The Top 5 Most Common Credit Card Myths

I’m not a Financial Advisor and this is certainly not Financial Advice. What I am, however, is a ‘Big Bank’ employee with over five years worth of experience in Credit Card Customer Service. In my time, I’ve seen and learned a lot. If I could sum it up in one simple statement it’s this: the majority of Canadians have absolutely no idea how Credit Cards actually work.

It’s not our fault either. Credit Card agreements are incredibly lengthy and confusing documents. Take it from me, as someone who knows, your financial institution is ‘banking’ on the hope that you, their customer, are not going to read that thing. Even if you did, it’d be of little help. Unless you’re someone with a law degree or a background in finance, making heads or tails of the language can prove difficult. I work for a bank and I can barely understand it.

What ends up hurting people the most is their unwillingness to ask questions — but I’m here to help. Below are my ‘Top 5 Most Common Credit Card Myths’ as spoken to me by actual customers. It’s my hope that by ‘de-bunking’ these common card myths that you’ll be able to rise up from under your financial burdens and start making your plastic work for you.

1. “I make my minimum payment towards my card; the bank won’t charge me interest.”

This is hands down the most common misconception I’ve heard in all my time working in Credit Card Customer Service. Let’s be clear: if you are only making the ‘Minimum Payment’ toward your credit card, you will STILL be charged interest from the bank.

Your ‘Minimum Payment’ is simply that — it’s the MINIMUM amount that the bank will allow you to put toward your balance owing while still remaining in good credit standing. This is why it’s crucial to understand how your bank calculates your minimum payment. Usually, the minimum payment on a Credit Card is $10.00 plus fees, as well as whatever interest has accrued.

The only way to NOT be charged interest is to pay your balance in full on or before the due date.

2. “I make monthly payments toward my credit card, so I’ll always be in good credit standing.”

Yes and no. This comes down to understanding how your billing cycle works and most importantly — the ‘Due Date’. I remember once speaking to a woman who paid off her balance in full every single month without exception and every single month she was two or three days over the payment date. Eventually, her card was revoked and she was reported to the Credit Bureau for Delinquency.

Late is late. If you have two ‘Delinquent Occurrences’ over a 12 month period, then the bank is obligated to share the information with the Credit Bureau. This can have a serious impact on your overall score and may even result in your credit being revoked. Knowing your ‘Due Date’ and making sure that at the very least the ‘Minimum Payment’ is made on time will save you from a world of trouble. Call your bank right now and set up a ‘Pre-Authorized Payment’ for the ‘Minimum Balance Owing’. That way, you’ll never be at risk of missing a payment or forgetting to pay your card on time.

3. “If I overpay my credit card, I can use the applied credit to make larger purchases beyond my credit limit.”

Let’s pretend you have a credit card limit of $1000.00 with a ZERO dollar balance. You go online and find a vacation package for $3000.00 and think to yourself “I’ll transfer $2000.00 from my bank account to my credit card so that my Credit Balance will be enough to cover the purchase!” Sadly, this is incorrect and can end up causing a lot more hurt and headaches for you down the road.

To begin with, the bank will not allow you to make a purchase that extends beyond your overall credit limit — even if you have a credit on your card. Another thing to consider is any ‘Credit Balance’ on your card, technically, is exposing you to potential fraud. Think of your credit card as a loan from the bank. That $1000.00 credit limit is all that the bank has insured against fraud. Anything beyond that is your responsibility.

Think of it like this: you go to the ATM machine and withdraw $100.00. You arrive home, put the money under a rock, and go to work. Now, is it possible that the money is still there upon your return? Of course, it is. But in the event someone took it upon themselves to lift that rock and take your $100.00 — the bank isn’t going to help you.

4. “Doing a Cash Advance won’t hurt my overall credit score.”

This question used to terrify me the most — “how much money can I withdraw from my card?” While it’s true that doing a ‘Cash Advance’ may not necessarily affect your overall credit score, at least at first, Cash Advances are a slippery slope. Do them only in extreme situations, emergencies — or not at all.

I say this for a number of reasons: first of all, because there’s a fee. Usually, these start at a minimum of $3.50 up to a fixed amount of typically no more than $10.00. Secondly, when you do a ‘Cash Advance’, it’s almost always at a higher annual interest rate. Most banks charge a standard 19.99% for ‘Regular Purchases’ and 22.99% for ‘Cash Advances’ or ‘Cash-Like Purchases’. Finally and most importantly: there is no grace period whatsoever on a ‘Cash Advance’.

This means you’ll be charged interest from the moment you withdraw funds from the ATM. Interest will continue to be charged until the amount is paid back in full. If you take nothing else away from this article, remember this — Cash Advances are a nightmare to be avoided at all costs.

5. “I paid a portion of my Credit Card balance; interest will only accrue on the balance owing.”

Wrong. Yet another very common myth about how banks charge interest. In fact, most bank employees have a hard time understanding this concept — which is why it’s so important to read through your Cardholder Agreement. If you’ve lost yours, that’s OK. You can literally Google the type of credit card that you have and then just be sure to include ‘PDF’ at the end. All of the ‘Big Banks’ have their cardholder agreements readily available online.

So let’s say you have a balance owing of $1000.00 and for whatever reason you were only able to pay off $800.00 on/before the due date. Many make the logical mistake of assuming that because only $200.00 is carrying over into the next billing cycle, the bank will only charge interest on the remaining amount. Sadly, the bank is anything but logical. Rest assured, you’re paying interest on the full amount owing. the interest reverts back to when those ‘New Purchases’ were placed on your credit card and continues until the moment that they are repaid in full.

Credit Cards can be an incredibly valuable tool. So many of them these days will give you cash-back, travel rewards, and a multitude of different insurances. For the avid traveler or just the Average Joe, learning how to use credit cards properly is a must. They can help you to save hundreds if not thousands of dollars — or they can be your worst nightmare. Learn to use them to your advantage, arm yourself with knowledge and help to free yourself from the stresses and constraints of creditors and Big Banks!