Credit Cards are so popular for a reason. They have made life extremely convenient and are easily accessible to almost anyone – from students to retired persons. In addition to providing a range of rewards and exclusive experiences, they also help build your credit worthiness. For emergency purchases, there is probably no better option than a Credit Card. However, there are a lot of common myths when it comes to managing payments, understanding credit terms, and keeping a healthy credit score which can sometimes be challenging for the average user.
Here are some common misconceptions about Credit Cards:
1) A new Credit Card dents your credit score
Applying for new credit results in a ‘hard credit enquiry’ by the service provider. Too many applications may have a significant effect on your credit score, but a single inquiry is unlikely to affect your score by more than a few points. Therefore, it is important to pick the right card based on your requirement, spending habits, and the benefits it offers. A good payment history on the new card will swiftly offset the point loss.
2) One Credit Card is plenty
It is understandable that you want to avoid the temptation of over-spending, but if you can responsibly manage the card usage and stay on top of payments, having multiple cards bring other perks. In case of emergencies, you have room for additional credit and different cards bring different rewards. For example, HDFC Bank Regalia Card is perfect for the itinerant traveller – with the lowest mark-up on international transactions and complimentary access to international and domestic lounges, you can explore the world in style. More importantly, the additional credit will lower your ‘credit utilisation’.
3) Old/unused Credit Cards must be closed
Credit utilisation comes into play here as well. The percentage debt/consumption you have vis-à-vis the total credit available to you across all cards or loan accounts is used to calculate your overall credit utilisation. A standard practice is to maintain card utilisation at about 30%. Lower debt usually suggests a sound financial position, ergo higher credit scores. Just as it helps to expand the pool with a new card, closing an old one would reduce your total available credit, and proportionately increase your credit utilisation. Also, old accounts are treated favourably when calculating credit scores as they hold weightage in the ‘length of credit history’ category.
4) Avoid credit limit hikes if you don’t need them
Timely payments and responsible financial behaviour are awarded with higher credit limits and aspirational metallic colours on the card. There is no reason for you to deny yourself the benefits of higher spending power while having the added advantage of lowering your debt in comparison to your total credit line.
5) Make your monthly settlements ASAP
This is a tricky one. Traditional wisdom is to pay your due amount in full every single month to maximise your credit score. But this may not be entirely prudent. In fact, a small balance carried forward could actually be better for your score than none at all.
6) Don’t accept a card with an annual/renewal fee
This again is dictated by personal spending habits. Paid cards come with additional perks. HDFC Bank Infinia Card, for instance, offers dining privileges with 15% off, complimentary lounge access, waiver on fuel surcharge, personal concierge services, Travel Insurance up to Rs 3 crore, free golf lessons in India and abroad, and many more well-crafted benefits! If you add them up, such specialty cards more than make up for their fee.
Read more about the tips to avoid Credit Card frauds So don’t fall prey to these rumours. Your Credit Card can be your best friend if you treat it right. In case, you are buying your first Credit Card and have lots of questions in mind, here is something to give you a better clarity.
Apply for an HDFC Bank Credit Card here!
* Terms & conditions apply. Credit Card approvals are at sole discretion of HDFC Bank Ltd
