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:
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.
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.
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”:
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.
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.
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.
Sign up below to receive a monthly newsletter containing relevant news, resources and expert tips on Credit Cards and other products and services.