Credit Cards: 5 Myths and Reality

The number of Credit Card users have been on a rise for the past many years. According to Reserve Bank of India, 29.8 million Credit Cards have been issued as of March 31, 2017 and the Card spend volume is 33,619.6 Crores.

There are multiple reasons for this growth. Whether it’s shopping, utility bill payments, online spending, or taking out credit during a financial crunch in personal or professional life – this piece of plastic fulfills our financial demands on the go.

However, there is still a major Indian population that is reluctant about buying this useful product because they have some preconceived notions about Credit Cards.

Here are five most common myths about credit cards that and the reality behind them, so that you can take a better decision based on your understanding:

Myth #1: Buying a New Credit Card Will Hurt Your Credit Score

Many people feel that if they have a nil or low credit score, purchasing a Credit Card can hurt it more. However, if you are planning to avail a Home Loan or Car Loan in the next few months or years, you should consider building a strong credit score and for that a Credit Card can be very helpful.

Reality: If your income is low, then you need to be careful about opening new credit lines, as they can impact your pocket, however buying a new Credit Card has nothing to do with lowering your credit score. Infact, having and maintaining a Credit Card can help you build and improve your credit score which might help you with getting a new loan in future.

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Myth #2: Exceeding Your Credit Limit is Not a Big Deal

Many Credit Card companies allow their customers a few purchases that may entice you to exceed your limit. You might feel that going over your credit limit is not a big deal and you can pay back later. However, doing this is a strict No-No.

Reality: It’s not a good habit and can give a card issuer all the reasons to charge fees and high interest. You will also be required to pay an over-the-limit fee which can impact your financial outlay over time.

Myth #3: Closing a Credit Card Which is Not in Use Improves Your Credit Score

You might feel an urge to close a card that is not in use anymore. Although that might sound good-to-do at that point of time, a portion of your credit score is computed by the utilization rate of that card. Thus, keeping an open card even if it goes unused can actually improve your credit score by lowering your overall utilization rate.

Reality: If you’re planning to close an unused credit card, consider closing a specialty card or a card with annual fees. You can also consider using a small percentage of the available credit on your card. Doing this will help you keep a low utilization rate and will improve your credit score.

Myth #4: It is Fine to Exceed Your Credit Limit if You Can Repay it Before the Due Date

A lot of users often go over their credit limit thinking that they will repay it before the due date. Credit card companies rarely decline their customers’ purchases as they don’t want to lose their customers by embarrassing them. So, as long as you keep the overuse reasonable, they won’t bother you with an over-the-limit fee. However, one must avoid doing this as a habit.

Reality: Every time you exceed your credit limit, even if it’s for a short period, you’re giving the issuer a reason to increase your interest rate and charge a penalty, which goes more than 30% at times. To avoid paying such nasty over-usage fees, stop repeating this indulgence. If you must, try calling the issuer before your purchase and check if they can give you a small increase in your credit line.

Myth #5: Balance Transfer Can Help in Saving Money

Seeing an email in your inbox, promising you a 0% offer can lure you to go for a Credit Card balance transfer to keep your debt under control. However, later you may realize that it’s actually more expensive than the previous one.

Reality: Make sure you read the fine print before you finalize the balance transfer deal and sign the documents. Balance transfer offers often come with restrictions, such as one-time fees on transferring to a new Credit Card. So, opt for balance transfer only when the benefits new card outweighs that of your existing card.

There are a lot of myths about Credit Cards. Manage your credit responsibly by paying bills on time and maintaining an average usage. We hope that learning the reality behind the above-mentioned myths can help you in better decision making now.

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