Many financial articles revolve around credit cards. Some experts say that credit cards are necessary for building credit. Others claim that you don’t need to open a credit card account to be financially savvy. There are so many conflicting ideas out there that it can be difficult to determine the right path to take.
Building credit is necessary because it can help you qualify for significant purchases. It ‘s best to have a good credit score to buy a home, a car, or new appliances. When you try to rent a house or apartment, property managers will run your credit score during your background check to determine whether or not you, as a renter, are a financial risk.
Many believe the easiest way to begin building credit is through a credit card. Consumers have several different types of credit cards to choose from. There are cash back cards, cards that earn points or airline miles, and cards attached to a particular store like Target. Before signing up for a new credit card, take a look at 40 common credit card myths that are easily debunked starting here:
1. Credit Cards Are Free Money
Although credit cards are in no way free money, many people view them like that. Every time you use a credit card, you should have the same amount available in your wallet or bank account to ensure that you can truly afford your purchase. It’s not worth it to buy something for $50 and end up paying hundreds of dollars in interest if you miss a credit card payment.
Treating your credit cards like free money can end up costing you much money for months and even years. Before making a purchase, wait at least 24 hours. Think about what else you can spend your money on. Consider how many hours you’ll need to work to pay the purchase off. Also, you can remember if there was ever a time that you made a similar purchase and regretted it afterward.
While having just one credit card makes life easy, it’s actually more beneficial to have two cards. The main credit card that you use most often should be a rewards card that racks up points each time you use it. The secondary credit card should be a backup card used only for emergencies.
The second credit card should also have a low-interest rate and high limit if you have to carry a balance. You should at the minimum use this card once per month. You can set up an autopay bill with this card to keep the account active. If you have more than two credit cards, that’s okay as long as you use them wisely. Aim to use less than 10 percent of your available credit and always pay of the balance each month.
If you have a credit card that requires you to pay an annual fee, you may feel like it’s a waste of time and money. But that’s not the case. It’s smart to examine the potential benefits of a credit card that costs you a yearly fee before signing up for it. Many cards end up being worth the $100 or so per year you are required to pay.
Many credit cards that are sponsored by airlines charge an annual fee. With that fee, passengers may be entitled to checking one bag per flight for no additional costs. If you are a frequent flier, you will make back your annual fee in no time!
We get countless offers in the mail for credit cards each week. Many of these notices promote transferring the balance from a current credit card to a new account. While that may be enticing, it’s not always a smart move.
Balance transfers can be useful because it allows you to reduce the amount of money you owe each month and helps you save on finance charges. It will make your finances a little bit simpler. On the other hand, the fees for transferring a balance over to another card may cost as much as 5 percent of the balance total. Moving a $5,000 balance to a new card could end up costing you $250. Most cards that offer 0 percent balance transfers are for people with perfect credit.
We’ve all been there: a cashier at Target or Macy’s will offer you 10 percent off your bill if you sign up for a store credit card. It can be helpful to have one from a store that you shop at frequently but be advised that having too many store cards can lead to more significant debt.
If you have several store credit cards, you could lose track of when each bill is due. That will make late fees and overdue charges stack up. Also, each time you apply for a credit card, your credit score will get dinged. The more dings you get in a short period of time, the riskier you look to lenders.
You may not think that missing a single payment on your credit card is a big deal but think again. If you have a high credit score, like in the 700s, you could see it drop by more than 100 points. That’s because when it comes to credit, the higher your score is, the harder you’ll fall.
Someone with a lower score is already seen to be risky, so their rating will drop only about 60 to 80 points after missing one payment. If you accidentally miss a payment before your next month’s statement comes in, there’s not a lot to do to remedy the situation. For those that tend to be forgetful, it’s wise to set up automatic payments on your monthly credit card bills.
7. Getting Fees Reduced or Credit Limit Increased is Impossible
If you want a lower interest rate, there is a way you can make that happen. It never hurts to call your credit card company’s customer service line. Tell them that you have received several offers from their competitors that make you want to switch to another company.
