Five credit card myths you shouldn't believe!

Credit cards are complicated products, and many of us harbour misconceptions about how they work. Here are five myths savvy spenders shouldn't believe about their flexible friends…

According to APACS, the UK payments association, there are more credit cards in the country than there are people. But how many of us really know everything we should about our plastic pals?

In this article, I'll reveal the truth behind five popular credit card myths…

1. If you don't owe any money, getting a credit card is easy

While it may seem strange, if you have never owed money in the past and do not have any outstanding debts you may find it impossible to get one of the market's leading credit card deals.

This is because lenders prefer customers who have a credit history.This shows how well (or badly) an individual has handled debt in the past.

If there is no proof that you have borrowed money responsibly or repaid previous debts on time, you represent an unknown risk to a credit card provider. Unfortunately, since the credit crunch lenders are less inclined than ever to dish out credit unless they're confident customers will pay back what they spend.

Therefore, an individual who already has some well-managed debts is more likely to find they are accepted for a top 0% balance transfer deal or 0% purchases card than a person with no history of borrowing.

If you're yet to build up a credit history, using a credit builder card (as explained in this article) should help you.

2. It's good not to use much of your available credit

You might think that using only a small proportion of your total available credit proves you are not dependent on debt - but it may actually work against you when you apply for a new credit card.

Say, for instance, that you wanted to apply for a credit card with a specific promotional deal - perhaps a 0% purchases offer. Now, imagine you already had a total credit limit of £10,000 spread across four different credit cards, but held combined debts of just £1,900.

The chances are that any potential new lender would view your application with caution because, if you chose to, you could suddenly increase your debt burden by more than £8,000.

If you have huge credit limits on existing cards, be aware that these will be taken into consideration by credit card providers even if they are not being used.

Arguably, therefore, it makes sense to have unnecessarily high credit limits reduced and to cancel any credit cards you know you do not need.

3. My partner is responsible for his/her share of our credit card debt

Some people believe that, if they make their spouse or partner an 'additional cardholder' when they open a credit card account, he or she will be responsible for paying back whatever they spend.

I think this might be the most dangerous credit card myth of all.

The truth is that credit card agreements exist solely between the card provider and the individual who originally applied for credit.

In other words, if you filled in the forms and put your signature on the paperwork, any debts run up on any credit cards covered by the account that was set up are your responsibility!

Therefore, you should think very carefully before giving a loved one a credit card that is linked to your account.

If they run up debts they cannot or will not repay, you will be left to foot the bill.

4. Low monthly minimum repayments are better for borrowers

Right now, shelling out for regular debt repayments is likely to put additional pressure on many people's budgets.

Recently, some credit card providers have 'kindly' reduced the compulsory payments they require customers to make each month - supposedly helping them to stay on track with clearing their debts.

However, I think low monthly minimum repayments (MMRs) are nothing short of a money menace. While in a small minority of cases a reduction in a customer's MMR might prevent them from falling into arrears with their lender, the vast majority of MMRs are far too low in the first place!

MMRs are calculated as a percentage of your total outstanding credit card balance. Therefore, as your debt decreases, so does the amount your MMR will reduce it by.

In previous years, most credit card companies charged MMRs of around 10% - but now they are set at far lower levels (typically around 2% or £5, whichever is the greater).

Scarily, if you only ever paid the 2% (or £5) MMR on a credit card with an APR of 17%, it would take you an incredible 32 years to pay off a £2,000 debt. You'd also be charged more than £3,500 in interest!

5. It's smart to cut up your old credit cards

Cutting up a credit card may feel pretty fantastic, but beware: it doesn't mean your debt is dealt with, or that your account has been cancelled!

If you're desperate to take control of your spending, I think the smart money's on shifting your existing credit card debts to a 0% or long term, low rate deal, then making a proper repayment plan.

Once you've done this, by all means take the scissors to unwanted pieces of plastic. Just be aware that doing so will not necessarily put them beyond use.

Unless you formally cancel your credit card account, anyone in possession of the numbers printed upon it could use it to spend online. In addition, you'll eventually receive a replacement credit card through the post when your cut-up card expires.

If you really want to be rid of an old account, phone your provider and cancel it.

However, be aware that it's well worth checking a month or two later to ensure your account has been properly closed. Providers tend to allow a 'waiting period' after your original request, to ensure no payments made to or from the credit card go astray.

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