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Hi! I’m Kate, the face behind KateFi.com—a blog all about making life easier and more affordable.
Credit cards can be a financial lifesaver or a complete nightmare—it all depends on how you use them. But what if I told you that some of the advice you’ve heard about credit cards is completely wrong? Misinformation can cost you money, lower your credit score, and even leave you missing out on major benefits. So, let’s bust some common credit card myths and get you on the right financial track.
Myth #1: Carrying a Balance Helps Your Credit Score
If you’ve ever been told to keep a small balance on your credit card to boost your credit score, you’ve been lied to. Carrying a balance doesn’t help your credit; it just helps the bank make more money off you in interest.
The Truth: Your credit score benefits most when you use your card responsibly and pay off your full statement balance each month. Keeping your credit utilization low (ideally below 30%) and making on-time payments is what actually boosts your score. Want to learn more about how credit scores work? Check out Experian’s guide to credit utilization.
How This Myth Can Hurt You
Carrying a balance not only costs you unnecessary interest payments but can also make it harder to save or invest. Imagine paying an extra $500 a year in interest because of this common misconception—that’s money you could have used to grow your emergency fund or take a much-needed vacation.
Myth #2: Closing Old Credit Cards Will Improve Your Credit Score
Thinking of closing that old credit card you never use? Think twice. Many people believe that shutting down a card they don’t need will help their credit, but it can actually have the opposite effect.
The Truth: Closing a credit card can lower your overall credit limit, increasing your credit utilization ratio, which can hurt your score. It can also shorten your credit history, another important factor in credit scoring. If the card has no annual fee, keeping it open is usually the better move. Learn more about the effects of closing a credit card at NerdWallet.
Pro Tip
If you’re not using a card, set up a small recurring payment—like a Netflix subscription—to keep it active. This ensures the card stays in good standing and contributes positively to your credit history.
Myth #3: All Credit Cards Have High Interest Rates
Not all credit cards are created equal. While some have sky-high interest rates, others offer low APRs, and some even have 0% introductory rates.
The Truth: Interest rates vary depending on your credit score, the type of card, and the lender. If you always pay your balance in full, the interest rate doesn’t even matter because you won’t be paying interest at all. If you’re looking for a low-interest credit card, consider checking out The Points Guy’s best low-interest credit cards.
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Maximize Your Savings
Take advantage of 0% APR introductory offers for big purchases. For example, if you’re planning home renovations or buying new furniture, spreading the cost over several months with no interest can save you hundreds.
Myth #4: Applying for a Credit Card Will Tank Your Credit Score
Many people avoid applying for credit cards because they think a new application will severely damage their credit score.
The Truth: A single hard inquiry from a credit card application may cause a slight dip in your score (usually less than five points), but it’s temporary. On the other hand, responsibly using a new credit card can actually help build your credit over time. Learn how to minimize the impact of hard inquiries at Credit Karma.
The Bigger Picture
Applying for credit cards strategically—like targeting cards with strong rewards or sign-up bonuses—can actually improve your finances. Just don’t apply for too many in a short period.
Myth #5: Using a Credit Card Means You’re in Debt
Some people avoid credit cards altogether because they believe using one automatically means they’re accumulating debt.
The Truth: Credit cards are simply a payment tool. If you pay off your balance in full each month, you’re not in debt—you’re just using the card for convenience, security, and rewards. Learn more about responsible credit card usage at Bankrate.
Myth-Busting Example
Imagine spending $1,000 a month on a cashback credit card that earns 2% back. By paying off your balance monthly, you’d earn $240 a year in rewards without paying a cent in interest.
Myth #6: Credit Cards Are Always Risky
You might hear that using a credit card is a dangerous financial move that should be avoided at all costs.
The Truth: When used responsibly, credit cards offer fraud protection, purchase security, travel perks, and rewards points that can save you money. The key is to spend within your means and pay off the balance on time. Check out Forbes’ guide to the benefits of credit cards.
Real-Life Example
Many credit cards offer extended warranties on electronics. If you purchase a $1,000 laptop and it breaks after the manufacturer’s warranty expires, your credit card may cover the cost of repairs or replacement.
Myth #7: More Credit Cards Equal More Debt
It’s common to assume that having multiple credit cards leads to excessive spending and debt.
The Truth: Having multiple credit cards can actually help your credit score by increasing your available credit and keeping your utilization rate low. The problem isn’t the number of cards—it’s how you use them. If you want to compare multiple credit cards, visit WalletHub’s credit card comparison tool.
A Balanced Strategy
Diversify your cards based on your spending habits. Use one card for groceries, another for travel, and a third for online shopping to maximize rewards.
Additional Myths
Myth #8: Rewards Cards Aren’t Worth the Annual Fees
Many people shy away from rewards credit cards with annual fees, believing the cost isn’t justified.
The Truth: If used wisely, the perks and rewards often far outweigh the annual fee. For example, a travel rewards card with a $95 annual fee might offer free checked bags and airport lounge access, saving you hundreds of dollars a year.
Myth #9: You Should Never Use a Credit Card for Big Purchases
Some people think large purchases should be avoided on credit cards because of the potential debt.
The Truth: Big purchases on credit cards can actually be beneficial when you take advantage of rewards, extended warranties, and purchase protection. Just make sure you have a plan to pay it off immediately or during a 0% APR period.
Tips for Responsible Credit Card Usage
- Set Spending Alerts: Most credit card apps let you set notifications for purchases over a certain amount.
- Automate Payments: Never miss a due date by setting up automatic payments for at least the minimum balance.
- Review Statements: Regularly check your statements for unauthorized charges.
- Know Your Benefits: Familiarize yourself with your card’s perks, like cashback categories or travel insurance.
- Use Credit Sparingly: Avoid using credit for non-essential items or overspending.
The History of Credit Cards
Credit cards have evolved significantly since the 1950s when the Diners Club card was first introduced. Initially, these cards were primarily for elite customers, but they quickly expanded to serve a broader audience. Over time, the introduction of rewards programs, online management tools, and fraud protection has made credit cards an essential financial tool. Understanding their history can help you appreciate their benefits while avoiding pitfalls.
Q&A Section
Q: How Many Credit Cards Should I Have? A: There’s no one-size-fits-all answer, but many financial experts recommend having 2-3 cards with different benefits to diversify your credit profile.
Q: Can I Transfer a Balance to Save on Interest? A: Yes! Balance transfer cards with 0% APR offers can save you significant money. Just make sure to pay it off before the promotional period ends.
Q: What Should I Do If I Can’t Pay My Balance? A: Contact your card issuer immediately to discuss options. Many companies offer hardship programs or temporary payment plans.
Red Flags to Watch For When Choosing a Credit Card
- High Hidden Fees: Read the fine print to uncover annual fees, foreign transaction fees, or balance transfer fees.
- Limited Rewards Categories: Ensure the card’s rewards align with your spending habits.
- Short Introductory Offers: Beware of 0% APR offers that end quickly, leaving you with high interest rates.
- Complicated Redemption Processes: Check how easy it is to redeem your points or cashback.
The Bottom Line
Credit cards are powerful financial tools, but believing in these myths can hold you back—or worse, cost you money. The key is to educate yourself, use credit responsibly, and take advantage of the perks that come with a good credit strategy. Don’t let misinformation steer your finances in the wrong direction!
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