Are you in doubt about getting a credit card? Well, that’s understandable, but knowing the truth can help you decide whether credit cards are helpful or not.
Making ends meet is quite tricky, especially for those low to middle-income earners. And that’s one of the reasons why many individuals, even young ones, are tempted to get a credit card. But many still fear applying because of the said credit card myths.
Before getting a credit card, consider reading and understanding facts about credit cards. It’s the right time to know the truth behind the following myths:
“No-credit history applicants can barely get Credit Cards.”
There will always be a first time to everything, and getting a credit card is not an exemption. Banks label new-to-bank customers or those who haven’t any credit account as “thin file” borrowers.
From the word itself, “thin” means there’s little or nothing. That’s the same thing when it comes to crest accounts. They’re someone who has little or no credit history.
Lenders, on the other hand, may see them as unfavorable applicants. Why? Because the lender will find it hard to verify whether an applicant is a responsible and a sensible borrower. But that doesn’t mean you can never get a credit card.
Some banks grant credit cards to “thin file borrowers” but could get a lower credit limit. Nevertheless, it’s a good start to build a credit profile using credit cards, especially if you strictly make your repayments on time.
“All Credit Card rewards and other perks are the same.”
The statement sounds like, “Yeah, they look all the same.” Every bank’s credit cards have unique features that would benefit the cardholder. And those features should match the cardholder’s spending habits.
The standard rewards of credit cards are cashback and travel points. Whenever you use a Cash Back credit card, you’ll get a portion in every transaction you do with it. That’s usually between one to six percent.
In contrast, a Travel Rewards credit card will grant you points on every dollar you spend. Those points are redeemable and could be in the form of a free airline flight or hotel accommodation.
The best thing you should do is assess what type of reward you wish to receive. And at the same time, choose a credit card that perfectly matches your spending habits.
“The more credit cards I get, the better.”
Having more credit cards doesn’t mean you get better credit ratings or better financial status. Instead, it’s how you sensibly use your owned credit cards that matters.
It’s okay to have more than one credit card. But using several credit cards that are beyond your financial capacity might lead you to what you can’t control. And that could stir up your credit rating.
“Negotiating with a bank is impossible.”
The truth is, banks are open to negotiations. For example, you are in dire need of money, so you’re considering getting a personal loan. You can ask which personal loan tenor would fit your financial situation.
Of course, we always wanted to get the best deal. If you are applying for a credit card, you can negotiate with a bank to give you a card that will benefit you the most.
Another scenario is when you’re struggling to make repayments on your credit card. Reach out to your bank and ask how you can cover up your credit card debt. Negotiating with them isn’t impossible. Banks want to compensate the money lent to customers by paying them back through negotiation.
“Making the minimum repayment can save me from fees.”
Paying only the minimum repayment is not a good practice. It could only leave you paying your debt for years. Also, what you do not know is the interest compounds.
Paying the minimum repayment alone doesn’t have a direct effect on your credit score. Yet, once your credit utilization increases, it would negatively affect your credit score.
Credit Utilization is also known as the Utilization ratio. It refers to how much debt you take out from your available credit limit. Thus, it indicates whether you’re good at managing your debts.
Having a high utilization ratio indicates that you are overspending. Technically, keeping a 30% credit utilization is better. That means you’re using less of your available credit. But close to maxing out your credit will harm your credit score.
If the latter happens and you pay only the minimum repayment, the issuer will report you with a high utilization ratio.
“Credit cards can only leave you with a tremendous amount of debt.”
Using your card irresponsibly will result in paying a tremendous amount of debt. If you let yourself be tempted by spending too much, you’ll get into financial trouble. But if you learn to control yourself and manage your repayments, there’s nothing to worry about. No one will be left out carrying a financial burden.
Credit cards aren’t for everybody. You should ask yourself first why you would need a credit card. Ask if it fits you to have one or not. Assess yourself whether you’re the
If you’re worried about being tempted to spend, better ask yourself if it’s right for you to have one. If you’ve decided to get a credit card, be sure to set rules to prevent yourself from spending too much.
“It’s okay to use all your credit limits.”
It doesn’t mean that you’ve given a certain amount of credit. You’re free to use it all. That’s not supposed to be. Using more than 25% of your credit limit across all cards you have can hurt your credit score.
Your financial fate using a credit card depends on how you handle it. Of course, you can listen to what people say, but knowing facts will better understand how credit cards work.
And lastly, as mentioned a while ago, know your purpose why you need to get a credit card. If you’re afraid of getting tempted to spend with your card but decided to apply for it, be sure to be financially organized and well-managed.
Credit cards are unique financial tools we can use for purchasing. But you should be careful and sensible when using it. Unlike personal loans of moneylender Bukit Batok, you get the whole amount and you’re free to use it whenever you need. But still, you have to repay the loan on time. Even moneylenders, like Cash Mart, do not tolerate borrowers to miss payments. Otherwise, you get penalised by paying charges, which at the same time, can hurt your credit score.