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What about credit card myths today? Let's talk about them, shall we?
We all know how convenient credit cards can be, but they can be a source of confusion and misconceptions.
- Can carrying a balance boost your credit score?
- Are credit cards only for the financial elite?
- Can closing an old card improve your creditworthiness?
- Can you get a secured credit card with bad credit?
We have all heard those stories about credit cards being evil or how they can magically solve all our financial problems. Well, it is time to separate the wheat from the chaff and get to the bottom of these myths.
In this blog, we will tackle some of the most prevalent credit card myths, and you might be surprised by what you learn. Therefore, keep reading if you are curious about credit card myths and eager to separate fact from fiction.
Myth 1: Having Multiple Credit Cards Will Hurt My Credit Score
Fact: It is a common belief that having multiple credit cards can negatively impact your credit score. However, this is not entirely true. While opening multiple credit card accounts can initially cause a slight dip in your credit score due to the hard inquiries on your credit report, the long-term impact can actually be positive.
Having multiple credit cards allows you to diversify your credit portfolio, positively influencing your credit mix. Additionally, if you use your credit cards responsibly by paying your bills on time and keeping your credit utilization low, it can demonstrate to lenders that you can manage credit effectively. Ultimately, the key is to be responsible and avoid maxing out your cards or carrying high balances.
Myth 2: Canceling A Credit Card Will Improve My Credit Score
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Fact: Canceling a credit card may seem like a logical step to improve your credit score, but it can actually have the opposite effect. When you close a credit card account, you reduce the amount of available credit you have, which can increase your credit utilization ratio.
The credit utilization ratio is an essential factor in calculating your credit score. It represents the amount of credit you are using compared to your total available credit. The lower your credit utilization ratio, the better it is for your credit score. By canceling a credit card, you decrease your total available credit, potentially raising your credit utilization ratio and negatively impacting your credit score.
Instead of canceling a credit card, consider keeping it open and using it occasionally for small purchases. This way, you can maintain a low credit utilization ratio and demonstrate responsible credit management.
Myth 3: Only Wealthy People Qualify For Credit Cards
Fact: Credit cards are available to a wide range of individuals in Canada, regardless of their income level. Credit card issuers consider various factors when determining eligibility, such as credit history, income, and debt obligations.
While some premium credit cards may have strict eligibility criteria and require higher income levels, many credit cards are designed for different financial situations and income brackets. Even if you are just starting to build your credit history, options are available to you, such as secured credit cards or student credit cards. It is essential to do your research and choose a credit card that aligns with your financial circumstances.
Myth 4: Using A Credit Card Will Always Lead To Debt
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Fact: While it is true that misusing a credit card can lead to debt, it does not mean that using a credit card will inevitably put you in a financial hole. Credit cards can be powerful financial tools when used responsibly. By paying your credit card bill in full and on time each month, you can avoid paying interest and effectively use the card as a convenient payment method.
Related: Pay Down Your Credit Debt With These 10 Relief Tips!
Furthermore, many credit cards offer rewards programs, such as cash back or travel points, which can provide significant value if you take advantage of them responsibly. You can earn rewards without falling into debt by using your credit card for everyday expenses and paying off the balance in full each month.
Myth 5: I Do Not Need A Credit Card If I Have A Debit Card
Fact: While debit cards are helpful in accessing the funds you have in your bank account, they lack certain advantages that credit cards offer. One significant advantage is the ability to build a credit history. Responsible credit card use, including making timely payments, can establish and improve your credit score over time. This can be crucial when applying for loans, mortgages, or even renting an apartment.
Additionally, credit cards often come with additional benefits like purchase protection, extended warranties, and fraud protection, which debit cards may not offer. Credit cards can also provide you with a financial cushion in case of emergencies or unexpected expenses. It is crucial, though, to use your credit card responsibly and avoid falling into excessive debt.
