Who doesn’t love lists? Here are my top five credit card myths (most of which I encounter fairly often).

#1 You must show ID if merchant requests it.

When I was in Las Vegas I was purchasing an item from a gift shop and the clerk asked for ID. I showed her my ID and commented that places I’ve been to on the West Coast seem to ask for ID more often than around then around the NYC area where I live. She then said that if merchants doesn’t ask for ID I can claim that the transaction is fraudualent and she personally puts “SEE ID” on the back of all her cards and if the cashier doesn’t check ID she asks for a manager (myth #2). Since I’m in the regular business of correcting people I didn’t bother to point out those grossly wrong and rather silly misconceptions.

In reality merchants may ask for a customer to show ID but they cannot refuse acceptance of a credit card if you do not show ID. Many retailers and their ignorant clerks are unaware of this. However in some instances a merchant can make an ID a requirement if it’s for some other purpose such as age verification.

Don’t believe me? Most people don’t.

Here’s a except from the Mastercard Merchant Rules Manual (Visa has a similar rule in their manual):

A merchant must not refuse to complete a MasterCard card transaction solely because a cardholder who has complied with the conditions for presentment of a card at the POI [point of interaction] refuses to provide additional identification information, except as specifically permitted or required by the Standards. A merchant may require additional identification from the cardholder if the information is required to complete the transaction, such as for shipping purposes. A merchant in a country or region that supports use of the MasterCard Address Verification Service (AVS) may require the cardholder’s ZIP or postal code to complete a cardholder-activated terminal (CAT) transaction, or the cardholder’s address and ZIP or postal code to complete a mail order, phone order, or e-commerce transaction. – Entire Rules Manual 2009 in PDF

The credit card issuers want using a credit card to be faster and easier than using cash. Checking for ID adds a simple hassle that people may not want on small purchases. Notice how most stores aren’t even requiring a signature on purchases under a certain dollar amount?

Generally I pick my fights as most clerks are just following orders from higher up. If you wanted to you could report the merchant to Mastercard for a rule violation you can do so at their convenient online form.

#2 Putting “SEE ID” or “Ask for ID” is a great way to prevent fraud.

No, it’s actually pretty stupid. All you’ve really done is subjected yourself to the added hassle of showing ID at each and every merchant that actually decides to obey your pretty handwriting. The back panel of a credit card must be signed for it to be valid. A merchant should ask for ID if he sees “SEE ID” on the back of your card, not because he’s following your instructions but he’s following the credit card company’s. Once they ask for ID the merchant is suppose to make you sign the card in full view in order to accept the card.

Here’s except from the rules manual for merchants from VISA.

“See ID” or “Ask for ID” is not a valid substitute for a signature. The customer must sign the card in your presence, as stated above. [There's a section above this on what to do with cards that are not signed]

- from pg 29 of the rules for visa merchants manual

Although people think they’re clever for adding “SEE ID” to prevent unwanted credit card usage by fraudsters it actually makes the card unusable if the merchant enforces the rules. Ever notice how it says “not valid unless signed” on the back of the cards? However generally if you lost a card you’re not liable for any of the spending to begin with (the law actually says you’re responsible for up to $50 but almost every CC company waives this) and your best bet is just to cancel the card as soon as possible.

#3 Merchants are allowed to set minimum and maximum purchase amounts for credit cards.

A lot of small stores such as my local Exxon convenience shop post minimum purchase amounts for credit cards. They tend to do this because credit card fees cut into their profit margins. This is however against the terms of the terms and conditions of the credit card company agreement.

Here’s an except from the Visa merchant rules.

Always honor valid Visa cards in your acceptance category, regardless of the dollar amount of the purchase. Imposing minimum or maximum purchase amounts in order to accept a Visa card transaction is a violation of the Visa rules.

- pg 9 of the rules for visa merchants manual

Many merchants just don’t know the rules or think they can get away with it. You can use the form linked in myth #1 if you feel the need to report a merchant. Some stores argue that credit cards hurt their profit margins too much. Well, they should not accept credit cards in the first place then since it’s the cost of doing business. I pick my fights but some places have ridiculous $20-$25 minimums.

#4 Carrying a balance helps you build credit

For some reason, tons of people have told me when I was younger I should carry a balance to help build my credit. This is simply not true. The best way to build your credit is simply on-time payments and by letting your credit accounts age. Carrying a balance might actually hurt your credit if the balance is a high % of your overall available credit as it looks like you’re in debt.

#5 If you don’t activate the credit card, the application process will never be completed.

A friend who was raising money for his fraternity by getting people to sign up for credit cards told people (myself included) to simply not activate the card once they got it in the mail and it’d be fine. I don’t know if he was lying to people to get sign-ups or he truly believed this. I hope it was the latter and he was mistaken.

When you fill out that application you’re not just signing up for a credit card. A credit card in itself is useless in that it is just a piece plastic with a magnetic strip. You’re essentially signing up for a credit account at a financial institution. The credit card is the link to that credit account for it contains essential information for merchants to process your transaction. Activation of the credit card just lets the financial institution that issued your card know that you got the card.