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 can also offer a variety of benefits for the cardholder, ranging from cash rewards to rental car insurance. 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 ability 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 likely provide you with more benefits than troubles. Read on as we debunk three common credit card myths. Having a credit card gives you access to purchasing power, which makes some people nervous that they’ll overspend. And whileliving beyond your meansis 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 youearn cash rewards.Myth: You’ll Live Beyond Your Means if You Use a Credit Card
Reality: You Don’t Have to Overspend with a Credit Card
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 planned, ongoing expenses, such as your cell phone bill or your weekly fill-up at the gas station. Planning your credit card usage in advance lets you avoid “surprise” statement balances. And 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.
Myth: A Credit Card Will Hurt My Credit Score
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 slight dip in yourcredit scoreimmediately after you open a new line of credit, such as a credit card, it will usually rebound quickly. And using a credit card wisely can ultimately lead to positive impacts on your credit when you pay your bills on time and don’t carry a large balance.
Reality: Practicing Smart Repayment Habits Can Protect Your Credit
Payment historyaccounts 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 forauto loansormortgages.
After on-time payments, the next most heavily weighted factor in determining your credit score is the amount owed. It accounts foranother 30% of your credit score, so paying your statement balance in full every month is another way to help build healthy credit.
Myth: Credit Card Interest Rates Are 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.
Reality: You Have the Freedom to 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 may be working to pay down debt. That’s why it’s so important to shop around andchoose a credit cardwith 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 optionstoday. Once you’ve determined the right fit for you, become a member and apply.
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.
By: PSECU
