Credit cards, like any financial product, seem to create uncertainty for
people. There are myths running rampant that loans and debts are tantamount
with credit cards. Unfortunately, some of these credit card myths may be
causing your wallet – and your credit score – more harm than good.
Truth is, there are
pros and cons to having a credit card. They can be an important element in
establishing strong financial footing, but it must also be used with care.
Here are 3 of the most popular credit card myths that
could give you a better idea of what you’re signing up for.
Myth 1: Credit cards incur bad
This myth is prevalent due to the countless horror stories of people
failing to pay their credit card bills on time and subsequently finding
themselves in a mountain of debts. Sure, there are people who do not understand
how to handle credit cards and find themselves maxing out their credit limits
big time but it does not mean that everyone should avoid it.
The truth is, responsible credit card activity is a good thing as it
will be reflected positively on your credit report. Using your credit card
responsibly and paying in full every month will help you to build a strong
credit history which could put you in good stead when applying for a car loan
or home mortgage. Having a credit card in your wallet does not mysteriously
incur debt, but it can help you improve your credit score.
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Myth 2: Making the minimum
payment is enough.
The words “minimum payment” can be confusing for new credit
card holders, who might think that’s all they owe each month. Your credit card bill
is not paid off until it is paid off in full. Many Singaporeans believe that by
paying their minimum balance of the total credit card balance monthly, they
will not owe any interest accrued on the remaining balance. This can result in
an endless cycle of outstanding credit card debt that never gets resolved.
Not only will you never pay off your bill, but the total interest you
will pay will be much higher and your payback timeframe will get a lot longer.
Ultimate Guide to Choosing a Credit Card
Myth 3: Closing your old credit
card accounts helps your credit score
This myth is very common, but it is also completely false. Closing an
account may save you annual fees, reduce the risk of fraud and guard against
identity theft but under certain circumstances, closing the wrong accounts
could actually harm your credit score. You are reducing the amount of credit
extended to you and decreasing the average age of your accounts. The length of
your credit history is one of the factors that determines your credit score.
A closed account does not mean your payment information has been
removed. Information will be retained in your credit report for 3 years upon
account closure. While it is essential to pay off a credit card balance,
closing the account could have a negative impact on your credit score
especially if you are planning to apply for credit for big ticket items such as
a house or car in the near future. Rather than closing an old credit card
account, use your cards from time to time and generate a history of on-time
repayments. Keep your credit active.
If you have
applied for a new credit facility in the last 30 days with any of CBS members
banks, you can receive a complimentary copy of your credit report from CBS.
Otherwise, you can purchase your report online to understand your credit report
You may also like:
Your Credit Card: What the Details on It Mean
is it Worthwhile to Pay Your Credit Card’s Annual Fee?
Credit Card Mistakes You Must Avoid for Good Financial Health
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