Credits cards are convenient. They let you go cashless, pay in installments and use exclusive discounts and promos. But these advantages are often overshadowed by horror stories.
“How I ruined my life with a credit card” or “100 reasons why I stopped using a credit card” are the usual suspects.
Whether it’s a tragic debt story or an attention-seeking post, they seem to paint the same cautionary tale. Needless to say, you should take them with a grain of salt.
Read more: I can’t pay my credit card bill – now what?
Let’s get this out of the way first. If you’re trigger-happy with credit cards–or any payment option–there will be consequences. But if you’re responsible enough, those will be few and far between. On to the myths:
1. You will overspend.
Credit cards don’t cause overspending; reckless use of them do. Impulsive shoppers, who always maximize their credit without considering their cash, will overspend.
2. You will drown in debt.
If you pay your credit card in full and on time every month then you won’t have a problem. The issue is some people only pay the minimum, or worse, don’t pay at all.
The solution is simple: set limits. Try setting a limit for credit card expense every month, say 20-30% of your monthly salary. This will ensure that you can settle your bill with a big enough buffer for unforeseen expenses.
Of course setting a limit is useless if you don’t keep track of expenses. You can check your most recent credit card transactions on your bank’s website or app. If you’re paranoid, you can keep receipts or download a third party app to log purchases.
3. Having a credit card damages your credit score.
If someone claims that you can get a better credit score if you avoid a credit card altogether, do not listen to them.
That is not true.
Getting a credit card early is actually good for your credit score. You just need to pay your bills on time. Notice a pattern? It turns out that being responsible in paying your credit card bills solves a lot of issues.
For more tips in improving your credit score, check out this article: The 5 Easiest Ways in Improving Your Credit Score
4. Closing an old card helps your credit score.
You may want to close an old credit card because a) you don’t use it anymore and/or b) you want to remove temptation. Before you do that, keep in mind that closing an older card could harm your credit score.
First, you’re reducing the amount of credit available to you. Assuming that you don’t change your spending, your credit utilization ratio will go up. Second, you’re decreasing the average age of your accounts.
Instead of closing an old credit card, use it to pay a small monthly expense. Use it for your Spotify and Netflix subscription or your occasional Uber ride.
5. You can improve your credit score if you pay more than you owe.
To illustrate: let’s say your credit card balance is P5,000 and you paid P10,000. Will you get gold stars for paying the extra P5,000? No.
Whether it’s a credit balance of P100 or P5,000, it doesn’t matter. It will still show a zero balance for scoring purposes.