Credit card myths debunked: what south africans should really know
Credit cards can be a fantastic financial tool when used wisely, but they’re also surrounded by myths and misconceptions that can lead to poor decisions.
In South Africa, where the financial landscape can be complex, these myths often prevent people from fully understanding how credit cards work.
This article will explore and debunk some of the most common myths, providing you with accurate information to make informed decisions about your financial health.
Myth 1: Having a Credit Card Means You’ll Fall into Debt
One of the most persistent myths about credit cards is that they automatically lead to debt. While it’s true that misuse can result in financial trouble, responsible credit card use can actually help you build your credit profile and manage expenses effectively.
The Truth:
Credit cards don’t cause debt—poor financial habits do. If you pay off your balance in full each month, you avoid interest charges altogether. Additionally, many credit card providers in South Africa offer free budgeting tools to help you track your spending and stay within your means.
Practical Tip:
Only use your credit card for planned expenses that you can pay off in full by the due date. Treat it as a tool to build credit, not as free money.
Myth 2: Carrying a Balance Improves Your Credit Score
A common misconception is that keeping a balance on your credit card will boost your credit score. Many people believe that leaving a small amount unpaid shows lenders that they are active users of credit.
The Truth:
This is false. Carrying a balance does not improve your credit score; it only increases the amount of interest you pay. What matters more is your credit utilization ratio (how much credit you use compared to your limit) and your payment history.
Paying your bill on time and in full is what positively impacts your credit score.
Practical Tip:
Aim to use less than 30% of your available credit limit and always pay your bill on time. South African credit bureaus, like Experian and TransUnion, consider these factors when calculating your credit score.
Myth 3: Credit Cards Have Hidden Fees That Make Them Expensive
Many South Africans shy away from credit cards because they fear excessive hidden fees. This belief can deter people from even exploring the potential benefits of having a credit card.
The Truth:
While credit cards can come with fees (like annual fees or late payment charges), they are not inherently “hidden.” Credit card agreements clearly outline all associated costs. By understanding your card’s terms and conditions, you can avoid unnecessary fees.
Practical Tip:
Compare different credit card options in South Africa before applying. Look for cards with low or no annual fees, and ensure you’re aware of charges like foreign transaction fees or cash advance fees. Many banks also offer rewards programs that can offset costs if used wisely.
Myth 4: You Shouldn’t Have a Credit Card If You Already Have a Loan
It’s often believed that taking on a credit card while managing a loan will stretch your finances too thin. Some think this combination reflects poorly on your financial stability.
The Truth:
Having a credit card while managing a loan is not necessarily a bad thing. In fact, a credit card can complement your financial strategy if used responsibly. For instance, you can use a credit card for daily expenses while focusing your cash flow on repaying your loan.
Practical Tip:
Ensure that your total debt (including your loan and credit card spending) does not exceed what you can comfortably manage. Monitor your debt-to-income ratio—a key metric used by South African lenders.
Myth 5: Closing an Unused Credit Card Improves Your Credit Score
When South Africans no longer use a credit card, they may assume that closing the account is beneficial for their credit score.
The Truth:
Closing a credit card account can actually hurt your credit score in some cases. This is because it reduces your overall available credit, which can increase your credit utilization ratio.
Additionally, older credit accounts contribute positively to your credit history, a factor in calculating your credit score.
Practical Tip:
If you don’t use a credit card often, consider keeping it open but inactive. This maintains your credit history and available credit limit, both of which can help your credit score.
Myth 6: All Credit Cards Are the Same
It’s easy to think that credit cards differ only in their names and issuing banks, but this myth overlooks the variety of credit cards available in South Africa.
The Truth:
Credit cards come in many types, including rewards cards, cashback cards, travel cards, and low-interest cards. Each is tailored to specific needs. For example, frequent travelers might benefit from a travel rewards card, while someone looking to save on interest might prefer a card with a lower APR.
Practical Tip:
Assess your lifestyle and spending habits before choosing a credit card. South African banks like Standard Bank, Absa, and FNB offer a range of credit cards, so compare their features carefully.
Myth 7: Applying for a Credit Card Will Ruin Your Credit Score
The belief that applying for a credit card will harm your credit score can discourage South Africans from considering this financial tool.
The Truth:
While applying for a credit card results in a “hard inquiry” on your credit report, this has a minor and temporary impact on your score. If you don’t apply for multiple credit cards in a short period, your credit score will remain healthy.
Practical Tip:
Research thoroughly before applying for a credit card. Choose one that fits your needs to avoid unnecessary applications.
Myth 8: Credit Cards Are Only for the Wealthy
Some people believe that credit cards are a luxury reserved for the financially elite.
The Truth:
Credit cards are for anyone who can manage their finances responsibly. In South Africa, there are credit cards designed for students, young professionals, and individuals with average incomes. These cards often come with lower limits and fewer perks, but they serve as excellent tools for building a credit history.
Practical Tip:
Start small. If you’re new to credit, look for entry-level credit cards with no annual fees and a manageable credit limit.
Myth 9: Using a Credit Card Abroad Is Always Expensive
Many believe that credit cards are a costly way to pay for goods and services while traveling internationally.
The Truth:
Credit cards can be a cost-effective payment option abroad if you choose the right card and understand the associated fees. Some South African credit cards offer competitive exchange rates and waive foreign transaction fees.
Practical Tip:
Before traveling, notify your bank of your plans to avoid unnecessary blocks on your card. Also, compare fees for foreign transactions and ATM withdrawals to determine the best option.
Myth 10: It’s Impossible to Get Out of Credit Card Debt Once You’re In It
The fear of being trapped in credit card debt often discourages people from using credit cards altogether.
The Truth:
While credit card debt can be challenging, it’s not insurmountable. By creating a repayment plan and sticking to a budget, you can steadily reduce your debt. Many South African banks also offer tools and resources to help customers manage their credit card balances.
Practical Tip:
If you’re struggling with debt, consider consolidating it with a lower-interest loan or speaking to a financial advisor for guidance.
Final Thoughts
Credit cards are powerful financial tools, but they require responsible use and a clear understanding of their terms. By debunking these common myths, South Africans can make better decisions and maximize the benefits of credit cards. Educate yourself, choose wisely, and use your credit card as a stepping stone to a healthier financial future.
We hope this information has been very useful to you.
Thank you very much for reading us.
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