Misinformation regarding credit cards circulates in abundance in the online world. You tend to believe and act upon them without thinking twice, and upon doing so, you suffer.
We at mymoneykarma do not want our readers to be blinded by these preconceived or fabricated notions. Here are a few common credit card myths that we have busted to expose you to the reality. Let these tips be your guide.
Busted: This is a surprisingly widespread belief. You definitely do not need to keep a balance on your credit card for a high credit score. On the contrary, carrying a balance means that you have to pay additional interest unnecessarily. Keeping a balance also suggests that you are not paying on time, and lenders wouldn't trust you with more credit.
People who keep their credit card utilization rate below 30% generally have the highest credit score. Those who keep their expenses within their affordability and pay back on time are perceived by lenders as trustworthy and creditworthy borrowers. Carrying forward your credit card balance can and will be detrimental to your credit health. Avoid it.
Busted: If your credit card charges a high annual fee that outweighs the benefits of the card's rewards program, you might find profit in closing the account. However, if you have credit cards without annual fee, you must keep those accounts active. You can enjoy the reward program of those cards. More importantly, keeping these accounts active can boost your credit score in three ways. Primarily, multiple credit cards amount to a high value of total credit limit - this will help keep your credit utilization rate low, provided that you don't overspend.
On the other hand, if these cards are one of your oldest ones, they will help you maintain a long average credit age. Closing these cards will bring down your credit age and affect your credit scores too. Also, a variety of credit accounts ensures a good credit score; closing credit card accounts will disrupt the variety and bring down your credit scores. Therefore, try to keep those old cards active and enjoy their benefits.
Busted: Well, this is a very familiar one. I have spent a large part of my life believing in this myth. My parents and most of the people I know from their generation still believe very firmly in this myth. The reality is the opposite. Paying with a debit card can be very risky, as it can expose your bank account and information to the possibility of fraud. Data breaches and identity theft have become a common phenomenon these days. The EMV chip cards are considered to be safe, but thieves and hackers are smarter than you would imagine.
Consumer protection laws against debit card frauds are very different from that of credit cards. Fraudulent activity on your debit card might result in an empty bank account - you might be bankrupt with no money to pay your bills until the time the bank investigates and resolves the matter. Reversal of fraudulent charges takes a long time for debit card frauds, and customer liability is high.
On the other hand, these laws are much stronger for credit cards. Credit card fraud does not affect your saved-up money. Customer liability is much lesser in credit cards - mostly none; given the fraud is reported immediately.
You could jeopardize your financial life by believing in myths about credit cards. Be well informed; be informed correctly. Credit cards are more of a boon than a bane. Educate yourself to avoid suffering from your own financial mistakes.
To keep your credit healthy, make sure that you check your credit score regularly as well.