Top Four Credit Card Myths Busted

Last Updated : Aug. 27, 2018, 11:29 a.m.

Yet to start your inning with a credit card? If Yes, then you must be keeping an eye on the reviews and listening to many comments on the social media channels. While you have got a clarity on some aspects, the other key proponents of the plastic money have only left you confused with mixed responses coming on those. And you are not the only one facing such a dilemma, there are many having doubts regarding the overall functionality of credit cards.

4 Credit Card Myths

Of the many myths surrounding credit cards, we have chosen these four that are majorly doing the rounds and deserve a better response than what they are getting. Let’s take a look at those myths.

GST to Make Credit Cards Very Expensive

Don’t know why there’s so much of negativity floating around regarding the inflationary impact of Goods and Services Tax (GST) on credit cards. Yes, the tax component of the cards has risen by 3% with the advent of 18% GST, replacing the erstwhile 15% service tax. But that won’t make it too expensive as being pointed out through many views seen online and heard offline.

For example, the joining fee of a credit card is ₹4,000. Before the GST, the tax over the fee would have been ₹600 at 15% rate as opposed to ₹720 now at 18%, just ₹120 more. The rise, as can be said, is not significant enough to make people sway from applying for credit cards.

Even those who have been using the cards before July 1 2017, the launch date of the GST, need to throw away the myth that the latest indirect tax system would lead to unbearable transaction charges.

Plus, the GST accrues basically on the revolving card balance, and if you pay off the total dues on or before the due date, there won’t be any interest and GST.

Paying Minimum Due is Affordable

With minimum due just accounting for about 5% of the total credit card outstanding balance, many of you would be surprised to know why thinking it being affordable is a myth. Well, you are just looking at the plain figure without actually sparing a thought for the perils of debt mount eagerly waiting to sink your finances by following such a credit hygiene. The interest keeps getting charged on the unpaid balance of the card, which remains huge with just minimum due payment, to pinch your wallet hard as the billing cycle moves on.

The need of the hour is thus to identify the needs properly and shop accordingly to eliminate the scope for impulsive purchases that invariably pile up the debt so much that one’s forced to pay only the minimum due . But don’t get an impression that the debt pile can be prevented by paying more than the minimum due but below the total outstanding. Payment below total outstanding, doesn’t matter if remains greater than the minimum due, would attract interest and taxes.

One Should Go for Cash Limit

Shoppers while applying for a card also vouch for higher cash limits just as they request for a greater credit limit. Yes, the cash limit does empower you to withdraw cash from credit card at ATMs. But, by withdrawing cash, you do more harm than good. It’s due to the fact that the venom of interest starts to take effect the moment the cash withdrawal is made, much unlike the retail purchase entitling cardholders an interest-free credit period of 20-50 days. So, the message is loud and clear, don’t withdraw cash from card to be free from such interest mount. Even if you are required to, make sure to withdraw less and pay the entire due on time to prevent the interest mount.

Closing Credit Card Accounts Won’t Affect Credit Score

Often people keep multiple credit cards with themselves only to pile on the debt to hurt their financials later on. While some are chosen carefully by analyzing the offers and needs, many are just picked just for the sake of it, resulting in displeasure due to the lack of savings and rewards with the latter. So, they close that card account thinking that it won’t harm their credit score as the bills due on them are paid off. But the reality is that the available credit limit would come down with a closed card, which would eventually firm up the credit utilization ratio and take some points off your credit score.