Credit cards are one of the most popular financial tools used by people today. However, there are several myths surrounding credit cards that can be harmful to your financial well-being if believed. In this article, we will debunk some of the most common credit card myths.
Myth 1: Having multiple credit cards will hurt your credit score
This is a common myth that is not entirely true. Having multiple credit cards can actually help your credit score if you use them responsibly. The key is to keep your balances low and make your payments on time.
Myth 2: You should always pay the minimum amount due on your credit card
While it is tempting to pay only the minimum amount due on your credit card, this is not a good financial practice. The interest rates on credit cards are usually high, and paying only the minimum amount due will result in accumulating more debt and paying more interest in the long run.
Myth 3: Closing a credit card will improve your credit score
Closing a credit card can actually hurt your credit score, especially if it is a card you have had for a long time. This is because it will decrease your credit utilization ratio and shorten your credit history.
Myth 4: You need to carry a balance on your credit card to build credit
This is a common myth that is not true. You do not need to carry a balance on your credit card to build credit. You can build credit by making small purchases and paying them off in full and on time each month.
Myth 5: Applying for a credit card will hurt your credit score
Applying for a credit card will result in a hard inquiry on your credit report, which can temporarily lower your credit score. However, this decrease is usually minor and will recover quickly.
Conclusion
Credit cards can be a useful financial tool if used responsibly. However, it is important to be aware of the common credit card myths that can be harmful to your financial well-being. By understanding the truth behind these myths, you can make informed decisions about your credit card usage and avoid potential pitfalls.
The author is a Chartered Accountant with 2 decades of experience into Accounting, Taxation, Auditing, Risk & Compliance, Credit Controls, Due diligence. Currently author is founder and managing partner at RRL Global services.
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