Credit cards: 6 common myths everyone should be aware of

If you regularly use a credit card, it is vital to be aware of the key rules including the annual fee, late payment charges, high rates of interest, minimum charges and the interest-free period. Importantly, you should make sure that you stay away from the common myths that are believed to be true by the card users.

Here, we list out some common credit card myths that deserve to be busted. For instance, a credit card is typically not free as it is made out to be. Whatever services you stand to gain, such as cashback, should be seen in the context of the annual fee that these cards levy. Additionally, airport lounge access is offered typically on a limited basis.

This means you can get access to the airport lounges only for a limited number of times in a quarter or a year. Besides, some benefits are provided only when you use the card to spend beyond a threshold, say ₹3 lakh or more.

These are some of the common myths that need to be busted:

I. Credit cards are meant only for those with high salaries: It is a myth since credit cards can be used by people across the income spectrum. In fact, many credit cards are specifically designed for students, low-income earners, or people looking to build or rebuild their credit.

The key is to choose a card that fits your financial situation and to use it responsibly.

II. One should use only one credit card: Another myth is that you should use only one credit card. While it's vital to manage credit responsibly, keeping more than one credit card can be beneficial, particularly if they offer different rewards or benefits.

Having multiple cards can enable you to maximise cashback and rewards points so long as you strategically use them for different purchases. However, you should make sure that you don’t overspend and that you pay off the balances in full each month.

III. Credit cards are too risky: They can be risky when you don't make payment on time. Additionally, they offer a lot of benefits if used responsibly. By paying on time and in full each month, one can enjoy the convenience, rewards, and credit-building benefits without falling into debt.

IV. Getting credit card rewards is full of hassles: Credit card reward programmes are sometimes seen to be too complicated and unworthy by some. The reality is that while some reward programmes can be complicated, most offer great value, particularly if you use your card regularly and pay off the balance on time every month.

The cashbacks, travel points, discounts and rewards can lead to substantial savings if you use them properly.

V. You need to make only the minimum payment: It is another popular myth that making the minimum payment is all one requires to keep your account in good standing. While making the minimum payment keeps your account in good standing, it also means you're paying interest on the remaining balance.

Over time, this can add up and you will end up paying significantly more. So, it’s recommended to pay the full balance whenever possible to keep additional charges at bay.

VI. Everything is free: There is a myth that all the services that credit cards offer are totally free. Although they may appear free, one has to pay an annual credit card fee which could be anywhere between ₹500 and ₹5,000. In some cases, rewards and benefits are offered, and the annual fee is waived only when you use the card to make purchases beyond a threshold.