Like into the yang, credit cards have always been flanked by myths that have always engulfed them. People seem to develop strange notions, rising out of a lack of knowledge and a certain sense of know-it-all. In this page, we will talk about some of the top credit cards myths that have been around for long.
Having outstanding balance is good for your credit
This is one of the myths that stems from a lack of understanding of how credit cards work and how Credit Information Companies (CIC) judge a person’s score. To begin with, having an open credit line is good, having an outstanding balance is bad. This can be explained better with this concept called Credit Utilisation Ratio (CUR), which CICs use to calculate a person’s credit score. Basically, a CUR is the ratio between the total credit a person has and the total credit he or she has used up. The higher the CUR, the lower the credit score and vice versa. Ideally, your CUR should not be more than 30%. So, be careful when using your credit card and make sure to clear your bills as soon as possible.
A popular card is always best for you
This is another myth that isn’t true. You wouldn’t necessarily watch a popular movie just because it is popular. You might have different interests and tastes and you would often go for movies that appeal to your taste. When it comes to a credit card, you should do the same. Only choose those credit cards that are suited to you. Let’s say you like travelling and actually travel a lot, a travel credit card is best for you. If you like shopping, a shopping-based card works better for you. Likewise, your credit card should always be aligned with where your interests are because this gives you the opportunity to get the most benefit out of it.
Closing an unused credit card is good for my credit
This couldn’t be farther from the truth. Your credit history goes a long way in determining your credit score. When we mean credit history, we are referring to even the oldest of your cards. Just because you are not using the old one, doesn’t mean you should close it. This is because it reflects badly on your report and will even knock a few points off your score. So, rather than cancelling the card, make sure to keep it open and make small purchases through it once in a while and pay the annual fees, if any.
There’s only one credit score
In India alone, there are two very popular credit information companies: Experian and CIBIL. Both these agencies track your credit history through their connection with the lenders. But, don’t get fooled by every site that says they have a credit score tool. Go with some of the reputed sites and their tools to even check your credit score once in a while. This could help you keep track of your score and even make minor adjustments to the way you conduct your finances.
Credit card myths were here, are here, and will always be here. What you can do instead is to keep yourself informed well enough to not get influenced by false ideas and get affected by these ideas.