Debunking common credit card myths

As the saying goes – you shouldn’t believe everything you hear. The same applies for credit card myths. There are dozens of stories surrounding the credit industry, and some can have wide spread and long lasting effects on those that mistake them for true.

The economic recession in 2010 and the current credit crunch can both be attributed largely to overspending and ignorance in credit card practices. As part of a push for responsible credit practices, here is the truth behind some of the most common credit card myths.

1. Credit cards and debit cards are the same

They may look alike, but credit cards and debit cards are very different.  A debit card has no bearing on your credit record, since all purchases made with it are automatically deducted from your bank account. On the other hand, credit cards operate in much the same way as loans.  By using your credit card you are, in effect, borrowing from the credit card company, to pay them back at a later date. Your repayment behaviours on this credit card debt are what contributes to your credit record.

2. No credit limit means unlimited access to cash

When you’ve got access to a credit card, the temptation is to treat it like an unlimited source of money. A higher credit card limit should not automatically translate to more spending. Make sure you keep in mind that whatever you borrow, you will have to repay back eventually. And the longer you take to repay your credit card bill, the more negatively it will weigh on your credit score and your finances.

3. I should use my credit card for everything if I want to build up a credit record

This is an especially common myth for young credit card users. By overusing your credit card on disposable goods such as groceries you risk exceeding your monthly credit allowance. If you then fail to repay this debt you will actually be contributing negatively to your credit record.

4. A self credit check will harm my credit score

Some people are under the impression that by checking their credit record they are harming their credit score. This isn’t the case and would be like getting penalised each time you checked the balance on your bank account.

5. A credit card is the best way to improve your credit score

Credit cards are not the only way to make ongoing, positive contributions towards your credit record. By making consistent repayments on a small personal loan, your credit record will reflect your positive financial behaviours in much the same way repayments on a credit card would.

Cash at Call is a financial services operator that emphasises responsible lending practices. By taking out a small personal loan with Cash at Call you can begin to form a long term, sustainable financial future.

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