Last updated on August 23rd, 2023
Credit cards play a huge role in your credit scores. Therefore, your credit card knowledge should not be taken lightly. While there are many resources available online to keep you educated on credit card use, you may stumble upon a few myths. Let’s debunk them.
Truth or Lie: Credit Card Edition
The modern credit card has been around since the 1950s, meaning it has had time to pick up a few myths here and there. However, credit cards have come a long way since its conception. We have numerous credit cards that fit consumer needs and offer lucrative reward-earning potential. However, the evolution of the modern credit card has left us with a few myths in need of debunking. After all, it may affect your credit score.
Checking Your Credit Score Will Lower It
This myth does not directly correlate with credit cards. However, it involves your credit score, and simply not true. Checking your credit score will not harm it. You will see no impact on your score because checking it yourself is considered a soft inquiry. If anything, the opposite should be in action. Please, do check your credit score regularly to keep tabs on errors, fraud, and more, with enough time to take action to fix the inaccuracies.
Applying for a New Credit Card Will Drastically Hurt Your Score
Will applying for a new credit card impact your credit score? The short answer is yes. However, it will not drastically affect your credit score. When you apply for a new credit card, lenders pull your credit history – this pull is also called a hard inquiry on your report. The hard pull may knock off a few points on your credit score, but it is nothing major to worry about.
Each hard inquiry can stay on your credit report for up to two years but shouldn’t affect your score for more than one year. In most cases, the effect on your score will roll off in a few months. On the bright side, if you get approved for a new credit card, it might benefit your credit utilization ratio because it will increase your available credit.
That is, of course, if you continue to use all your credit cards responsibly. Credit usage accounts for 30% of your FICO score. In contrast, hard inquiries or new credit applications only account for 10% of your score.
Carrying a Credit Card Balance Will Improve Your Credit
False. You don’t have to carry a credit card balance to improve your credit score. All that does is make you pay interest if you’re not within in 0% APR introductory offer. It’s quite the opposite. It is best to pay off your credit card in full every month to improve and maintain a good credit score. Here’s why.
It all falls back on your credit utilization. Experts recommend keeping a low credit utilization ratio – under 30%. It shows lenders you’re responsible with your available credit. It’s probably why your credit usage accounts for a large percentage of your credit score. When you carry a credit card balance, it lowers your available credit and increases your debt. The action negatively affects your credit utilization ratio and lowers your credit score. Hence why carrying a balance is not the best strategy to boost your score.
Having Several Credit Cards is Harmful to Your Credit Score
It is okay to have more than one credit card as long as you use them responsibly. But don’t go overboard. Be mindful that credit card issuers can close out your account if it is dormant, and it will directly affect your credit utilization ratio. Apply only for what you need and what you can manage responsibly. It might get dicey if you apply for multiple credit cards within a short period. It is best to space out your credit card applications for best credit practices.
Missing Your payment will automatically impact your credit score
Missing a credit card payment is not a good habit. However, a missed credit card payment will not always instantly affect your credit score. Credit card issuers typically will not report the missed payment if it is less than 30 days late. As a disclaimer, this is not true for all card issuers.
You should always check with your credit card company on their processes for late payments. Although they may agree not to report the late payment within a certain period, you might still get a late fee. In many cases, card issuers waive the late fee if it’s your first time missing a payment.
Why Exposing Credit Card Myths Helps Your Finances
Popular misconceptions about credit cards may obstruct your focus on the things that do matter. Understanding credit card facts and how they affect your life will help you make the best-educated decision for your finances.
Related Article: Common Debt Myths That Keep You from Enjoying Life
