Deal yourself a better hand by busting these common myths you might have about owning a credit card.

"An investment in knowledge pays the best interest."

As the American polymath Benjamin Franklin once wrote, knowledge pays off. And that, of course, includes matters of financial literacy.

But myths continue to surround one simple tool many of us carry in our wallets today: the credit card.

Some people will tell you to avoid credit cards if you don't want to find yourself in debt. But the reality is that making smart decisions about credit cards can offer you greater financial freedom. We can only learn to maximise our benefits from our credit cards by knowing exactly how they work and what they are all about.

Here is a closer look at the truth behind five common myths:


1. Too many credit cards can hurt my credit score

The higher your credit score is, the more desirable of a borrower you are to potential lenders.

But credit scores are based largely on these five things: payment history, total amount owed, length of credit history, types of credit, and new credit. On its own, payment history typically accounts for a significant portion of one's credit score.

If anything, having a few more credit cards can boost your credit score if you make all your payments on time and maintain a healthy credit utilisation ratio.

2. The more credit cards, the more debt

It's true that applying for more credit cards can result in an available credit higher than your annual income. But this in no way means that you have to max them out.

By managing your cards for different functions and paying all your bills in full on time, you can empower your spending and save a lot more.

And this is especially so when many credit cards offer different perks for different platforms, allowing you to maximise your rewards on what you spend most on. Travel rewards, grocery shopping, utility bills, online purchases - you name it, they've got it. Cashback perks can be particularly useful for those making big-ticket purchases for their new home, for instance.

For example, Maybank's new Family & Friends Card brings freedom of choice and consumer empowerment to card members when they customise their cashback categories, allowing them to earn up to S$125 of cashback monthly.


3. I have to be Kim Kardashian-rich to manage more than one or two credit cards

Once again, credit card lenders prioritise your payment and credit history.

Having some usage on your active cards and making prompt payment is an indication to future lenders that you are highly credible. Your next card approval may be a breeze!

4. An increase in my credit card limit means I will end up spending more

Always keep your latest income updated with your bank. And if your bank increases your credit card limit, it means that they think you're financially responsible enough to handle it.

In fact, assuming ceteris paribus, a higher credit limit automatically gives you a lower credit utilisation ratio. Who knows, it may even come in handy in freak accidents or emergencies.

Just remember that there is always the option to set a limit on your credit cards by calling your bank or using self-help services online.


5. I should regularly 'Marie Kondo' my credit cards

It seems intuitive to cancel a card that you no longer have as much use for. However, there may be more pros to retaining that card you have maintained a good history on.

Your earliest known credit history will date back to that first approved credit card and if you have maintained a good credit record so far, it will only serve as a clear reflection of your financial credibility.

Cancel a credit card only if you have too many cards with overlapping benefits on your plate or consider downgrading it to avoid annual fees.

Most importantly, don't shoot yourself in the foot by paying your bills late and incurring charges and other penalties.

the bottom line:

Use a little discipline and prudence when it comes to credit cards, and you can gain the upper hand in your finances.

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