The typical wallet might have at least one credit card inside it. How often it’s used depends on the owner and the terms agreed between the customer and lender, but they can sometimes be difficult to understand, especially when considering the myriad of rules governing how they need to be repaid and the impact they have on credit ratings.
There are numerous myths circulating about how credit cards actually work, but which are the most common? Here, we explore four of the most common a little deeper and explain how they actually work in relation to repayment, the added perks and how they can affect future credit ratings:
Applying for a credit card can ruin your credit rating
If you apply for a card, it might be something one of the agencies in charge of credit ratings will take note of, but applications themselves have no impact on credit scores whatsoever. This will come as a big relief to many having second thoughts about taking out a credit card in future, but being sensible with it is important, as is paying all money borrowed back on time. A spokesperson from Yorkshire Building Society suggested:
“Set up a regular savings account and shop around to make sure you get the best rate. Ensure that you are on the electoral roll as this can improve your credit score. Review your day-to-day spending to see if you can make any cuts to increase your savings, then set up a budget for essentials and stick to it.”
Air Miles and similar rewards aren’t worth the bother
Some ‘rewards’ on offer from credit card providers aren’t necessarily worth too much in real terms. Over a short-term period, some of the added benefits that come with some credit card’s aren’t worth that much, but over time, they can actually help you to get discounts, free tickets or help save money on things like the weekly shop. Make sure to read the small print first though.
Paying back what you can is enough
If this was the case, then more of us would be using credit cards. Sadly, it isn’t. The reason why is that the vast majority of credit card providers demand that, on repayment, you must pay a set minimum amount back in monthly, weekly or quarterly instalments. Anything that comes under the minimum required payment won’t be enough to keep the lenders happy.
It’s possible to remove negative info from a credit report
Unfortunately, when it comes to negative credit history, the fact is that when credit card repayments are involved, it takes at least seven years for it to be removed. To help improve your future credit rating, being sensible with your money can help, as can paying back whatever you owe in future. Patience can pay off as long as you don’t make the same mistakes.