Common Credit Card Myths Busted

Credit cards are an integral part of modern financial life, offering convenience and rewards. However, they are also surrounded by numerous myths and misconceptions that can lead to poor financial decisions.

Here, we debunk some of the most common credit card myths to help you use your card wisely and maximize its benefits.

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Myth 1: Carrying a Balance Improves Your Credit Score

One of the most pervasive myths is that carrying a balance from month to month will improve your credit score. This is simply not true.

Reality: Paying off your credit card balance in full each month is the best way to manage your credit card. Carrying a balance accrues interest charges, which can lead to debt accumulation. Your credit score benefits most from timely payments and low credit utilization, not from carrying a balance.

Myth 2: Closing Unused Credit Cards Improves Your Credit Score

Many people believe that closing unused credit card accounts will positively impact their credit score.

Reality: Closing a credit card can actually harm your credit score by reducing your available credit and potentially increasing your credit utilization ratio. Additionally, it can shorten your credit history, which is another important factor in your credit score. It’s often better to keep the card open and use it occasionally to keep it active.

Myth 3: Applying for Multiple Credit Cards at Once is Beneficial

Some consumers think that applying for multiple credit cards in a short period will help them increase their available credit quickly.

Reality: Each credit card application results in a hard inquiry on your credit report, which can lower your credit score temporarily. Multiple hard inquiries within a short time can signal to lenders that you are in financial distress or taking on too much credit risk, making it harder to get approved for new credit.

Read more: 10 ways to increase your credit card limit quickly

Myth 4: You Only Need to Pay the Minimum Payment

It’s a common misconception that paying only the minimum payment each month is sufficient to manage your credit card debt effectively.

Reality: Paying only the minimum amount due each month leads to interest charges on the remaining balance, making it more difficult and costly to pay off your debt over time. Always try to pay your balance in full to avoid interest charges and reduce your debt faster.

Myth 5: Credit Cards Have the Same Benefits as Debit Cards

Some people believe that credit cards and debit cards offer the same protections and benefits.

Reality: Credit cards generally offer more benefits and protections compared to debit cards. These can include rewards programs, purchase protection, fraud liability limits, and extended warranties on purchases. Credit cards can also help build your credit history, which debit cards cannot.

Myth 6: You Should Avoid Credit Cards Altogether

A prevalent myth is that credit cards are dangerous and should be avoided entirely to prevent debt.

Reality: While it’s true that misusing credit cards can lead to debt, they also offer many advantages when used responsibly. Credit cards can help build your credit history, provide emergency funds, and offer rewards and consumer protections. The key is to use them wisely by paying off the balance each month and not spending beyond your means.

Read more: Pay rent with your credit card

Myth 7: Having Too Many Credit Cards is Bad for Your Credit Score

Many people think that having multiple credit cards will automatically damage their credit score.

Reality: The number of credit cards you have doesn’t directly affect your credit score. What matters is how you manage them. Keeping balances low, making payments on time, and maintaining a low credit utilization ratio can help improve your credit score, regardless of the number of cards you own.

Myth 8: Using Your Credit Card Abroad is Too Expensive

Some believe that using a credit card for foreign transactions is prohibitively expensive due to fees and exchange rates.

Reality: While some credit cards do charge foreign transaction fees, many cards offer competitive exchange rates and no foreign transaction fees. Additionally, using credit cards abroad can provide fraud protection and travel benefits. It’s important to choose a card that offers favourable terms for international use.

Understanding the realities behind these common credit card myths can help you make more informed financial decisions. Credit cards, when used responsibly, can be valuable tools for managing your finances, building credit, and earning rewards. Always strive to pay your balances in full, keep your credit utilization low, and choose credit cards that align with your financial goals and spending habits.

FAQs

1. Does carrying a balance on my credit card improve my credit score?

No, carrying a balance does not improve your credit score. Paying off your balance in full each month is better for your credit score and avoids interest charges.

2. Is it bad to have multiple credit cards?

Having multiple credit cards is not inherently bad for your credit score. What matters is how you manage them—keeping balances low, making timely payments, and maintaining a low credit utilization ratio.

3. Should I close my unused credit card accounts?

Closing unused credit card accounts can negatively impact your credit score by reducing your available credit and increasing your credit utilization ratio. It’s often better to keep them open and use them occasionally.

4. Are credit cards and debit cards the same in terms of benefits and protections?

No, credit cards typically offer more benefits and protections than debit cards, including rewards programs, purchase protection, and extended warranties. Credit cards also help build your credit history, unlike debit cards.

5. Can using a credit card abroad be cost-effective?

Yes, using a credit card abroad can be cost-effective, especially if you choose one with no foreign transaction fees and competitive exchange rates. Additionally, credit cards provide fraud protection and travel benefits.