Debunking Common Credit Card Myths
Our lives have been made easier by being able to access the internet through our cellphones, tablets, and laptops from nearly anywhere on the planet.
However, with seemingly limitless information available on the Internet comes a slew of falsehoods, including the term of the day, “fake news.”
There’s a lot of misinformation about credit scores and credit cards out there. If you believe some of these myths, you might end yourself paying a lot of money in fees and hurting your credit score.
It’s critical to do some study and know all the facts in order to put your best financial foot forward. Here are some typical credit card myths that have been debunked to assist you in improving your credit score.
LEGENDARY MISCONCEPTIONS ABOUT CREDIT CARDS
Myth: Credit cards are dangerous, and you should avoid them (or else…)
When it comes to paying for gas, groceries, and other necessities, you’re much better off using your credit card rather than your debit card.
That is, assuming you are fiscally prudent and can wisely use your credit card (a.k.a. spending only what you can afford to pay off each month).
Best credit cards are an important and effective way to establish a credit history and improve your credit score. In addition, most organizations now provide cashback, airline miles, signup incentives, and rewards systems where you may exchange points for a variety of prizes.
Mortgages, car loans, student credit cards, and other lenders will look at your credit history. If you don’t have one, you won’t be
Myth: Checking your credit score can wreak havoc on your good credit.
A simple check of your credit score on sites like Credit Karma will have no negative influence on your score. Only a “hard” inquiry has an impact on your credit score.
When someone demands a copy of your credit report as part of your application for a loan, credit card, or another kind of credit, this is known as a hard inquiry. Checking your credit on your own is termed a “soft” inquiry and has no bearing on your credit score.
Myth: You should close accounts you aren’t using… Why would you leave them open in the first place?
Outrageous! The truth is that keeping your previous credit accounts active might have a lot of advantages.
By keeping your accounts open, you can:
You’re eventually lengthening your personal credit history, which is one of the most important variables in determining your credit score.
Perhaps more essential, having a high amount of credit that isn’t being used will assist you to keep your credit usage ratio low.
Myth: Your credit report is always 100 percent accurate.
That’s like claiming that the weather forecast is always correct, which we all know it isn’t. Did you know that up to one out of every five Americans has inaccurate information on their credit report?
There could be an incorrect amount on your report, a missing payment that you made on time, or an account on your report for which you are not responsible.
The good news is that you have the legal right to request a copy of your credit report once a year from each of the three major credit bureaus.
It is also strongly advised that you do so. This allows you to check for inconsistencies and remove any inaccurate information that could harm your credit score.
Myth: Did you forget to pay one of your bills? It’s nothing to be concerned about. It’s nothing to be concerned about.
Wrong! In actuality, the single most important criteria utilized to compute your credit score is your payment history. The bad part is that even one late payment (yes, just one) can stay on your credit report for up to seven years.
Myth: Your APR will remain the same as when you first applied for your card.
Sorry to be the bearer of bad news, but the interest rate on your credit card might change at any time throughout your ownership of the card.
People frequently miss the fact that when they first signed up for their credit card, they were given an introductory APR. As an example, certain credit lenders will offer a 0% APR for 12 months as an inducement to sign up with them. If you keep a balance on your credit card or continue to use it after a year, you’ll start paying interest on it.
In addition to the introductory APRS, interest rates can fluctuate as a result of late payments. Many credit card companies will charge a penalty APR, which is usually about 30%.
If your APR is linked to the prime rate, your interest rate can change as well.
Your issuer would provide you with a variable interest rate that fluctuates in proportion to the prime rate in this case. This is the rate of interest that banks will charge their most creditworthy customers.
So:
In the end, you have no control over this situation.
Finally, if your issuer sees you as a high-risk customer, they may decide to increase your APR to protect themselves against missed payments or large amounts.
Myth: Have you reached the limit on your credit card? It’s a good thing there’s no consequence for doing so.
Incorrect! Everything has repercussions. Credit consumption is a factor that comes into play in this situation.
Credit usage is the percentage of available credit you utilize each month, and credit bureaus track it as well as put it into your credit score.
By maxing up your credit card and utilizing all of your available credit, you’re signaling to creditors that you’re a high-risk borrower.
This not only has a negative influence on your credit score, but it can also lead to higher interest rates and a more difficult loan approval procedure in the future if you apply for one. Experts advise that you use no more than 30% of your available credit month after month.
That’s all there is to it! Several prevalent credit card fallacies have just been debunked. Now that we’ve cleared everything out, you have the knowledge you need to correctly use your credit card for credit building and financial management. A little retail therapy is fine, but don’t get too carried away!
Being financially responsible can significantly enhance your life and assist you in achieving the future you’ve always desired.
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