If you want to improve your credit, you could take workshops on the use of credit cards, read as many personal finance books as you can, talk to friends and family, and seek consultation as well. Be careful though, not all advice is valuable.
Always steer clear of bad advice, especially when it comes to credit management. The worst advice about credit cards are myths that continue to pass on from one consumer to another.
Following the wrong credit card advice can set you on a wrong path. This will impact your financial health negatively, not only now but in the years to come. Tighten your seat belts and let us discuss some of the worst advice about credit cards ever received.
1. Use Your Savings to Pay Off Debt
Linda had $20,000 in her savings account – the money she painfully saved for two years. She was advised to empty her account to pay off the debt because she pays more interest on the credit card than what she makes on the savings account.
Whereas she didn’t feel comfortable doing this, she went ahead because this was coming from her accounting professor. Guess what, she followed the advice and later her car broke down. With no savings, she immediately went back into debt. Take this for some real advice: savings should be your number one priority. Everything else can come later. Furthermore, if you do not have emergency cash, you are headed for disaster.
2. Carry Your Balance
The other worst advice heard about credit cards is that to build your credit score, you have to carry your balance and pay interest. This is just a myth, and it is sad so often that many people still believe it.
This idea is usually taken on by financial institutions who benefit from making people believe this lie. If you are carrying a balance, the best thing to do is to pay off your credit card balance first.
Next, ensure you do not close out the card because this will lower your credit score. Leave it open and make purchases every couple of months. As a tip, when it comes to banks, it’s okay to use their products and services, such as accounts, cards, and loans without taking their advice on how you can use them. This is, in most cases, geared to benefit them and not you.
3. Close Your Old Accounts
People will tell you that if you think you have too many credit cards, you should close old accounts. Here is why this is all wrong. Your credit history length is part and parcel of your credit score equation. As such, closing old accounts will make you have a short credit history.
This is important to know, especially if you are new to credit cards or if you are seeking a mortgage or a loan. Because lenders prefer to give loans to people with a more extended credit history, the last thing you want to do is sabotage that by closing your account. You can cut up the card, but closing the account should be the last thing on your mind.
Some of the financial advice passed around is usually accurate, but most of it is unfounded. Advice such as paying your credit cards on time is right, but the validity of other ideas depends on the institution and person. Other pieces of advice can be debatable, depending on your experience in this sector. Always do your homework. As you master how to use credit cards, it will enable you to make better decisions about your finances.