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3 Credit Cards Myths that could be holding you back

Contributed by Credit Bureau (Singapore)

Credit cards, like any financial product, seem to create uncertainty for people. There are myths running rampant that loans and debts are tantamount with credit cards. Unfortunately, some of these credit card myths may be causing your wallet – and your credit score – more harm than good. Truth is, there are pros and cons to having a credit card. They can be an important element in establishing strong financial footing, but it must also be used with care.

Here are 3 of the most popular credit card myths that could give you a better idea of what you’re signing up for. 


Myth 1: Credit cards incur bad debts 

This myth is prevalent due to the countless horror stories of people failing to pay their credit card bills on time and subsequently finding themselves in a mountain of debts. Sure, there are people who do not understand how to handle credit cards and find themselves maxing out their credit limits big time but it does not mean that everyone should avoid it.

The truth is, responsible credit card activity is a good thing as it will be reflected positively on your credit report. Using your credit card responsibly and paying in full every month will help you to build a strong credit history which could put you in good stead when applying for a car loan or home mortgage. Having a credit card in your wallet does not mysteriously incur debt, but it can help you improve your credit score.


Myth 2: Making the minimum payment is enough. 

The words "minimum payment" can be confusing for new credit card holders, who might think that's all they owe each month. Your credit card bill is not paid off until it is paid off in full. Many Singaporeans believe that by paying their minimum balance of the total credit card balance monthly, they will not owe any interest accrued on the remaining balance. This can result in an endless cycle of outstanding credit card debt that never gets resolved. 

Not only will you never pay off your bill, but the total interest you will pay will be much higher and your payback timeframe will get a lot longer. 


Myth 3: Closing your old credit card accounts helps your credit score

This myth is very common, but it is also completely false. Closing an account may save you annual fees, reduce the risk of fraud and guard against identity theft but under certain circumstances, closing the wrong accounts could actually harm your credit score. You are reducing the amount of credit extended to you and decreasing the average age of your accounts. The length of your credit history is one of the factors that determines your credit score.

A closed account does not mean your payment information has been removed. Information will be retained in your credit report for 3 years upon account closure. While it is essential to pay off a credit card balance, closing the account could have a negative impact on your credit score especially if you are planning to apply for credit for big ticket items such as a house or car in the near future. Rather than closing an old credit card account, use your cards from time to time and generate a history of on-time repayments. Keep your credit active.


If you have applied for a new credit facility in the last 30 days with any of CBS members banks, you can receive a complimentary copy of your credit report from CBS. Otherwise, you can purchase your report online to understand your credit report better.