Ask your credit card provider what they can do to keep you as a customer. This can also help to get your credit card limit increased. Be advised that those with poor behavior like maxing out credit cards, having bad credit, and skipping payments will not have much luck with getting fees reduced or their limit changed.
Although they look similar and perform the same way, debit cards and credit cards are quite different. Debit cards take money directly from your bank account while credit cards don’t cost you money until you get your monthly statement. Debit cards are great because you never have to worry about interest rates or late fees.
Credit cards tend to be more user-friendly than debit cards. If a purchase is fraudulent or misrepresented, you can get it taken care of for just about $50, depending on your credit card company. Many banks will charge more than $500 if the same situation were to happen with a debit card.
While it may seem like cashback cards are giving you free money, remember that nothing in life is truly free. Rewards credit cards claim to give you back a percentage of the credit card purchases you make every month. These credits are awarded after you’ve earned a minimum of between $20 and $100.
Cards with the best rewards require you to have a pretty spotless credit history. Many of these cards carry an annual fee of $50 to $100 and have higher interest rates than standard credit cards. Also, some credit card companies have a cap on how much cash you can earn back within a year. If you buy a lot of gas, groceries, or clothing, a cashback card can be advantageous.
Some guides will have you believe that opening a brand new credit card will drastically cause your score to plunge. That’s simply not the case. Most cardholders will see a small drop in their credit score.
If you have a credit score in the 700s or higher, you won’t have to worry much about your score dropping. Those with a score in the 500 to 650 range should avoid opening a new card. Focus on improving your score. You will not be eligible for most good cards and will have a better shot at boosting your credit score with a secured card.
Quite a few people believe that it’s the right move never to open a credit card. They think that it’s the best way to lower your credit score and get into debt. This may be true for people who don’t know how to manage their money or overspend, but not for everyone.
For responsible people, opening a credit card is the best and easiest way to establish a credit history. You can open a simple card and make one purchase per month. If you pay it off in full every time you get a statement in the mail, you will be building credit with little effort. This will benefit you in the future when you want to apply for a mortgage or car loan.
Some experts claim that keeping a small balance on your credit every month can help boost your score. That idea is 100 percent false. This method will not harm your credit score, but at the same time, it does not improve it.
It’s one thing if you are unable to pay more than the minimum payment, but it’s another to keep a balance on your credit card purposely. When you do this, you end up losing money because your credit card company will keep charging you interest. Aim to keep your balance low and pay it off in full each month to keep your score satisfactory.
Have you ever gotten an offer in the mail from your credit card company promising you an increase in your credit limit? You may think that this is just your lender’s way of getting more money from you, but if you play your cards right, you can use this to your advantage. This works exceptionally well for people with low credit card utilization.
If you get an increase in your credit limit but keep your spending at the same rate, you can quickly boost your credit score. This increase will make your credit card utilization even lower than it was before. The lower your credit card use rate is, the better your score will be.
Despite what you may have heard, not all credit cards require customers to pay an annual fee. Annual fees apply mostly to rewards cards, especially those that are offered by airlines and retail stores.
You can find credit cards that have perks that are just as good as those offered by annual fee cards if you do your research. If you sign up for a credit card with a yearly fee, you may be able to negotiate rates with your credit card provider. It doesn’t hurt to give them a call and see if they will waive the fee entirely or at least reduce it a little bit.
A secured card can be beneficial, especially for those who have poor credit. Store cards are also considered to be secured cards. These types of cards can also help you boost your credit score.
If you find that the only credit card offers you get have extremely high-interest rates, you may want to consider using a secured card. Secured cards require you to make a small deposit so you will be guaranteed to pay back the money that you spend. This is a safe way for you to make purchases and build your credit without going further into debt.
16. Carry a Balance and Only Pay the Minimum Each Month
As we mentioned before, carrying a balance on your credit card is not a wise decision. It can make you look risky in the eyes of creditors and prevent you from qualifying for large purchases in the future; if you are only able to pay the minimum balance that is considered acceptable.
