The first modern payment card made its debut in 1950, and it has come a long way since then. Over the years, many changes to and variations of the credit card have surfaced, as well as an abundance of myths. Information and advice on how to correctly use a credit card has been passed around for as long as the credit card has existed.
Today, many people across the country use their credit card on a daily basis. Chances are that a good percentage of card holders have heard these myths and believed them at one time or another. Many of these myths, if followed, could cause credit card users more harm than good. That is why we have uncovered the truth about five of the most common credit card myths and listed them below.
Myth #1: You should never get a credit card.
One of the most common misconceptions about credit cards is that it’s better to never get one. According to this myth, regardless of how you use your card, credit cards ultimately lead to bad credit and poor financial habits.
Fact: Having access to credit is necessary to start building your credit score and history. Good credit is the result of responsible use of credit products. Therefore, technically you don’t need a credit card in order to build credit. That being said, a credit card is a great and manageable way to boost your credit and build a strong credit history.
Of course, it is true that with a credit card you could potentially accumulate bad credit if you use it irresponsibly. Credit cards do not automatically condemn you to a life with debt and bad credit, but bad habits and lack of financial responsibility can. In order to achieve good credit and successfully use your card you must be responsible and disciplined.
Myth #2: You need to carry a balance on your card in order to build credit.
This myth advises that you should carry a credit card balance at all times and only pay the minimum payment each month. By doing this, you are showing credit bureaus that you can manage credit card debt and pay it off consistently, and it will help build good credit.
Fact: In order to build healthy credit, you should aim to pay your bill on time each month. Whether you carry a balance on your card or pay your balance in full each month, having a positive payment history is what helps to build credit. Carrying a balance on your card will only have a negative effect on your score if it is contributing to a high credit utilization ratio. That being said, you should only keep a balance if you need to in order to avoid paying interest charges to your credit card issuer.
Myth #3: You should cancel credit cards you don't use regularly.
Many people believe that you should cancel any credit card that you don’t use regularly. According to this myth, keeping a card that you don’t regularly use will hurt your credit score, and it’s better to cancel it.
Fact: You shouldn’t cancel a credit card account strictly because you don’t use it regularly. When you cancel a credit card, you lose its credit limit and can disrupt your credit age; as a result, you also have less available credit to your name, which can negatively impact your credit utilization ratio. Take a look at your seldom used cards, and ask yourself, do the benefits of the card outweigh the costs? In the end it’s up to you to decide if you should keep it or cancel it.
Myth #4: You should not have multiple credit cards.
According to this myth, having multiple credit cards at one time is bad for your credit. More credit cards mean a lower credit score, so it is best to only have one credit card account open at a time.
Fact: Every credit card in your name will affect your credit score, either positively or negatively depending on its age, usage, and your payment habits. Opening a new card can cause a temporary drop in your credit score, so only open new accounts intermittently and as you need them. If you have poor credit, you should first focus on building your credit score before opening another credit card.
Myth #5: Credit cards are more susceptible to fraud than other payment types, like debit cards.
It is commonly believed that other methods of payment are safer than credit cards, such as debit cards. In other words, if someone were to steal your credit card, they could leave you to pay thousands in unauthorized purchases.
Fact: Credit cards are typically safer and more secure than other kinds of cards, such as debit cards. If your debit card is compromised, your account could be emptied and your bank itself could be at risk for fraud. In fact, in the event of credit card fraud, credit card holders can only be held accountable for up to $50 worth of unauthorized purchases.
If you believe any of the credit card myths covered above, now is the time to stop! As your beliefs about credit cards begin to change, make an effort to change your habits as well. We identified and debunked these five common myths to help grow your credit score. Now, it’s up to you to get out there and take control of your finances.