When you were young and you swore didn’t hit Jimmy on the playground, your parent or teacher probably told you that lying is wrong and honesty is the best policy. And while Jimmy eventually stopped crying, you’ve likely told a fib or two since then. Well, just like when you were a 6-year-old with a violent streak, honesty is still the best policy. And you should start with being honest with your creditors.
Most of us are honest because our personal Jiminy Crickets tell us that we should tell the truth. But honesty can help you do more than keep your conscience clear. Here’s when you should make sure you’re being honest and how it helps you.
When you’re applying for a credit card or a limit increase
Spoiler alert: The amount you’re approved for either as a new credit card limit or limit increase is way more than you can reasonably pay off each month. So while it’s nice to have a high limit to keep your credit utilization low, you shouldn’t view that amount as the right amount for you to spend each month.
Lying about your income on a credit application means that you’re probably trying to get approved for an even higher limit — even though the limit you’ll get approved for is already too high. Perhaps you won’t spend any differently, but why take that chance? Be honest about your income so you aren’t approved for a limit you’ll never be able to pay off if you max it out.
To go one step further, lying on your credit card application is considered fraud, and legal action may be taken against you. The punishment for credit fraud isn’t insignificant — you can face up to 30 years in prison and/or $1 million in fines.
When you can’t afford to make payments
If you can’t make payments on your credit card due to the loss of a job or too many monthly financial obligations, you need to call your creditors. It’s much easier to just stop making payments and ignore your creditors’ calls, but that’s a good way to trash your credit. However, by being honest with your creditor, you may be able to salvage your score.
Here’s what you should do: Call up your creditor and let the representative know your situation. You may be afraid of getting yelled at or judged, but at the end of the day, your issuer wants to collect the money you owe. The issuer rep will likely be willing to work with you to reduce your payments, change your due date or defer your payments until you find a new job.
Nerd note: While you may be able to work out a plan with your issuer, you probably won’t be able to press pause on the interest accumulation. Ask your issuer to be sure, but expect to continue accruing interest at your current rate.
Bottom line: Even if you’re still claiming that you didn’t hit Jimmy, you need to be honest with your creditors — for your sake! Always tell the truth when it comes to applying for a new credit card, applying for a credit limit increase, or when you can’t make payments for one reason or another. This will help you from getting into too much financial or legal trouble — at least in relation to your credit cards.
Man with halo image via Shutterstock