If you find that you are only able to pay the minimum each month on your credit card you should consider using it less often. Carrying a balance from month to month will raise your interest rates and prevent you from getting your score higher. If this keeps happening to you, use your credit card for one single purchase each month and set it up for autopay, so you never have a balance.
Credit card companies love to target teens to get them to sign up for credit cards. They use the idea that you can get essentially free reign to spend as much as you want without having to shell out cash right away. That’s why you see tons of credit card companies setting up booths on college campuses all over the United States.
Luckily the minimum age to get a credit card in this country is 18. Young people must be 21 or older to qualify for a card by themselves without a cosigner. This is because companies want to ensure that they are independent enough to pay their balance each month on their own.
It used to be that back in the day you could go into a store and see a sign that said: “Sorry, American Express is not accepted here.” Times have changed, and that’s not the case anymore, but about 10 to 15 years ago that was extremely common. This happened because American Express charged retailers exorbitant fees.
These days the most popular credit card companies are MasterCard and Visa. Virtually all retailers accept those cards. Many are catching up and accept American Express as well, but it’s smart to do your research to find out if the places you want to go will accept your AMEX card. Experts recommend having a Visa or MasterCard back up with you in case your American Express card is not accepted by a retailer.
Have you heard this myth before? You might be thinking that the whole point of getting a credit card was so you can shop online. It seems silly to avoid online shopping with a credit card, but some people believe that it’s safer.
The idea behind avoiding using your credit card online is that it can keep your information. By entering your personal information during an online purchase, you are vulnerable to having your information stolen. It would help if you didn’t have to worry about that happening because almost all online retailers have a secure website. Many stores will also not save your personal information to prevent anything from being hacked.
Many people would advise you against signing the back of your credit card. They would tell you to write “See ID” where your signature should be. This is a potential method for deterring thieves from using your card.
If you have “See ID” written on the back of your credit card, it supposedly urges a cashier to check a customer’s ID instead of blindly swiping it. This theory sounds pretty good, but most retailers don’t look at the backs of credit cards. Also, small transactions often do not require a signature. It’s a good idea to sign the back of your credit card to keep thieves from signing their own name there.
Nothing in life is easy, perfect, and efficient. This is especially true in the world of finance. You may think that achieving a perfect credit score is possible in a short window of time, but that’s not the case.
The perfect credit score is 850, and it’s not an easy number to achieve. Keeping your card that low and making payments on time consistently will help boost your score at a steady pace. If you hear of someone getting a great credit score within a month, it’s possible, but a rare occurrence. Aim to use your credit cards wisely and always pay the balance on time to build up to a high credit score.
If you’re happy with the APR you get when you sign up for a credit card, be aware that this rate may not stay with you forever. When you sign up for a card, you are given an introductory APR, which is a special interest-rate for new users. If you get an APR offer that is 0 percent on all purchases for 12 months, this rate will only last one year.
A credit card company has several reasons for raising your APR. If you have frequent late payments, you seem like a high-risk customer, or your APR is assigned to be at a prime rate, you have an excellent risk for seeing your APR go up. Additionally, credit card companies can raise your rates after you’ve had a card for at least 12 months. This is acceptable as long as they give you at least 45 days’ notice.
23. You Can Exceed Your Limit if You Pay the Balance Early
This myth is risky and should not ever be attempted. Your credit card company may not prevent you from making a purchase that takes you over your credit limit, but that is not a risk you should consider. If you make a considerable purchase and cannot pay the balance in full, you will most likely get hit with penalties.
If you exceed your credit limit, you’ll be hit with a penalty APR as well as an over-limit fee. The over-limit cost can range from $25 to $40. This practice will also negatively impact your credit score. You score could potentially drop dozens of points.
24. A Credit Card Balance is Necessary for Building Credit
Just because you can’t have a credit card balance doesn’t mean you should. There is no evidence to support that carrying a credit card balance will help you build your credit. In fact, it will end up harming your credit by lowering your score.
