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Monday Mythbusting: 5 myths about credit cards that may be holding you back

17/05/2021

Creditfix > Blog > Creditfix Debt Help Blog > Monday Mythbusting: 5 myths about credit cards that may be holding you back

 

For many people, credit cards are an indispensable part of life, offering a convenient way to pay for things upfront and pay back the credit over time. For others, credit cards are an expensive way to borrow and, when not managed properly, can create serious financial problems.

In the latest of our mythbusting series, we examine some of the most common misconceptions about using credit cards, and take a look at the real story behind them.

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Having multiple credit cards will hurt your credit score

This is one of the most common myths when it comes to credit cards. Many people believe juggling multiple credit cards is automatically a bad thing, because it makes it more likely that you’ll fail to keep up with repayments.

The truth is, when managed properly, carrying multiple credit cards can actually be beneficial. While opening a new credit card involves the lender conducting a credit check on you, which can lower your credit score by a few points each time, it shouldn’t have a huge impact on your overall rating.

More important to your rating is that you build up a positive history of repaying credit on time and in full. If you’re able to maintain that record across multiple credit cards it will boost your credit score over time, while you’ll also be able to take advantage of the offers each lender makes available to you, from reward points to free travel insurance.

I should avoid high limits on credit cards

Every credit card comes with a credit limit – the maximum amount you can spend on each card per month. High limits on credit cards have a way of making people nervous, and in a way, that’s understandable.

If you have a limit that stretches into thousands of pounds, you’re right to be wary. That credit limit gives you the ability to make purchases you might not otherwise be able to afford, but it’s always important to remember that credit cards shouldn’t encourage you to go on a spending spree – you’ll have to repay that money eventually.

That said, as long as you manage your spending correctly, having cards with high credit limits can actually be helpful.

A large part of your credit score is decided based on your credit utilisation ratio – the amount of credit you use compared to the amount of credit you have available to you. With that in mind, if you have a credit card with a high limit but you keep your balance low, it will lower your credit utilisation ratio, which should be reflected in an improved credit score.

Missing a repayment will automatically damage my credit score

Every purchase you make with your credit card has to be repaid, and your credit card provider will usually expect you to settle your balance each month.

Missing a credit card payment is never good, and a series of missed payments can cause you to build up a track record of defaults which will be listed on your credit score and can seriously impact your ability to access credit in the future.

While consistently failing to repay your credit card balance is a problem, missing one payment shouldn’t impact you too much in the long-term as long as you take corrective action quickly enough.

Most major credit card providers will provide you a period of leeway for late payments, usually 30 days. In the same way that if you repay a parking ticket quickly it’s usually cheaper, settling a late credit card payment within 30 days usually means the missed payment won’t appear on your credit record, so you shouldn’t experience any impact on your credit score.

Interest rates and charges on credit cards are non-negotiable

Signing a credit agreement with a credit card provider is a serious process, and means you’ll be expected to keep to the terms of the agreement, otherwise you’ll suffer the consequences stipulated in the contract, from late fees and charges, to long-term damage to your credit profile.

But just because you’ve reached a credit agreement with your bank or credit provider, doesn’t mean you’re locked into those terms for good. Like any other business, banks want to retain their customers. When it comes to renewing your agreement, they may be willing to make concessions to keep you on as a customer.

If your interest rates are higher than normal, ask to lower them. If you’re paying an expensive annual fee to retain the card, see if they’ll consider scrapping it. If they typically offer a free mobile phone contract to their most loyal customers, why not see if they’d be willing to add you to the list?

Your provider can obviously say ‘no’ to your requests, but you may be surprised how accommodating they can be when a customer simply asks the question.

Not using credit cards will boost your credit score

This last myth is remarkably common. People hear the horror stories of borrowers maxing out multiple credit cards, using credit card debt to pay up their other debts, or having credit card providers hounding them for payments, and they come to one conclusion: They’d be better off without a credit card.

It’s undoubtedly true that avoiding credit cards means you’ll also avoid defaulting on credit card payments, however the benefits of using a credit card properly can outweigh the risks you’ll encounter if you don’t.

While your credit score can be a complex concept to understand, this part is simple – you need to use credit to improve your credit score. It is possible to do this without a credit card, but for many people, credit cards are the most convenient way to build up a credit history.

‘Credit mix’ is an important factor in deciding your credit score, and relates to the various financial tools that make up your credit history. By avoiding credit cards, you’re putting a limit on your credit mix, which can have a negative impact on your credit rating.

The best solution is to use a credit card, but use it sensibly. By using a credit card to pay a regular and fairly risk-free bill, like a gym membership or mobile phone contract, you can make sure you’re building up a positive payment history, while minimising the risk of defaulting on payments – the perfect balance when it comes to your credit file.

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