15 Credit Card Myths That Are Hurting People's Financial Health

Credit cards are powerful financial tools that can offer convenience, rewards, and flexibility when managed responsibly. However, misconceptions and myths surrounding credit cards often lead to detrimental financial decisions that can harm individuals’ financial health. In this guide, we debunk common credit card myths and shed light on the truths behind them, offering clarity and insight to help individuals navigate the world of credit cards more effectively.

1. Carrying a Balance Boosts Your Credit Score

Credit Scores — Photo Credit: Depositphotos.

A common myth suggests that keeping a balance on your credit card helps your credit score. This isn’t true. In reality, it costs you money in interest and can lower your score by increasing your credit utilization ratio. According to Bankrate paying off your balance in full each month is the best strategy.

2. Closing Old Accounts Improves Your Financial Standing

Financial Planning — Photo Credit: Depositphotos

Closing old or unused credit accounts can positively impact their credit score. However, this action can harm your score. It reduces your overall available credit and can shorten your credit history, both of which are key factors in determining your score.

3. You Only Need One Credit Card

Business woman hand hold credit card to shopping internet online bill on Computer — Photo Credit: Depositphotos.

While simplicity is appealing, having only one credit card can limit your financial flexibility and credit-building potential. More cards can improve your credit utilization ratio, assuming you manage them responsibly. This diversification can also provide more security in case of fraud or loss.

4. Checking Your Credit Score Lowers It

woman on phone with credit card — Photo Credit: Depositphotos.

Many shy away from checking their credit score, fearing it will drop. This is a myth. A self-check is a soft inquiry and doesn’t affect your score. Regular checks are crucial for understanding your financial health and spotting any potential fraud early.

5. Credit Cards Are for Emergencies Only

Remove BG Save Share Sample Many different credit cards on wooden table — Photo Credit: Depositphotos.

This myth can prevent you from leveraging the benefits of credit cards, such as rewards and building credit. Using a credit card for regular, manageable purchases and paying off the balance each month can be a smart financial strategy. It demonstrates responsible credit use and can improve your credit score over time.

6. More Cards Mean More Debt

It’s easy to think that more credit cards automatically lead to more debt. Not necessarily true. Responsible use of multiple cards can help manage finances better by taking advantage of different rewards programs. It’s all about how you use them, not how many you have.

7. Annual Fees Are a Waste

woman stressed over bills and expenses — Photo Credit: Depositphotos.

Many shy away from cards with annual fees, believing they’re not worth the cost. However, cards with fees often come with benefits that can outweigh the expense, like travel perks or higher reward rates. It’s about finding the right fit for your spending habits.

8. Rewards Points Are Free Money

Businessman hands pulling money VALUE concept on brown wallet. — Photo Credit: Depositphotos.

Rewards and points feel like a bonus, but they can encourage extra spending. If you’re buying more just to earn points, the costs might outpace the rewards. Use rewards wisely, as a bonus for planned purchases, not as an excuse to spend more.

9. Paying in Full Hurts Your Credit Utilization

Regular Check-ins on Spending — Photo Credit: Depositphotos

Some folks think keeping a small balance uses credit wisely. In truth, paying off purchases in full each month is smart. It shows lenders you’re a responsible borrower. Plus, it saves you from paying interest.

10. Minimum Payments Are Enough

Salesman Accepting Mobile Payment From Customer In Cheese Shop — Photo Credit: Depositphotos.

Paying the minimum keeps your account in good standing but doesn’t do much to decrease your debt. It also means paying more interest over time. Whenever possible, pay more than the minimum to chip away at the principal balance faster.

11. Needing a Perfect Credit Score for Approval

Monitor Your Credit Score — Photo Credit: Depositphotos.

A common myth suggests that only a perfect credit score can guarantee credit card approval. In reality, lenders consider various factors, including income and debt-to-income ratio. A less-than-perfect score doesn’t shut the door on your chances. It’s more about the overall picture than a single number.

12. Interest Rates Stay Fixed Forever

Many believe once they snag a credit card with a great rate, it’s locked in for life. Yet, interest rates can change due to market conditions or payment habits. Lenders often adjust rates, especially if you miss payments. Always keep an eye on your statement for any changes.

13. Credit Cards Trap You in Debt

Forgetting to Downsize Debt — Photo Credit: Depositphotos.

This myth paints credit cards as villains in your financial story. However, when used wisely, they’re tools for building credit and managing finances. The key lies in spending within your means and paying balances in full. Discipline turns credit cards into allies, not enemies.

14. Automatic Insurance and Protection Benefits

Insurance Benefits, Protection Risk Concept — Photo Credit: Depositphotos.

Assuming all credit cards automatically offer perks like travel insurance or fraud protection is a mistake. Benefits vary widely across cards and issuers. It pays to read the fine print before relying on these features. Understanding what your card offers can save headaches later on.

15. Sign-Up Bonuses Are Always Worth It

Conceptual display Time For Bonus — Photo Credit: Depositphotos.

The lure of sign-up bonuses can be strong, but they’re not always the golden ticket they seem. Chasing bonuses without considering the card’s long-term value can lead to unwanted fees and mismatched benefits. Evaluate how a card fits your lifestyle beyond the initial perks.