Debunking 3 Credit Card Myths

Debunking 3 Credit Card Myths

Credit cards are powerful financial tools that
make spending and tracking expenses convenient, and often more secure. Shopping
online, reserving a hotel room, and renting a car are just a few examples of
transactions that are easier when you use a credit card. In addition to
convenience and security, credit cards also offer benefits for the cardholder,
like rental car insurance, or a way to save money on your purchases, like cash rewards.

If credit cards can be so beneficial, why do many
people fear them? Credit cards often get a bad reputation because of high
interest rates, fees, and the option to overspend. But, the reality is that if
you practice responsible money management and you choose a credit card that
works for you, a credit card will provide you with more benefits than troubles.
Read on as we debunk three common credit card myths. 

Fear: You’ll Live Beyond Your Means

Having a credit card gives you access to
purchasing power, which makes some people nervous that they’ll overspend. And while living beyond your means is certainly unwise, simply getting a credit card doesn’t mean you’ll
automatically begin spending too much money. In fact, your credit card can help
you save money if you spend wisely and practice smart repayment habits —
especially if your credit card lets you earn cash rewards.

Solution: Charge Ongoing Expenses Instead

To avoid overspending, don’t buy things with your
credit card that you haven’t budgeted for. Instead, practice smart credit card
usage and reduce the likelihood you’ll get carried away. This includes charging
ongoing expenses only, such as your cell phone bill or your weekly fill-up at
the gas station. Using your credit card for these routine purchases or automated
payments for expenses you already have funds set aside to cover in your
checking account, you’ll avoid “surprise” statement balances that
include smaller, unplanned purchases you forgot about. Plus, sticking to your
budget will allow you to pay your statement balance in full and on time, which are
two of the most important things you can do to build excellent credit and keep
your finances in check.

Fear: You’re Worried About Hurting Your Credit

You’re wise to fear bad credit because it can
negatively affect your finances, among other things. A bad credit score can
sometimes prevent you not only from getting approved for a loan, but also from
renting an apartment or landing a new job.

While you may see a dip in your credit score after you open a new line of credit, such as a
credit card, using a credit card wisely can ultimately lead to positive impacts
on your credit.

Solution: Practice Smart Repayment Habits

Payment history accounts for 35% of your credit score. So, if you
stick to only necessary spending with your credit card and make your payments
on time each month, you may see an increase in your score. A higher score allows
potential lenders to view you as a more reliable borrower, which can help you in
the future when you apply for auto loans or mortgages.

After on-time payments, the next most heavily
weighted factor in determining your credit score is amount owed. It accounts
for another 30% of your credit score, so paying
your statement balance in full every month is another way to help build healthy
credit.

Fear: The Interest Rate Will Be Too High

High interest rates are one reason
you may worry about getting a credit card, especially if you plan to use it for
a large purchase you can’t afford to pay up front or are planning to carry a
balance for any reason. High interest rates can cancel out rewards offered by
credit cards if you’re not careful, but fortunately, you’re in control of which
credit card you choose and what balance you carry in order to minimize the
impact of interest on your finances.  

Solution: Choose a Credit Card That Fits Your Needs, Especially if
You’re Planning to Carry a Balance

Sometimes it’s not possible to pay
off your credit card each month – something unexpected may come up that drains
your emergency savings or you’re working to pay down debt. That’s why it’s so
important to shop around and choose a credit card
with a low interest rate, even after the introductory period. Outside of
interest rates, you’ll want to consider other factors, like balance transfer
offers if you’re looking to pay down debt.

At PSECU we offer two credit cards that can help
you meet your goals, whether you’re focused on earning rewards or paying down
debt. To learn how a PSECU credit card can help you, explore
your options
 today.

The content provided in this publication is for informational purposes only. Nothing stated is to be construed as financial or legal advice. Some products not offered by PSECU. PSECU does not endorse any third parties, including, but not limited to, referenced individuals, companies, organizations, products, blogs, or websites. PSECU does not warrant any advice provided by third parties. PSECU does not guarantee the accuracy or completeness of the information provided by third parties. PSECU recommends that you seek the advice of a qualified financial, tax, legal, or other professional if you have questions.