Frequently Asked Questions and Credit Card Myths


1. What is a credit card?
It is a plastic card that allows you to borrow money from a bank or credit union to buy goods and services. However, you will have to pay them back before a certain deadline. For more information on credit cards, please see article Basic Guide to Credit Cards: Advantages and Disadvantages.

2. What is an APR and an introductory APR rate?
APR stands for the annual percentage rate. The common 3 types of APR include introductory, fixed and variable. According to the Credit CARD Act of 2009, your credit card issuer cannot increase your introductory APR for at least 6 months.

For new credit card owners, your issuer would offer you the introductory APR rate for a certain period of time. This rate is generally lower than the other 2 types. Sometimes, the introductory APR rate can even be 0%. If this is the case, then you would not be required to make any minimum payments on your new credit card. However, if the introductory APR rate is more than 0%, then you would be required to make a minimum payment until the period of introductory APR rate ends.

3. What is a fixed APR? A variable APR?
A fixed APR does not change often. It only changes when there is a change in an economic factor. Usually, your credit card issuer will notify you ahead of time. A variable APR is often closely connected to the prime rate. It can change every day.

4. What is a prime rate?
It is a Federal Reserve determined interest rate. This rate is usually offered to the most credit worthy consumers. The less credit worthy card owners would have interest rates that are higher than the prime rate.

5. What is a default interest rate?
If you break any of the credit card agreements, such as withdrawing money that exceeds your credit limit or making a late payment, then your creditor would increase the interest rate to the default interest rate level on that specific default card. Other creditors cannot use this record and increase the interest rate on your other cards. The default interest rate is often in the 25% to 30% range. For more information, please read to article Key Changes of the New Credit Card Rules.

6. What is a periodic rate?
This is the interest rate that a creditor imposes on a balance for a day, a week or month.

7. What is a grace period? How long is it?
This is a period of time that your creditor allows you to pay back your credit card without any penalties. This period lasts for 21 days.

8. What is the Schumer Box?
The Schumer Box is where your credit card issuer provides important information to you. Your credit card issuer is required by law to do so.

9. What is a smart card?
A smart card is a credit card with microprocessor chips. These microprocessor chips have an advanced memory and processing ability. It can store identification information and follow up with your participation in any loyalty programs. Furthermore, a smart card prevents against credit card fraud and cloning.

10. What is a pre-authorized payment?
This is the amount of money that you allow a business to automatically withdraw from your credit card account every month.

11. What is the double billing cycle method?
This is when your creditor considers the current and the previous cycles’ balance. The interest rate calculation is based on both billing cycles, which results in higher interest rates. However, due to the Credit CARD Act of 2009, your creditors are no longer allowed to do this.

12. What is a balance transfer? How do I do it?
If you apply to another new credit card with a new creditor when you already have a card with your current creditor, you can transfer money from the new account to the old one, and vice versa. You can do this by calling your creditor and ask them to lead you through the process of balance transfer. Or you could just do this online via your account access page.

13. What is credit utilization?
It is a measurement of how much you are spending relative to your total credit limit of all your credit cards.

14. What is a prepaid debit card?
Money is deposited into the account by the cardholder, and they can use it anywhere that accepts credit cards. This is usually for people who don’t want to be contract tied to a bank, wants a relatively more secure way to carry money, or have problems getting a credit card.

15. What is a student credit card?
This is a specific type of credit card that is designed for students to help them build their credit.

16. What is a secured card?
A secured card is often for people with bad credit score or no credit history. Most creditors would require a deposit for about a year.

17. What is an unsecured card?
An unsecured card is for people with excellent credit scores. Creditors would not require a deposit when they apply for a credit card.

18. What are “debt suspension” offers?
“Debt suspension” offers are usually sold to people who have trouble paying back their credit cards due to job losses or disabilities. This kind of offer only puts your bills on hold; it doesn’t pay back for you. While being unemployed, you cannot use your credit card and no interest would be charged. However, once you do obtain employment, you are still expected to pay back the total balance yourself.

19. What happens if I charge an amount that is over my credit limit?
If you know you will charge an item over your credit limit, notify your creditor in advance. Usually your creditor can accommodate you if it is reasonable. If you do not notify them in advance, you could face an over-the-limit fee.

20. What should I do if I can’t even pay the monthly minimum payment?
You could try to contact your creditor and notify them of your situation. Maybe you just lost a job, and that is why you can no longer make the payment. Let your creditor know of the cause. You may be eligible for some hardship programs that could help you pay off your balance. The drawback of doing this is that your creditor may begin to view you as a high risk client, and this may lead to possible interest rate increase. When you’re in a situation like this, you should consider obtaining some counseling. Sign up for the counseling agency that will provide you with an action plan. Otherwise, it would be a waste of your money and time.

21. Do I need to purchase credit card insurance?
No. According to the Federal Trade Commission, you don’t need to and you shouldn’t. The law already protects you from stolen credit cards and unauthorized charges.

22. How many credit cards should I have?
The most desirable number of credit cards you should have is 2. For example, it is much better if you have 2 credit cards with $5000 credit limits as opposed to 10 credit cards with $1000 credit limits. Your credit score is strongly affected by your ability to pay back outstanding balances before the deadline.

23. Why is there a positive credit amount on my credit card statement?
Your credit card statement can have a positive amount if you paid your monthly balance in full and you returned a damaged good where the refund was sent to your credit card’s account.

