Whether you’re considering opening your first credit card, or already have several in your wallet, you’ve no doubt come across plenty of advice on how to use them. It can come from the Internet, banks, friends or family members. But no matter who’s talking, they could be misleading you, even if they seem like an expert. Credit cards have gotten a bad reputation lately, and for good reason: As of September 2015, the average amount of credit card debt¹ owed per American household stands at almost $16,000, based on Nerdwallet’s analysis of statistics from the Federal Reserve and “other government data.”

When used carelessly, credit cards can be a big drain on your finances, not to mention your overall wellbeing. But many use them as a tool to boost credit scores and get better deals on home loans and insurance rates. Whatever your experience with credit cards may be, don’t fall for these myths regarding their use.

Myth: You should always carry a balance on your card to boost your credit score

Reality: This is a persistent piece of advice that is simply not true. According to Investopedia, on-time payment and credit utilization² are two of the most important barometers of your credit score. While paying the minimum amount due on your balance before the due date won’t exactly hurt your credit, it certainly won’t raise your score. More importantly, it will incur interest payments, basically the same as throwing money away. You should always pay off your balance in full, every month and on time. If you must carry a balance, keep it below 30 percent of your credit limit.

Myth: You only need one credit account

Reality: Taking out more credit than you really need is never a wise decision. But responsible utilization of multiple types of credit will help raise your credit score. Forbes suggests a diverse mix of credit³ accounts, including credit cards and installment loans, in order to get the most out of your rating. Installment loans can take the form of a mortgage, a student loan or another type of personal credit line. The caveat to this guideline is to make sure you aren’t in over your head at any point. If you already struggle to make the minimum payment on a student loan, for example, you may want to delay opening that new credit card account. All the free airline miles in the world won’t dig you out the debt incurred from irresponsible spending.

Myth: Always carry one credit card from each major card company

Reality: Again, opening more credit cards than you realistically need is asking for trouble. But this myth assumes most retailers only accept one or two of the four major card brands: Visa, Mastercard, American Express and Discover. Speaking to CreditCards.com, Linda Sherry of Consumer Action offered some logic on this issue. Basically, it isn’t really a problem. While each brand’s marketing strategy may persuade you otherwise, many stores accept all four, if not at least two of them. Sherry also notes that millions of people get by using only one card at a time.

Myth: Avoid credit cards at all costs. Just stick to debit cards and cash

Reality: As previously mentioned, credit cards have proven detrimental to many people’s finances. But many more have actually saved money from credit card use. It’s all about being mindful and taking control of your habits. If you know you have trouble controlling your spending, and often run out of money to pay bills and other necessities, you need to address this issue before applying for a credit card. But if you find it easy to pay utilities on time and manage your money without significant stress, a credit card may come in handy thanks to the bonuses they offer. Cash back and points cards will save a small amount of money on purchases, almost like an automatic savings account. And if you can consistently pay off your balance, you’ll be rewarded with a higher credit score. The better your credit rating, the more money you may save on loan interest rates, insurance policies and even cell phone plans.⁴ If you can handle the responsibility, a credit card can only help you and your budget.

The views expressed by the articles and sites linked in this post do not necessarily reflect the opinions and policies of Cash Central or Community Choice Financial®. 

Sources:

¹El Issa, Erin. (2015, Dec 12). Retrieved from: https://www.nerdwallet.com/article/credit-cards/household-debt-study-2015

²Fontinelle, Amy. (2023, Feb 20). Retrieved from: https://www.investopedia.com/articles/pf/10/credit-score-factors.asp

³Black, Michelle. (2022, Dec 6). Retrieved from: https://www.forbes.com/advisor/credit-cards/does-closing-a-credit-card-hurt-your-credit-score/

⁴El Issa, Erin. (2023, Jul 5). Retrieved from: https://www.nerdwallet.com/article/finance/benefits-of-good-credit