Want to apply for a credit card? Ensure to not believe in some common credit card myths.

Credit cards, by far, are one of the most convenient and useful financial instruments for managing one’s finances. Their features like instant credit accessibility, availability of pre-approved loans, no-cost EMI offers and benefits on transactions in the form of cash backs, discounts, reward points, air miles, vouchers etc., help their users make most of them. However, similar to other financial instruments, credit card users have numerous misconceptions and myths about credit cards, which usually stop them from applying for credit cards. While few of the myths restrict their users in making most of their cards, others lead to their incorrect usage.

Remember that as much as credit cards make life simpler and easier, it may even be a source of huge financial trouble if one does not take good care of their spending through credit cards and goes beyond their repayment capacity and fails to repay their card dues on time. On the other hand, those who are responsible for their credit card usage and are aware of certain myths surrounding it are the ones who benefit the most from their credit card usage.

Here, we will mention the top 5 widespread credit card myths that those wanting to apply for credit cards and existing credit card users should not believe in.

No. 1 Myth: Credit cards can be harmful to your financial health.

Many individuals do not apply for credit cards because of the morbid fear of getting into a credit card debt trap. While irresponsible spending through credit cards can sweep one into the credit card debt trap, their responsible usage can inculcate great value to one’s financial health. In fact, credit cards can be a useful financial product for forming the credit history of new credit individuals. As transactions using credit cards are the same as opting for loans, timely repayment of credit card outstanding has a huge impact on one’s credit score like any other credit option.

Besides providing instant access to credit, they even come with enticing cashback offers, discounts, reward points, free lounge access and others, which, when managed well, can help in saving a considerable amount.

No. 2 Myth: Zero finance charges are levied in case the minimum due amount (MAD) is paid.

Credit card users mostly assume that repaying just the minimum amount due (MAD) can save them from finance charges of up to 49 % p.a. But repaying just the minimum amount due (MAD) just saves them from incurring late payment charges of up to Rs 1,300 per month. You will continue to accrue the finance charges on unpaid credit card dues. Moreover, non-clearance of the outstanding credit card dues in totality can even result in withdrawal of the grace period or interest-free period on all the fresh/new transactions through credit cards till the outstanding credit card dues are met in full.

No. 3 Myth: Credit limit enhancement must be avoided.

Credit card users generally avoid enhancing their credit card limit due to the fear of spending more and landing up in the credit card debt trap. However, here what they miss understanding is if credit cards are used judiciously, having an enhanced credit card limit can assist meet instant financial emergencies.

While one can always choose a credit card loan option to mitigate their financial exigencies, the loan amount availed gets blocked temporarily against the sanctioned credit card limit. Opting for a higher credit card limit would not just assist opt for a higher loan amount. It can even assist at lowering one’s credit utilization ratio or CUR, i.e. the portion of credit card limit used by you. One should always try and keep their CUR under the 30% limit because surpassing this particular limit would not just reduce your credit score but even project you as a credit hungry person, which is negatively looked upon by lenders/issuers. One can bring their CUR down in 2 ways, firstly apply for a credit card (additional) or request the credit card issuer to enhance your credit card limit.

No. 4 Myth: Unused or old credit cards must be closed for improving credit scores.

Closing unused or old credit cards can lower your average credit card account age, which can reduce your credit score marginally. Additionally, closing your older credit cards can even lower your overall credit card limit, resulting in your CUR getting enhanced, which thereby lowers your credit score.

One should avoid closing their older credit cards. In the case of multiple credit cards, if you need to close any of your credit cards, ensure to close your relatively newer credit card. However, before this, ensure to enhance your existing credit card’s credit limit, given that closing any of your credit cards can enhance your credit utilization ratio (CUR).

No. 5 Myth: Credit cards having zero or nil annual and renewal charges are better.

One should select their credit card based on their spending habits and not blindly settle for zero annual/renewal fee credit card. Most credit cards are focused on a specific kind of target consumer group & reward them with specific benefits/reward points on their regular transactions. For example, shopping credit cards provide higher benefits in the form of higher reward points, discounts and cash backs on lifestyle, retail spends etc., through credit cards, while fuel credit cards provide higher reward points, cashback etc., on fuel-related spending. Likewise, travel credit cards entice frequent travellers by providing higher reward points, cash backs, discounts on travel, hotel stay and dining expenses.

Thus, before choosing a specific credit card, you should completely review your transactions as well as your spending pattern. If choosing an annual fee credit card endows you with higher benefits on particular transactions that you constantly conduct, then ensure to opt for it. Such credit cards generally offer additional benefits like complimentary lounge access, dining privileges, fuel surcharge waiver, personal concierge services, higher reward points, cashback, free golf lessons etc., which might not be present in situations of zero annual or renewal fee credit cards.

Remember that credit card issuers might waive off the annual or renewal fee on cards with such charges if one spends more than the threshold limit in the previous year.

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