Andrew Housser, co-founder and CEO of personal finance site Bills.com, shares nine commonly held but false beliefs about using credit cards:
1. I cannot get good credit without a credit card. Modest credit card use can help build credit score, but securing and repaying various loans (auto loan, student loan etc.) will work just as effectively.
2. It’s OK to carry credit card debt. Big debts and large fees often start from small, overlooked items. A good rule of thumb is to purchase only what can be paid in full every month.
3. As long as I pay the minimum payment, I’ll eliminate my debt. The longer a debt stays on a credit card account, the more interest charges it will accrue.
4. Creditors cannot repossess items I buy with an unsecured credit card, so there are no repercussions to defaulting. Serious credit score damage and constant harassment by debt collectors will do just as much – if not more – financial and psychological damage than repossession. .
5. I should close credit card accounts I’m not using. Positive payment histories on older cards can help improve credit score better than payments on newer cards. Unused credit also helps as well.
6. It’s OK to go over my credit limit as long as I pay it back before the due date. Extra charges, increased interest rates and lowered credit score result from going over the credit limit.
7. My credit card debt will die with me, so it doesn’t matter what I charge. Those debts will be charged to the inheritance left behind as well as any joint accounts with a spouse.
8. I wouldn’t receive credit card offers if I couldn’t afford them. Lenders are more concerned with the fees, balances and interest charges they will get – not the financial condition of the card user.
9. If I get to a point where I can’t pay my credit card bills, bankruptcy is my only option. Debt consolidation home equity loans, debt management programs and debt settlement are other options on the table.