We all know that using a credit card can help us build our credit score and improve our financial standing, but there are still many misconceptions about how credit cards work.
In this article, we'll dispel some of the most common myths about credit card use so that you can make the most informed decision about whether or not to use one!
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You should never use a Credit Card for emergency expenses
It's a widely held belief that you should never use your credit card for an emergency. However, the fact is that if you have no other source of money and must pay for an unforeseen expenditure, using a credit card may be very useful. To avoid interest fees, make sure to pay off the statement balance as soon as possible.
Paying the minimum balance will only guarantee that no late payments appear on your credit report. Paying the past-due amount will help you avoid accumulating any new credit during the current billing cycle. Finally, the total debt is the sum owed for all of your credit cards. As a result, if you pay off the entire amount owing, you will avoid interest and improve your credit utilization.
Opening multiple Credit Cards will hurt your Credit Score
It's often thought that having too many credit cards will negatively impact your credit score. The reality is, as long as you're using them responsibly and paying off the balances in full each month, you'll be just fine. Having multiple credit cards can help improve your score by increasing your total credit limit!
You'll be hit with a hard inquiry each time you open a credit card or apply for one. If you apply for too many cards or lines of credit at once, your credit may be negatively affected. The general guideline is to avoid making more than 1-2 hard inquiries per 6-month period.
Carrying a Credit Card balance will improve your Credit Score
Many people believe that carrying a balance on their credit card from month to month will help improve their credit score. The truth is, it's the opposite! Carrying a balance on your credit card will result in interest charges, which can add up quickly and put you in a hole that will be difficult to get yourself out of.
You will not only increase your credit utilization, but you'll also be responsible for late payments. Your total credit utilization ratio is the sum of all of your balances divided by the maximum amount available on each card. So, for example, if you have two cards with $1,000 limits and owe $500 on one and $500 on the other, your credit usage is 50%.
A credit utilization ratio is a percentage that reflects how much of the credit limits you use. Because the credit utilization rate indicates how reliant you are on credit, the lower the percentage is, the better. To preserve a good credit rating, stick to 30% usage or less.
Closing a Credit Card account will improve your Credit Score
Another common misconception is that closing a credit card account will help improve your score. The reality is that closing an account can hurt your score by reducing your total credit limit. If you're looking to improve your score, it's best to keep your accounts open and active!
You'll be lowering the average age of debt every time you open or close a bank account. Increasing your average age of credit has a big impact on your overall credit score. The average age of credit contributes 15% to your overall credit rating. The better the average age of debt, the higher your credit score will be.
As a result, it's critical to maintain all bank accounts open, especially if they're the oldest. If you have an expensive annual fee on your credit card, for example, you might not be able to justify it. Requesting that your credit card be converted to a no-fee option is the finest option. To keep your business, credit card companies want you to remain a client.
You should never use a Credit Card to make large purchases
One of the most widespread misunderstandings about credit cards is that you should never make large purchases using them. This isn't accurate at all! In reality, making larger purchases with your credit card might help you save money.
Here's why: When you use your credit card to make a purchase, most cards offer special perks, such as points or cashback. Many cards provide rewards points or cashback on purchases, which can save you a lot of money over time. Additionally, utilizing your credit card may help raise your credit score over time — as long as you pay your bills on time and in full.
So, next time you're considering making a large purchase, don't hesitate to use your credit card — it could end up being a smart financial decision!
You need to have good credit to get a credit card
One of the most prevalent misconceptions about credit cards is that having excellent credit is required to obtain one. This isn't true. People with bad credit or no credit history can get a variety of credit cards. So, don't be dissuaded if you hear this myth as there are plenty of options available to you!
If you have a poor credit history, the best solution is to apply for a secured card. Secured cards are designed to establish a good payment history by requiring applicants to put down an initial deposit. The catch is that the money comes from you. The amount you put down will be your credit limit.
After positive payment activity has been established, some lenders will boost you to an unsecured credit card. A regular credit card is simply known as an unsecured credit card!
Credit cards are only for emergencies
This is one of the most prevalent misunderstandings about credit card usage. People frequently believe that credit cards should only be utilized in the event of an emergency, but this isn't always the case.
Credit cards can be a useful tool for managing your money and may even help you save money if used correctly. Credit cards can assist you in keeping track of your bills and avoiding interest fees if used responsibly.
It's also critical to note that credit cards should not be considered a substitute for cash. If you find yourself relying on your credit card for everything from food to gas, it's time to reconsider your spending habits. Occasionally, emergencies develop, but using your credit card for regular expenses can put you in a difficult financial position.
You should never carry a balance on your credit card
The most frequent misconception about credit card usage is that you should never carry a balance. While it is true that carrying a balance can result in interest charges and other expenses, there are benefits to doing so. If you have a rewards credit card, for example, utilizing it frequently and having a balance may earn you more points or cashback.
Frequently, people make the mistake of thinking that they should pay their credit card bills in full every month or at the very least pay the statement balance. While this is the best-case scenario, it's sometimes feasible to carry a balance.
It may be advantageous to carry debt and pay off your balance gradually over time if you have a low-interest rate and can repay it within a few months. If you're having trouble making payments or keeping up with your credit card debt, talk to an expert about how to get out of debt.
Many misconceptions exist about credit cards, but the most important thing to keep in mind is that they are helpful if and when utilized correctly. You can establish your credit history and enhance your financial position by using them properly.
However, there are several dangers associated with credit card usage that you should be aware of so that you may avoid them. By comprehending both the advantages and drawbacks of using credit cards, you can make informed decisions about whether or not they are suitable for you.
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