Information is power, and the lack of this vital piece about your area of interest, especially financial matters, is more harmful. In today’s world, everyone must know how credit works and what steps they have to take when requesting one or more personal credit cards. To avoid being misled, it’s good to self-educate yourself with comprehensive knowledge about credit cards and how they work, whether you are a holder or interested in applying for one. If you have thorough knowledge about credit cards, you will be lucky not to fall victim to the following misconceptions about owning a personal credit card.
- To Build Credit, You Should Carry a Credit Card Balance
Many people believe that to build credit; you should carry a balance on your credit card. This is false because the amount of money owed does not impact your score as much as how well you can manage multiple accounts and how long it takes to repay past-due bills or debts.
If there’s one thing I learned about having a personal credit card is its tremendous responsibility—this financial tool, if abused, will destroy even those with an excellent FICO score. When used responsibly by paying off monthly balances in full without incurring late fees or additional interests, this fantastic piece of plastic can help save cash at check-out counters (because many establishments offer discounts up to 20% for payments made through/credit cards). You will also acquire flight miles and even get the attention of some employers who will offer incentives like discounts on insurance for those with good credit scores.
- Multiple Cards Affect Your Credit Score
Contrary to what you’ve heard about your credit score, opening several accounts does not affect it negatively. Everyone is entitled to a free annual copy of their FICO report where they can find out their current credit scores and how it affects them in various ways (getting loans or financing). Opening multiple cards may help improve your credit score when all the factors are considered, such as timely payments for each account that is opened and having an active bank card. This shows creditors that you have access to funds if they need repayment immediately after any missed payment deadlines.
- Closure of Old Accounts Boosts Your Credit Score
Having an active credit card account remains positive on your FICO score even if you do not use it at all. It’s always better to keep an old account open than having it closed since this may affect you negatively. If the only reason why you want to close your credit cards is because of their high annual fees, look for similar accounts that offer more benefits without charging exorbitant amounts to earn rewards points or miles. Closing inactive accounts with no outstanding balances does nothing but free up some space in your wallet and lower available credit. This might be helpful when applying for other loans/lines of credit in the future—the less debt you have, the higher chances are of getting approved by creditors, especially those who require a minimum limit of $5000.
- Individuals with Similar Credit Cards Are Charged Same Interest Rates
This is another misconception about personal credit cards believed by many to be true. This is actually false because creditors charge different interest rates for each individual depending on their credit scores (indicated in the FICO reports). Higher outstanding accounts mean higher chances of getting approved by lenders and, hence, lower interest rates since this means you can easily repay your debts on time.