Many people believe that they understand credit cards, but the truth may be far from reality.
If you don’t know your credit cards, it could end up costing you a lot more than you think!
A surprisingly large number of people struggle to come to grasps with even basic credit card concepts. Most users are clueless when it comes to credit scores, debt to reward cards or just a basic comprehension of how these cards work.
In this article, we have put together for you, a list of four credit card-related misconceptions and the reality behind the situation.
Myth # 1: Closing old cards improves your credit score
Most borrowers are specifically ill-informed when it comes to how their credit cards impact their credit scores. For instance, many folks do not realize that closing an older credit card could hurt their credit scores.
Closing a credit card can be detrimental to you in two ways.
Effectively, you are decreasing the amount of credit available to you. If you do not change your spending habits, this will increase the share of the credit that you do currently have available to you. This is the credit utilization ratio which has a 30 percent influence on your credit score.
Instead of closing an older card, you can keep it active by using to pay a small monthly payment on it. And you can pay it off on a monthly basis.
Myth # 2 : Credit card interest is due immediately
When people are asked whether they know when credit card interest starts accruing, most are oblivious. Many people believe that credit card interest starts accruing as soon as they use it to purchase an item. This is why some people choose debit cards over credit cards.
However, the interest starts to accrue only the day after your credit card payment is due. Again, the best thing to do is to pay off your credit card every month to avoid interest charges.
Myth # 3: You should never pay an annual fee on credit cards
In a survey, 27 percent of the respondents believed that it is never advisable to pay an annual fee on a credit card. Another 14 percent people participating in the survey said that annual fee should be waived off for a year, and 25 percent of the respondents had no idea about the annual fee.
The correct response is that a user should not pay an annual fee, even on the best credit cards, without ensuring that the rewards accruing from the card will be more than the annual fee. Instead of perceiving annual fee as unnecessary, the best course is to analyze your spending, and then decide whether the cost is justified.
Myth # 4 : Balance on the credit card is good
More than 54 percent people believe that monthly debt on their credit cards enhances their credit score, according to a study.
This is simply incorrect. Carrying a debt balance on your credit card will lead to higher charges. It is advisable to pay off your credit card monthly.
Credit cards are a necessity for many in today’s times. It is a good idea to understand how these cards work to be able to use them responsibly. We hope that this post has cleared up some of your misconceptions regarding credit cards.
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