Myth 6: It is Best To Always Pay The Minimum Amount Due On My Credit Card
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Fact: While paying the minimum amount due on your credit card may seem like a convenient option, it can cost you significantly in the long run. Credit card companies typically charge high-interest rates on the remaining balance if you only pay the minimum amount due. This means you will end up paying much more in interest over time.
To avoid unnecessary interest charges, paying off your credit card balance in full each month is advisable. Doing so can avoid accumulating debt and save money on interest payments. If you cannot pay the full balance, aim to pay more than the minimum amount due to reduce the interest you will be charged.
Myth 7: Applying For A Credit Card Will Always Hurt My Credit Score.
Fact: While applying for a credit card may result in a temporary dip in your credit score due to the hard inquiry on your credit report, it will not have a significant long-term impact. In fact, having a mix of credit accounts, including credit cards, can be beneficial for your credit score.
When applying for a credit card, choosing one that suits your needs and financial situation is vital. Look for a card with favorable terms and features that align with your spending habits. Applying for multiple credit cards within a short period, however, may raise concerns among lenders and potentially negatively impact your credit score.
Myth 8: Rewards Credit Cards Are Not Worth It
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Fact: Rewards credit cards can be highly beneficial if used wisely. Many credit cards offer rewards programs that allow you to earn points, cash back, or other incentives for your spending.
By using a rewards credit card for your everyday purchases and paying off your balance in full each month, you can accumulate rewards that can be redeemed for travel, merchandise, or even statement credits. However, choosing a rewards credit card that aligns with your spending habits and offers rewards that you can maximize is vital.
Myth 9: I Cannot Get A Credit Card If I Have A Low Credit Score
Fact: While it is true that having a low credit score can make it more challenging to qualify for certain credit cards, it does not mean you will not be able to get a credit card at all. There are credit cards specifically designed for individuals with lower credit scores or limited credit history.
Secured credit cards are a good option for those looking to build or rebuild their credit. These cards require a security deposit that serves as collateral and reduces the risk for the credit card issuer. Using a secured credit card responsibly and making timely payments can demonstrate your creditworthiness and eventually qualify for unsecured credit cards with better terms.
Myth 10: Closing An Old Credit Card Will Remove It From My Credit Report
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Fact: Closing an old credit card does not automatically remove it from your credit report. Your credit history, including the credit cards you have had, is a vital part of your credit report and can stay on record for several years.
Even if you close an old credit card account, its history will still be visible on your credit report for a certain period. Closing an old account may impact the average age of your credit accounts, which is a factor in determining your credit score. If the credit card has no annual fees or other drawbacks, it is generally beneficial to keep it open to maintain a longer credit history.
Myth 11: Paying Cash Is Always Better Than Using A Credit Card
Fact: While paying cash can help you stick to a budget and avoid overspending, using a credit card wisely can offer several advantages. Credit cards provide a secure and convenient way to make purchases, especially for online transactions or large purchases where carrying cash may not be practical.
Furthermore, credit cards often come with additional benefits, such as fraud protection and extended warranties that cash cannot provide. By using a credit card and paying off the balance in full each month, you can also earn rewards or cashback on your purchases, effectively getting extra value for your spending.
Wrapping Up
Well, folks, we have made it to the end of our journey through the maze of credit card myths! I hope you are feeling more enlightened and ready to separate fact from fiction. Remember, knowledge is power when managing your credit card wisely.
Let's recap: we debunked the myth that carrying a balance helps your credit score (spoiler alert: it does not!), and we shattered the idea that closing unused cards is always a smart move (hint: it is not!). We even busted the myth that having too many credit cards automatically hurts your creditworthiness (surprise, surprise!).
Remember, credit cards are not evil little monsters out to ruin your life. They can actually be pretty handy tools if you use them wisely. It is essential to understand how they work, keep an eye on your spending, and pay your bills on time. Do not let those myths hold you back from enjoying the benefits they offer.
