Do you know you should not hold too many credit cards? If you think it’s because it will hurt your credit score, then you, like many others, have misunderstood how credit cards work.
Despite the rising popularity, many people these days still hold on to wrong notions about credit cards. There are many aspects of these cards that are still generally misunderstood.
It’s not the credit cards, but these misconceptions that can cost you dearly. Check out some of the most common misconceptions about credit cards:
Do not accept an increase in your credit limit
If you are punctual with the payment of your credit card bill, your card issuer may offer an increase in your credit limit. You may think that the bank is trying to trick you into spending more. However, you can use this opportunity to your advantage. If you accept the increase in your credit limit and continue to spend the same amount prior to the increase in your limit, the utilisation of the card will reduce drastically that will automatically help increase your credit score.
The interest rate associated with the card cannot be changed
A common misconception associated with credit cards is that the rate of interest on your card cannot be changed and you are obliged to agree to the interest rate that your card issuer feels like charging. This is far from the truth because if you have a history of paying your fees on time and you have maintained a good relationship with your bank, you just have to call your relationship manager and ask for a reduction in the rate of interest. Often the customers who call the bank for a reduction in interest rate are likely to get one.
Your credit score will take a hit if you apply for a new card
This is among the most common misconceptions associated with credit cards. When you apply for a credit card, your credit history will register a ‘pull’. Two or three pulls may not affect your credit score, however, multiple pulls over a short period of time may affect your score. However, if you apply for a new card and do not incur additional debt, your credit utilisation ratio may come down and that will, in turn, improve your credit score.
Getting rid of your old credit cards will help you in improving your credit score
A large number of credit card users are unaware of the fact that closing an old credit card account is likely to have an adverse impact on your credit score. By closing an old credit card account, you are decreasing the number of credits available to you. In addition, you are reducing the average age of your accounts which is not advisable as your credit history length has a direct impact on your credit score.
Carrying a balance on your credit card will help you improve your score
This is one of the most bizarre myths associated with credit cards floating around in the world of finance. At the end of each billing cycle, you must pay your entire bill amount. In case you are not able to, then at least pay the minimum amount due. If you miss the payment even by a day, it can cause significant damage to your credit score.
You must never pay an annual fee
Many banks offer credit cards with zero annual fee. However, this doesn’t mean that you should not apply for cards that have an annual fee. If you make sure the rewards you get from the credit card far outweigh the annual fee, you must not hesitate to pay the annual fee. Instead of not considering cards with an annual fee altogether, you must assess how you would like to spend using the card and determine whether the rewards will be worth the cost.
With the widespread use of credit cards, it is quite likely that you will come across a lot of misconceptions going around. However, if you get a clear understanding of all the facts, you can choose the best among the various cards available.