It’s hard to know where to turn for the best, most realistic advice when it comes to credit cards. You may be getting mixed messages from friends and family about Credit Card Myths You Shouldn’t Believe (and What to Do Instead), which only makes it more confusing. Credit cards can give some people anxiety, which is fueled by not understanding how they work and how they can affect your credit score.
Here are Credit Card Myths You Shouldn’t Believe (and What to Do Instead) that we recently shared with MoneyGeek and what you can do to make sure you’re making the right financial moves for your future.
You Need To Carry a Credit Card Balance To Build Credit.
False! This is a harmful misconception that will cost you more money in the long run. Carrying a balance on your credit card only means you are paying unnecessary interest charges every month. Keep tabs on your spending and only charge what you can afford to pay off at the end of the month. It’s always better to pay off your balance in full to avoid that interest.
You do, however, need to use your credit card regularly so that you can build up a positive payment history. This is what is important when building up your score. Simply charging at least one purchase per month and paying it off by the due date will help you accomplish just that.
Cancel Credit Cards You Are No Longer Using.
While one would assume it would be better to cancel a credit card you are no longer using (as you would with any other product or service), this doesn’t always hold true in the credit card industry and could ding your credit score.
This is because when you cancel one of the credit cards you may no longer be using, you’ll have less available credit to your name, which can account for up to 30% of your FICO score. Therefore, canceling a credit card would lower your credit score. In these instances, it’s often better to keep a card open so that you still have the available credit, along with the account history that you’ve built up through the years.
If you have an inactive credit card with a high annual fee, you may want to reconsider or call and see if you can have it downgraded to a regular no-fee credit card.
Overall, you shouldn’t cancel a credit card if it’s a card you’ve had the longest or if you have a lengthy account history with it, as it will be good for your credit score.
Opening a New Credit Card Will Significantly Hurt Your Credit Score.
Opening your first card generally will not hurt your credit score. In fact, a credit card is an important tool you can use to build your credit score. If you want to apply for additional credit, such as an automobile loan, the bank needs proof of your payment history and to see that you’re responsible with your money. When managed appropriately, a credit card can be a stepping stone towards building a healthy credit score.
However, if you’re opening your tenth card and you already have a low credit score, then it’s not a great idea to open yet another credit card. It’s also important to look at the timing of when you do it. If you’re opening a card so you can apply for a larger loan or mortgage, don’t do it. New lines of credit will cause a slight and temporary dip to your credit score, which the bank will see when they check your credit.
Opening a new credit card will result in a small drop in your score, but that can quickly move back up once a few months of payment history has been established on the new card.
One Missed Payment Won’t Affect My Credit Score.
Unfortunately, missing a payment may affect your score, especially if you have a high score. Your credit score could plummet because the higher it is, the harder the fall. Lower credit scores may not see as big of a hit because they are already seen as a risk.
There also isn’t a lot you can do if you realize you missed the payment. You may be able to reach out to correct your error if you remember soon after your payment was due, and it hasn’t been 30 days. Most credit cards won’t report to credit reporting agencies until the past-due accounts are over 30 days, so correct your slip ASAP. Banks can also charge late fees right away when you’re late, but if you fix your mistake quickly, they may waive that late fee, especially if it’s your first one.
It’s also important to note that paying less than your minimum payment counts as a missed payment. Make sure to check your statements for the minimum amount due if you’re not paying in full, and be sure to pay it on time to keep your account current.
A good way to make sure your credit card is always paid on time is to set up automatic bill pay.
Credit Card Terms Are Non-Negotiable.
Many credit card users, especially if they are new to the credit card game, assume that they must accept whatever terms have been given to them by their credit card company. In reality, most of these companies, especially your bank, want to keep you as a customer and will occasionally work with you on credit card terms in order to do so.
If you’re paying a lot of interest on a credit card balance, ask them to lower it. You may also want to see if the company will waive your annual fee for a year or give you a bonus reward to see whether the card is worth your while. You’ll only know if you ask, and the worst they can say is no.
Many damaging credit card myths abound. Hopefully, going through a handful of these Credit Card Myths You Shouldn’t Believe (and What to Do Instead) helped you better understand how your credit cards work and how they can impact your credit score and your financial future. Being a responsible credit user is key. You can best do this by keeping your balances low and making payments on time.
