Myths About Credit Cards Explained

There may be many people who suggest that you get a credit card, but before you do you should carefully decide whether or not you really need a credit card. The truth is that you can get by without a credit card. Some people consider credit cards as bad, when in reality a credit card can be a useful tool, when used properly (paid in full every month), it can be a bigger liability than an asset. If you are not careful, you can fall into the credit card trap.You may want to choose to close your credit cards if you have more than one. Here are five common misconceptions about needing a credit card.

I Need a Credit Card to Build Credit

House made of credit cards on work desk.
Robert Decelis Ltd/ Stone/ Getty Images

You build credit by paying your bills on time. You can build enough credit to qualify for a home loan by paying your rent on time for several years. You destroy your credit when you do not pay your bills on time. The utility companies and other businesses can send you to a collection agency if you do not pay on time. You do not need a credit card to build your credit history. You may find it a little easier to do with a credit card, but you should be very careful as you try to do so. In fact using a credit card and carrying  a balance can negatively impact your credit score. If you are using too high of a percentage of your available credit, it will cause your credit score to drop. It is important to manage your credit cards carefully and pay them off in full. 

I Need a Credit Card to Shop Online or Rent a Car

Since debit cards have been introduced, you no longer need a credit card to do these things. In fact, you can do everything with a debit card that you can with a credit card, except spend money that you do not have. You should not be doing that anyway. Debit cards can be used anywhere a credit card can. This completely debunks the statement that you need one to rent a car. The car rental company will put a hold against your debit card for a specific amount, so be sure to have that much available in your checking account. While it may be convenient to have a credit that you use solely for renting cars or paying for hotel rooms, they are not necessary. Knowing this can help you determine when to use a debit card instead of a credit card. It can be easier to manage a car rental or a hotel rental while one vacation with a credit card, but you can have the money already in savings so that you can pay off the full amount you owe the next month and avoid carrying a balance on your credit card. 

I Need a Credit Card for Emergencies

If you plan well, you should set up a fund for emergencies. Your emergency fund should have at least $1000.00 in it, but you should try to have three to six months of expenses saved up. This much money should allow you to be able to handle any emergency that comes your way. If you are stranded on the road and need to be towed you can use your debit card to pay for the tow, and your emergency fund to cover those expenses.It helps to have your emergency fund in a savings account and tied to your checking account. Generally, most emergencies will allow you time to transfer money from one account to another one. 

I Need a Credit Card to Save Money on My Purchases

Many stores will offer discounts for having a store credit card. Stores do not offer cards to give you discounts; they offer cards because they realize that while most people intend to pay the card off every month, few actually do. They make more back on interest than they do on the discount they offer to you. The ten percent savings you get on the purchases, you will pay back plus more in interest on just the first month's bill.Some stores now offer a debit card option with similar savings. You may want to look into using that instead. 

I Need a Credit Card to Earn Rewards

Using a credit cards to earn rewards can be a dangerous game to play. If you are responsible and pay off your balance in full each month, you may consider having a rewards credit card. You should make sure that you have a credit card with no annual fee. Additionally, it is important to remember that the credit card offers its rewards because the company realizes that most people are not going to pay off their credit cards in full each month. This means that they make more money off the customers then rewards they give out. There are debit cards available now that offer rewards points. You may want to look into that option if you really want to use reward points.