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Credit card myth-buster

Think you know your way around your plastic? We dispel six common credit card myths.

By Esther Shaw

Published: 08 July 2021

Man with credit card and laptop

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Credit cards can be a really convenient way to spend, budget, spread big payments over a long period, and build your credit rating.

That said, if you fail to use them correctly, you could be at risk of damaging your credit score, or having to pay unnecessary fees.

Here we bust some of the common misconceptions.

1. Getting a credit card means you’ll get into lots of debt – NOT TRUE

While having a credit card gives you the ability to spend, you are in control. It’s up to you to make sensible decisions when it comes to how much you spend – and when and where you do so.

If you clear your balance in full each month, you won’t be in debt, and you won’t pay interest charges.

But if you’re worried you’ll struggle to resist the temptation to go on a shopping spree, think carefully before getting one.

If you’re confident you can be disciplined about your credit card use, the key is not to max out your plastic.

As a guide, you should aim to keep your spending within 25% of your borrowing limit. So, for example, if you have a limit of £2,000 on your card, you should try not to use more than £500 at any one time.

Sticking within the limits can have a positive impact on your credit score.

2. All you have to do is make the minimum repayment – NOT EXACTLY TRUE

While you are only required to make the minimum payment on your credit card each month, you want to avoid only paying this amount if possible. By paying more than the minimum – and as much as you can – when your payment is due, you’ll clear your debt a lot quicker and pay a lot less interest.

3. You need to carry a balance on your card to build your credit rating – NOT TRUE

By carrying a balance on your plastic, you’re paying avoidable interest charges each month.

It’s always better to clear your credit card bill in full each month if you can afford to do so. That way, you won’t have to pay a penny in interest.

You can boost your credit score simply by spending on your card regularly, and then paying off what you owe by the due date each month. This will enable you to build a payment history, and demonstrates that you are a responsible borrower – without having to carry a balance.

4. Missing a payment won’t really affect your credit rating – NOT TRUE

If you have a debt on your credit card, missing your monthly payment is one of the worst offences you can commit. You will often get charged a penalty, plus it will have a negative effect on your credit score. Missed payments can stay on your credit record for six years. The same is true of late payments.

Always be sure to make your payment on the day it is due. A good way to ensure you never forget is by setting up a direct debit.

5. You should cancel cards you’re not using – BOTH TRUE AND NOT TRUE

On the one hand, keeping a credit card open means you still have its available credit and its account history.

On the other hand, if you have a card in your wallet that you never use, you may be better off cancelling it. The same is true if it’s a card with a hefty annual fee. See if you can switch to a fee-free card. If not, you may be better off closing it down.

This is because if a lender sees you have several unused credit cards, they may view this as a sign you don’t spend money on credit – and don’t have a payment history.

A lender may also worry that if you have a lot of credit at your fingertips, you could potentially go on a massive spending spree, and may then not be able to repay what you owe on time.

While the right answer will depend on your particular circumstances, as a general rule, if you have a fistful of credit cards, you should probably cancel a few, but you don’t necessarily have to close down all of them.

6. There’s no harm in using my credit card to make cash withdrawals – NOT TRUE

Taking cash from an ATM with your credit card should be avoided at all costs, as you will usually be charged interest right away on the amount you withdraw, from the moment you make the withdrawal.

In addition, as a credit card withdrawal is known as a ‘cash advance,’ you could get charged a ‘cash advance fee.’

Further to this, using a credit card to withdraw money could get recorded on your credit file, and this could impact negatively on any credit applications you make further down the line. This is because a lender might view multiple cash withdrawals as a sign you’re struggling financially.

Where possible, use a debit card to make withdrawals.

To check your credit score, check out our Credit Monitor tool. As well as finding out your score and what it means, you can get personalised tips to help it grow.

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