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Bursting the Myths of Credit Card

Bursting the Myths of Credit Card

  • Myth: Having too many credit cards can make your credit score poor

People have a notion that every card would play a role in to increase your debts, this is only true with people who don’t pay off their debts or recklessly manage their expenses. Every card has different offers, discounts and reward points on its purchases. No one card can satisfy all needs. If someone is a frequent traveler they might go for a travel card, contrary to the needs of a shopaholic.

Therefore if 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.

  • Myth- Paying only the MAD ( Minimum amount due) will get you going

Minimum due is the amount that you need to pay to avoid any late payment charges. It’s a fraction amount of total due and varies from bank to bank. Only paying the minimum amount due is not a wise decision if you do not want to end up in a debt trap.

Companies might encourage you to just pay MAD so that they can earn more interest from the unpaid amount.

If you constantly have a habit of paying only minimum dues then your debt would rack up in a huge pile, leaving no-way-out for you. And your credit score will see a new low ,therefore hampering your ability to raise funds in future.

  • Myth– Use debit card if you have a poor credit score

It is difficult to get a credit card with poor credit score but there are ways around that to build your credit score and get credit card. You can opt for a credit line and improve your credit score from that.

Or opt for a secured credit card . Essentially, a secured credit card works just like a standard credit card, except that you’ll have to put a security deposit down in order to open the card.

Secured cards have a few key advantages over prepaid or debit cards. First off, they are accepted just like standard credit cards. Most importantly, a secured credit card is reported to the credit bureaus and can help you build or rebuild your credit over time, while a prepaid/debit card has no positive effect on your credit whatsoever.

  • Myth– Do not accept an extension of credit limit

People say that accepting an increased credit limit is risky and might raise debt thereby, reducing the credit score. A higher credit limit is beneficial for your credit score if you clear your payments on time.

If you maintain your credit utilization limit between 20-30% then your credit score would be higher. This is because credit utilization ratio is in proportion to the credit limit. High credit limit with low utilization rate will increase your credit score.

Specifically, 30% of your credit score comes from a category of information called “amounts owed,” and a big part of this is your credit utilization, or your credit card balances as a percentage of your available credit. By increasing your credit limit, you have more available credit, and your existing debts will represent less of your total credit line.

  • Myth– Your old credit cards affect your credit score poorly

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 is a like a phone number the older it is the more reliable person would be, the older your credit account the more value it adds to your credit history.

Many people who are just establishing credit obtain “starter cards” with low limits, high interest rates and annual fees, and little or no rewards. Then, as they build credit and start getting more attractive credit card offers, it can seem tempting to close these old accounts.

By closing an account, you’re reducing your total available credit, and increasing your credit utilization represented by your outstanding debt. In addition, older and accounts are treated more favorably than newer ones, so it could affect the “length of credit history” category as well.


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