Is the credit card a villain, or the hero of your finances? For some users, it means uncontrolled, but for the other, the card is not that bad. The fact is, they can be good tools in the right hands (they build credit and earn points, for example).
So when it comes to credit card, there are a lot of fears and myths out there, you probably have heard of these, let’s check?
Do not use a credit card, use prepaid or debit cards.
Sure, some people don’t understand how to deal with credit cards – or have some difficulty or carelessness, which can end up resulting in maximized spending.
However, for a responsible person, a credit card offers one of the easiest ways to establish and build a credit history. Prepaid cards and debit cards do not help to establish credit history.
Consider your time perspective, your level of responsibility, and your debt history. If you are the kind of person who always does everything right and on time, never misses an appointment and understands how to budget, then you can easily handle a credit card.
Having a credit card in your wallet is not just a mysterious debt, but something that can help you improve your score.
Just have a credit card
This myth is tied to the premise that people can’t have a credit card without drowning in debt. This is true for some, having a card or more can be really difficult to manage, but not for everyone.
If you think you can’t handle paying multiple credit cards because you will forget your limits and will accumulate many purchases or get overwhelmed, then really the most viable option is to keep just one.
But if you are one of those who are organized, responsible and may like to take advantage of rewards and points programs, then go ahead and have more than one credit card.
You can look for a card that matches your spending habits and has a good rewards program. It is also helpful to have at least one low interest card to serve you in an emergency, in which case it is better to use a low interest card, after all in an emergency there is a possibility that you will not be able to pay the total balance.
You must cancel unused credit cards as soon as they are paid
If your card charges an annuity fee that outweighs the benefits you usually get from the scoring program, you may want to cancel, but for annuity-free cards, it may be more beneficial for you to keep these credit lines open. This means a higher overall credit limit.
Making the minimum payment is enough
One of the biggest myths about credit cards is that making the minimum payment is enough.
The company that issued your credit card will usually require a minimum monthly payment to gradually pay off your balance. However, if you can and should pay more than the minimum, the best option is to pay the full amount of your credit card statement. If you are unable to make the full payment, it may be time to review your spending.
The words “minimum payment” can be confusing to new credit card users, some may think that value is all they owe in the month. Instead, you need to look at your current total balance to see the current amount due. Making only the minimum payment can lead to a snowball debt with a very high interest rate.
Paying with a debit card is safer than paying with a credit card
It’s true that identity theft and data breach happen, and there may be a security variation between these two payment methods – consumer protection against fraudulent charges is generally stronger for credit cards. Paying with a debit card may expose your bank account to the possibility of fraud, and it may take weeks for fraudulent charges to be reversed. In addition, if your bank account is cleared, the money you need to pay your other bills may be held while the bank investigates.
Applying for a new credit card will hurt your credit score over a long period of time.
When you check in to apply for a new credit card, it usually results in a brief survey, which occurs when the credit card issuer checks your credit report before giving you a result. Hard or time consuming research can cause your credit score to fall by a few points. However, these surveys usually remain in your report for a short time.
The number of cards you have affects your credit score.
A full wallet of cards may look impressive, but it actually impairs your ability to get credit in the future. This is not exactly true – if you are responsible for your payments, having multiple credit cards need not be a disadvantage.
When you have many cards, you will also need to be very careful at the time of payments and be aware of their expiration to avoid interest. If you decide to use a daily spending card, paying the full balance every month will prevent debt buildup and indicate reliable credit management.
Canceling old cards increases your score
Each lender sees you differently. The processes they use to determine your credit score vary, and it is not always the case that canceling old cards will change something. This depends on your own personal circumstances, but long-standing accounts with a good track record can be beneficial to your score – and canceling an old card can actually reduce your total available credit.
In addition, credit score greatly depends on trying to predict your future consumer behavior. While a bad credit history gives you bad points, having little or no credit history makes you an unknown option – and therefore a potential risk in the eyes of lenders.
Are many myths?
The amount of myths and misinformation surrounding credit cards is quite large. When getting your first card, it is important to read your small print of your contract and use your card responsibly, paying your full balance every month and using only a small portion of your available credit. Your score may thank you later.