Let’s talk about credit cards: the good, the bad, the not-so-ugly. Most adults have at least one credit card that they use frequently. With the influx of technology in recent years, paper use has decreased; this includes the use of money. People don’t carry or use cash as often. A credit card is easier to carry, offers rewards or points and (uh oh) allows you to carry a balance. While credit cards are great in that they allow you to build credit history, people often sign up before entirely understanding what they are getting into.
Here are some of the MYTHS about credit card use:
- You should not have a credit card. A debit card is better. If you are able to pay for the things that you put on a credit card, then having a credit card helps to build your credit history. This is important if you ever want to buy a car, house, dental practice or anything else that requires financing. If you have only had debit cards and no credit history, you look like a risk borrower to a lender and their terms will be less favorable. Also, if a debit card is lost or used by an unintended party, your bank account may be immediately drained. Credit cards do not hold you responsible for fraudulent purchases.
- You should only have one credit card. Good practice is to have two credit cards. Find one with rewards that match your spending history (e.g. if you drive a lot, think about one with great gas rewards; if you fly a lot, consider airline rewards cards). I also recommend having one for emergencies. If you reach the limit on one or have a larger expense than expected, it is a good idea to have a card with a lower interest rate for back up. Make sure to use both at least once a month to keep the account active. Use of available credit is one consideration in calculating your credit score.
- It is OK to charge up to your credit limit on your card each month. This is not typically true. One element of your credit score is utilization. Utilization is your statement balance as a percentage of your total available credit. Your goal should be to keep this below 30% to maintain your credit score. Having two credit cards helps with this, as you should not need to maximize your total available credit.
Do you know of any other credit card myths?
~Megan Mathers, JD, Mathers Law
Did you know that ASDA offers a credit card with cash rewards? The BankAmericard Cash Rewards Visa Signature credit card gives you cash back on all purchases with up to 3 percent cash back on certain purchases. Plus, anything you buy with your ASDA credit card helps support ASDA programs. Click here to find out more (must be an ASDA member to apply for credit card offer).