8 Credit Card Myths: Busted!

8 Credit Card Myths Busted - up close picture of blue credit card

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When it comes to having credit cards, there’s a lot of malarkey and misinformation floating around. Peddled by well-meaning people who think they are looking out for your best interests, the lines of reality quickly get blurred. Their heart is definitely in the right place, and I’m not saying that they don’t have reason for concern. After all, the average American’s household credit card balance (for those carrying balances) is over $15,000. So clearly, there is a credit card debt issue in this country.

Still, credit cards tend to get a pretty tough rap. I would never want you to open a credit card if you’ve had credit addiction problems in the past, nor would I ever encourage you to pile up credit card debt. Frankly, consumer debt is a prison sentence and I want you to avoid it at all costs. Yet, using credit cards can be an advantageous financial pursuit when it is done properly. That’s why I’m slipping on my white jumpsuit, strapping on my proton pack, and heading out to bust these 8 common credit card myths!

Myth #1: Credit Cards are Always Bad

There is a school of thought in the personal finance world that believes credit cards are evil incarnate. For the most part, this comes from the debt reduction crowd – which I am proudly part of, BTW. This line of thinking follows the idea that nobody should use a credit card for anything, EVER. As with all absolutes, this way of thinking tends to miss some very important opportunities.

Again, let me state that we are totally against accruing debt. If you ever want to build real wealth and experience the financial freedom that comes with it, you need to eliminate your debt. Let me also say that if you’ve had a credit addiction problem in the past, credit cards are probably something that you want to steer far, far away from.

Yet, credit cards themselves are not inherently evil. Of course, you can certainly get burned by them if you don’t use them responsibly. On the other hand, we have used credit cards and the rewards that come with them to redeem thousands of dollars in travel over the last few years. We have been able to see much of the world that we wouldn’t have been able to afford if it wasn’t for credit card rewards. Obviously, if you are spending more than you should to earn the rewards or if you are paying interest, credit card rewards aren’t saving you any money. Thus, the key is spend only what you normally would spend and pay it off with cash immediately. Myth #1 – BUSTED!

(Related → How We Booked a Jamaican Spring Break Vacation for 4 on Points)

Myth #2: I Won’t Get My Points if I Pay Off My Card Early

There is a myth floating around that paying off your balance prior to it accruing interest will cause you to lose the points that you should have earned through your spending. This myth needs to die a quick, gruesome death because it is simply not true. So, let’s put this ugly myth on the guillotine and let its head plummet into the basket below.

We use several credit cards and have for years. We pay them off several times a month. Never once have we ever lost any rewards points for paying the balance off early. In fact, if you are going to pay the credit card points game, this is the only way you should do it. If not, you are costing yourself more money in the end. Let me repeat: Pay off your cards every month. If you can’t, you are spending too much. Stop using the cards and cut them up before you get in too deep. (Annnd, cue the head plop sound effect now.)

Myth #3: I Don’t Need a Credit Card

So, this is one of those ideas that may or may not be true. The typical argument is that you don’t need a credit card because you can use a debit card to pay for items instead. You can even use your debit card for security deposits or to place items on hold, like hotel rooms. Any money you spend on the card comes directly out of your checking account, so you never have to worry about going into debt. If you don’t have enough money to cover the funds, you can’t use the debit card to make the purchase.

While all of this may be true, having a credit card can sure be a nice convenience. No, you may not necessarily need a credit card. However, there are a couple of issues that I have with the debit card substitution. Minor accounting mistakes could mean major fees. Accidentally forgetting to account for one outstanding check could mean a stiff overdraft fee. Furthermore, while using your debit card to place items on hold is logical in theory, it may not be the best option for you in practice as it could negatively affect your available cash flow. By using your debit card to book a hotel room, you are basically putting a hold on set amount of cash in your account. The hotel may place hundreds of dollars on hold that you can’t get to. Obviously, not everybody can afford to do this.

With a credit card, holds on your cash don’t happen. Your available credit may be diminished, but the actual charge is not placed until you use the item. Yes, you may not need a credit card, but it can sure help your cash flow to have one.

Myth #4: Using Credit isn’t Safe

If you are worried about whether or not it is safer to use a credit or debit card, you definitely want to stick with the credit card. According to the Federal Trade Commission, your maximum out-of-pocket loss is just $50 for fraudulent charges on your credit card. If you report the card stolen or missing prior to any fraudulent purchases, your are liable for nothing.

The same can not be said of debit cards. Like with credit cards, you are not liable for any fraudulent charges to your debit card if you report it missing or stolen prior to any purchases. You are responsible for up to $50 in purchases if you report it missing within 2 business days. However, you are responsible for up to $500 if you report the card missing more than 2 business days later, provided you report it less than 60 days after your statement has been sent to you. If not, you’re in for a major problem. Failing to report the card missing or stolen for more than 60 days after you receive your statement means that you are liable for every penny fraudulently taken from your account. You are also liable for any money taken out of other accounts that are linked to your debit card.

