As you’ve probably been told many times, there is no such thing as a dumb question, especially when it comes to matters of money. But maybe you have some questions about credit cards that you’d rather not voice out loud — you think your question is too simple, you don’t know who to ask, or you fear looking irresponsible (or dumb!).
We get it, and we’re here to help. We found answers to some of the most common — and befuddling — credit card questions. If you’re still scratching your head after reviewing these, consider calling your credit card company for more answers (don’t worry, they won’t judge).
1. How is a debit card different from a credit card?
Debit cards are like digital checkbooks — they pull the funds directly from your checking account. Credit cards, on the other hand, are revolving lines of credit that must be repaid, in many cases with interest, and are connected to the financial institution that issued you the card: So when you use a credit card at a store, the financial institution pays the store, and you pay the institution — hence, your monthly bill. Responsible use of credit cards can also help build your credit history, while debit cards do not.
If you’re shopping online, making a large purchase, or paying for things while away on vacation, it’s wise to use your credit card. This is because of credit card issuers’ disputing policies, which state that you’re not liable for promptly reported unauthorized transactions if your card information is stolen. Debit cards also may have zero liability policies, but with more conditions — and if an unauthorized transaction is made on your debit card, the money will be withdrawn from your checking account. Credit card companies may also offer extended warranty protection on eligible purchases, which is great when buying things like electronics; however, not all issuers offer these benefits, so check the details of your credit card carefully.
2. What’s the deal with retail credit cards? Can you have too many?
We’ve all been there: Prompted to open a store credit card with the promise to “save 15% on today’s purchase.” While it can be great to have that store card — for instance, if you shop there frequently and the rewards program is saving you serious dough — opening up too many cards can be risky.
Retail cards usually have high interest rates, with annual percentage rates (APR) between 20% and 30%, so carrying a balance can quickly become expensive. Usage is limited — usually you can only use the card at one retailer. If it’s a retailer you see yourself growing out of in a few years, then you’re stuck with the card — or can risk dinging your credit score if you’re not properly managing it, or when you close it (see question 3). While there is no such thing as too many cards, you can quickly lose track of cards and payment due dates, which can be detrimental. Moral of the story: Don’t be allured by new-card deals, and try to limit the number you open.
3. Can closing credit cards hurt your credit score?
Experts have previously stated that closing credit cards can hurt your credit score. But if you have unused cards in your wallet, should you really leave them open?
It depends. Closing a card can hurt your score because it affects your utilization rate, your credit history, and your credit mix. Often, closing one card won’t make an impact, but you may want to avoid closing multiple cards at the same time, since it could ding one of those three aforementioned categories. Most importantly, don’t proceed with any card-closing activity right before making a big purchase that will require a loan (like a car or house), as credit score changes could impact your loan process.
4. How can you get a credit card company to raise your credit limit?
First things first: Don’t rush it. Make sure you’re ready for the responsibility that comes with a higher credit limit — you can charge more to your card, but that also means you’ll have more to pay off. If you’re ready to take on that higher limit, realize that with many card issuers, when your account has been established for at least one year, you may be eligible for a credit limit increase. If you’re in good standing with the card (read as: a responsible cardholder), give your credit card company a call and ask for an increase — and utilize tips that can increase your chances of getting it.
If you’re denied, fear not: Credit card companies generally review accounts regularly, and those in good standing may naturally receive increases over time.