Find credit cards confusing? Debunk these 7 myths to enjoy using them

Dubai: Many misconceptions about credit cards can impact your ability to manage them effectively. Understanding the truth behind these myths is key to making informed financial decisions. Here’s a breakdown of seven common myths and the reality behind them.

Myth #1: A new card only affects your credit once you start using it
A common belief is that a new credit card affects your credit score only when you begin using it. In reality, applying for a new card triggers a credit inquiry, which impacts your score, whether or not you use the card. Too many inquiries can harm your credit, so make sure to apply for new credit only when necessary.

Myth #2: Paying less than the minimum isn’t considered a missed payment
If you fail to pay at least the minimum required payment on your credit card, it is considered a missed payment. This can negatively affect your credit score and your ability to secure credit in the future. Always check your statement for the minimum payment due and ensure timely payments. Paying more than the minimum helps reduce your balance faster, and avoid accruing interest.

Myth #3: Your credit card balance has a single interest rate
Your credit card balance can have different interest rates for different types of transactions, such as purchases, cash advances, or balance transfers. It’s important to pay more than the minimum payment, as this extra amount is applied first to the highest-interest balance, which helps save you money over time.

Myth #4: Your card is paid off when the balance reaches zero
Even if you pay your balance down to zero, you may still incur interest charges due to residual interest, which accumulates between your billing cycle and payment date. To avoid this, check with your credit card issuer for the exact amount due, including any residual interest, and pay it off accordingly.

Myth #5: A higher credit card limit automatically gives you more spending room
While a high credit limit can benefit you if managed correctly, it’s important to keep your debt-to-credit ratio low, which is a significant factor in your credit score. A higher limit can help maintain a low ratio, as long as you don’t carry high balances.

Myth #6: Carrying a balance is necessary to build credit
You can build a strong credit history without carrying a balance. The best way to improve your credit is to use your card regularly and pay off your bill in full each month. This strategy helps maintain a low debt-to-credit ratio and demonstrates responsible credit management.

Myth #7: More credit cards are always beneficial
Having numerous credit cards does not automatically improve your credit score. In fact, it’s about having a balanced mix of credit types. For example, having only credit cards without any other types of credit, such as a mortgage or student loan, may limit the impact on your credit score.

By understanding these myths and avoiding these common mistakes, take control of your credit card usage, avoid costly errors, and improve your financial health.

Bonus Myth#1: Closing a credit card improves your credit score
Another common myth is that closing a credit card will help improve your credit score by reducing your total available credit. In reality, closing a card can increase your credit utilization ratio, which can harm your score. Instead, it's better to keep the card open and use it sparingly to maintain your available credit.

Bonus Myth #2: Using a credit card rewards program means overspending
Many people assume that in order to earn significant rewards from a credit card program, they must spend more than they normally would. However, rewards programs are designed to benefit consumers who use their cards responsibly. You can earn rewards while sticking to your budget—just be sure to pay off the balance each month to avoid interest charges that could negate the value of the rewards.