9 Common Credit Card Myths Debunked

One of the most persistent myths is that making only the minimum repayment on your credit card is a sound financial strategy. However, this approach can quickly lead to financial trouble. While making the minimum payment may keep you in good standing with your credit card issuer, it also extends the repayment period and causes interest to accumulate on the remaining balance. Over time, this can create a cycle of debt, as the interest charges continue to add up each month, increasing the total amount owed. To avoid this trap, strive to pay off your balance in full whenever possible.

Many people believe that having a high credit card limit is a negative thing, but this isn't necessarily true. In fact, lenders often see a high credit limit as a sign that you are a low-risk borrower, which can positively impact your credit score. A high limit can help keep your credit utilisation ratio—how much of your available credit you're using—low. A lower utilization ratio is generally seen as favourable by credit scoring models. As long as you manage your spending and don’t max out your card, a higher credit limit can be beneficial.

The idea that having multiple credit cards will damage your credit score is another common misconception. Having several credit cards can actually help improve your score, provided you manage them responsibly. Multiple cards can increase your overall credit limit, which in turn can lower your credit utilisation ratio—a key factor in your credit score. However, it's important not to open several new cards in a short period, as this can result in multiple credit inquiries that might temporarily lower your score. Spread out your applications to minimise this impact.

Contrary to popular belief, you don’t have just one credit score. In reality, there are three major credit reference agencies—TransUnion, Experian, and Equifax—that calculate your score, and each may give you a slightly different number. These agencies use different scoring models and may receive different information from creditors, leading to variations in your score. It’s important to check your credit reports from all three agencies to get a complete picture of your credit health.

Another myth is that credit card interest starts accruing as soon as you make a purchase. In fact, interest only applies if you carry a balance past the due date. Most credit cards offer a grace period during which no interest is charged if the balance is paid in full by the due date. This is why it's crucial to pay off your balance each month.

While a low APR (Annual Percentage Rate) can be important if you carry a balance, it's not the most critical feature for everyone. If you're confident that you can pay your balance in full and on time each month, the APR becomes irrelevant, as interest won’t apply. In this case, other features like cashback, airmiles, and rewards may be more beneficial to your lifestyle. Consider what you value most in a credit card and choose one that aligns with your spending habits and financial goals.

Many people think that having no credit card history will make them more appealing to lenders, but this isn't the case. Without a credit history, lenders have no way to gauge how you manage credit, making you a higher risk in their eyes. To build a credit history, consider starting with a secured credit card or a card designed for individuals new to credit. This will help you establish a track record of responsible credit use.

Closing a credit card, especially an older one, can actually harm your credit score. Closing an account reduces your available credit, which can increase your credit utilisation ratio—a factor that can lower your score. Additionally, the age of your credit accounts contributes to your credit history length, so keeping older accounts open can be beneficial.

Some believe that carrying a balance on their credit card will help improve their credit score. However, this is not true. Credit scores are more positively impacted by paying off your balance in full each month. This shows lenders that you can manage credit responsibly, which is what ultimately boosts your credit score.