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5 Credit Card Myths Hurting Your Financial Future

Credit cards are a tool that many of us use in order to buy things in a convenient fashion, but they represent both convenience and risk. When used properly, credit cards can add value to our financial lives because they offer the ability to buy things now and pay later, build credit and accumulate rewards.

However, they can also result in large amounts of debt, huge interest costs, and can be extremely detrimental to your financial future if they are not managed properly. Here are five credit card myths that may be hurting your financial future.

1. Carrying a Balance Will Help Credit Score

Carrying a balance on your credit card will actually hurt your credit score. The credit bureaus want to see that you can pay your debts, and do so on time. The best way to utilize a credit card is to pay off the balance each month. This demonstrates that you have the ability to take on manageable debt and pay it off on time. (For more, see: Credit Cards: Pros of Using a Credit Card.)

There may be times where you cannot pay in full. In these instances, you will want to make at least the minimum payment. No matter what you decide to pay, it is vital that you pay on time because paying late will certainly hurt your credit score. 

2. You Should Only Have a Debit Card

This myth originated from the belief that with a debit card, you will only be able to spend what you have (whereas with a credit card, you can spend more than what you've saved). While this is true, credit cards are actually more secure than debit cards in a time when data breaches and fraud is on the rise. Both debit and credit cards offer cybersecurity protections, but credit cards tend to have stronger protections for the card holder.

If you experience fraud while using a debit card, the funds could be taken out of your bank account immediately and it may take your bank a few weeks to clear it up. This could tie up the funds in your account and even result in bounced checks or insufficient funds while the fraud is investigated.

Fraud on a credit card is not going to cause an issue with your bank accounts while they perform an investigation. 

3. Interest Begins to Accrue Right After a Purchase

It is true that credit cards can come with significant interest rates attached to them, but they do not start accumulating until after your payment is due. if you pay your bill on time, you will not incur any interest. The credit card is simply providing you with an interest-free loan from the date of your purchases until your monthly payment is due. (For more insight, see: Understanding Credit Card Interest.)

4. Never Pay an Annual Fee

Paying an annual fee for a credit card is not necessarily a bad thing. The choice about whether or not to pay an annual feel depends on your evaluation of the cost benefit of the fee. Many cards available today have tremendous benefits attached to them. There are cards available that provide you with anything from additional purchase insurance or warranty coverage, airline credits, internet access on flights, baggage fees, travel insurance, access to premier lounges, access to a concierge and many other benefits.

You need to review what the benefits are, evaluate whether you will use them, and decide if the card is worth the expense. The benefits for many consumers outweigh the cost.

5. Having Too Many Credit Cards Will Hurt My Credit Score

Having several cards can actually help your credit. The credit bureaus will look at the amount of credit you have available and how you are using it. Your score can benefit by having a lower utilization of a higher credit amount. The number of credit cards you have, or will want to have, depends on what stage of life you are in and what your goals are at that time.

While having multiple cards may not hurt your credit, it may present a hurdle when obtaining a mortgage. The mortgage company may look favorably at your higher credit score, but they will not look favorably at the fact that you have access to a larger pool of credit.

Credit cards can provide you with a great way to pay for things, build your credit and ensure against fraud. But there are many myths that exist about credit cards and it is important to understand the facts. Most importantly, you want to use credit cards in a way that they will enhance, and not hinder, your financial future. (For more from this author, see: 5 Financial Habits You Should Start Today.)


Disclosure: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.