Credit Card Myths That Could Hurt You

Credit cards are among the most misunderstood financial tools. While they offer incredible convenience, rewards, and financial flexibility, misinformation often leads people to misuse them or avoid them altogether.

Some believe credit cards are inherently bad, leading to debt and financial ruin. Others assume that using a credit card always improves their credit score.

These myths can influence financial decisions, sometimes preventing people from maximizing the benefits of credit cards or causing them unnecessary financial hardship.

The truth is, credit cards can be powerful financial instruments—when used wisely. They can help build credit, provide security in emergencies, and even offer cashback or travel rewards.

However, falling for common myths can lead to costly mistakes.

In this article, we will debunk the biggest credit card myths, separate fact from fiction, and provide you with a clear understanding of how to use credit cards responsibly.

Carrying a Balance Improves Your Credit Score

One of the most persistent myths is that keeping a balance on your credit card will boost your credit score.

Many people believe that carrying debt from month to month shows responsible usage and makes them look better to lenders. However, this is completely false.

» The Truth:

Carrying a balance does not improve your credit score—it only increases your interest payments.

Credit bureaus calculate your credit score based on several factors, including payment history, credit utilization, length of credit history, and types of credit used.

The most important factor is paying your bill on time. Whether you pay off your full balance or only the minimum amount, your credit score will reflect your payment habits.

Moreover, keeping a high balance increases your credit utilization ratio, which measures how much of your available credit you’re using.

A high utilization rate can hurt your credit score because lenders may see you as over-reliant on credit.

To maintain a good score, it’s best to keep your utilization below 30% of your credit limit and pay off the full balance whenever possible.

» What You Should Do:

• Always pay your balance in full to avoid interest charges.
• Keep your credit utilization low to maintain a strong credit score.
• Set up automatic payments to ensure on-time payments every month.

You Only Need One Credit Card

Many people believe that having multiple credit cards is unnecessary and even harmful.

The assumption is that having too many cards leads to overspending and a lower credit score.

While it is true that excessive credit cards can cause financial trouble for undisciplined spenders, responsible use of multiple cards can actually be beneficial.

» The Truth:

Having multiple credit cards can help you in several ways:

• Lower Credit Utilization:
  The more credit you have available, the lower your utilization ratio will be (as long as you don’t max out your cards).
• Better Rewards and Benefits:
  Different credit cards offer different perks. One card might provide great cashback on groceries, while another offers travel rewards.
• Backup in Emergencies:
  If one card is lost, stolen, or declined, having another card ensures you won’t be stranded without a payment method.

However, applying for too many cards in a short period can temporarily hurt your credit score due to multiple hard inquiries on your credit report.

The key is to apply strategically and only for cards that offer real benefits to your lifestyle.

» What You Should Do:

• Use multiple credit cards wisely to take advantage of different rewards.
• Avoid applying for too many cards at once to prevent credit score dips.
• Keep all accounts in good standing by making on-time payments.

Closing Old Credit Cards Helps Your Credit Score

Many people think that closing an old credit card account will remove it from their credit report and improve their credit score. They assume that fewer credit cards mean less risk. Unfortunately, this myth can lead to a lower credit score rather than an improvement.

» The Truth:

Closing an old credit card can actually hurt your credit score in two ways:

1. Reduces Credit History Length:
   The length of your credit history is an important factor in calculating your credit score. When you close an old account, you shorten your credit history, which can negatively impact your score.
2. Increases Credit Utilization:
   If you close a credit card with a high credit limit, your overall available credit decreases, raising your utilization ratio. This can make you appear overleveraged and cause a credit score drop.

The only time you should consider closing a card is if it has a high annual fee and you’re not using it enough to justify the cost. Even then, you might want to downgrade to a no-fee version of the card instead of closing it entirely.

» What You Should Do:

• Keep old credit cards open to maintain a long credit history.
• If you no longer use a card, consider putting a small recurring charge on it to keep it active.
• If the card has an annual fee, see if you can downgrade to a no-fee version.

Credit Cards Lead to Debt and Financial Ruin

Many people fear credit cards because they believe they inevitably lead to uncontrollable debt. While credit card debt is a real problem for those who spend beyond their means, the card itself is not the problem—how it is used determines the outcome.

» The Truth:

Credit cards do not automatically lead to debt. They are simply tools for making payments, and like any tool, they can be used wisely or irresponsibly. If used correctly, credit cards offer numerous benefits, such as rewards, fraud protection, and the ability to build a strong credit history.

The key to avoiding debt is spending within your means and paying off the balance in full each month. If you only pay the minimum, interest will accumulate, making it harder to pay off the balance over time.

» What You Should Do:

• Treat your credit card like a debit card—only spend what you can afford to pay off each month.
• Set up automatic payments to avoid missing due dates.
• Use your credit card for necessary purchases and take advantage of rewards.

Using a Debit Card is Just as Good as a Credit Card

Some people believe that using a debit card is the same as using a credit card, with the added benefit of avoiding debt. While debit cards help control spending, they lack many of the advantages that credit cards offer.

» The Truth:

Credit cards provide:

• Fraud Protection:
  Credit cards offer superior fraud protection compared to debit cards. If your credit card is compromised, fraudulent charges are usually reversed quickly, whereas debit card fraud can take longer to resolve and may result in lost funds.
• Rewards and Cashback:
  Many credit cards offer cashback, travel rewards, and other perks that debit cards do not.
• Credit Building:
  Debit cards do nothing to improve your credit score, while responsible credit card use helps establish a strong credit history.

While debit cards are useful for keeping spending in check, they lack the financial benefits of credit cards.

» What You Should Do:

• Use credit cards for purchases and pay off the balance in full each month.
• Keep a debit card for ATM withdrawals and budgeting, but don’t rely on it alone.
• Take advantage of credit card rewards and protections.

Source: Pixabay

Conclusion

Credit cards are powerful financial tools, but misinformation often leads to fear and misuse.

Understanding the truth about credit card usage can help you make informed financial decisions, maximize rewards, and maintain a strong credit score.

By avoiding common myths—such as carrying a balance to improve credit, closing old accounts, or believing credit cards always lead to debt—you can use credit cards to your advantage while staying financially secure.

When used responsibly, credit cards offer flexibility, rewards, and security that can enhance your financial health rather than harm it.

The key is to be disciplined, make timely payments, and understand how credit scoring works.

FAQs

1. Will having multiple credit cards hurt my credit score?
   No, as long as you manage them responsibly by making on-time payments and keeping balances low.
2. Can I build credit with a debit card?
   No, debit card transactions are not reported to credit bureaus and do not impact your credit score.
3. Is it bad to never use a credit card?
   Not using a credit card means missing out on building credit history and earning rewards.
4. Can I negotiate a lower interest rate on my credit card?
   Yes, some issuers will lower your interest rate if you have a good payment history.
5. Do credit cards always charge high interest?
   Interest is only charged if you carry a balance. Paying in full each month avoids interest entirely.