Credit cards have become an indispensable component of our everyday life. They offer convenience and flexibility when making purchases and managing finances. However, credit cards have also garnered many misconceptions over the years, which can lead people to refrain from using them or using them.
Myth #1: Credit cards are only for people with high incomes.
One of the most common myths about credit cards is that they are only for high-income people. This is not true. Credit cards are available to anyone who meets the eligibility criteria set by the issuer, regardless of income level. The income requirement may vary depending on the issuer and the card type, but it is not the only factor considered when determining eligibility.
For example, if you are a student or have a low income, you can still get a credit card that suits your needs. Many issuers offer credit cards with low credit limits or secured credit cards that require a deposit to open an account. These credit cards can help you build your credit history and improve your credit score.
Myth #2: Credit cards always charge high-interest rates.
Another common myth about credit cards is that they always charge high-interest rates. While it is true that some credit cards come with high-interest rates, not all of them do. Credit card interest rates can vary widely depending on the issuer, the type of card, and the cardholder’s creditworthiness.
For example, you may be eligible for a low-interest credit card if you have decent credit. Some credit cards also offer promotional interest rates for a limited time, which can be as low as 0% for a certain period. If you repay your debt in full before the promotional time ends, you will not have to pay any interest.
Myth #3: More credit cards will help your credit score.
Another common myth about credit cards is that too many will hurt your credit score. While it is true that opening multiple credit accounts can temporarily lower your credit score, having several credit cards does not necessarily harm your credit score in the long run.
If you use your credit cards wisely, having many cards can boost your credit score. A greater credit limit can help you increase your credit utilization ratio, the amount of credit you utilize compared to the total amount available. A lower credit utilization ratio can help improve your credit score.
However, using your credit cards responsibly and avoiding overspending is essential. Applying for many credit cards simultaneously might cause lenders to raise red flags and harm your credit score. It is best only to use credit cards that you need and can manage responsibly.
Myth #4: Closing a credit card will improve your credit score.
Many believe that closing a credit card will improve their credit score. However, this is only sometimes true. In some situations, closing a credit card might damage your credit score.
When you shut down a credit card account, your available credit decreases, which may result in a higher credit usage rate. A higher credit utilization ratio can lower your credit score. Closing a credit card account can also shorten your credit history, which is essential in determining your credit score.
However, if you have a high credit utilization ratio on the credit card you are considering closing, closing the account can help your credit score. It is also important to note that if the credit card has an annual fee, it may be worth approaching the account if you are not using it to avoid paying unnecessary fees.
Myth #5: Using a credit card will always lead to debt.
Another common myth about credit cards is that using a credit card will always lead to debt. While using a credit card irresponsibly can lead to debt, using a credit card responsibly can help you manage your finances and improve your credit score.
One advantage of using a credit card is that it allows you to purchase without carrying cash or a checkbook. Credit cards also offer rewards programs and cashback incentives, saving you money on purchases you would have made.
You must only use your credit card for items you can afford each month in full to prevent building up debt. To prevent overspending, you should monitor your expenditures and create a budget. You may lower your credit score and avoid interest payments by making on-time, complete credit card payments each month.
Myth #6: Using a credit card abroad is expensive.
Many people believe using a credit card abroad is expensive due to foreign transactions and currency conversion fees. While it is true that some credit cards charge fees for foreign transactions, not all of them do. If you use your credit card for international travel, it must have no foreign transaction fees.
Using a credit card abroad is more secure and convenient than carrying cash or traveler’s checks. Credit cards offer fraud protection and can be replaced if lost or stolen. They also allow you to track your spending and manage your finances while traveling.
Myth #7: Credit cards are not secure.
Another common myth about credit cards is that they are not secure and can be easily hacked. While it is true that credit card fraud is a concern, credit cards offer several layers of protection to keep your information secure.
Most credit cards use chip and pin technology to prevent fraud and offer zero liability protection for unauthorized purchases. You can also monitor your credit card account online and set up alerts to notify you of suspicious activity.
It is crucial to use your credit card on secure websites and never to disclose your credit card information to anybody to protect yourself against credit card theft further. Also, you should routinely check your credit report to ensure no illegal accounts or purchases on your credit history.
Myth #8: It is best to always pay the minimum balance on a credit card.
Another common myth about credit cards is that paying the minimum balance each month is best. While spending the minimum balance can help you avoid late fees and prevent your account from going into default, there are better strategies for managing debt.
When you merely pay the minimum amount due, you hardly make a dent in your debt and let interest fees build up. This can lead to long-term debt and higher interest charges over time.
Paying more than the minimum sum due each month will help you pay off your credit card debt more quickly and save money on interest fees. Paying more significantly than the minimum amount due can speed up debt repayment and save interest costs.
Myth #9: Applying for a credit card will always hurt your credit score.
Many believe that applying for a credit card will always hurt their credit score. Using credit with it may cause a hard inquiry to appear on your credit report, momentarily decreasing your credit score, but this is not always the case.
Your credit score may be acceptable if you have solid credit and apply for a credit card with a poor credit limit. Your credit score may go up if you are given the credit card and utilize it appropriately.
Myth #10: Closing a credit card will improve your credit score.
Many believe that closing a credit card will improve their credit score, but this is not necessarily true. Your credit score may suffer if you complete a credit card in several ways.
First, closing a credit card can decrease your available credit, increasing your credit utilization ratio and lowering your credit score. Second, closing a credit card can shorten your credit history and lower your credit score. The variety of credit accounts on your credit report can be decreased by closing a credit card, which can also affect your credit score.
If you need to close a credit card, it is essential to do so strategically and to consider the potential impact on your credit score. For example, keep your oldest credit card open to maintain a more extended credit history.
Myth #11: Credit cards are only for emergencies.
Credit cards are helpful in more than just crises, even though they can be in those situations. You may improve your credit and receive incentives by using a credit card for regular purchases and paying the bill in full monthly.
Using a credit card responsibly can also provide a buffer between your purchases and checking account, which can help you avoid overdraft fees and protect you from fraud. Additionally, using a credit card for large purchases can provide additional protections, such as extended warranties and purchase protection.
Credit cards are a valuable financial tool that can help you manage your finances, improve your credit score, and earn rewards. By understanding and debunking common myths about credit cards, you can make informed decisions about using them responsibly and maximizing their benefits. Remember always to use your credit card responsibly, avoid overspending, and pay your bill on time to avoid interest charges.