If all you want is raw fish then you never need to use higher level bait. Just buy regular bait from the merchant and have a good time fishing in the Meadows. If you like the fishing "quest" then it's something extra to mess around with while doing the progression and exploration in Valheim.

As for higher level bait catching lower level fish--yeah, that sounds bad because you'll end up catching fish you didn't want instead of the ones you're actually trying to get, as mentioned in a previous post. Also, if you have ever fished outside of a video game, some fish are definitely easier to catch with the right lure/bait setup. Maybe they'll tweak it more, maybe not--but since it's entirely optional then I guess you get to choose whether you want to pursue higher tier fish or just use the lower tier ones, or pick up whatever you can find laying on the shores.