The best way to build your credit is by using your credit card regularly. Do not go over your limit and make sure to pay your full balance every month. That way, you can avoid interest fees that build up when you carry a balance on your credit card. As we discussed before, it’s wise to make one purchase each month and pay it off by your due date to effectively build your credit.
Experts have debated the topic of canceling credit cards. Well, it would make sense to cancel a product or service that you no longer use; this does not necessarily apply to credit cards. Canceling a credit card will cause you to lose a line of credit.
When you lose a line of credit, you end up having less available credit to your name. If you have any credit card balances to your name, your credit card utilization percentage will go up. When your credit card usage increases, your credit score will decrease. Keep all of your existing credit lines open, so your account history and credit are still valid.
26. Having More than One Credit Card is Bad for Credit
Many people believe that having multiple credit cards is damaging to your credit score. This is not the case. That is because the number of credit cards you have does not factor into the calculation of your credit score.
There are a few indirect ways that having several credit cards can affect your credit score. Each time you apply for a credit card, you get a hard inquiry on your credit file. Those can drop your score by several points. Account history counts for your credit score, so having a lot of new credit card accounts opened in a short period can also drop your score by a few points.
27. Missing a Payment Will Always Impact Your Credit Score
If you happen to miss a payment on your credit card, your first instinct might be to panic. Not to worry because most likely, your score will not be dramatically affected. Late payments only do serious damage to your credit score if you are at least 30 days behind.
You should make it a point to get into the habit of paying your credit card bills on time, but if you can’t, don’t worry too much about your credit score. Some banks will charge you a late fee if you don’t pay on the due date, but if it’s your first time you may be able to call them and get the late fee waived. Try to avoid waiting a month to pay your credit card bill in order to prevent damage to your credit score.
We talked about not closing credit card accounts earlier, but there are some occasions where canceling a credit card is a good idea. If you never use a credit card or its annual fee is way too expensive, you may be better off closing the account altogether. This is especially true if you cannot persuade your credit card company to downgrade your card to one that has no annual fee.
If you’re thinking about canceling a credit card, make sure that doing so will not lower your credit score. Also, it should not raise your credit utilization. Canceling a credit card should only be done if it will keep your credit history lengthy and satisfactory.
You may think that when you sign up for a credit card, you have to follow all of the rules and regulations decreed by your bank or credit card company. Fortunately, that’s not true. Your bank will do whatever it takes to keep you as a customer, even if that means making a few concessions.
It never hurts to give them a call and see if they will make any changes. Ask if you can get your interest rates lowered or know if you can get your annual fee waived for a year to see if keeping the card is worth your time. The worst-case scenario is that they say no, so it’s worth a shot to see if you can get any benefits from your creditor.
You may remember seeing ads from American Express with the message “no preset spending limit.“ That doesn’t mean that you could go activate your card and buy a $5000 flat screen TV and be on your way. These days, American Express cards have spending limits.
American Express no longer offers charge cards which allow you to rack up a ton of debt in the hopes that you would pay off the entire balance every month. Now the issue credit cards which will enable you to carry a balance. AMEX cards don’t have a preset spending limit because their customers tend to make large purchases. It all depends on a person’s credit history and finances to determine what sort of limit they receive.
Some people believe that you need one card from each big credit card company on you at all times. The theory behind this is that you may wind up stuck somewhere that only except one type and none of the others. For that reason, some people have a Visa card, MasterCard, Discover Card, and an American Express card.
Some retailers are picky and will only accept one type of card. That includes Costco, which only allows payments with Visa cards. Most people get by with one or two types of credit cards. It’s acceptable only to have one, and it makes life so much simpler.
32. Pay More than You Owe to Boost Your Credit Score
You may think that you can get ahead of the game by paying more than you owe on your monthly credit card balance. Some people believe that this practice will boost their credit score in the long run. This does temporarily increase the amount of credit you have available on your card.
Using a smaller percentage of your available credit will keep your utilization rate low, and in turn, help boost your credit score. This may seem like the way to go, but most banks and credit bureaus see an account with a surplus as being a temporary situation; for that reason, having a credit on your account, even if it’s as low as $100, displays as being a zero balance on your credit card statement.
