Credit cards aren’t necessarily evil or harmful to your financial situation. However, thanks to a lot of credit card myths, people often use their cards in a way that causes them financial pain. Knowing the difference between myths and the facts will help you minimize damage to your credit score or history. Take a look at a few of the more common credit card myths and get the real story behind them.
No. 1 Your Credit Limit is What You Can Afford
When you apply for almost any type of loan (such as a mortgage) the amount the lender lets you borrow is usually in line with what you can pay back comfortably based on the terms of the loan. That’s not exactly the case when it comes to credit cards. You might have a $5,000 or even $10,000 limit --- but that doesn’t mean you can afford to charge that much on the card. Instead, the amount you can comfortably put on your card each month depends on your actual budget as well as what you can afford to pay at the end of the billing cycle (before the due date).
No. 2 You Need One of Each Type of Card
Since there are four different types of credit cards (Visa, MasterCard, American Express, Discover—it’s easy to assume that you need one of each. After all, some stores and restaurants don’t take every type of credit card and some cards aren’t accepted in foreign countries. The truth is, if you have at least one or two major credit cards, you’re unlikely to run into issues when it comes to acceptance. If you’re really worried about your card being turned down because it’s not the right brand, you have options aside from opening a slew of new cards. One of those options is to make sure you have enough cash on hand to cover purchases.
No. 3 Paying Only the Minimum Due is the Best Option
It’s hard to say where the idea that you should only make minimum payments came from, but one thing is clear: the idea is a myth. When you only pay the minimum, you’re prolonging the amount of time it takes you to pay off your debt. You’re also increasing the amount you pay to the credit card company because interest accrues on your balance when you don’t pay it off in full. Instead of making minimum payments, pay your cards off each month. If you can’t pay in full, pay as much as you can. Make paying off the card with the highest interest rate a priority in order to avoid paying more in the long run.
No. 4 You Should Cancel Any Cards You Don’t Use
Admittedly, canceling any credit cards you no longer use and have no plans for using in the future seems like a practical idea. However, keeping those cards open helps your credit score in a few ways. For one thing, the longer your card accounts are open, the longer you’re building up your credit history. In addition, having, open, unused accounts makes it look as though you have a lot of credit extended to you. This can increase your credit score.
If you’re struggling with debt, whether it’s credit card debt or another form of debt, CESI can help. Our team of credit counselors can help you make sense of credit card myths. We can help you work your way out of debt and push you towards a brighter financial future.
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Consumer Education Services, Inc. empowers people to overcome their financial challenges and lead financially-healthy lives.
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