7 Credit Card Myths Busted: The Truth About Credit Cards

Credit cards are everywhere, but they remain one of the most misunderstood financial tools. Whether you’re buying your morning coffee, booking flights, or building your credit score, credit cards can be useful—but only if you understand how they work. Unfortunately, myths about credit cards often prevent people from using them effectively or even taking advantage of the rewards and benefits they offer.

To help you better understand and take full advantage of the benefits and perks that credit cards offer, below we’ve debunked seven of the most common myths about credit cards, showing you how to separate fact from fiction and use them as an effective and profitable financial tool instead of a source of stress.

Myth 1: Having a Credit Card Always Leads to Debt

Fact: A credit card doesn’t automatically lead to debt—how you use it matters.

Many Australians fear credit cards because of stories of overwhelming debt. However, the reality is that credit cards are simply a tool. Used wisely, they can help you manage your finances. For example, paying off your balance in full each month means you’ll never pay interest. In addition, features like 55-day interest-free periods on many Australian credit cards can allow you to stretch your cash flow without incurring extra costs.

Example: Imagine you’re paying for a family holiday. With a credit card, you can book flights and accommodations immediately, earn rewards points, and pay off the balance when your next paycheck arrives, interest-free.

Myth 2: You Need to Carry a Balance to Build Your Credit Score

Fact: Carrying a balance does nothing for your credit score—making on-time payments does.

This is one of the most persistent myths in Australia. Many believe that leaving a balance on their credit card demonstrates creditworthiness. In reality, your credit score is influenced by factors like on-time payments and keeping yolow credit utilisation% of your limit).

Example: Jane, a Sydney-based teacher, uses her credit card to cover monthly expenses like groceries and petrol, never exceeding 20% of her limit. By paying her bill in full each month, she maintains a strong credit score and avoids paying a cent in interest.

Myth 3: All Credit Cards Have Sky-High Interest Rates

Fact: Not all credit cards are created equal—some offer low-interest options.

While many credit cards carry high annual percentage rates (APRs), plenty of low-rate options are available in Australia. These are particularly useful for people who occasionally carry a balance or are looking to consolidate debt. Additionally, balance transfer cards with 0% introductory rates can help you manage and reduce debt without incurring additional costs.

Example: Consider the Bendigo Low Rate Mastercard, which offers a competitive interest rate, perfect for Australians prioritizing lower costs over rewards.

Myth 4: Closing a Credit Card Improves Your Credit Score

Fact: Closing a card can actually harm your credit score.

Many Australians assume that closing a credit card signals financial responsibility. However, it often has the opposite effect. Canceling a card reduces your total available credit, increasing your credit utilization rate—a key factor in your credit score.

Example: If you have two credit cards with a combined limit of $10,000 and a balance of $2,000, your credit utilization is 20%. Canceling one card with a $5,000 limit would raise your utilization to 40%, potentially lowering your credit score.

Myth 5: Rewards Programs Are Always a Rip-Off

Fact: Rewards programs can deliver great value if used wisely.

Credit card rewards programs are often dismissed as too complicated or not worth the effort. However, when chosen carefully, these programs can provide significant benefits, such as free flights, cashback, or retail discounts. The trick is to match the rewards program to your spending habits and ensure the value of rewards outweighs any annual fees.

Example: David, a frequent flyer based in Melbourne, uses the Qantas American Express Ultimate Card. By putting his monthly expenses on the card, he earns enough points for a free return flight to Brisbane each year—easily offsetting the annual fee.

Myth 6: Applying for Multiple Credit Cards Expands Your Credit Options

Fact: Multiple applications can harm your credit score.

Every credit card application in Australia triggers a “hard inquiry” on your credit report. Too many inquiries in a short period can make lenders see you as a higher-risk borrower. Instead, research cards carefully and apply for the one that best fits your needs.

Example: After comparing cards online, Emma from Perth applied for a single card offering both rewards points and no annual fee. This strategic approach avoided unnecessary inquiries and ensured she got the right card without damaging her credit score.

Myth 7: Credit Cards Are Only for Big Spenders

Fact: Credit cards are versatile and cater to all spending levels.

Whether you’re a student, a retiree, or somewhere in between, there’s likely a credit card designed for your needs. Many Australian banks offer cards with low fees, practical features, and no requirement to spend large amounts to benefit.

Example: The ANZ First Credit Card is a popular choice for students and low-income earners, offering a low annual fee and straightforward features for everyday use.

Bonus Tips for Australians

• Check Local Regulations: The Australian Securities and Investments Commission (ASIC) regulates credit card lending to protect consumers. Familiarize yourself with these protections to understand your rights.
• Compare Before You Apply: Use platforms like Mozo or Finder to compare Australian credit cards based on fees, rewards, and interest rates.
• Set Up Alerts: Most Australian credit card issuers allow you to set up SMS or app notifications to remind you of upcoming payments, helping you avoid late fees.

Conclusion: The best credit card for you is the one that meets your needs

Credit cards aren’t inherently good or bad—they’re what you make of them. By understanding the facts and debunking common myths, Australians can use credit cards as a tool to enhance their financial lives. Whether you’re looking to earn rewards, manage cash flow, or build credit, the key is making informed decisions and tailoring your approach to your unique financial situation.

Remember: The best credit card for you is the one that meets your needs, fits your spending habits, and aligns with your financial goals. So don’t let myths hold you back—get the facts, compare your options, and make credit cards work for you.