So, yeah. Credit cards have far more legal protection against fraud than debit cards do, and it’s not even close. Consider this myth BUSTED! KEE-YI! *Judo Chop*

Myth #5: Too Many Credit Cards Hurts Your Credit Score

This nasty rumor is almost certainly untrue for your situation. The number of cards you have open does not in itself hurt your credit score. On the other hand, if you are carrying large balances on each of them, it certainly could.

In reality, opening up a new credit card could actually help your credit score. About 30% of your credit score is composed of something called “credit utilization.” Basically, credit utilization tracks the amount of your available credit that you are currently using. So, if you have $10,000 in available credit and you have a $2,000 outstanding balance, you are using 20% of the credit that is available to you. If you open up an additional credit card with a limit of $10,000 and don’t carry a balance, your credit utilization drops to 10% (and your credit score theoretically increases).

Need more proof? We carry multiple credit cards and we change them out fairly regularly. Our credit scores range from over 750 to 810. BAM! We just busted up that chifferobe like it ain’t nobody’s business!

Myth #6: I Won’t Be Able to Get a Mortgage

One of the main ingredients for mortgage eligibility is your credit score. Remember, a credit score is essentially a measurement of how well you handle your debt. Part of your credit score is based on your payment history and still another part is based on the length of your credit history. Thus, if you want to secure a loan at a good rate, you have to show that you have a history of using credit and paying back your lenders.

In essence, a credit card can help you get a mortgage by helping you to establish a credit history. So yes, if you are using too much of your available credit or you have too high of limits set on your cards, you may have a little trouble. Otherwise, having a credit card and getting a mortgage should be no big deal. How do you like that noise Myth #6?

(Related → How to Pay Your Mortgage with a Credit Card)

Myth #7: My Income is Too Low to Get Approved

I’ve heard this myth more times than I could count. Although your income may limit the total amount of credit available to you, it should have no effect on whether or not you can get a single credit card. If you can show any income at all, most credit card issuers are going to be willing to extend at least some credit to you. All you have to do is ask.

Of course, opening a credit card on a low-income may or may not be a good idea. It really depends upon your personal circumstances. If you are young and struggling, getting a credit card could be a very bad decision. If your income is low because you are retired, getting a credit card to redeem rewards points could be a good way to get free stuff – provided you have the cash saved up to pay it off. Either way, make sure that your financial house is in order before you seek out new lines of credit.

Myth #8: I Can’t Get a Credit Card Because My Credit Score is Below 720

Although you may not be eligible for the best credit card rates or the best rewards cards, you should still be eligible to obtain some type of credit card. In fact, if you are a student or somebody looking to increase your credit score, it may be a good way to start building your credit. There are dozens upon dozens of credit cards for people with bad credit. Again, you aren’t going to be able to take advantage of some of the best deals, but you there are plenty of credit card issuers who will gladly accept your business. Just remember, you need to pay your balances off every month or you are not doing yourself any favors. If you have had credit addiction issues in the past, your probably best just to stay away.

(Related → Free Credit Card Rewards Advice)

BOOM! I love myth busting! I feel so cleansed afterwards. How about you? Are there any credit card myths that you want to bust? Let us hear your thoughts in the comments below!

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  1. When I was getting out of credit card debt (50K), I stopped using credit cards. I think you need to become very disciplined in not using them and that takes time, sometimes a lot of time. Do I have credit cards? Yes I do, but I didn’t get one for many, many years after I paid off all my debt. In the beginning I was tempted to use them irresponsibly and did. I got rid of them again and waited again. It was a process. Unfortunately, if you can’t control yourself, you should never use credit cards because you’ll only end up in debt again. I now use credit cards for my business only and pay the balance in full each month when I do use it. Everything else is paid in cash or via my debt card.

    1. I absolutely agree. Credit cards can be very dangerous for people who have a spending/credit addiction. It is very important to recognize this in yourself or you could get buried underneath mountains of debt.

  2. All great points. If you can trust yourself not to get into debt with credit cards, they can be an extremely useful tool. They offer protection, credit history, rewards points, and make it really easy to track spending online.

    1. We use our cards to pay for pretty much every purchase we make. Of course, we only buy what we intended and we also pay off the balance multiple times a month. The rewards points have allowed us to travel more than we ever dreamed we’d be able to at our age.

    2. Ali’s points are all good ones. And there are more. That’s why I have found it financially advantageous to keep 26 active credit cards with over $300,000 of aggregate available credit. But I pay any balances owed every month. Credit cards are good; high-interest credit card debt is not. :O

  3. We have quite a few credit cards at this point and it hasn’t hurt our credit at all – on the contrary, our scores are now in the 800s for the first time ever. We always pay the balances in full, though. It took us years to learn to spend responsibly on credit cards and not carry balances. But now that we have, we are really reaping the benefits of rewards cards!

