Credit cards have made our lives easier in many ways. However, it could also be a reason for financial anxiety if one doesn't take care of their spending, according to experts. Like any other financial product, credit cards come with advantages and disadvantages. There are certain myths about credit cards that customers hold in mind. The cardholders must verify the validity of these misconceptions, which may lead them to distress.
Here are some common myths about credit cards and a reality check:
Myth: Get rid of old credit cards which may hurt CIBIL
Fact: The age of credit lines have a moderate impact on computation of credit score. According to Adhil Shetty, CEO, Bankbazaar - a marketplace for financial products- the longer anyone has a credit line, the stronger it reflects upon the ability to keep paying dues. Closing an old credit line such as a credit card may moderately lower score in some circumstances.
Also read: 5 tips to maintain a good CIBIL score
Myth: Having a credit card (or multiple cards) can make anyone a spendthrift and dependent on borrowed money
Fact: Any line of credit requires responsible spending, and a credit card is no different.
"Responsible use of card actually improves finances, helps one getting discounts and rewards, and strengthen credit score. Irresponsible use of credit damages finances. Therefore, the onus is on that particular individual to use the card responsibly," explained Shetty.
Myth: Checking credit report hurts score
Fact: Checking credit report doesn't hurt credit score at all. According to ClearTax - an income tax e-filing platform- it is a good habit to keep a track of credit report and score at regular intervals of time. It gives a scope to improve financial behaviour if required.
Myth: Many new credit card users believe it’s okay to not repay dues in full
Fact: In case of credit cards, an individual has an interest-free period of typically 40-50 days. In this period, transactions doesn't attract interest, unless he/she has withdrawn cash from an ATM.
"After the interest-free period, you have the option of making a minimum payment – typically 5 percent of your dues. Without the minimum payment, you will be charged a late-payment fee. However, despite the minimum payment, you will be charged on the balance at a rate of 2-3 percent a month, which is a lot," said Shetty. It's advisable to pay dues in full and on time.
Myth- Some believe that late credit card payments are inconsequential
Fact: Late credit card payments not only attract penalties, but also charge a hefty interest rate on the balance and credit score is also wrecked. Even one late payment has the potential to reduce credit score by 100+ points, which would make it difficult for anyone to take new loans or credit cards.
First Published: IST