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3 Credit Card Myths that Hold You Back

Misinformation regarding credit cards circulates in the world in large numbers. You tend to believe them and act upon them without thinking twice. You suffer.

3 Credit Card Myths that Hold You Back

We at mymoneykarma do not want our readers to be blinded by these preconceived notions. Here are a few common credit card myths and we have busted those myths to expose you to the reality. Let these tips be your guide.

Myth: Keeping a balance on your credit cards helps you build your credit score.

Busted: This is surprisingly a 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 restrict 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.

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Myth: Close all unused credit cards as soon as you have paid them off.

Busted: If your credit card charges a high annual fee that outweighs the benefits of that 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 ensure 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.

Myth: Debit card is safer than credit card.

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 thefts have become a common phenomenon these days. The EMV chip cards are considered to be safe, but thieves and hackers are smarter than you can 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 frauds do not affect your saved-up money. Customer liability is much lesser in credit cards - mostly none, if the fraud is reported immediately.

To Sum Up

You might jeopardize your financial life by believing in these myths. Be informed. Be informed correctly. Credit cards are more of a social boon than a bane. Educate yourself and don't suffer from your own financial mistakes. Protect yourself from potential frauds - secure your credit health by reading our articles.

Get your free Credit report that cost Rs 1200 for FREE

1. Build your Credit Score

2. Reduce your Current Borrowing / EMI Costs