You have decided to be financially responsible, and you’ve started watching all these finance videos and reading finance advice online. You’ll be getting plenty of great advice for sure. However, there are some that you need to ignore, or you’ll be in a worse position than you are now.
The same applies to credit cards too. It is easy to find plenty of credit card advice available online and following the wrong ones could further your credit difficulties.
We’ve put together a list of bad credit card advice and why you need to ignore them.
1. The More Credit You Use, the Better Your Credit Score Will Be
There is a very common misconception that the more credit you use, the better your score will be. Many financial gurus give this credit card advice without clearly explaining what it means. While it’s true that getting accepted for credit means your credit score is obviously healthy, utilizing too much credit can harm your rating.
One of the main factors used to determine your rating is how much of the credit you’re using. Ideally, you’ll want to have a low credit utilization. In other words, you need to utilize a maximum of 30% of your credit limit.
Higher utilization is a red flag to credit card companies, and it means that you’re struggling financially and need to rely on credit. Your credit score will get progressively worse if you keep your utilization high. Watch out for this.
2. Never Transfer Balances onto Different Cards
You’ll also see advice telling you not to transfer an existing balance onto another credit card. There are times when balance transfers can cause you to owe more money. However, they can also prove useful at times when you need a payment break.
Many balance transfer cards also come with 0% interest for six to twelve months. If you are confident of paying off your debt during this period, you should definitely take advantage of the balance transfer.
A word of caution here. Balance transfer cards require good credit history. Besides, if you don’t have the means to pay off your debt before the 0% interest rate period, all you are doing is shifting your debt from one card to another. Do your research before applying. Don’t make too many hard inquiries as it will bring down your credit score even further.
3. Don’t Pay Attention to the APR
If you look at the APR of credit cards, you’ll see it can be scarily high. However, some poor credit card advice often tells you not to worry about this as it only really applies if you get into trouble. The truth is, the APR makes a huge difference to your finances.
When choosing a credit card, it’s important to select one with the lowest APR. That way, you’ll be paying less back in interest if you ever get into trouble. This makes the repayments much more affordable.
Check out the Hidden Fees and Charges to Look for in a Credit Card.
4. Paying the Minimum Balance Helps You Have Great Credit Score
Ignore any credit card advice which tells you to only pay back the minimum of your balance every month. Yes, paying back the minimum can be useful at times, but it’s also a sure-fire way to never get out of debt.
When you don’t pay off the full amount, you will get hit with high APR charges. This will grow more and more every month. Also, don’t forget that these interest charges can compound.
Over time, it will increase your utilization and bring down your credit score. Develop the habit of paying off the full balance and stick to it.
5. Refinance Your Home or Use Your 401(k) to Pay Credit Card Debt
If struggling with credit card debt isn’t bad enough, you don’t want to be jeopardizing your home or retirement earnings. Refinance is a good thing if you are taking advantage of a lower interest rate. However, using it to pay off your credit card debt is a bad idea.
Here, you are converting an unsecured debt into a secured debt. If you can’t repay your mortgage, you might lose your home as well. So, never take that chance.
Similarly, your 401(k) is your retirement fund for a reason. Taking money from it will only delay your retirement plans. You will also lose out on your potential earnings. So, don’t bet your home or retirement savings on your credit card debt.
6. Just Pick Any Card; They’re All the Same
A little like the credit card advice on not to pay attention to the APR, you’ll also want to avoid simply picking any credit card. No two cards are equal. They have different interest rates, benefits, and uses. Therefore, it’s important to make sure you’re choosing a card that best fits your circumstances.
Some credit cards are good for beginners, while some are good for people with a great credit history. Some cards even help you earn more while spending on valuable things. Always take the time to compare credit cards before choosing the right one for you.
So, there you have it – some of the main pieces of credit card advice you should ignore. Following the wrong advice can be detrimental to your finances. It could also keep you in the debt circle with no way out. Make sure you avoid them at all costs!