In my conversations with people, I have heard a wide variety of perspectives on credit cards over the years. Some thoughts were on-point, while others… well, they were the type of well-intentioned, but misguided advice that makes you slap your palm to your face. Here are five commonly-mentioned, and completely untrue, myths about credit cards. It’s time to get the facts straight.

Myth #1: You need to carry a balance each month to maintain a good credit score.

Dear god, NO. People who believe this are thinking of your credit utilization rate, which is a fancy way of saying “the percentage of your available debt that you’re actually using.” Keeping that under 30% is important… but keeping a balance below that amount on your card makes no difference to your credit score. All it does is force you to pay ridiculous amounts of interest for no reason.

If you want to improve your credit score with your credit card, make all of your payments on time, and do that for at least a year or two; the length of your perfect record is what will improve your credit score in the longer run. Just make sure you’re not paying unnecessary annual fees or anything in the process.

Myth #2: Rewards points are a scam.

The next time someone says this to you, ask them to explain what they mean and why they believe that… then sit back and enjoy as they trip all over their words. In order to decide whether rewards points are a scam or not, you need to understand why rewards programs exist in the first place. In other words, what’s in it for the company?

Companies make money from rewards programs in a few different ways:

• They bank on you spending more with them. If you’re collecting rewards points with a particular credit card, you’ll probably want to spend more on that card than paying with debit or cash. Since credit card issuers take a small cut of each transaction made with a credit card, you spending more on it means more money for them.
• You’ll be less likely to leave for another card. The term for measuring people who leave a card, bank or company for another brand is “attrition.” It’s a rate that many companies measure, because every time a customer leaves, it costs the company money to replace them. Loyalty & rewards programs help to reduce that attrition rate, which saves the company money and keeps revenues up.
• You’re more likely to get other products from the issuer. If your credit card is tied to a bank, just the fact that you have that credit card means you’ll be statistically more likely to be interested in other products from that bank. There’s a monetary value to this.
• Partners may pay the owner of the program to issue their points. Take AIR MILES, for example. You can earn them in a variety of places. Each time you do, the company you earned them from pays LoyaltyOne (who owns AIR MILES) an agreed-upon price for the points they issued. That price tag is usually more than what it costs AIR MILES when someone redeems their miles, meaning the company makes money each time its miles are issued.
• Annual fees charged on their premium credit cards. Some credit cards carry an annual fee in exchange for the benefits offered by the card. This fee can range anywhere from $19 a year to $799 a year for some of the most premium cards on the market.

Ultimately, items one through four don’t really affect your wallet much. They affect partners’ and competitors’ bottom lines, but not yours. It’s item number five that you’ll pay for out of pocket. In order to determine whether paying a fee for a card is worth it, you need to do some basic math.

Figure out how much you normally spend in a given month, then multiply that by the value of a point in the program you’re considering, then multiply that by 12 (to get a full year perspective). For example, Say you spend $2,000 a month on your credit card, and you earn one point per dollar. If a point is worth $0.01 (not uncommon), then you’re getting $20 worth of points each month, or $240 each year. As long as that number is greater than the annual fee you’re paying, you’re not being scammed; you’re coming out ahead.

So are rewards programs a scam? No, they’re frikkin’ not. They’re a business, like any other. Understand how they work, then make sure you’re getting enough value to make them worth your while. By the way… there are plenty of credit cards out there that will give you access to rewards points without charging you a single penny in annual fees.

Myth #3: As long as you pay your minimum balance each month, you won’t pay interest.

Wrong, wrong, wrong. In fact, if you make only your minimum payment each and every month, it could take you years to pay off your credit card completely. Let’s say, for example, you had a $5,000 balance on your card, and a 19.99% interest rate. If the minimum payment were 3% of the total balance, you’d be paying an initial monthly payment of $150, and this amount would go down slightly as you pay off your debt.

If you only made that minimum payment each month, guess how long it would take to pay off your card?

18 years and four months.

Yeah. Oh and by the way, $5,854 of the $10,584 you’ll pay over that timeframe will be interest charges, meaning you will have paid more in interest than the total balance you started out with on your card, all because you only made the minimum payment.

Just don’t do it. Pay off your whole balance, or at least as much as you can afford each month, and move on with your life.

Myth #4: You’ll always pay interest if you use your credit card.

For some reason, there’s a flipside myth to go along with the previous one. Assuming you’ll always pay interest is no truer than the myth that you’ll never pay it as long as you make your payments.

In Canada and the US, credit cards have what’s called a “grace period” – the period after you get your statement, usually 21 days from the statement date, that you’re given to pay off your balance. If you pay it off, in full, by that date, you’re home-free. No interest.

If you leave even a penny of that bill unpaid though, you will be charged interest on the purchases you made during that statement period, and it’ll be applied retroactively back to the date of each transaction.

The moral of the story here is this: pay off your card in full each month, and you won’t pay interest. Don’t pay it off in full, and you will. Easy peasy.

Myth #5: Credit cards are like having access to additional savings.

Ahhhhh!! This is the most dangerous myth of them all, because it leads to the mentality that your credit card balance is like cash in your pocket. It isn’t. If you treat it that way, you’ll dig yourself a hole that becomes very, very difficult to climb out of later on. Remember that interest example we looked at in myth #3? That’s what happens when you treat your card like cash.

Instead, think of your credit card this way: it’s a more flexible way to access the cash available in your bank account to make purchases you need to make anyway. A great habit to get into is to pay off your credit card each time you make a purchase on it. Yeah, it takes a little work, but it means you’ll never be tempted to spend more than you can afford on your card.

Wrapping it Up

Credit cards aren’t your worst enemy, as some of the myths out there would have you believe. Nor are they your best friend. They’re a tool that, when used responsibly, offer you a number of benefits. The key is to know how they actually work, so that you can take advantage of their benefits without succumbing to their drawbacks.

And the next time someone starts spouting one of these myths to you, just smile, nod and say “Appreciate the advice” …then toss it right into the garbage can where it belongs.