7 Credit Card Myths You Should Stop Believing 

Are credit cards only reserved for the rich? No, they are not. This is one of the many myths about credit cards.

There are different cards for different income levels, which means millions of Kenyans can take advantage of a credit card. 

For instance, a person earning a monthly net income Ksh15,000 and above can get the Sidian Bank Classic Credit Card with a spending limit of up to Ksh1 million. At the same time, the NCBA Infinite Credit Card is for individuals earning a minimum net income of Ksh2 million per month. 

Credit cards have received a bad rap over the years. Most of the information available is based on myths and seldom on facts. 

This article aims to dispel some of the common credit card myths and give you factual information to help you decide if this cash management option is for you.  

Myth 1: Credit cards are bad

Credit cards are not inherently bad or evil. The reason these cards have received this bad representation is, in part, because of the effects of financial irresponsibility on the side of the user.

For instance, late payments which lead to accumulation of interest, or misuse of the card and going beyond set monthly budgets. Check out some of the fees associated with credit card decisions here. 

Note that apart from the joining fee (mostly free) and annual fee (some banks do not charge this too), all the other charges are solely based on the customer’s decision to use certain credit card features e.g. cash advance, or opting to not take advantage of the interest-free period. 

Used responsibly, credit cards can be very beneficial to the user. A credit card can pay the user through rewards in forms of discounts on purchases, travel related benefits, among other benefits. 

For example, the Standard Chartered Visa Gold Credit Card offers, 5% Cash back on Fuel (up to 250 bob, free travel insurance for baggage loss/delay (up to $750 (Ksh84,000)), free travel insurance for accidents (up to $4000 (Ksh449,000) and up to 15% discount at featured merchants. 

The Equity Bank American Express Green Card offers travel insurance and purchase protection, a free supplementary card, emergency assistance. 

A I&M Bank Visa Classic Debit Card user earns 0.3% on every amount spent on points of sale or through online shopping.

All credit cards come with a range of rewards ranging from cashbacks, to travel and shopping perks. Many too have periodic offers from time to time. You can browse the different benefits offered by different credit card issuers here. 

Myth 2: A credit card will leave you with bad debt

While it is true that credit is synonymous with debt, it is always important to remember that the user is in the driving seat and controls how much they spend and how they repay monies accrued. 

As long as the user pays the money used in full within the interest-free period, they will not get into debt or pay interest for that matter.

If worried about misusing the card, the consumer can set a smaller credit card limit for a start. Setting clear rules on the use of the card can help the user make sound financial decisions.

Myth 3: Interest starts accruing immediately a purchase is made

Interest rates do not start accruing immediately when a purchase is made. Interest is charged the day after the payment on the card is due. If the user pays off the credit before lapse of the repayment date, then they will avoid interest.

Credit cards in Kenya offer an interest-free period, usually between 30 to 55 days. As long as the user repays their debt in full within the interest free period, they will not accrue any interest charges.

For instance, if the user purchased stock worth Ksh40,000 using their credit card with a bank whose interest-free period is 40 days, as long as the user pays up the Ksh40,000 before the expiration of the 40 days, they will not pay any interest.

On the other hand if another user with the same stock needs takes up an asset financing loan of the same amount, for example, they will pay interest regardless of whether they pay before the loan repayment period lapses. 

Note: You can compare the interest rates charged for personal loans in Kenya here. 

In this instance, credit card debt becomes more beneficial than alternatives such as digital, shylock and personal loans.

Myth 4: Do not sweat one missed payment

Missing an odd payment here or there might not seem like a big deal but it might affect your creditworthiness and pile up debt. Growing credit limits is directly linked to how promptly you make payments. An issuer will only increase limits if the user makes their payments on time. 

Additionally a missed payment means paying compounded interest when the next payment is due. For instance, if one takes out a debt of Sh30,000 and interest charges for the duration amounts to Ksh900, if they miss that payment, interest will be calculated on Sh30900. 

In addition to this payment, the user will still have to pay a late payment fee and an over-limit fee if the amount surpases one's limits.

If the user is worried about forgetting a payment, setting up direct debit from their bank account can save them from making additional payments.

Myth 5: Debit cards are safer to use than credit cards

Credit cards typically offer superior transaction security when compared to debit cards.

One major safety difference between the two is that while with a debit card, money is directly drawn from the account holder's existing funds, with a credit card, the money is drawn from the issuer not the cardholder's personal account. 

As such, a debit card holder will see a deduction on their personal account and go through the bank’s fraud management procedures to recover their money in the event of a fraudulent transaction - this could take months. 

For a credit card, all the cardholder needs to do is to notify the issuer of the fraudulent transaction and they would take over the investigation without a personal loss on the cardholder’s side. 

Additional security features include the examples outlined below; 

For example, NCBA credit cards come with enhanced security for online transactions through One-time Passwords, Pin and Chip technology and Verified by Visa (OTP) sent to the cardholder.

The I&M Visa Infinite Credit Card comes with a customized SafeCard App which allows users to block and unblock the card from their smartphone. It also features secure online transactions using Verified by Visa authorization codes and SMS alerts for all transactions.

It is, however, important to note that newer debit cards types tend to offer credit card-like security features.  

Myth 6: Applying for a credit card will negatively affect you creditworthiness

This myth is attached to the belief that applying for a credit card means the prospective user is cash strapped or is living beyond their means - thereby lowering the user’s creditworthiness. This is simply not true.  

Far from it, credit cards offer convenience, security and a hustle-free line of credit. By demonstrating that they can take credit and pay it back on time, users actually improve their creditworthiness. 

Credit card users may prefer to use this instrument as compared to debit cards because of the benefits discussed here. While there are charges attached to both instruments, the rewards offered by credit cards may make it cheaper.

Myth 7: You only have to pay the minimum amount due

This is true to a certain extent but it can be detrimental to the user's financial health. Paying only the minimum amount will mean that it will take one a longer time to clear credit card debt. This also means that the consumer will pay significant amounts in interest. 

It is always best to pay your debt in full. From time to time it is understandable to pay minimum amounts especially when life events overtake one's financial habits but it should not be the norm.

WRAPPING UP

Credit cards can be a useful financial instrument. They carry a myriad of benefits for their users. 

When used responsibly, credit cards will not only improve one’s creditworthiness but also provide the user with rewards, including cashbacks, travel miles and discounts.

Credit cards offer users quick access to cash and credit when they need it the most. As a first line of credit, these cards will not only come in handy for personal transactions but also for business and emergency needs.

It is however important to remember that credit cards are a form of debt. If used irresponsibly, they can trap one in a cycle of debt. It is therefore important that the user sets up a budget to limit overuse while making sure they pay their debt in full before lapse of the repayment period. 

Due to scarcity of credit card information, we have launched Kenya’s first credit card comparison portal to help you compare issuers and their different tiers of credit cards.

Check out our credit card comparison portal and see the different interest rates charged, the range of benefits and rewards offered by different card providers in Kenya as well as the interest-free periods.