You might think you know everything about credit cards, but you may want to think again.
Credit cards get a bad rap since there are tons of misconceptions about them. Nonetheless, credit cards aren’t all bad or all good.
If you want to separate fact from fiction, let us warn you against believing these 7 common credit card myths so you can get start your credit journey on the right path.
7 Bizarre Credit Card Myths You Shouldn’t Believe
1. Using your credit card is harmful to your credit score.
A common misconception among new credit users is that charging their credit cards can lower their credit scores. However, your credit score benefits from the usage of your card.
Having a dormant card on your credit file makes it more difficult for you to build credit. Why is that? Well, inactivity results in no data to calculate your credit score. Essentially, nothing happens. Even using your card at least once a month for small purchases will help you boost that score.
The only time credit card usage harms your score is when you use too much of your available credit. The ideal range of overall credit utilization is about 10%, but you want to keep it below 30% overall.
2. Having a credit card with a high credit limit is bad.
This credit card myth is a tricky one. Sure, a higher credit limit means you can spend more, but it doesn’t mean you should. A credit card with a higher credit limit helps reduce your credit utilization and helps your credit score overall. That is if you don’t increase your spending.
A high credit limit only affects you if your credit limit is higher than your income can support. When applying for a home, auto, or any kind of bank loan, they’ll take into account your ability to meet all your financial obligations.
Although, this shouldn’t steer you away from increasing your credit limit on your credit card. Most credit card companies will ask for your annual income before approving you for a credit increase.
Also Read: Credit Repair Facts
3. You should carry a balance to build your credit history.
If you’re just starting to build credit, this may be a myth you’re inclined to believe. In reality, carrying a balance can cause you to accumulate debt! Keeping a high balance hurts your score because your credit usage will be high.
You will also accumulate interest if you’re only paying the minimum payment every month. Interest can add up and prevent you from paying your debt faster. So it’s safe to say you should aim to pay your credit cards in full every month.
The only exception to carrying a high balance would be if you’re in a promotional 0% APR period with your credit card company. Your credit utilization will still be high, but if you need to pay off a big purchase or balance transfer then this option is ideal.
Just make sure you pay it in full during the promotional period because some credit cards charge accrued interest, meaning you’ll have to pay the interest that’s been compiled since the start date of your purchase.
4. Closing accounts is good for your score.
If you barely use a credit card, are sick of paying annual fees, or just want to get rid of it altogether, think twice. Closing a credit card account can impact your credit more than you can imagine.
Closing a credit card that’s been open for several years decreases the overall age of your credit accounts. Since the length of credit history makes up a high percentage of your score, this will be an issue.
Furthermore, no longer having that card means your total credit will decrease. So if you have a higher credit utilization on your other cards, your score is negatively affected.
5. Having a lot of credit cards is irresponsible.
This may seem like a logical line of thinking, but this is false. The amount of cards you have does not affect your credit score. You may think that having multiple open credit cards increases your debt but that factor lies entirely in your hands.
If you have a variety of credit cards that include benefits like cash-back, retail points, travel perks, or more, then why not? As long as your interest rate is reasonable, and you can pay them all on time, the more the merrier.
Simply avoid applying for multiple credit cards all at once. Several inquiries on your credit will impact your score and result in denials from credit card companies because they’ll consider you a risky borrower.
Try to space out your credit card applications within six months or a year of each other. A hard inquiry impacts your score for about a year and falls off your credit report in two years.
6. Getting a store credit card isn’t worth it.
Store credit cards have a bad reputation. While you should be aware of their terms and conditions, store credit cards are easier to get approved for than traditional cards.
If you’re just starting to build your credit, a store card is beneficial. As long as you make your payments on time, you can improve your credit score. You should also apply for a store card that you visit often. Most retail stores offer a percentage discount when you shop with them or cash-back rewards.
Other perks you can get with a retail card are free shipping, early sale access, and exclusive deals. Just be vigilant of high APR on big purchases as you would be with any other card.
7. Credit cards are for emergencies only.
Credit cards do come in handy when you have an unexpected expense, but they’re so much more than that. They can help you pay off large purchases, transfer high balances, and most importantly, build credit!
Credit cards help you build credit so you can get a car, house, or qualify for a job. All you have to do is practice good credit card habits: pay on time, don’t accumulate too much debt, and space out your inquiries.
Final words of wisdom
As these myths continue to float around, make sure you’re properly educated on your credit cards and how they can affect your credit score before applying for one.
Schedule a free consultation with Cool Credit experts to learn more.