Credit Card Myths That Are Costing You Money

There are a lot of myths and misconceptions about credit cards. Believing these myths can cause you to waste a lot of money. That is why it is important to separate the myths from the facts.

Myth: I do not Need a Credit Card

Fact: Many people believe that they do not need a credit card. They think that it is best to use a bank debit card, cash or prepaid card. You do not necessarily need a credit card, but there are a number of benefits that you can reap from having one. If you use your credit card responsibly, then you can increase your credit score. You can also get rewards when you use your credit card.

Myth: Going Over Your Credit Card Limit is not a big Deal

Fact: Many people go over their credit limit. However, this is not something that you should do. You will be charged a fee if you go over the credit limit. This will also have a negative impact on your credit card. Monitor your credit card use so that you do not go over the limit.

Myth: You Should Carry a Balance

Fact: You should try to pay your credit card bill in full each month. Carrying a balance really does not help your credit score. In fact, carrying a balance can hurt your credit score. A high credit card balance shows potential lenders that you may be financially irresponsible and living off of your credit cards. That is why many people who have high credit card balances are declined new credit.

Myth: The Number of Credit Cards you Have Affects Your Credit Score

Fact: When you apply for a new credit card, your credit score will temporarily take a dip. However, having a large number of credit cards will not necessarily affect your credit. The balance on your credit card is what will impact your credit score.

Myth: You Should Only Have a Credit Card

Fact: Many people cannot have a credit card in their pocket without accumulating debt. That is why many financial experts tell people that they should only have one credit card. If you are financially-responsible, then you may want to consider getting more than one credit card. It is a good idea to have at least two. This will help you if you happen to misplace a credit card or it is not accepted by a merchant.

Myth: You Will Immediately be Charged Interest

Fact: Every credit card company is different. However, most credit card companies will not charge you interest if your balance is paid in full every month. This is another reason that you should pay your credit card balance in full each month.

Myth: You Should not get a Limit Increase

Fact: A limit increase can boost your credit score. Your percentage of credit used is one of the factors that determine your credit score. If your credit limit increases, then your credit score will increase. However, you have to continue to use your credit card responsibly.

Myth: You Should Close old Credit Cards

Fact: Closing an old credit card can actually harm your credit score. Even though you are not using a credit card, it may be best for you to keep it open. When you close your credit card, you decrease the amount of available credit that you have. You also decrease the age of your accounts. The age of your credit accounts determines about 15 percent of your credit score. You can boost your credit score by making a small purchase with your credit card and then paying it off every month.

Photo: Thomas Kohler / CC 2.0