Today is International Literacy Day, a perfect moment to talk about financial literacy, not just reading and writing. For millions of new investors, knowing how money works is the difference between building wealth and falling into debt traps. Credit cards, in particular, have exploded in popularity; the number of cards in the country has more than doubled in just five years.
But with that growth comes confusion, and too many people are still guided by half-truths and outdated beliefs. To cut through the noise, here are five of the biggest credit card myths you need to stop believing right now.
I. Keeping a credit card hurts your credit score
Having a credit card is nothing but a credit line. In reality, it can improve your credit score if managed correctly. Against the popular belief, having a credit card can actually improve your credit score if it is managed efficiently. Focusing on keeping a low credit utilisation ratio, ideally under 30%, and making on-time payments will constructively affect your credit profile.
II. You must always carry a balance
Several credit card users think carrying a balance boosts their credit score, but this is nothing more than a myth. Carrying balances can actually result in high interest, causing debt to grow unnecessarily. If not managed correctly, it can even have a snowball effect and make things even worse for cardholders. It is important to keep in mind that paying full dues every month helps in avoiding interest charges and assists with better credit health.
III. Applying for a credit card severely damages your credit score
This is another myth. To put it clearly, when an applicant submits many credit applications, such as personal loans, credit cards, home loans, etc., within a short period of time, it can result in several hard inquiries, as it reflects credit hunger. Still, if just one credit card or loan application is made in several months, lending institutions never look upon this in a negative light. That is why applying for a new credit card does not severely damage your credit score.
IV. Credit cards are only for those who can’t afford cash
This is another widely prevalent misconception. Credit cards are not just for individuals who can’t afford cash, and such a misconception easily undermines the real benefits of credit cards. Credit cards come with rewards, perks, cashbacks, travel benefits, and even assist with building credit for future loans. These credit instruments even suit those who have the means to pay in cash but want to maximise advantages.
V. Closing paid-off credit card accounts is beneficial
When you take a personal loan or a credit card and repay the entire borrowed sum responsibly, it results in building a strong repayment profile. Closing credit card accounts that have been managed properly reduces the total credit history. This is looked at by lending institutions in a negative light. As a sensible borrower, you should ensure that you have a reputable credit utilisation ratio. If possible, keep old cards active with occasional use. This will boost your overall credit history and make future loan approvals easier.
In conclusion, when credit cards are used in a planned manner, they can become extremely powerful tools. They can also help alleviate financial burdens and make the entire borrowing experience pleasant. By keeping yourself updated with new developments in the world of lending and utilising these lending tools properly, you can ensure a secure financial future for yourself and your entire family.
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Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards, and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks, such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
