People often shy away from applying for a Credit Card as the myths surrounding this handy little item overshadow the facts. In this article, we’ll make an attempt to separate Credit Card myths from facts.
We are sure, armed with the right Credit Card information, you’ll laugh away all the Credit Card myths you have heard so far and be eager to get one for yourself. Just saying – our Government is aggressively muscling its way towards a cashless economy and having a Credit Card is only going to work to your advantage.
Additional Reading: How To Choose The Best Credit Card For You
1. Myth: Don’t get a Credit Card. It hurts your Credit Score.
Fact: No, it doesn’t!
A Credit Card is, in fact, the first step people take towards building their Credit Score. A well-managed Credit Card sends your Credit Score soaring making it easier for you to get loans in the future.
So when does a Credit Card hurt your Credit Score? A Credit Card hurts your Credit Score only if you don’t pay your dues on time or rake up huge outstanding bills month after month. People amass huge Credit Card debt due to their spendthrift ways and then blame the card for their sorry state of affairs. This scares novice Credit Card seekers who end up turning their backs on plastic.
Don’t be afraid of getting a Credit Card because of a few horror stories. A Credit Card is completely controlled by you. Look at it as a tool that earns your reward points, cashback for spending money, and lets your purchase big-ticket items which you can repay in easy EMIs.
If you are really worried that you might max out your Credit Card then get a Card with a low top limit. This will keep your spending in check.
TIP: A credit utilisation ratio of less than 30 percent works favourably for your Credit Score.
Additional Reading: 5 Tips for Responsible Credit Card Usage
2. Myth: Get rid of old Credit Cards. They hurt your Credit Score.
Fact: It’s actually the opposite.
Here’s another interesting myth about Credit Cards. The general misconception is that old Credit Cards hurt your Credit Score. The truth is that they don’t. In fact, old is gold in this scenario. Your Credit Score will take a hit only when you have an unpaid outstanding balance on your Credit Card.
It’s advisable that you don’t close your old Credit Cards. The older your credit account, the more value it adds to your credit history. How does this work? Banks will look at your Credit History when you ask them for a line of credit. Long-running, well-managed credit accounts speak a lot more about your creditworthiness than newer ones. Old credit accounts bear testimony to your long time money management skills.
If you find the fees associated with your old Credit Cards outweigh the benefits, then you might consider closing the account. It will not have a drastic impact on your Credit Score.
Additional reading: Credit Card Handbook: All Questions Answered
3. Myth: Too many Credit Cards are bad for your Credit Score.
Fact: The number of Credit Cards you have has no bearing on your score.
No one Credit Card can satisfy all your needs. You need an Airline Credit Card to get discounts on flight and hotel booking, a Shopping Credit Card to get special discounts, and a Cashback Credit Card to get some of that hard-earned, easily-spent money back in your bank account.
So, who’s to stop you from getting them all? Your folks and friends might discourage you, worried that you might spend your way to a pit of debt. But that’s the only genuine concern. As long as you are using your gazillion Credit Cards wisely, your Credit Score won’t be negatively affected. Just keep a tab on how much you are spending on each card and pay your bills on time.
Tip: Do not apply for too many Credit Cards at one go. Too many applications could lead to banks rejecting your request as you’ll look like a person desperate for finance but with no means to repay the dues. So apply for as many Credit Cards as you want, but space out your applications.
Additional Reading: 5 Things To Know For First-Time Credit Card Users
4. Myth: Maintaining an outstanding balance is good for your Credit Score. Just pay the minimum amount due.
Fact: Not paying your dues in full could impact your score.
Paying the minimum amount due sounds like a fairy tale for sure. But it doesn’t work that way. When you get your bill, always try to pay it in full.
By paying the minimum amount due, you are only accumulating interest on the balance unpaid amount. At this rate, you’ll soon find yourself neck deep in a pool of debt. This aside, your Credit Score will see new lows too along with the rest of your finances.
Don’t know your Credit Score? Click here to check it for free.
The next time someone suggests the minimum amount due routine, roll your eyes at them and give them your two cents. Carrying a negative balance on your Credit Card every month is also detrimental to your applications for loans in the future. Do you really want your Car Loan and Home Loan applications to get rejected?
Additional Reading: Why Paying Only The Minimum Due On Credit Cards Is A Bad Idea
5. Myth: Stay loyal to your Credit Card.
Fact: Learn to move on.
Your Credit Card loves you unconditionally and it wouldn’t mind if you ditched it for a better card.
Loyalty doesn’t really pay off in the Credit Card business. You don’t have to close your old Credit Card accounts, but do consider getting new cards. You get to take advantage of the joining bonus and many other rewards and benefits that come with a new card.
People who choose to upgrade to newer and better Credit Cards enjoy life a little more than the ones who stick with the old worn out ones.
A Credit Card is a financial tool to help you better manage your finances. Make the most of it.