5 Common Myths About How Credit Cards Affect Your Credit Score

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Alayna Okerlund

Written by: Alayna Okerlund | Best Company Editorial Team

Last Updated: August 27th, 2020

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While there are legitimate reasons for not opening a credit card account, some of these reasons are due to myths or misconceptions surrounding credit cards. Many people are afraid of accumulating debt, don’t qualify for a card, or prefer to stick with their current debit or cash use. Knowing the difference between credit card facts and fiction can help you make more informed decisions about credit and your overall financial lifestyle. Here are five credit card myths that can be harmful to both your credit score and your wallet:

Myth #1: Closing an old credit card account will help your credit score

People may close old credit cards because they think that keeping old credit card, especially if it is unused, in their wallet will hurt their score. In fact, closing a credit card account has the potential to harm your score. According to time.com, there are two different ways that closing an old credit card account could lower your score.

  • First, closing a credit card will lower the amount of credit that you can use. If you have the same or higher balances on your other cards, your credit utilization rate will be higher, which can hurt your score.

  • Second, closing a credit card will ultimately decrease the age of your credit accounts as approximately 15 percent of your overall credit score is based on factors related to your credit history length.

If you do have an old credit account open, simply charge a small amount (or possibly recurring payment) monthly and pay it off in full each month. This will ensure that your card is still active and that it will help you instead of harm you.

Myth #2: Checking your credit score will definitely hurt your credit score

This myth discourages people from checking their score and leaves them in the dark about their own financial well-being. But before you go into a panic, it’s important to note the difference between a “hard inquiry” and a “soft inquiry”:

  • Checking your credit score entails a soft inquiry which will not harm your score. Therefore, you can check your score as often as you want without hurting it.

  • A hard inquiry is conducted when someone else pulls your credit report to make a lending decision. This generally happens when you try to take out a loan, apply for a credit card, or try to use credit in a different way. Hard inquiries often have a small, negative impact on your score, but making on-time payments on a new credit card can quickly offset it.

Myth #3: Carrying a balance on your card will help raise your credit score

This myth has the potential to hurt your credit score and your wallet. Magnifymoney.com warns that if you do not pay your credit card bill on time, then you will be hurting your credit score. You will also pay more than you may have bargained for in interest and other fees. Carrying a large balance on your card can hurt your credit because you present yourself as a greater risk to lenders. Overall, pay off your balance monthly to save yourself money and maintain your credit score.

Myth #4: Credit cards are meant to pay for things you cannot afford

Credit cards are meant to make purchases that you can afford, although that doesn't mean that you should always make those purchases. The way credit cards differ from debit cards is that you receive a bill for your credit card purchases and you can participate in rewards, points, and credit building programs. Making large purchases that you cannot afford will result in losing money due to the relatively high interest rates that accompany most credit cards.

Myth #5: Credit cards are worse for you than debit cards

Making purchases with credit cards is better than debit cards, if they are used correctly. That is why it is important to understand the do's and don’ts of credit card accounts. Simply having a credit card will not put you in debt, rather it can help you build your credit history and improve your scores. With credit cards, you also have the opportunity to receive various rewards such as airline miles or cash back.

Overall, credit card myths should not deter you from opening a credit card account. There are numerous credit cards and credit companies each with different annual fees, rewards programs, and credit limits. A ranked and reviewed list of credit card services and companies can be found on bestcompany.com to aid you in your search for a credit card company by providing the in-depth research you need to make a clear decision.

The Top Credit Cards Companies

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