Debunking 5 Credit Card Myths

Credit cards make our lives convenient. They are easily accessible to anyone…well, almost anyone. They are especially helpful when you have an unexpected medical expense, want to build creditworthiness, or pay for your purchases digitally.

Despite the different ways of using your credit card to your benefit, there are a few misconceptions surrounding these plastic wonders. We at PaisaSimple aim to debunk five common myths and help you get the most out of these useful financial tools. 

Myth 1: Credit cards make me lose control of my spending habits

Although credit card lenders give you a fairly good spending limit on your card, it is not the card that makes you spend. Instead, poor financial discipline is why some people spend beyond their monthly budget. 

It is important to know your budget and capacity to pay your monthly bills. Once you recognise that you’re spending beyond your monthly budget, you can adopt corrective measures to get back on track.

Myth 2: It’s not a good practice to increase my credit limit

This is one of the most common myths surrounding credit cards. The notion is that you will spend more if you have a higher credit limit. However, that comes down to your financial discipline and spending habits. 

Having a higher credit limit also builds trust in other lenders about your ability to borrow and repay your bills on time. 

Additionally, spending within your budget and having a high credit limit helps maintain a low credit utilisation ratio. And, as we’ve mentioned in our earlier blog on building credit, having a utilisation ratio below 30% will increase your credit score. 

Myth 3: Having many credit cards will damage my credit score

This is a myth that prevents you from applying for a card that could potentially be more useful than your existing card(s). We understand it’s a tricky topic. But you can own multiple credit cards as long as you always pay your bills on time, avoid applying for multiple cards at once, and research the cards you’re interested in. 

Different credit cards offer a variety of rewards. You should choose credit cards based on your lifestyle to get more bang for your buck.

Myth 4: I must close unused credit cards

Your credit utilisation ratio is calculated considering all your credit cards or loan accounts and their balances. As we’ve mentioned earlier, you must maintain this below 30%. Cancelling a card would increase your utilisation ratio and reduce your credit score. 

Our advice is to bring your credit utilisation below 30% on your other cards, and then cancel the card in question.

Myth 5: I don’t want a credit card with annual fees

While not having an annual fee might be a small benefit, credit cards with no annual fees don’t give you many rewards or benefits. Also, credit cards that charge a fee tend to waive it when you exceed a certain expenditure. This makes them essentially free. 

Conclusion

There are many misconceptions about credit cards. And we have listed the top five you would have heard from people. In the end, you must be financially disciplined to spend within your budget. 

Credit cards are incredible financial tools that help during a medical emergency, get the best online deals, and facilitate a lifestyle. It comes down to how you use them. They are arguably one of the best ways to build credit, and everyone should reap their benefits.