Most Common Myths About Credit Cards That Can Hurt Your Credit Score

Have you ever wondered why your credit score is not improving while keeping all the essential factors in mind? You might be a victim of certain widespread misunderstandings about credit cards. There are several myths regarding credit cards that consumers believe. These can lower your credit score and cause you to think negatively about using credit cards. To help you get a higher credit score, we are here to remove the most widespread myths about credit cards from your life.

  Common Myths About Credit Cards

Myth 1: Your credit score will improve if you have a balance on your credit card

This credit myth is sticky. According to a survey, many individuals believe carrying debt on a credit card is preferable to paying it off completely to improve their score. However, if your debt exceeds a huge proportion of your credit limit, it may hurt your credit rather than improve it. That’s because it raises your credit usage, which has a big impact on your credit score.

The cost of interest is another disadvantage of carrying a balance on your credit card. Due to double-digit interest rates, credit card debt, which you have if you carry a balance on your card even accidentally, is one of the most expensive forms of debt. Furthermore, even if you believe carrying a small debt on your card will be inexpensive, this may not be the case due to the way credit card interest is calculated.

Interest is charged on the whole amount owed if you don’t pay it off in full by the due date. Instead, it is determined by your credit card’s average daily balance. Therefore, if you have Rs. 800 on your credit card but a Rs. 80,000 average daily balance over a month, interest will be charged on the Rs. 80,000 balance.

Myth 2: Getting rid of a credit card you don’t use can improve your credit

According to the report, many individuals believe that canceling a credit card that is no longer in use will improve their credit score. It sounds strange to keep a financial product you aren’t using, but canceling a credit card might hurt your score.

By raising your credit use, closing a card may lower your credit score. While there are valid reasons to close a credit card account, in most cases, inactivity isn’t a sufficient reason to damage one’s credit.

Even if you don’t cancel your credit card, the issuer will eventually shut down any account that isn’t used after some time. To avoid this, you may put a small annual cost on the card, such as a monthly subscription, and set up autopay to pay off the debt each month.

Myth 3: Using a credit card for regular purchases is useless

Many individuals think that credit cards should only be used for significant purchases rather than regular ones like buying groceries, clothing, or meals. Thus, this is not exactly true because most credit cards give points or cashback on transactions like shopping, food, etc. Even paying for petrol with a credit card is a small move because many credit cards remove the fuel fee. Therefore, instead of assuming that using a credit card for everyday purchases is bad, you should start utilizing credit cards for all of your transactions, as you may reduce your spending by a certain amount. Analyze your spending patterns and select credit cards that give attractive rewards in the areas where you spend the most.

Read More: Common Credit Card Myths Damaging Your Credit Score

Conclusion

These are the most basic credit card myths that influence people’s financial decisions. It’s essential and helpful at the same time to get rid of these myths. Since they might prevent you from building credit incorrectly. Have any of these credit card myths affected you personally? If so, then please share your experience so that others can get rid of similar issues.

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