24. Is it possible to convert the positive credit amount into cash without drawing out a cash advance?
Yes, it is possible. Normally, you would have the power to decide where to credit the positive balance. You can just call or mail your credit card company to ask for a refund, and they are abided by law to give you a check within 7 business days.

25. Can a bank cancel my credit card if I have not used it in a long time?
Yes. If a bank believes that your credit card account is inactive, meaning if you have not gained any fees or interest, for a long time (i.e. a year), then it can cancel your credit card account. This has a bigger negative effect on your credit score than you closing the account yourself.

26. Should I cancel my credit card if I have not used it for years?
If there is no fee, do not cancel it. Cancelling a credit card will hurt your credit score due to decreased available line of credit and debt to credit ratio.

27. Will I be notified in advance if there is going to be any changes in the interest rate or contract?
Yes, you would be notified 45 days in advance. However, if the index that the rate is based on changes and consequently causes your rate to change, your creditor would not have to notify you 45 days in advance.

28. Will I be notified in advance if there is going to be an account closure?
Yes, your creditor must tell you 30 days in advance.

29. How can I make my payments?
There are usually 3 ways that you can make your payments: online, mail or telephone. All 3 services are free unless you request an expedited service.

30. How can someone under 21 years old obtain a credit card?
There are 2 ways for people under 21 years old to have credit cards. One is that they have a co-signer. Second is that they have proof of their ability to pay back their credit cards.

31. How do I cancel my credit card application?
You need to immediately contact your credit card issuer. For more information, please see article How to Cancel a Credit Card Application & Credit Card.

32. I’m not a U.S. resident; can I apply for a credit card?
Yes. For specific instructions, please read article Credit Card Requirements and Options for Special Populations.

33. When will my credit card arrive?
Depends on which method you used to apply: mail or internet. For more information, please see article Credit Card Application Process.

34. If I sign up for a credit card online will it save me money?
No. The internet is only another medium through which you can obtain your credit card. It can bring about many conveniences to the application process. However, it does not translate into savings.

35. Is a charge card the same as credit cards?
No. When paying back a charge card, you will have to repay the full amount. So there is no minimum payment or interest rate. If you repay past the deadline, there will be penalty costs. Furthermore, a charge card doesn’t have any predetermined limits. On the other hand, credit cards do have a preset credit limit and they don’t require card owners to repay the whole amount. For more information on charge cards, please read article Credit Card Requirements and Options for Special Populations.

36. Can my credit card company impose over-the-limit fees on an outstanding balance of a closed account?
Firstly, you cannot close an account with an outstanding balance. You CAN ask your credit card issuer to close your account to new purchases. Even so, if you have any outstanding balance, it is still subject to interest rate charges and fees. So the answer is yes.

37. A company says they can help me to get a low-rate credit card, but I would have to pay them a high fee, is this worth it?
No. You do need an intermediary agent to setup your connection with a credit card issuer. Whether or not you can obtain a low-rate credit card fully depends on your credit score. You should focus on improving your score instead of wasting money to hire an intermediary party.

38. How can I change the due date of my credit card?
You should call your creditor’s customer service number on your bill and ask. Different creditors have different policies, so some may let you easily change the due date and some may not. If you are successful in changing the due date, make sure you pay your bills on time while the change is taking place. Sometimes it may take from one to two billing cycles for your due date change to take effect.

If you have a balance on your credit card, changing the due date could increase your costs on the next bill. This is because that finance charges would continue to accumulate. For example, if you change your due date to 10 days after the original day, you could have 40 days of finance charges, instead of 30 days on your upcoming bill.

39. Why do my credit card applications keep getting rejected?
This could be because of many reasons. 1) If your creditor cannot confirm your home number, then they may think it’s someone else trying to open an account in your name. 2) If you are accumulating too many new credit cards. 3) You have delinquent accounts. 4) You have a high debt to credit ratio. For more information on debt to credit ratio, please see article Responsibly Managing Credit Cards.

40. I think someone else used my name to apply for a credit card, what should I do?
You should immediately obtain your credit report, and if you see an application inquiry that does not belong to you, contact your creditor at once to resolve the problem.

Note: Application inquiries may take a few days to show up in your credit report.

41. How many credit cards can I get from one creditor?
Usually, you can get 2 or more cards from the same creditor.

42. What’s the best way to build up my credit history?
Pay your bills on time. For information on the most effective ways to manage your credit cards, please read article Responsibly Managing Credit Cards.

43. I never received my statement for last month and now my credit card company wants to charge me a late fee and cancel the promotional rate on my account.  What should I do?
You should call the credit card company using the number on the back of your card. Explain this situation to the customer service representative. Usually, they will reverse the finance charges incurred. Please make sure this doesn't happen too often.

44. Where can I find a good calculator that allows me to set my goal to pay off my credit balance and figure out my monthly payment?
You should use this calculator to do that.

45. I lost my credit card!! What should I do?
Please read article How to Handle Credit Card Losses or Theft.

46. How can I dispute a charge on my credit card that does not belong to me?
Please read article How to Dispute Charges on Your Credit Card Statement.

47. How does my creditor figure out my minimum monthly payment?
Your creditor uses a certain percentage of your total balance as your monthly minimum payment. For most creditors, this percentage is about 2. However it could range from 1% to 5%.

48. Should I consolidate my credit card debt?
It depends. You should do this if you have a low APR transfer rate, so you could withhold all your debt in a low APR credit card, as opposed to a high one.