Should I apply for a credit card? Will a balance on my credit card affect my score? Most people have these questions about credit cards, and unfortunately, failing to get an expert to answer them often leads to myths and misconceptions.
Read on as we debunk some common credit card myths you must stop believing.
Carrying a Credit Card Balance Will Help Build My Credit History
Carrying a balance on your credit card harms your credit score as it affects your credit utilization ratio on your account. Paying your credit card balance in full each billing cycle will help you improve your credit score by building a good credit history.
A High Credit Card Limit is Harmful to My Credit Score
Credit card issuers evaluate multiple factors before setting a credit limit. Nonetheless, getting a high credit limit doesn’t harm your credit score. It means that your issuer views you as a low-risk borrower who can borrow and repay any amount. Interestingly, qualifying for a higher credit limit can help you maintain a lower credit utilization rate, which can build your credit score.
Multiple Credit Cards Will Hurt My Credit Score
As long as you can manage your credit cards, you can have as many as you wish and maintain a good credit score. If you opt to have several credit cards, you need to be careful about the account you open first, as some companies won’t allow you to open a new account if you have many credit cards.
Avoid applying for multiple credit cards in a short time, as this reflects as hard inquiries on your credit history. You also need to pay your balances in full each month to build your payment history.
Canceling a Credit Card Improves My Score
While getting rid of your credit card might help you curb bad spending habits, canceling your card without taking the proper steps can affect your credit history by increasing your credit utilization ratio. Before canceling your card, talk to the card company and discuss a viable payment plan.
Alternatively, you can keep the account open but avoid using the card to continue building your account and credit history.
Applying For a New Credit Card Will Hurt My Credit Score
Applying for a new credit card attracts a request on your credit history but has little effect on your credit. You should avoid making multiple credit card applications in a short time as it shows you’re having financial difficulties. Receiving a new card can help your credit score as it lowers your credit utilization ratio as long as you don’t incur extra debt.
Credit Cards are Reserved for People Who Cannot Afford to Pay Cash.
Anyone can apply for a credit card as long as they have the means to earn it and pay for it. Furthermore, credit cards are not only meant for purchases; you can also use them to earn travel benefits and reward points.
You can also build up your credit history by making timely payments on your card, which can help you access better interest rates if you decide to take a personal loan or apply for a mortgage.
My Credit Card Balance Has Only One Interest Rate
Unfortunately, that’s not true. Your credit card has different charges and balances with varying interest rates. However, it’s essential to note that any amount paid above the minimum payments is applied to the balance with the highest interest rate.
Using a Credit Card Will Get Me Into Debt
Although credit cards make it convenient and easy to buy whatever you like, they are not a direct path to debt. You’ll only get into debt when you fail to pay the balance in full every month. Checking the credit card companies’ policies will ensure you make your payments on time and improve your credit score.
Free Credit Cards are the Best
Some credit card companies offer free credit cards with no annual fees. While this can help you save money, you may not be eligible for credit card reward points, airport lounge access, frequent flyer miles, etc.
Making the Minimum Payment on My Credit Card is Enough
Although making the minimum payment is essential to clearing your debt, financial experts advise paying the balance in full when you can. The minimum payment only covers part of the interest and not the principal balance, which means it will take longer to clear the debt. Paying more than the minimum to avoid straining your finances is critical.
Understanding the facts about credit cards can help you make better financial decisions. Using credit cards responsibly to build your credit history and improve your credit utilization ratio is possible. If you still have more questions about getting a credit card, a financial expert or a card issuer can help you get more clarification.
