Debunking credit card myths

When you start using something new, you could fall into the trap of not doing your own research and blindly following certain ‘myths’ associated with that product. Many myths have sprung up around plastic money too. There are advantages and disadvantages to using credit cards and it’s always a good idea to know about both. Here are some of the myths surrounding credit cards, debunked.
 

Myth: Your CIBIL score improves if you pay a higher amount

This is one of the most common beliefs held by credit card users – that if they pay a higher amount to the bank then they will be able to improve their CIBIL score. However, the fact is that the extra amount is just adjusted in the next bill, and does not improve the CIBIL score. CIBIL scores improve only with prompt bill payments.
 

Myth: Paying off outstanding amounts will reverse your bad CIBIL score

Even if you delay your payment by a single day, your CIBIL score can fall by 80 points. If you have an outstanding payment, it has already damaged your CIBIL score, and paying it off will not reverse this negative impact. Unfortunately, your credit report will keep showing this delay for up to three years.
 

Myth: Grace period works even if you have a previous outstanding

For a credit card bill, you usually get a grace period of 14 to 48 days, during which time the bank does not charge interest. However, if you have a previous outstanding, there is no grace period. It is applicable only if you have cleared all of your previous bills on time. If you owe the bank money, then your grace period vanishes and you have to pay interest.
 

Myth: Having more credit cards betters your credit score

Some people get so enamoured by the purchasing power of their card that they begin to think about how much purchasing power multiple cards would bring. However, the fact is, the more credit cards you possess, the more you invariably end up spending, and the more you have to pay back. Mounting debts could make you a defaulter and actually harm your credit score.
 

Myth: You cannot get a credit card without history

There is always a first time for everything. Many people believe that they won't be able to get a credit card because they don't have a history – but this is simply not true. You can get your credit card for the first time very easily.

While it is good to be aware about the myths surrounding credit cards, it is also worthwhile to remember that while it brings many advantages, improper use can land you in trouble. Use your card wisely.

Disclaimer: Copyright Kotak Mahindra Bank Ltd.