Credit Card Myths: Five Common Myths That Can Hurt Your Cibil Score

Credit cards can be a convenient financial tool when used wisely. Also, your credit card habits can play a crucial role in shaping your Cibil score. However, some misconceptions regarding credit cards can negatively impact your credit score if you are not aware of them.

So, here are five credit card myths you should be aware of

1. Paying Just the Minimum Due Is Good Enough

A lot of people assume that making the minimum payment on their credit card bill every month will keep their credit score safe. While it avoids late fees and keeps your account active, it does not guarantee that you are not charged those fees. The remaining sum continues to accrue interest which raises your total outstanding balance. This increases your credit utilisation ratio, which is a significant component in your Cibil score. Even if you never miss a deadline, your score may be impacted over time.

2. Closing Old Credit Cards Will Help Your Score

Closing a credit card you no longer use may appear to be a good idea, but it could really hurt your credit score. Older accounts contribute positively to the length of your credit history, which makes up a significant part of your Cibil score. When you close them, you reduce your total available credit, and possibly shorten your credit timeline. This increases your credit utilisation and takes away the benefit of a longer credit history, which can lead to a lower score.

3. Not Having Any Loans Means You Will Have a Great Score

While avoiding loans and credit cards may appear to be the prudent choice, having no credit history can actually lower your score.

Your Cibil score represents how well you handle credit, and without credit activity, lenders have nothing to examine. It indicates your ability to manage credit responsibly when you use a credit card for minor expenses, or take out an insignificant loan and helps in getting back on track. This builds a positive record and boosts your score over time.

4. Maxing Out Your Card Is Fine If You Pay On Time

Your credit score may be lowered even though using your entire credit limit and paying it off each month may seem harmless. That’s due to a high credit utilisation ratio, which suggests you rely heavily on credit, which makes lenders cautious.

Lenders' views on your financial practices may be impacted if you frequently max out your card even if you pay in full. It's good to use only a portion of your limit that should be less than 30 per cent in order to keep your credit profile in good shape.

5. Having Too Many Credit Cards Is Bad for Your Score

Some individuals feel that simply possessing many credit cards will damage their credit score, but this is not always true. Using multiple cards can be beneficial if you use them wisely, such as making timely payments and keeping your balance low. It raises your entire credit limit while lowering your overall utilisation ratio. Usually, issues occur when consumers apply for too many cards at once, miss payments, or overspend.