In this day and age, it’s time everyone learned about the card myths to stop worrying about!
Credit cards are well known for being a powerful credit score boosting tool.
They come with advantages and disadvantages, but generally, they’re a useful financial product.
Like any other money related tool, however, they do cause certain financial problems if used incorrectly.
Although used on a wide international scale, certain credit card misconceptions are still cause for concern among credit card holders.
Misinterpretation of how to use a credit card wisely is often cause for dismay.
That can’t be good when it comes to finances!
Credit card myths to stop worrying about
#myth – Opening a new credit account hurts your credit score
A common misconception is that, by opening a new credit card, you’ll hurt your credit score.
While part of the statement is true, this shouldn’t stop you from applying for new credit if you need it.
Applying for a new credit card implies a hard inquiry on your credit report from the issuer’s part. However, the credit score drop is a few points only, so that shouldn’t affect you. Especially if your score is already in the good – excellent range.
In fact, if you use your new credit card wisely, this can actually give your score a nice boost.
Do abstain, however, from applying for new credit if you know for sure you’re going to apply for a big loan in the near future (like, say, a mortgage) or if you have just applied for another card a short while ago.
#myth – Carrying a balance helps boost your credit score
Many believe carrying a balance can help boost your ratings, since part of your FICO score is based on the amount of debt to credit ratio.
However, carrying a balance from month to month implies you’d have to pay interest fees and that can easily lead to even more debt.
When experts say it’s best to pay your balance in full each month, they mean it!
#myth – The minimum payment is enough to maintain a good credit score
Each credit card issuer requires you make a minimum payment to cover part of your balance each month. Many believe this is all it takes to maintain a good credit history.
After all, you’re respecting the terms of your contract, right?
As already mentioned, carrying a balance isn’t a wise financial move. And by paying the minimum amount alone, chances are you’ll accrue even more debt and hurt your debt to credit utilization ratio.
#myth – Cards with an annual fee aren’t worth applying for
Annual fees, yuck! Way to flush money down the toilet!
Wrong!.. sort of.
Often times, paying an annual fee might seem like just another financial burden.
However, certain rewards are probably worth a lot more than the annual fee amount!
Are you sure you’re not actually losing money, if you forfeit the chance to grab those rewards?
Be careful though, this isn’t true in all cases.
Do your research before applying or signing anything and of course, don’t abuse your credit card in the hopes you’ll get the most of your rewards!
#myth – You’ll always pay credit card interest with your purchases
A common misconception that comes with using a credit card for purchases, is that it accrues interest each time you use it.
This is actually false.
Interest starts to build up when you start being late with payments.
Making minimum payments are among the causes your credit card accrues interest.
Forgetting to pay your balance or thinking “whatever, I’ll just skip a month” are also cause for concern.
#myth – One late payment isn’t that big of a deal
Speaking of skipping a month, another credit card myth many believe has to do with late payments.
Everyone is probably aware that continuously being late with debt payments hurts your credit.
However, many mistakenly believe that one missed payment, when all the other ones are on time, can’t cause that much damage. After all, you’re clearly financially responsible the rest of the time!
Truth be told, one 30 day late payment can affect your credit score by as much as 100 points (more or less).
The thing with credit history is, you can be a responsible person and pay everything on time, it won’t help boost your score. Make a mistake, even once, and you’re doomed!
#myth – Credit limit increases are a trap
Many believe if they’re offered a credit limit increase, the credit card company wants to ‘get them’.
Why would they offer you a higher credit limit? Don’t they see you spend enough already? Oh, no! You’re not falling for this one!
However, you can actually use your newfound credit limit to your advantage!
First of all, if it’s offered to you, it shouldn’t cause a temporary score drop.
Second, the lower your credit utilization ratio, the better for your credit score.
If you’re looking to give your score a nice boost, why not go for it?
Of course, don’t go spending even money you don’t have just because you can now!
Stick to your basic expenses to stay out of financial trouble.
#myth – You only need 1 credit card / You need as many credit cards as you can get
The number of credit cards needed to build an excellent credit score is a total mystery to many.
Some believe 1 credit card is all it takes.
Others think owning as many credit cards as they can apply for will eventually help their credit history.
The truth, however, is somewhere in the middle.
The number of credit cards you have does impact your credit score. But it all depends on how you use them!
If you can only handle 1 credit card, then don’t go applying for more if you don’t actually need them! Just having them lying around in a drawer somewhere won’t help. Besides, you may actually lose money if they also come with annual fees!
On a different note, if you use too many credit cards, you might find it difficult to pay off your balances month after month. This can lead to some serious debt problems!
Find the card or cards that benefit you most and do your best to use them wisely.
Having more cards than you need won’t be of any help. Nor will choosing only one, when you clearly could benefit from having 2, 3 or more.
#myth – Cash back rewards are always worth it
Cash back rewards are among the most popular and most sought. Who doesn’t want to shop for free?
If you think this sounds too good to be true though, in some cases it actually is.
Cash back rewards are real. You really do get back a percentage of the amount you spent! But there’s a catch!
Most times you’d have to spend a certain amount, or you won’t get your reward. This isn’t good news for people who don’t usually spend a lot!
Feeling compelled to spend just to access a reward is probably going to hurt your finances more than a cash back reward would help…
Some may think credit cards work in mysterious ways. The truth though is, as long as you’re careful and do your research, credit cards can help a great deal in building a good credit score.
What other credit card myths do you know of?
Did it affect you when using credit cards in the past?