    1. Well done Dee. Keep on paying off those balances and reap the rewards!

  4. I was actually having a discussion with a family member over the weekend about #5 and they couldn’t believe that our credit score has never been higher. Of course, they think that travel hacking is one big scam so I was fighting a lost cause on one level. That being said, we use our credit cards for nearly every purchase we have to make – it makes things much easier for us.

    1. Ha! I’m not sure how it could be a scam, but oh well. More for me I guess 🙂

      I think one thing that people fail to understand is what your credit score represents. It isn’t a measure of how wealthy or financially stable you are. It measures how well you handle credit. There is a big difference.

  5. Great points! I especially agree that using credit cards isn’t always bad. If you are disciplined and don’t go willy nilly with spending because of it, they can be a great resource to build up your overall credit and also reap some rewards!

    1. Yeah, the Dave Ramsey crowd (who I mostly dig) really give credit cards a bad name. Yes, you can certainly get into trouble with them. However, there are lots of things in life that are bad for you if you over-indulge – credit being one of them.

  6. I’m probably not much different from many of your readers, but I probably have either spent $0 or less than $10 (I’ve called, for example, if I mailed a payment late and got an interest charge but the credit card company always takes off the fee. There may have been one time when they haven’t – that’s why I can’t remember). However, I have probably made approximately $2,000 to $2,500 in rewards/cash back, etc. in the 21 years I have had credit cards. I will say we probably have spent more than if we have spent cash, but that’s mostly my husband. lol

    1. Good work! Next time your husband spends too much, just give him the silent treatment 😉 He’ll come around! 🙂

  7. Mr. Budgets’ credit core has actually gone up drastically since we’ve started credit card hacking. It’s mainly due to the fact that he used have a small credit limit (only had one card).

    1. There you go! Another example of how credit utilization goes down (and scores go up) when you open up more available credit.

  8. I once watched a doc on how people were blaming cc companies for their problems. Although cc do market and target people who may or may not be able to pay things off, it’s still their decision to use them. Just because I see McDonalds commercials does not mean I will eat there.

  9. Great job! I’ve used credit cards for everything I can since I was 18. I’ve never carried over a balance (that was’t at 0%). As long as you are responsible, they can be a great friend 🙂

    1. Totally agree. Like I said, we’ve used them to see parts of the world we never would have seen without the rewards.

  10. I am finding it harder to get approved because we’ve used so many cards. We just got a new Ink card, but they grilled Jim quite bit. We’ve never lied or made up income or a business to get cards, but I do think they are cracking down on people who take advantage of lots of reward bonuses. Luckily, I have enough points to get through most of next year’s travel and maybe by then, it will have been long enough to apply again!

    1. Yeah, depending on the company, you may have to jump through a few hoops. Also, I’m sure you’re aware, but keep track of how many inquiries you have had and when. As they fall off, you can try to obtain more cards. You can also move available credit around by decreasing limits on some open cards in order to clear room for new ones – if they let you.

  11. One other credit myth is that you need to carry a balance to build your credit score. You should always pay off your balance on time and in full every month.

    1. Yeah, that is a major myth. I tried to point that out in #2, but perhaps I wasn’t that clear.

  12. Nice job, Holly! I think one thing I’ve learned over the past 8-10 years is that it’s 1) better to get credit established earlier than later and 2) you need to at least open 1 card to get going. I had trouble understanding why some of my friends were in their early to mid-20s and had never opened a credit card. But then I realized they aren’t as into pf as me and probably didn’t realize how much they were hurting themselves by holding off.

    1. If you can handle the responsibility, the earlier you can start building credit, the better. At this point in my life, I don’t really need great credit anymore (besides for rewards, obvi). However, most people are going to need credit to buy a house at some point. Thus, the earlier you start building, the better your rate will be when you buy.

  13. I’m pretty sure that having too much available credit can create problems. That said, I believe that’s usually only in relation to opening new cards. If you have too much available (I’m assuming based on your income), some cards worry about giving you too much more. Not sure of the logic behind that, but I was once told that the new card’s credit limit was smaller because we already had large credit limits.

    That said, yes credit cards are a very useful tool. Just like any tool, you can hurt yourself if you’re careless. But that doesn’t mean it’s too dangerous to use them.

    Also, I’ve always wondered how people with only debit cards deal with unexpected major repair bills. Most people don’t have immediate access to thousands of dollars. At the very least, it can take a couple of days for everything to transfer over. Meanwhile, your car still isn’t working or that roof is still leaking or whatever.

  14. Everything in moderation. A few cards with a long history can be great and can be handy in an emergency, but there’s no need to have too many. If you’re really disciplined and pay your card off in full in month, then rewards points can be excellent. I earn hundreds in Amazon gift cards each year, just for shopping as usual and paying my bills on time. Free money!

  15. I just had two high school students interning with me and I gave them the credit card run down. They looked at me like I was crazy and stated that they thought credit cards were bad and planned to avoid them for as long as they could. I informed them that they actually have to do the exact opposite of that and showed them the path to great credit. Hopefully they will heed my advice!

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