Busted: 5 Credit Card Myths Many Of Us Believe

In my 15 years as a financial professional, I’ve heard a lot of opinions about credit cards. From the good, the bad, to the ugly, their worth can be hotly contested. The truth is, it all comes down to how they’re used. Here are five common myths about credit cards — and what you need to know to make the right choice between cash, credit and debit.

1. Credit cards are evil. Contrary to popular belief or what any celebrity financial “guru” might say, credit cards are not evil; they’re plastic. Credit cards are a financial instrument, and when used responsibly, they can be very beneficial. Responsible use means limiting your spending to an amount you can afford to repay in full each billing cycle — or at least within a relatively short time period. Treat the plastic as cash, and it’ll help you stay out of credit card debt.

2. You should always use cash or a debit card instead of a credit card. If you are unable to limit your credit card spending, you might be better off using cash or a debit card to keep from accruing lots of debt. Having said that, credit cards often have more advantages than cash or debit cards. The type and number of these advantages depends on the card issuer, but could include identify theft protection, extended warranties, trip insurance, or rewards. Credit cards can also help youbuild credit when used responsibly. In general, when you use your credit card, the card issuer reports your payment history and balance to the credit reporting bureaus.  Having a history of on-time payments and responsible credit card use — such as keeping a low balance — could pay dividends when you attempt to apply for a home or auto loan, rent an apartment or apply for certain employment opportunities.  

3. Credit cards and charge cards are the same thing. Credit cards and charge cards are not the same thing. A credit card typically allows you to charge up to a certain preset spending limit and repay over time, with interest. A charge card, on the other hand, typically does not have a preset spending limit but must be repaid in full each month. The right card for you depends on your credit score, preferences, rewards programs, spending and repayment habits and card availability, as there are a lot more credit card issuers than charge card issuers.

4. The higher the rewards rate, the better the credit card. Maybe, maybe not. This often comes down to how you use the card. For example, a credit card may advertise 5% cash back, but when you look at the fine print, you’ll notice the 5% is limited to select purchases — or even rotating purchases — and during a certain time period. There might even be a cap on the reward amount so that you get 5% cash back up to a certain amount and 1% after that. If the 5% offers are for purchases you frequently make, then great. If not, you might be better off with a card that offers, for example, an unlimited 1.5% cash back on all purchases. You may also have to pay an annual fee for certain rewards cards. If you carry a balance instead of paying the card in full every month, the APR should be a major consideration, as you are likely paying much more in interest than you are earning in rewards. In this case, you might want to consider cards with a lower APR versus higher rewards.

5. You have to carry over a credit card balance to build credit. This has to be one of the most common myths I hear. Based on my experience, it’s simply not true. I pay off my credit cards in full every month, have excellent credit and have never paid a penny in credit card interest. It is true that having a history of activity on your credit card can be helpful in building credit, but you do not have to carry over a balance and pay unnecessary interest to build credit. When your billing cycle ends each month, the card issuer will typically report the balance and any payments since last reporting to the credit reporting bureaus. Go ahead and pay your balance in full before the bill is due, and you will avoid paying interest and reap the benefits in your credit score.

At the end of the day, YOU ultimately determine what is good or bad when it comes to credit cards. Smart financial choices have the power to turn a piece of plastic into a powerful financial instrument.

Have a question or additional credit card myth to bust? Leave a comment below.

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This credit card is issued by USAA Savings Bank, Member FDIC.