33. Using Your Debit Card Wisely Can Help Your Credit Score
Credit cards and debit cards look very similar and most of them they’re the same logos, like the ones of Visa or MasterCard. You might think that because both of these cards are treated the same by retailers that using your debit card wisely will reflect positively on your credit score.
While being smart with your debit card will show that you are a responsible consumer, in no way will it affect your credit score. This goes both ways as using your credit card wisely will not impact your debit card or bank account utilization. Don’t expect to see any changes in your credit card statement based on how you use your debit card.
34. Maintain Your Balance to be Under 30 Percent of your Credit Limit
A large number of financial experts believe that using less than a third of your allowed credit limit will increase your credit score. They think that never going above 30 percent of your credit card utilization will make you look like a more stable credit card user. Well, it seems like you may end up being rewarded for not maxing out your cards, this really doesn’t make that much of a difference on your credit score.
It’s essential to use your credit cards in order to build up your credit. Since everyone has a different financial background and uses their cards differently, the blanket statement of using less than a third of your credit limit will not benefit everyone. Aim to have a small balance, so lenders know that you are actively using your credit cards.
So many people think that signing up for a credit card automatically send you on a path to debt. This can apply for some people, especially those that spend a lot and are tempted just to pay the minimum payment. If you cannot maintain a small credit card balance and pay your bill off in full every single month, you may not be the right candidate for a credit card.
Credit cards are best for people who pay their bills on time, pay attention to detail, and keep track of their credit card balances. If you’re going to use a credit card like a debit card, you may be in debt in the future. Those that can manage their credit cards properly will most likely stay away from debt.
36. Checking Your Credit Score Lowers Your Credit Score
You have most likely heard this myth. Quite a few people believe that checking into your credit score will cause it to go down. Luckily that will not happen. Otherwise, how would you ever know what your credit score looks like?
There are many resources for checking your credit score. Every single United States resident is entitled to check their credit score for free once a year. Do some research to find the best place to keep track of your credit score. There is a wealth of websites where you can find out how your credit looks. You can also call your bank to find out if they know where you can find your credit score.
While bonuses, airline miles, and other perks are enticing, you may not want to sign up for a credit card based solely on what you will get in return. There are so many cars to choose from out there that it can be overwhelming when deciding which is best for you and your finances. If you travel a lot, you may want to get one that is connected to an airline.
You may also be able to find credit cards that offer rental car insurance, baggage delay coverage, and even extended warranty protection. If these benefits do not appeal to you, then don’t go for this type of credit card. You can still get decent rates with a standard credit card.
38. The Best Card for an Airline or Hotel is its Affiliate Card
For frequent travelers getting a credit card that is affiliated with a chain of hotels or an airline seems like a logical choice. If you only fly with United, they offer a card with two times the United miles at restaurants, hotels, and other United Airlines purchases. The downside is that you will not be able to use any of the miles or rewards you earn with any other airline.
Stick to getting a generic credit card that is not so closely tied with a particular brand or industry. You can find many options or you can earn rewards and airline miles without so many restrictions. On the other hand, if you are loyal to an individual company, you may find that their reward system works perfectly for you.
So many of the myths surrounding credit cards involve closing cards. We’ve discussed just how much closing a line of credit can impact your credit score. Have you considered closing a credit card down before opening a new one?
It’s best to leave a credit card open even if you’d like to open a new account. This way, the amount of credit under your name stays high. It will keep your credit card utilization rate low without hurting your credit score. To keep your old credit card active, make one small purchase each month and pay the balance off in full.
Most people see American Express cards as being extremely exclusive. You can thank the chic American Express Black Card for that idea. That card is rare, has no spending limit, and is only awarded to consumers who earn more than $1 million per year and spend at least $100,000 to $450,000 annually.
Regular American Express Cards are easy to qualify for. They use the same credit score requirements that MasterCard, Visa, and Discover use. If you have a nice, long credit score history and can pay your bills on time, you have a better chance of qualifying for an American Express card.