9 big credit card myths

By Liz Pulliam Weston

There's no excuse when you fall for certain myths. The one proclaiming Barack Obama is a Muslim? You could have quashed that one by checking Snopes.com. Bill Gates sharing his fortune with those who forward an e-mail? That's been debunked on About.com's Urban Legends since 1999.

But the legends that grow up around credit cards aren't quite as easy for the average person to research and refute. Credit card issuers can be pretty closelipped about their practices, and even those who proclaim themselves experts in the field can get it wrong.

So I talked to spokespeople from Visa, MasterCard, American Express and Discover to get the scoop on their policies, and with Fair Isaac, creators of the FICO credit score, for details on how cards really affect your score.

The myths and the reality

Myth No. 1: Your credit card account isn't opened until you activate it using the issuer's toll-free number.

Several readers have changed their minds about opening new credit cards after they've applied, then asked if they could undo the damage to their credit scores by not calling to activate the card.

Sorry, but the ding to your credit scores -- typically 5 points or less -- happens as soon as the issuer pulls your credit reports, which is usually within seconds of receiving your application. The account shows up as active on your credit reports shortly after the card is approved.

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You do need to call the activation number, though, if you ever want to use the card. That number is typically listed on the removable sticker on the front of your card when it arrives in the mail.

Myth No. 2: You can stop unsolicited credit card offers by sending them back in the postage-paid envelopes.

Judging by my e-mail, some of you have developed a hobby trying to irritate credit card companies. You write "take me off your mailing list" repeatedly over the unsolicited applications they send you, then stuff the paperwork into the postage-paid envelope -- sometimes adding other junk mail to increase the volume and cost the issuer more in postage.

Sorry, but all your efforts are for naught. Yes, you might cost the credit card company a few pennies, but it would cost them far more to track down your name on their mailing lists and remove it, so your envelope just winds up in the garbage.

If you want to cut the number of unsolicited credit card offers you receive, you need to get off the mailing lists before they're compiled. Here's how:

• Sign up with the credit card bureaus' opt-out service. This service removes you from the marketing lists they sell to credit card issuers and can be reached at 1-888-5-OPT-OUT or OptOutPrescreen.com. You'll need to provide your Social Security number and a few other pieces of identifying information.

• Opt out of "information sharing" every chance you get. Anytime you use your credit card, make a donation or sign up for a new service, your information could be sold to a credit card marketer. Ethical companies give you a chance to opt out. Take it.

• Follow up with those who sell your data. Sometimes you won't be able to tell who sold you out; other times, it's obvious. I raised hell with the Greater Los Angeles Zoo Association after I bought a family membership and promptly received an application for a GLAZA-themed card.

Myth No. 3: Merchants may require identification, such as a driver's license, when you pay with a credit card.

Merchants' agreements with Visa, MasterCard, American Express and Discover specifically forbid them from requiring identification. Your signature is supposed to be enough.

Furthermore, merchants' contracts with Visa and MasterCard are supposed to prevent them from even asking for ID. American Express and Discover don't prohibit asking but strongly discourage it.

Merchants typically ask for ID because they're trying to reduce their own fraud costs. But if a clerk memorizes or writes down vital information from your driver's license -- your address or date of birth, for example -- you're the one who could be at greater risk of identity theft.

Myth No. 4: You can deter identity theft by writing "Ask for ID" instead of your signature on the back.

See above. You'll certainly deter use of your card, because merchants aren't supposed to accept one that's not signed on the back, and that could affect you as much as any thief.

Myth No. 5: No-limit credit cards allow you to buy whatever you want.

Most credit cards come with credit limits, but some cards advertise having "no preset spending limits." With high-end Visa cards, for example, customers are allowed to exceed their credit limits; with traditional American Express charge cards (the green, gold, platinum and black versions), there is supposedly no preset limit at all.

Except that all cards have limits, said Curtis Arnold, the founder of CardRatings.com and author of "How You Can Profit From Credit Cards."

"No-preset-spending-limit cards are more marketing hype than anything," Arnold said. "These cards do have a credit limit that is typically based on your income and spending patterns."

At American Express, the actual limit on your charge card -- the kind that's supposed to be paid in full every month -- can vary based on your financial circumstances, your credit history and your record as a customer, explained Desiree Fish, an American Express spokeswoman.

Continued: Good customers

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