Credit cards are a convenient and powerful tool for managing expenses, offering rewards, and providing emergency funds. Despite this, many credit card myths persist, leading to confusion and even poor credit decisions. Let’s break down these myths to help you make the most of your credit card while maintaining a healthy credit score.
Myth #1: New Credit Cards Lower Your Credit Score
A common worry is that applying for a new credit card will hurt your credit score. While it’s true that a hard inquiry occurs during an application, a single inquiry has a minor effect, reducing your score by just a few points temporarily. The problem arises only when there are multiple applications in a short time, which can indicate financial stress. If used wisely, a new credit card can help your score by adding to your available credit limit and lowering your credit utilization ratio. Choose a card that aligns with your spending habits to build a positive credit history.
Myth #2: One Credit Card is Enough
Many believe that having only one credit card is best to avoid overspending. However, responsible users can enjoy benefits from having multiple cards. Different cards offer unique rewards, from travel points to cashback or dining discounts. In an emergency, a backup card can also be a lifesaver. Besides, having more credit can lower your utilization ratio, which is a crucial factor in maintaining a good credit score. The trick is to use all your cards carefully, keep track of due dates, and avoid unnecessary purchases.
Myth #3: Close Unused or Older Credit Cards
It seems logical to close credit cards you don’t use, but doing so can actually lower your score. Older cards contribute to your credit history length, a factor that lenders consider in evaluating your creditworthiness. Closing them shrinks your available credit, potentially increasing your utilization ratio, which is harmful to your score. Even if you’re not actively using an older card, keeping it open can enhance your credit history and lower your utilization rate.
Myth #4: Paying in Full Every Month Isn’t Necessary
You might think leaving a small balance on your card will boost your score, but experts advise paying in full each month to maintain a strong score and avoid high-interest charges. Carrying a balance may incur unnecessary interest costs. Paying your dues fully and on time shows lenders that you can manage credit responsibly, boosting your score over time. If you must keep a balance, ensure it’s manageable and doesn’t impact your ability to pay off future bills.
Myth #5: Avoid Credit Cards with Annual Fees
Many people avoid cards with fees, believing they don’t offer good value. However, cards with annual fees often come with substantial perks, like discounts on dining, travel insurance, free lounge access, or cashback on fuel. For example, frequent flyers may benefit more from a paid credit card offering complimentary airport lounge access than a free one. Evaluate your lifestyle and spending habits before ruling out cards with fees; sometimes, the benefits outweigh the costs.
Choosing the Right Credit Card
Consider your spending habits, lifestyle, and financial goals when selecting a credit card. Whether it’s a cashback card for everyday shopping or a travel card for discounts and rewards, choosing a card that matches your needs can improve your experience and help you get the most value out of each transaction. Avoid falling into the trap of credit card myths, and use your cards responsibly to build a positive financial history.
