If you are one of those people who believe that carrying on a credit card balance will help your credit score, then you are wrong.And you are not alone. This is a common myth of credit card holders. Unfortunately, carrying a balance is not the primary criteria for increasing the credit score.
The cycle of interest
Carrying a balance could hurt you.
First thing, you will have to pay interest on the outstanding balance. There has also been an increase in the rate of interest with respect to last year. Current national average APR is 2.5 percent per month in India.
It is disheartening to see that so many people are attempting to pay their card issuers to improve their credit scores. Even if the myth was true, the amount of interest you will pay is not worth the benefits of an improved credit score.
The myth is like cockroach of finance myths and cannot be killed.
Additionally, keeping a balance in your credit card account can hurt your score if it grows too much. One thing that actually affects your credit score is your debt to credit ratio. The higher the amount of debt with respect to your total available credit, the lower your credit score will be.
Pay everything on time
Repayment history is a crucial factor in determining your credit score.
Paying on time is an issue for many credit card holders. Most of the credit card holders make late payments. And the most common reason is that they forgot the date or were busy or travelling.
A report for the same issue showed that parents with young children are most likely to forget the payment or pay late. Millennials are also one of the most habitual late payers. 1 in every 10 millennials admitspaying late at least five times.
Don’t complicate credit
If you are willing to improve your credit score, then you should be aware that you cannot fool the system or play a game with it. The best way to improve your credit score is simple and easiest: Just pay your credit card bill on time and in full every month.
Credit is not a 100 meter sprint race, but it is a 100 kilometers marathon race. You need to focus on the bigger picture and realize the game is going to stick for long. Once you realize this, you will end up doing the right things.
There is no reason to forget the payments in the age of technology. If SMS reminders are not enough for you or you are too busy to make the payment, then set-up auto payment for every month.
In the end, also be a little aware. Read helpful tips on the internet. There is no point in blindly following a myth without questioning its validity. This financial myth costs crore of rupees every year while the solution is extremely simple. Bust other finance myths as well to truly reach your financial acme.