Debunking Common Credit Card Myths
Credit Cards have been a subject of debate, with some advising against their use while others tout their benefits. However, there are several myths surrounding Credit Cards that need to be debunked. In this blog, we will address five common misconceptions about Credit Card and provide accurate information to potential users. Here are five common credit card myths.
- Owning a Credit Card will harm your credit score.
- Carrying a balance on your Credit Card is beneficial.
- Applying for Credit Cards will damage your credit score.
- Credit Cards are only for individuals who can’t afford to pay in cash.
- Closing your Credit Cards after paying them off is advisable.
Myth #1: Owning a Credit Card will harm your credit score.
This is a widespread misconception. While having a Credit Card does impact your credit score, it doesn’t necessarily have a negative effect. In fact, a Credit Card can improve your credit score in various ways.
How it works:
Your credit utilization ratio, a crucial factor in determining your credit score, can be positively influenced by having a Credit Card. By maintaining a low balance on a Credit Card with a high credit limit, you can improve your credit utilization ratio, which in turn boosts your credit score.
Additionally, making timely payments on your Credit Card demonstrates responsible borrowing behavior and can further enhance your credit score, showing potential lenders that you are reliable.
Myth #2: Carrying a balance on your Credit Card is beneficial.
Contrary to popular belief, carrying a balance on your Credit Card does not help improve your credit score. In fact, it can be detrimental to your financial health.
When you carry a balance, you incur interest charges, which can accumulate rapidly and make it harder to pay off your debt.
Moreover, carrying a balance increases your credit utilization ratio, negatively impacting your credit score. To avoid this, strive to pay off your Credit Card balance in full each month. If paying in full is not possible, make sure to pay more than the minimum payment. By doing so, you can avoid interest charges and expedite the debt repayment process.
Myth #3: Applying for Credit Cards will damage your credit score.
Many believe that applying for a Credit Card adversely affects their credit score due to the credit inquiry conducted by the card issuer. While inquiries can impact your credit score, the effect is usually minimal, unless you have a history of missed payments or outstanding dues.
Also read: History of ITC Limited.
Myth #4: Credit Cards are only for individuals who can’t afford to pay in cash.
It is false to assume that Credit Cards are exclusively for those who cannot afford to make cash payments. In reality, Credit Cards can be valuable tools for individuals who have the financial means to pay in cash.
Credit Card issuers typically require applicants to provide bank statements and employment proof during the application process. Credit Cards serve not only as a means of payment but also offer rewards and help build credit.
Using a Credit Card responsibly allows you to earn rewards such as cashback, Credit Card reward points, and travel benefits. It’s crucial to select a card that aligns with your spending habits. Timely payments on your Credit Card can aid in building a strong credit history, leading to better interest rates and loan terms in the future.
Myth #5: Closing your Credit Cards after paying them off is advisable.
Some individuals believe it is wise to close Credit Card accounts once the balances are paid off. However, this is not a sensible approach, as closing a Credit Card account can harm your credit score.
Closing an account reduces the available credit, resulting in an increased credit utilisation ratio, which negatively impacts your credit score.
Instead of closing a Credit Card account, consider keeping it open and occasionally using it for smaller purchases. This helps maintain an active account and ensures a favourable credit utilisation ratio.
Credit Cards: The Bottomline
Understanding the truth about Credit Cards is essential for making informed financial decisions. By dispelling these myths, you can utilize Credit Cards responsibly to effectively manage your finances. It is crucial to pay off your balances completely each month, avoid carrying debt, and maintain a credit utilization ratio below 30% to safeguard your credit score. Instead of closing Credit Card accounts, using them occasionally will help maintain a positive credit history and optimal utilization ratio. Armed with this knowledge, you can leverage Credit Cards to achieve your financial objectives. Hope this article helped you realise these 5 common credit card myths.
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Also read: Tips to increase home loan eligibility