It’s amazing that even though the use of credit cards is a common practice in the Philippines, there are still a lot of those that apply for a credit card but don’t know how the little plastic card works.
From ignorance stems common myths that have passed on from user to user until they have blown out of proportion and scared people from applying for or using credit cards.
The truth is, the credit card is far from being the “financial black hole” that some people are making it out to be. There’s a need to debunk the common myths about credit cards to help you use your card wisely and manage your credit better.
Myth #1 Using prepaid or debit cards is better than using credit cards
If you’re the type who tends to go overboard with spending, a prepaid or debit card is the best option for you. Stay away from credit cards if you tend to go crazy with your credit limit. But when it comes to building credit score? The credit card is the way to go. Banks need to see your spending and paying patterns to be able to establish your credit score.
Also, not all people have ready cash in their prepaid or debit cards. A credit limit comes in handy when you really need to purchase something and don’t have the full cash for it yet.
Myth# 2 Use just one credit card
Multiple credit cards have their advantages. One, you get to keep your utilization in control. Utilization is your percentage balance used against your total credit limit. Keeping your utilization below 30% is recommended.
If you use just one card, your purchases will accumulate, and you will rack up a huge utilization percentage. But if you spread out your purchases between multiple cards, you can keep a lower utilization for each.
Another benefit of using multiple cards is the variety of benefits you can enjoy. There are features offered by one card that you can’t find with another. Look for benefits such as discounts, rewards, cash back, and air miles.
Myth #3 You should always avoid higher credit limits
It’s common thinking that the bank raises your credit limit so you will be enticed to spend more, increasing your chances of getting into debt. But increasing your credit limit is not always a bad thing. If you want to give your credit score a boost, a higher limit can work for you. If you keep your spending controlled and just the same as when you had a lower limit, this will keep your utilization lower against a higher credit limit.
Myth #4 Minimum payment each and every time is totally okay
This is one of the biggest mistakes that cardholders make when it comes to credit card debt. Some people think that they are saving cash when paying only the minimum required from their total balance, but it’s actually the opposite – the interest payments that incur when you fail to settle the total amount will eventually kill your finances. Pay your balance in full as much as possible.
Whenever you encounter essential tips on how to use your credit card wisely, make sure to do your research and compare so that you can avoid myths such as the ones discussed above.