It can be challenging to separate hard facts from myths. Unfortunately, there are relatively few attempts made to challenge the mythical narrative and present facts to replace them for making facts plausible. Here, are the 5 myths about the credit card, which are far from the truth
These Myths are as follows
· Closing a credit card improves the credit score
· A new Credit card will considerably reduce your credit score
· The more you spend, the more your credit score goes up.
· Rewards with credit cards are rewarding
· Paying up the minimum amount due every month can improve credit score drastically and paying up the minimum due is enough
1. Closing a credit card improves the credit score: It’s a common misconception that cancelling a credit card can raise your credit score. The presumption is false, despite what is believed. Credit experts strongly discourage cancelling credit cards, even if you aren’t using them.
It’s possible that cancelling a credit card will hurt rather than help your score. Your credit usage ratio, which affects your credit score, may be impacted by closing a credit card. Credit utilisation calculates how much of your total available credit is being used based on your credit reports. Your credit score will decline the more easily accessible credit you use, according to your reports. Many times, cancelling a credit card can result in a decline in credit scores. There is no issue with the account closure itself. You should be concerned that cancelling a credit card account could result in an increase in your credit utilisation, which will decrease your credit score.
2. A new Credit card will considerably reduce your credit score: The Popular belief that a new credit card will considerably reduce your credit score is not completely true. A “hard credit inquiry” is carried out by the service provider whenever you apply for new credit. A single inquiry is unlikely to lower your score by more than a few points, but submitting too many applications could have a significant negative effect. Therefore, it’s crucial to pick the right card based on your requirements, spending patterns, and benefits. If the new card has a good history of on-time payments, the point loss will be swiftly offset.
3. The more you spend, the more your credit score goes up: The assumption is wholly false. Your credit score isn’t immediately impacted by how much money you spend; rather, it’s determined by how financially responsible and on-time you are. Maintaining low credit utilisation (how much of your available credit you’re using) across all of your loan accounts and paying your bills on time, so you have a good payment history, do have an impact on your credit score. Your credit score will be negatively impacted if your credit utilisation ratios are more than 30% of your credit limits.
4. Rewards with credit cards are rewarding: Many lenders entice potential credit card customers to apply for credit cards by providing significant discounts and benefits in this era of deceptive advertising. Such commercials are alluring because they urge viewers to obtain credit cards with expensive annual fees and other costs to take advantage of the benefits. The devil, however, is in the details, as many cardholders are aware. The dreaded asterisk sign is always present when it comes to terms and conditions. Many of these discounts are only valid on non-peak days or require you to buy additional goods. Contrarily, this creates more problems than it fixes. However, we can reduce the risks by following a strict financial plan by analysing the benefits over the charges and deciding accordingly.
5. Paying up the minimum amount due every month can improve your credit score drastically, and paying up the minimum due is enough: While it may be alluring to only pay the lowest amount due on your credit card statement, doing so can be very costly. There are normally three amounts you can pay when you receive your credit card statement: the minimum due, the statement balance, and the current balance. The minimal monthly payment required to maintain the health of your account is known as the minimum payment
There is a popular belief that paying only the minimum amount makes us debt-free. But contrary to the belief, the assumption is incorrect. When you pay the minimum amount only, it has its adverse impact as the rest of the balance gets carried forward and subsequent interest is charged on that. The minimum amount increases as the balance amount of one month are added to the minimum amount. Making merely the minimum payment each month would cause the repayment to take months or years and result in interest payment on the sum owed.