Credit Card

7 Misconceptions Versus The Credit Cards Reality

Credit cards make our life easy. They have replaced the cash in your wallet and have enabled everyone to shop online and offline without making instant cash payments. You can use a credit card to purchase without worrying about paying for it instantly. Your credit card limit allows you to shop today and pay later at any time before the end of the credit card billing cycle. You can get a free credit card and use it without incurring high additional expenses.

There are many misconceptions about credit cards, and people are often apprehensive about getting a credit card and using it. Here are some common misconceptions people have about credit cards.

1. It is okay to be careless with credit card bill payments and pay whenever you want:

Credit card bills have a billing cycle. You have the freedom to pay your credit card due amount any time before the due date. Many people do not pay their credit card bills on time and clear their credit card dues after long durations. They think that ultimately clearing their dues will not affect their credit history even after a long duration. This is not true. The negative effect of late payments will show on your credit history for a long time. Therefore, develop a habit of clearing your credit card dues regularly before the end of every billing cycle.

2. Your credit score increases when you cancel an unused credit card

It is smart not to keep too many credit cards. However, if you have credit cards that you do not use, it is still not sensible to cancel those credit cards. The main reason behind this is that your credit utilisation gets affected when you cancel your credit cards. Your credit score also depends on how much of your credit limit you use. Additionally, the average age of your credit card accounts also affects your credit score. Please do not close your long-standing credit card accounts, as it negatively influences your credit score.

3. If you pay the entire monthly balance on your credit card, you are debt free in your credit report

Paying off your credit card balance monthly is a healthy practice and helps improve your credit score. However, the bank will still inform the credit card balance in your card statement to the credit bureaus. Therefore, if you pay the balance after you receive the statement, your report will show a balance on your credit card. Pay your credit card dues before the statement’s closing date to ensure a debt-free report in your credit history.

4. You need to have an outstanding balance on your credit card to receive reward points

Banks offer various reward points and benefits to credit card customers. The more you swipe or tap your credit card, the more rewards and points you earn. However, using a credit card only to avail of reward points is not prudent. You should develop a habit of using a credit card only when you need it and not earning points, so your credit card balance does not increase too much.

5. Transactions you make on a store-branded credit card do not get reported to the credit bureau: 

Store-branded credit cards function like normal credit cards. Though these credit cards are outlet-oriented, they are issued by a bank. Any transaction you make on your store-branded credit card gets reported to credit agencies and affects your credit report. You cannot afford to ignore the payments for these cards as other credit cards to maintain a good credit score.

6. Paying the annual fees for credit cards is useless: 

Many people assume that paying the annual fees for a credit card is useless when they can get a free credit card. But you should know that a free credit card does not have the same benefits that a credit card with an annual fee has. Paying the charges for a credit card is not a loss-making deal because you get multiple offers, welcome bonuses, reward points, and other benefits on such credit cards.

7. Keeping an outstanding balance on a credit card will raise your credit card score: 

An overdue balance on a credit card attracts late payment charges. Paying your credit card balance after the due date is more expensive than paying it before. Avoid overdue balances on your credit card to keep using, as it helps you keep good credit history.

An individual can get a credit card for students or a general credit card and use it for comfort and ease. Be regular with your credit card bill payments and use the credit card sensibly to contribute positively to your credit history.

By Michael Caine

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