5 MYTHS to ignore when applying for a credit card

Credit Card Application Myths

When applying for a credit card, we assume that we will have a new financial dynamic, or at least it should be, since its use will put you in debt, so you need to have some solvency. Having a credit card has its pros and cons.

There are even several widespread myths surrounding them that may be getting in the way of how you use them or whether you decide (or not) to apply for one.

(1) Unused cards don’t impact your credit history

This is not true. How many times have you received a pre-approved credit card that you end up keeping in a drawer?

To better explain how it works, when you apply for a credit card, or get a pre-approved credit card, this new line of credit only covers 10% of your total credit score, regardless of whether you use it or not.

If in your case, from time to time you apply for a credit card that you do not use, the damage will not be so great. But, if you do the opposite, if you make it a habit of applying for new credit cards, then you are giving yourself a direct shot to your credit score.

What you should do then, is to think very well if you need a credit card, before applying for it or, failing that, accepting it.

(2) When you make a payment, even if it does not cover the minimum amount, it is enough to avoid being fined

Another myth that some people believe in, but is not true. Each financial institution imposes a minimum payment, according to the total amount spent, on each monthly statement.

Covering it means that, while the interest bill will continue to accrue, you are not a candidate for the bank to charge you a late fee. And if you do not cover this minimum amount, then the opposite effect occurs: the company may fine you for not having paid what was expected.

(3) You can forget about your debt if you pay your balance

This is false, since when you accept a credit card, you do it with all its conditions and one of them has to do with the payment of interest. In the end, it is part of the business of granting you credit.

So when you want to get rid of a debt, you should do it taking into account the interest. You should also pay attention to the cut-off date of your credit card, since this may mean that you will have to pay interest that you did not have registered, just because of the cut-off date.

(4) The credit line granted has nothing to do with your payment capacity

This is not true. Each financial institution is very careful when approving a credit card, especially when establishing the credit limits that will be granted. And to do so, they check your background, your credit history, your credit score and your income.

According to a leading US bank, 30% of your credit score has to do with your debt-to-credit ratio. So if you have a high credit line and keep your balances low, your debt-to-credit ratio is also low, which has a positive impact on your credit score.

(5) You need to have a balance to build your credit history

You don’t. Credit cards themselves are very good tools for building credit history. And it is not necessary to have an outstanding balance to be taken into account in your credit history.

The best thing to do is to make your monthly payments and with that, your credit history will show that you are a compliant person and that you can manage your debts.


Nikesh-Mehta-AllOnMoney

Hi, I am Nikesh Mehta, owner and writer of this site. I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at [email protected].

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.