The first modern payment card was introduced in the 1950s. Since then, countless credit card tips – and unfortunately, some myths – have been passed down over the years. Given how widespread credit cards are today, you might have encountered and believed a couple of these myths at some point. To address this issue, we’ve debunked five common credit card myths below.
Myth #1: You should never get a credit card.
One of the most common misconceptions about credit cards is that it’s best to never get one. According to this myth, regardless of how you use your card, it will lead to bad credit and poor financial habits.
Fact: Credit cards themselves aren’t to blame for poor credit; it’s how you utilize them that matters. Establishing credit is necessary to start building your credit score, and getting a credit card is an easy way to begin. While some might blame the plastic for their financial troubles, the real problem usually comes from a lack of education or experience on how to manage credit properly.
Not everyone’s experience with credit cards has to be negative. Opening an account won’t automatically doom you to a future of debt. Your personal habits and financial discipline are what really count. To keep your credit in good shape and get the most out of your card, it's crucial to use your card responsibly and practice self-control.
Myth #2: You need to carry a balance in order to build credit.
Many believe that carrying a credit card balance will positively impact your credit score. According to this myth, not paying the full balance on your statement each month is the best way to grow credit.
Fact: In order to build healthy credit, you should aim to pay your credit card bill on time each month. Whether you carry a balance or pay your statement in full each month, having a positive payment history is what helps to build your credit history. This demonstrates to credit bureaus that you can manage credit card debt, potentially improving your score.
That being said, it’s important to pay your credit card balance in full by the payment due date whenever possible. By making the entire payment each month, you will avoid paying interest. If paying the entire statement is challenging, especially when you’re in between paychecks, there’s no need to panic. When you have a high credit limit, having a low balance will leave you with a low credit utilization ratio, helping to maintain your current score.
Myth #3: You should cancel credit cards you don't use regularly.
Many people believe if you don’t use a credit card regularly, you should get rid of it. 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 solely because you don’t use it regularly. When you close a credit account, you lose its credit limit and disrupt the length of your credit history. This reduction in total available credit could potentially increase your credit utilization ratio. A higher ratio, indicating you’re close to maxing out your credit cards, might lead to a decrease in your credit score.
Instead of closing a credit card account, consider using it to cover a small recurring expense, such as a gym membership or streaming service. Once the card is linked, you can set up automatic payments from your bank account. While you can keep building credit with your card out of sight, try to keep it in mind and check your statements and credit report for accuracy. Take a look at your seldom used cards and weigh the benefits against 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 is bad for your credit. More credit cards mean a lower credit score, so it is best to only have one account open at a time.
Fact: Each credit card in your name will affect your credit score. Whether this impact is positive or negative depends on factors like the account's age, usage, and your payment habits. It’s true that opening a new card can lower your credit score for a short period of time, but your score can improve after a few months of responsible usage.
It’s recommended to open new accounts sparingly and only as you need them. However, responsibly managing several cards can actually improve your credit score by lowering your credit utilization ratio and increasing the number of well-managed accounts on your credit report. If you have poor credit, you should first focus on building your credit score before applying for a new credit card.
Myth #5: Credit cards are more susceptible to fraud than other payment types.
It is commonly believed that other methods of payment are safer than credit 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 forms of payments, such as a debit card. For instance, if you notice an unfamiliar transaction in your checking account, you should report it immediately. However, reimbursement for fraudulent charges is not always guaranteed. If your debit card is compromised, your account could be emptied and your bank itself could be at risk for fraud.
On the other hand, in the event of credit card fraud, individuals are typically protected from unauthorized charges. If you didn’t buy it, you won’t pay for it. In addition, many banks and credit card issuers offer the option to suspend your account online or via phone call, enabling you to protect your account the second you catch wind of any suspicious transactions.
As your beliefs about credit cards begin to change, make an effort to also change your spending habits. Keep in mind that improving your credit score is a gradual process. It requires patience, discipline, and consistent effort. But by making smart financial decisions and staying committed to your financial goals, you will be well on your way to achieving a healthier credit profile and qualify for better financial opportunities in the future. Now, it’s up to you to get out there, find the true answers to your credit card questions, and take control of your finances.
