5 Common Credit Card Questions

The popularity of credit cards can be explained by how simple they are to use. Cardholders can merely present a piece of plastic to pay for nearly anything, within their credit limit. But in fact, these cards are complex financial instruments, so it is no surprise that credit card users eventually have many questions.

Here are five of the most common ones, and some simple answers.

1. Which Credit Cards Will I Qualify for?

There are many great credit card offers available, but whether you qualify for a particular one will depend on your credit history, which is commonly represented by your credit score. If you always pay your bills on time and have very little credit card debt, then it is likely that you have a great credit score and can qualify for almost any card you apply for. Those who have significant credit card debt, and those who have had some problems paying their bills may not qualify for high-end rewards credit cards and may have to look for a more basic card designed for those with lower credit scores. Students with a limited credit history may have to start with a student credit card, and those with serious credit problems may only qualify for a secured credit card.

2. Do I Have Too Many Credit Cards?

Some credit card users simply can’t resist applying for a new credit card. The reason can be valuable benefits, a generous sign up bonus, or an interest-free financing offer. But how many is too many? Certainly, those who have trouble keeping track of all of their existing accounts and paying their bills on time should consider consolidating their payments (either on one low-interest credit card, or a personal loan) and keeping spending on all cards to an absolute minimum. Also, anyone who is tempted to spend more just because they have a line of credit should reconsider their use of credit cards altogether. Finally, those who find that they are paying annual fees on many cards should question whether they are receiving enough value from each card to justify the expense.

3. What Happens If I Don’t Pay My Bill in Full?

The name “credit card” implies that customers are being given a loan, but the beautiful part of nearly every credit card is that you will not pay interest on your charges if you pay your statement balances in full and on time. If you don’t do that, however, you will owe interest on your charges going back to the day each charge was made. Furthermore, you will lose your grace period for future charges, meaning that everything you buy will begin incurring interest charges from the day of the transaction. The best way to use credit cards is to always pay your statement balance in full.

4. Are Credit Card Rewards Worth It?

For many people, reward credit cards are used to earn cash back or valuable travel awards. These cardholders will argue that there is no way they could have afforded to fly in business class or stay in a luxury hotel without them. On the other hand, those who carry a balance on their credit cards will find that using a rewards credit card will cost them money due to their higher interest rates compared to non-reward cards. In addition, there are some credit card users who can be tempted to make unnecessary purchases in order to earn rewards. For these types of credit card users, the rewards are not worth it.

5. Will Using Credit Cards Help or Hurt My Credit Score?

Some people avoid credit cards because they believe that their credit score will suffer. This could make sense if the cardholder uses his or her cards to accumulate debt, or if payments are missed. Otherwise, having credit card accounts open, and paying your bills on time will help establish and maintain a strong credit history. You can see how your credit card accounts — and your use of them — are affecting your credit by monitoring your credit scores. Credit.com is one free service that allows you to do that, and it gives you an overview of the factors that influence them.

Essentially, if you maintain a low balance (or you pay it in full) on your accounts and pay your bills on time, every time, credit cards can be a good way to build and maintain good credit over time.