12 credit card rules you should never break
According to a study from finder.com.au, 40% of Australians own one credit card, 19% own two credit cards and 8% own three or more. Unsurprisingly, cardholders with several cards were more likely to have bigger credit card debts than those with just one credit card. The study found that those with several cards carried on average $6,500 of credit card debt – more than double the national average.
However, credit cards are not necessarily a bad thing, says Prudential’s financial wellness advocate Tiffany Aliche. “It’s a myth that credit cards are innately bad,” she says. “Think of them instead like a tool, just like a hammer. You can pick that hammer up and build a house, or you can pick up that same hammer and destroy that same house. It depends entirely on the user.”
So, is there a method to the credit-card madness? We ask trusty financial experts for their top credit card dos and don’ts.
Stick to one or two cards
It’s a common belief that to have good credit, you need credit cards. The truth is yes… and no. Financial wellness advocate Felicity Aliche recommends keeping at least one but not more than three cards. “Remember, if you have no credit history, you are a bad borrower,” she says. “It’s just like if my 16-year-old relative said, ‘Look, I’ve never been in an accident,’ yet she’s never driven a car, so therefore she’s a bad driver. Well, the same goes for credit.”
However, that doesn’t mean you need to fill your wallet with plastic in order to have good credit, either. “Because the word ‘credit’ is in credit cards, people associate the two, but your credit score is about much more than that,” she says. “Your credit score encompasses many more aspects than cards. It’s about any time you borrow and pay back money, whether it’s a mortgage, car loan, student loan, even your utility bills.”
Steer clear of store credit cards
“I’m not a fan of department store credit cards for two reasons,” says Michael Foguth, founder of Foguth Financial Group. “For one thing, the revolving interest rate is typically highest on those department store cards. For another thing, limiting where you can use a particular card has downsides.” Instead, he recommends sticking to one card that offers rewards and using that for every credit-card purchase.