Friday Jul 01, 2022

Debunking myths about credit cards: 7 facts

Even if you don’t use the card, a new card can affect your credit score.

Only when you apply for a new card will your credit score be affected. But, applying for credit is only 10% of your credit score. It doesn’t matter whether you get approved; it’s your inquiry that matters. Applying for credit frequently can affect your credit score. Make sure you have the right card to use before you apply.

Fact: Even if you pay less than the minimum, it is still considered a missed payment.

Your credit card company might report a missed payment if you fail to pay the minimum payment on your credit card bill. This could lower your credit score, making it harder to get credit in the future. To keep your account current, check your statement to see the minimum amount. Remember: If you don’t pay the minimum amount due, it is a great way of paying down your debt. However, interest will continue to accrue until you pay it off.

Fact: Your balance may have more than one interest rate

You may have balances with different interest rates, such as one for a balance transfer or another for a cash loan. This is another reason to pay more than what you owe. Your card issuer will apply any excess to the balance at the highest interest rate. According to Experian, this can help you reduce higher-rate debt faster and save you money.

Fact: If you only pay your balance, your card won’t be paid off.

Even if you have reduced your balance to zero, interest may still accrue. This is known as residual interest, and it’s caused by the time gap between the date you were billed and when you paid your bill. You can avoid residual interest by calling your credit card issuer to request a calculation of your exact balance due on the date your check arrives or your online payment processing.

Fact: It’s a good idea to have a high credit limit.

A high credit limit is an advantage if you are careful with your credit cards. Your debt-to-credit ratio, which is the amount of credit you owe about your credit limit, makes up thirty per cent of your credit score. Your credit score can be improved if you have a high credit limit but keep your balances low.

Fact: Credit history building doesn’t require you to have a balance.

Credit cards can be a great tool for building a credit history. You don’t have to have an unpaid balance. The best strategy is to use credit cards and pay the bill each month. This will keep your debt-to-credit ratio low.

Fact: Not having more credit cards is always a good thing.

Not having more credit cards makes you a better borrower. The type of credit you have will determine ten per cent of your credit score. You may have student loans or a mortgage and credit cards. Credit agencies are looking for a mix. Credit agencies will not accept credit cards as your only source of income.

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