What does your search history look like? Is it brimming with ‘How to’s and ‘What to’s? Then you’re one of us! We’re the ‘Dr. know-all’ generation that literally has the answer to anything under the sun, of course with a little help from the search engines sitting cosily inside our smart gadgets. But, with thousands of results to your query online and you not really having the knowledge to know right from wrong, even the internet can get you into a misinformation frenzy.
Financial information – from credit cards to investments – is one such area that is surrounded by rumours, myths and occasionally some good advice. We will help you differentiate the right from wrong and facts from myths.Today, let’s start by debunking five myths around credit cards and credit scores that might hurt your information wealth!
Myth #1: Credit cards only lead to debt
Untrue. Unwise spending habits lead to debt. Good management of credit cards has long-term positive benefits like being eligible for the best loan rates, perks and rewards. Credit cards can also help you develop healthy financial habits in the long run. They teach you discipline, how to manage money and make you a lot more aware of financial opportunities available to you.
Myth #2: Credit scores don’t really have much impact
Untrue. Simply put, a high credit score lowers your cost to borrow. Most people don’t realise its impact until they attempt to buy a home, take out a loan to start a business or make a major purchase. A high credit score can lead to several financial benefits in the long run and each of us can start building it from a young age. Using credit wisely, paying bills on time etc help improve your credit score, reduce the amount you pay for the money you borrow and put more money in your pocket to save and invest.
Myth #3: Once your credit score falls, you can’t do anything to fix it
Untrue. Sure, it takes time to build a good credit score and it literally takes none to ruin one. However, you can fix your credit score sooner than you anticipated. All you need to do is repay your bills on time. If you successfully follow this routine of making timely repayments, you’ll see your credit score going up in as little as six months. So don’t worry if your credit score isn’t the best of the lot currently, a little patience and consistency can take you a long way.
Myth #4: Spending closer to your credit card limit can give you a higher credit score
Untrue. One of the most common and bizarre credit card myths is that the more you spend closer to your credit limit, your credit score will improve. This is definitely not true. In financial terms, ‘utilization’ is the ratio of your credit card balance to your credit limit. There is no set rule when it comes to utilization, however, wise ones say that your outstanding balance should remain below 30% of your credit limit as high utilization can actually do more harm than good.
Myth #5: A credit limit increase is a trap
Absolutely untrue. Your credit card provider offers you a credit limit increase because your credit worthiness has increased. It means you have been spending right and know how to manage your money. Your credit limit increase will also benefit your credit score. How? When there is an increase in available credit, it can lower your credit utilization which will, in turn, result in a spike in your credit score. A higher credit limit offers you more opportunities, emergency funds and better rewards – so embrace it with open arms!
Hope now you know what to believe in and what not to when it comes to credit cards. Check out our blogs regularly to be financially aware and add to your information wealth.
Till then, keep slicing!