5 Myths about Credit Cards you should stop believing

5 Myths about Credit Cards you should stop believing

A lot of people will tell you to steer clear of Credit Cards altogether while others will urge you to use one and enjoy the benefits it can bring. Ever since their introduction, these cards have revolutionised how people make payments and manage their finances. However, there are still few existing myths about Credit Cards that can lead to confusion and misinformation for potential Credit Card users. In this blog, we will debunk five common myths around Credit Cards that you should examine and stop believing.

Common Myths About Credit Cards

Myth 1: Keeping a Credit Card will hurt your credit score

This is incorrect and a common misconception. While having a Credit Cardcan impact your credit score, it doesn't have to be in a negative way. Having a Credit Card can help your credit score in many ways.

Here’s how

One of the most significant factors that impact your credit score is your credit utilisation ratio. As good practice, keeping your credit utilisation ratio below 30% is desirable. By having a Credit Card with a high credit limit and a low balance you can improve your credit utilisation ratio which can positively impact your credit score.

Also, making your Credit Card payments on time can improve your credit score and show potential lenders that you are a responsible borrower.

Myth 2: You need to always carry a balance on your Credit Card

Some people believe that carrying a balance on their Credit Card can help improve their credit score. This is entirely false. Carrying a balance on your Credit Card can end up doing more harm than good.

When you carry a balance on your Credit Card your applicable interest charges increase. These charges can add up quickly which can make it all more challenging to pay off your debt.

Additionally, carrying a balance on your Credit Card can increase your credit utilisation ratio which can negatively impact your credit score. To avoid carrying over a balance on your Credit Card try to pay off your dues in full each month. If you can't pay off your entire balance try to pay more than the stipulated minimum payment. Doing so will help you avoid interest charges altogether and pay off your debt faster.

Myth 3: Applying for a Credit Card will hurt your credit score

Whenever you apply for a Credit Card, the company you apply to will conduct an inquiry on your credit report. Some people believe that this inquiry will bring down their credit score. While it is true that an inquiry can impact your credit score if you have previous dues and missed payments on former credit; the impact is usually minor.

Myth 4: Credit Cards are only for people who can’t afford to pay cash

Somehow, a few people also believe that Credit Cards are only for those who can't afford to pay cash. This is false. In fact, Credit Cards can be a useful tool for people who have the cash and the means to earn it. Companies may not offer Credit Cards to those who do not have bank statements and employment proof to back up their application. These cards are not just a way to pay for purchases but also to earn rewards and build credit.

Using a Credit Card responsibly and smartly can help you earn rewards such as cashback, Credit Card Reward Pointsand travel benefits. Just make sure to get a card that will give you benefits according to your spending habits. Remember, making timely payments on your Credit Card can help you build up your credit rating to get better interest rates and loan terms in case of a future loan.

Myth 5: You should close your Credit Card accounts once you pay them off.

Quite a few people believe they should close their Credit Card accounts once they pay them off. This is quite senseless. In fact, closing a Credit Card account can hurt your credit score.

When you close a Credit Card account you reduce the amount of credit that is available to you. This reduction can increase your credit utilisation ratio which can negatively impact your credit score.

Instead of closing a Credit Card account once you pay off the dues consider keeping it open and using it occasionally for smaller purchases. Doing so can help keep the account active and also help you maintain a good credit utilisation ratio.

In a nutshell

Credit Cards can be a useful way to manage your finances and make purchases. In case you believed some of these myths, we hope this article cleared them up. By understanding the facts on Credit Cards you can make informed decisions regarding your finances and use Credit Cards responsibly to achieve your financial goals. Remember to pay off your dues in full each month, avoid carrying a balance and keep your credit utilisation ratio under 30% to maintain a good credit score. Don’t close your Credit Card accounts and use them occasionally to maintain a good credit history and ideal utilisation ratio.

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