5 credit card myths you shouldn’t fall for

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Myth 1: Having a credit card means you’ll fall into debt

The biggest myth of all is that the possession of a credit card automatically leads to debt. Credit cards are, in fact, a money tool in the real world. Debt only happens if you continuously overspend or refuse to pay your bills on time. If used responsibly—by paying off your balance in full each month—a credit card can help build credit history and even reward points, without resulting in any ill fiscal consequences.

Myth 2: Having a balance helps your credit score

The majority of consumers believe that having a positive, unpaid balance every month will be good for their credit score. The truth is, however, that credit bureaus reward you for timely payments, not for having outstanding debt. In fact, keeping a balance can cost you more in fees and may hurt your credit utilization ratio. Paying the bill in full is the way to go to maintain or enhance your score.

Myth 3: Having multiple cards destroys your credit

That's true, it is true that each new account will temporarily ding your credit score a few points, but the impact is usually small and temporary. Over time, having multiple credit cards can benefit your score if you use them responsibly, as it lowers your overall credit utilization. Just be sure to apply for cards that you really need and can repay.

Myth 4: Credit cards always have secret charges

Another common myth is that credit cards always have secret charges. Most fees, such as an annual fee, cash advance fee, or late fee, are actually listed in the terms and conditions. Even many cards don't charge an annual fee. The biggest trick to prevent being caught off guard is to read the fine print carefully and only use the card for its stated purpose.

Myth 5: Closing old cards increases your credit score

Most individuals believe that shredding unused credit cards will help their credit score, but in some cases, just the opposite occurs. Two of the most significant factors used when determining your score are length of credit history and utilization, and closing a card can make your history shorter and your utilization ratio higher, both of which decrease your score. Unless it is a high-cost card you don't wish to continue paying for, it is best to leave old accounts open.

FAQs

Q1: Is it better to have only a single credit card?

Not necessarily. Having multiple cards is better, as long as you treat them well. It gives you increased credit limit, facilitates utilization, and may offer diverse rewards.

Q2: Do credit cards loosen my financial discipline?

Credit cards don't ruin discipline per se—it's just a question of how you use them. Used wisely with budgeting, they can even be leveraged to track spending and build positive financial habits.

Q3: Should I just never use credit cards?

No. Credit cards are wonderful tools for building credit history, earning rewards, and acquiring purchase protection. The secret is using them intelligently by paying off full balances and on time.