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Busting those myths about credit cards
Credit cards can be a blessing or a curse, depending on how you use them. They can save your life in a tricky situation, or they can become a huge headache if you don’t keep control of your spending and pay what you should, when you should. But how much do you really know about your credit card, and how applying for and using it affects – for example – your credit history? In this article, we bust some of the biggest myths about credit cards, so you can make the most of them.
Myth 1 – If a great deal is advertised, then that’s what I’ll get, right?
No, sadly that’s not always the case. The deals that are advertised only have to be given to at least 51% of those who apply in order for the credit card company to be able to advertise it as a deal. So, there are another 49% of people who don’t get that rate. What rate you get will depend on what your credit history is like. If it’s poor, you still might get offered a credit card, but it might be at a higher rate.
Myth 2 – Using APRs is the best way to compare credit cards.
This is a very common myth, simply because it’s widely touted as being a way to compare credit cards – there’s no wonder people get confused! Anyway, it’s not a good comparison point because the APR only tells you what interest would be if you spent up to your credit limit, on one single day and then paid it back in 12 equal parts over the rest of the year. How likely is that to happen? Not very is the answer, so APR is not always useful comparison point – for example if you plan to pay off your balance in full each month.
Myth 3 – Having lots of credit cards will improve my credit score.
No, it won’t. Having lots of credit cards, with huge credit limits is not important. In fact, if you have lots and you don’t manage them properly, by missing payments or having really high balances on them, then your credit score will actually be negatively impacted. Plus, if you’re given lots of cards at the same time your score will probably go down, at least for a while anyway. This is because credit scoring systems do not know how to deal with new accounts that have no payments on them, as they’re not able to assess your willingness and ability to pay. Having fewer cards, with low balances that you manage well, is actually more likely to improve your credit score.
Myth 4 – I can correct the payment default I received for not paying my bill last month by paying double this month.
If only it were that easy. Sadly, it’s not. If you miss a payment and there’s a default on your file, it will remain there for six years. However, if you do make up the missing payment and other creditors can see that, they may realise that it was just an error or a one-off. And, as time goes on, your credit history will recover anyway.
Myth 5 – Applying for lots of credit cards will only affect me if I actually use them.
If you apply for 10 different credit cards, requesting a £10,000 limit on each, what do you think that’s going to look like to potential lenders? Honestly, it’s probably going to look like you are a little bit desperate and this will likely lead then to turn you down for further credit. So, if you do want to apply, and you’re not sure which card provider is likely to accept you, you should use an eligibility tool, like the one offered by moneysavingexpert. This allows you to put your details into a search tool that only soft checks your credit file – it doesn’t leave any trace – before you actually apply and the hard searches begin.
So, there you have it. Now you know the facts behind the myths.