Credit cards are among the most misunderstood financial tools in the modern world. While they can be incredibly useful for managing cash flow, earning rewards, and building credit, they are also surrounded by myths that can lead people to misuse them or avoid them altogether. Misinformation can result in costly mistakes, such as accumulating unnecessary debt, damaging your credit score, or missing out on valuable financial benefits.
In this article, we’ll debunk some of the most common credit card myths and offer the truth you need to make smarter financial decisions.
Myth #1: Carrying a Balance Improves Your Credit Score
One of the most persistent and dangerous myths about credit cards is the idea that carrying a balance from month to month helps improve your credit score. This belief is not only false but also financially harmful.
The Truth: Credit scores are primarily influenced by five key factors: payment history, credit utilization, length of credit history, types of credit used, and new credit inquiries. Carrying a balance does not improve any of these categories—in fact, it can hurt your credit utilization ratio, which is the amount of your available credit that you’re using. Ideally, you should keep your credit utilization below 30%, and paying your balance in full each month is the best way to achieve that.
Furthermore, carrying a balance means you’ll pay interest on your purchases unless you’re using a 0% APR introductory offer. That interest can add up quickly, costing you significantly over time. The best practice is to pay off your balance in full each month, which not only protects your credit score but also saves you money.
Myth #2: Closing Old Credit Cards Helps Your Credit Score
It might seem logical to think that closing a credit card account—especially one you rarely use—could help your credit score by reducing the number of open credit lines. However, the opposite is often true.
The Truth: Closing a credit card can actually lower your credit score for a couple of reasons. First, it can negatively affect your credit utilization ratio. For example, if you have a total credit limit of $10,000 across all cards and you close one with a $3,000 limit, your available credit drops to $7,000. If your spending remains the same, your utilization increases, potentially harming your score.
Second, the length of your credit history makes up about 15% of your credit score. If you close an older account, it could shorten the average age of your credit history, especially if it’s one of your oldest lines of credit. Even if the account remains on your credit report for a while after closing, eventually it will fall off, possibly lowering your score.
Unless the card has a high annual fee or you have a specific reason to close it, consider keeping the account open, even if it means using it occasionally just to keep it active.
Myth #3: Applying for a Credit Card Will Destroy Your Credit Score
Many people avoid applying for credit cards because they’re afraid that doing so will significantly damage their credit score. This myth prevents some individuals from accessing better credit options or taking advantage of rewards and benefits.
The Truth: Applying for a new credit card does result in a hard inquiry on your credit report, which can cause a slight, temporary dip in your score—usually around 5 points or less. However, this impact is short-lived, typically fading within a few months. More importantly, responsible use of a new card (i.e., making payments on time and keeping balances low) can lead to long-term improvements in your credit score.
In fact, opening a new credit card can improve your credit utilization ratio by increasing your overall credit limit. This could actually help boost your score if you use the new card wisely. The key is not to open too many cards in a short period, as multiple inquiries in a short time frame can be seen as risky behavior.
Myth #4: Credit Cards Are Only for People with Debts
There’s a common misconception that credit cards are only useful—or even necessary—for people who don’t have enough money and need to borrow. This myth leads some individuals to swear off credit cards completely, thinking they’re avoiding financial trouble. But avoiding credit cards altogether can have its own drawbacks.
The Truth: Credit cards are not inherently bad or only for people in debt. In fact, when used responsibly, they can be powerful tools for financial management. Credit cards help build your credit history, which is essential for securing loans, renting apartments, and even getting certain jobs. They also offer fraud protection, travel benefits, rewards, and cashback programs that you can’t get with cash or debit cards.
Moreover, using a credit card for regular expenses and paying it off each month can be a disciplined way to manage your finances. It ensures you’re spending within your means while taking advantage of perks and improving your credit profile at the same time.
Of course, credit cards can lead to debt if misused. Overspending, missing payments, or relying on credit to cover everyday expenses are signs of financial trouble. But when used as a tool rather than a crutch, a credit card can be an asset rather than a liability.
Final Thoughts
Credit cards are often misunderstood, and these myths can prevent people from using them to their full advantage. The key to benefitting from credit cards is education and discipline. Knowing how credit works and how your actions affect your score puts you in control of your financial future.
Rather than fearing credit cards or falling victim to bad advice, focus on building healthy credit habits:
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Always pay on time
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Keep balances low relative to your limits
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Use credit strategically, not emotionally
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Monitor your credit reports regularly
By dispelling these common myths, you can make informed choices that strengthen your credit profile and support your financial goals. Don’t let misinformation limit your potential—take charge of your credit with confidence and clarity.
