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Debunking myths about credit cards

If you are getting your first credit card or are curious about credit card rewards, you likely have some hesitations. And there are many myths about credit cards out there. Many of these are even perpetuated by personal finance influencers who play on misinformation, often to sell you a product, an online course, or a book.

Here are some common myths that you might have heard about credit cards.

False: Credit cards are less secure than a debit card

Facts: Credit cards have better protections against fraud that debit cards and are a safer way to pay for most things. If you lose your credit card and someone uses your credit card fraudulently, by law the most you can be liable for is $50. If you don’t lose your physical card this drops to $0. With a bank-issued debit card, you can be on the hook for the entire amount of a fraudulent charge if you don’t catch it in time.

If you notice a mistake on your credit card, report it to your bank immediately. You won’t have to pay for the charge or for any fees or interest associated with the charge while your bank investigates. The Consumer Financial Protection Bureau has a great guide on how to handle mistakes on your credit card bill.

The bottom line: Credit cards are one of the most secure ways to make purchases.

Mostly false: All credit cards have fees

Facts: Many credit cards charge fees for things like cash advances, missing a payment, or using your card abroad. But you can easily carry a credit card and never pay a fee.

If you use a no-annual-fee credit card for spending within the U.S. and pay it off every month, you can completely avoid credit card fees. Using your card abroad will cost you a small fee with some cards and using your card to get cash out of an ATM almost universally is expensive. But you should never have to pay a fee for buying groceries, gas, or other essentials on your card. In years past, many credit cards charged a fee for going over your credit limit. Those fees are now mostly gone; if you try to charge beyond your credit limit, most card issuers will simply decline your charge.

Tip: All credit cards offer an automatic payment feature, which can automatically pay the credit card from your bank account. This can be a great way to make sure that you never miss a payment.

Bottom line: If you use a no-annual-fee credit card and pay it off every month, you can use a credit card and pay nothing in fees.

False: You’ll always pay interest on credit cards.

Facts: You only pay interest on credit cards if you carry a balance from month to month. Ss long as you pay off your credit card at the end of every month, you’ll never have to pay a dime in interest. When your credit card statement is generated, you have a federally-mandated minimum of 21 days before your credit card bill is due. As long as you pay off your credit card before it is due, you never have to pay a dime in interest.

Of course, this means that you must be able to pay off your credit card charges every month. Responsible credit card use requires that you only use a credit card to spend an amount that you can pay off completely every month.

If you think that having access to credit is too tempting, but you still want to build credit, a credit card can still be a useful tool. You can build a credit history by opening a credit card and keep it active by putting a small purchase on it every 6 months. As long as you pay off that single purchase at the end of the billing cycle, you won’t pay any interest or fees and you’ll build your credit.

Bottom line: You can build your credit and never pay any interest on credit cards if you pay them off in full every month.

Mostly false: Getting a new credit card will hurt your credit score

Facts: When you apply for a new credit card, the bank will pull your credit history. This is known as a “hard inquiry” on your credit report. Hard inquiries have a minimal, temporary negative impact on your credit report… maybe a few points. But the long-term effects of responsible credit card use will have a far greater positive impact on your score.

When you get a credit card, you increase the amount of credit available to you. As long as you don’t run up a balance, this helps improve your credit score. Having more credit means that banks trust you more. So other banks are more willing to lend to you.

In the long term, keeping a credit card open, even if you don’t use it often, can increase the average age of your accounts and show a longer history of current, on-time payments to cards. Both of these have a positive impact on your score.

Bottom line: Applying for a new credit card might cause a small, temporary drop in your credit score. Long-term, responsible use of credit cards will improve your credit score.

False: You need to carry a balance to build credit

Facts: Opening and using a credit card, even occasionally, is one of the easiest ways to build your credit history. But you don’t need to carry a balance or pay interest to build your credit with a credit card. If you pay off your card every month, the credit card issuer will report your open account, your available credit, and your payment history. Here are the ways that your credit score is improved by having a credit card, even if you don’t carry a balance.

  • Every month, having an open credit card contributes to your length of credit history, which has a positive impact on your score.
  • Every month that you either have a $0 balance on your credit card, pay it off completely by the due date, or make at least a minimum payment by the due date increases your history of on-time payments. All of this helps increase your credit score.
  • Keeping balances low or paying off cards completely means that the amount of credit you are using relative to the amount you have access to is low. This is known as your “credit utilization.” Low credit utilization contributes positively toward your credit score.

In fact, the best way to use credit cards is to never carry a balance and never pay any interest. As long as you pay off everything charged to your credit card at the end of the month, you’ll never pay any interest.

Bottom line

Credit cards are among the best, most secure ways to pay for purchases. Even setting aside rewards, credit cards offer better fraud protection than debit cards attached to your bank account. And you never need to pay a penny in interest or fees to use them.

About the author

  • Aaron Hurd

    Aaron Hurd is a credit card, travel rewards, and loyalty program expert. Over the past 15 years, he has authored over a thousand expert contributions published by leading outlets including WSJ, TIME, Newsweek, Forbes, NerdWallet, The Points Guy, Bankrate, CNET, and many others. He has also served in consulting roles for many of these same outlets, designing content strategy, hiring teams of teams of editors and contributors, developing thought-leadership pieces, and ghost-editing for senior editors. Aaron is well-known in the miles and points community and regularly presents about travel rewards at conferences like the Chicago Seminars and Minnebar. Aaron has enjoyed the game of optimizing credit card rewards since getting his first credit card shortly after he turned 18. He started learning about credit cards and travel rewards from the (now defunct) FatWallet Finance forums and FlyerTalk. He holds more than 40 open credit cards and has first-hand experience with almost every major credit card product.

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