This article includes paid links to help you know more about credit card myths.
Approximately 32 million adults in the UK have a credit card. Whether you use them for big purchases only or pay your balance off every month, they can be a useful tool in your financial armour. They can also help you build a good credit score, providing you don’t miss your regular payments. But whether you’re a seasoned user or a first-timer, there may be some things about credit cards you’re unaware of. And they could be affecting your credit score or causing you unnecessary fees. Here, we bust four common credit card myths.
You must cancel a credit card if you don’t use it
This is a common myth. In fact, the opposite tends to be true. Cancel a credit card, and you’ll automatically lose your credit line. An empty card can also be good to have in an emergency. Cancelling a card could also decrease your credit score, as a carefully managed card helps build a score up. Instead of closing old card accounts, try to utilise the payment device for sensible purchases and make sure you hit your regular payments.
That said, even if you don’t use your cards, it’s important to check them regularly, to protect yourself against fraud. Not only this but keeping a close eye on your account will help you manage your finances easier.
You should decline credit limit raises if they’re offered
Accepting a higher limit reduces your card utilisation (the ratio of outstanding debt to your limit), which is what potential lenders will look at if you apply for credit in the future. That said, only do this if you are confident you won’t be tempted by your increased spending power.
You need to maintain a balance on your card to improve your credit
Just not true. And you’ll only get stung for interest fees, so it’s prudent to pay your balance off every month if you can. So, although you won’t be penalised for not having a balance on your card, you may be penalised for not using your card at all. The key is to use your card regularly and pay it off monthly, so you get points for using your card, without having to pay interest fees.
You only need one credit card
As long as you use them responsibly, credit cards can be useful in helping you to manage your finances. And actually, having more than one can be a shrewd financial move. For one thing, it improves your credit utilisation. It’s generally recommended that you keep your card utilisation at 30% or less and having more credit available through can help achieve this. It also gives you the opportunity to take advantage of balance transfer deals to pay off existing debt on one card, while using another for essential purchases.
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