offer to waive late fees on the first missed payment. Cardholders with a good payment history can also request a fee waiver if they have trouble making a payment on time.

10. What’s the difference between using a debit card and a credit card?

Even though both cards look similar, credit and debit cards have a different impact on credit. Since a debit card is funded with money from the user’s bank account, no payments are reported to credit bureaus. For better or worse, debit cards aren’t reflected in a credit score. Credit card usage and payment history, on the other hand, can make or break creditworthiness.

Bottom Line

There are advantages and disadvantages that come with any type of financial tool. The decision to use credit cards or not is based upon a multitude of factors that are unique to the individual. It is never a good idea to make a financial commitment without full and specific disclosure. With a little time and effort, all consumers can easily get answers to these and other questions they have about using and managing financial products.