5 credit card misconceptions you shouldn’t fall for

Whereas zero payment bank cards are extremely most popular by many, one ought to select bank cards as per their spending sample.

When correctly used, bank cards could be a great tool for strengthening your monetary well being. Nevertheless, like every other monetary product, bank cards too are surrounded by numerous misconceptions. Whereas some misconceptions limit customers from taking advantage of their bank cards, others could lead to fallacious utilization.

Let’s perceive 5 widespread misconceptions about bank cards we shouldn’t fall for:

False impression No. 1 – Bank cards can hurt your monetary well being

Many people keep away from making use of for a bank card owing to the concern of falling right into a debt lure. Whereas irresponsible utilization can sweep you right into a debt lure, a disciplined strategy to bank cards can inculcate big worth to your general monetary well being.

Those that are new to credit score can construct credit score historical past through the use of bank cards, on condition that card issuers usually report account actions to the bureaus. As transactions by way of bank cards are the identical as taking loans, reimbursement of excellent bank card dues would have an analogous impression in your credit score rating as every other mortgage sort.

Moreover offering prompt credit score entry, bank cards additionally include enticing low cost and cashback presents, reward factors, free lounge entry and so forth, which if managed correctly may help in saving a large quantity.

False impression No. 2 – Finance expenses aren’t incurred on cost of minimal due quantity

Bank card customers usually assume that cost of minimal due quantity can save them from incurring finance expenses. Nevertheless, paying the minimal due quantity solely cuts down on the late cost cost. One would nonetheless proceed to accrue finance expenses on unpaid bank card invoice quantity. Additionally, non-payment of bank card dues in full can result in revocation of interest-free interval or recent bank card transactions till the excellent dues are paid in full.

Take into account paying your bank card dues in full by the due date or convert the excellent quantity into EMIs, in case you might be unable to pay the complete invoice quantity. As curiosity value of EMI conversion is far decrease than the finance expenses and comes with a tenure of as much as 5 years, changing bank card invoice, both in full or half, would permit you to make reimbursement at a lot decrease curiosity value in smaller tranches within the type of EMIs.

False impression No. three – Credit score restrict enhancement must be greatest averted

Credit score cardholders usually keep away from enhancing their credit score restrict as they concern that it might result in elevated spending and subsequent debt. Nevertheless, what they miss understanding is that if used judiciously, an enhanced restrict cannot solely help in enhancing their monetary well being but in addition assist meet instant monetary emergencies.

Firstly, the next restrict would decrease your CUR (Credit score Utilization Ratio) i.e. the proportion of the entire credit score restrict utilized by you. A decreased CUR would steadily improve your credit score rating, which might in flip improve your bank card and mortgage eligibility. Secondly, an enhanced restrict may also permit you to avail the next mortgage quantity in instances of monetary emergencies by choosing mortgage towards bank cards.

Attempt to hold CUR inside 30% as exceeding this restrict wouldn’t solely decrease your credit score rating but in addition venture you as a credit score hungry particular person. CUR may be introduced down by both requesting for credit score restrict enhancement in your present bank card or by making use of for a further bank card.

False impression No. four – Unused or previous bank card must be closed to enhance credit score rating

Whereas closing your present bank cards could result in financial savings as it might lower down on annual or renewal payment outgo, doing so can carry down the typical age of your credit score account, which would scale back your credit score rating by some factors within the brief time period. Furthermore, closing any of your bank cards additionally lowers your complete obtainable credit score restrict, which can additional result in an increase in your CUR that’s once more able to reducing your credit score rating.

Thus, keep away from closing older bank cards. These with a number of bank cards wanting to shut any of them, ought to strive closing comparatively newer ones. Nevertheless, earlier than doing so, strive getting the credit score restrict of your present card elevated as closing any bank card can improve your CUR.

False impression No. 5 – Bank cards having zero annual/renewal charges are higher

Whereas zero payment bank cards are extremely most popular by many, one ought to select bank cards as per their spending sample. A lot of the bank cards are targeted at assembly particular sorts of audience and reward them with specific advantages or reward factors in line with their transactions. For instance, procuring playing cards supply greater advantages on groceries, life-style and different retail spends whereas gasoline bank cards supply greater reductions and cashbacks on gasoline transactions. Likewise, journey bank cards appeal to frequent travellers by providing them greater reward factors, cashback and reductions on journey, lodge keep and eating.

Thus, earlier than choosing a bank card fastidiously analyse your spending sample and transactions. If selecting an annual payment bank card renders you with greater advantages on specific transactions that you just usually conduct, then go for it. It might not solely profit you in your frequent transactions however may additionally include added advantages like complimentary lounge entry, eating privileges and so forth, which can be lacking in zero payment bank cards. In case you add up the advantages of such bank cards, you’ll discover they greater than make up for his or her annual/renewal charges. Observe, card issuers may additionally waive off annual/renewal payment on spending past the edge quantity within the earlier 12 months.

(The writer is Director, Paisabazaar.com)