Getting a credit card can be a rite of passage into adulthood. It’s a way to help build credit, earn rewards, and manage your financial life. Yet, given all the credit card myths floating around, it can be confusing to understand how a card can impact your credit score.
We’ve debunked ten credit card myths and misconceptions and answered your burning questions like: “Should I pay off my credit card?” or “Is carrying a balance a good idea?”
Read on to learn the most common credit card score myths that can hurt your credit score and gain more knowledge of personal finance.
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Myth #1: Credit cards a direct path to debt
One of the most common myths for debt-averse people is that credit cards will automatically lead to credit card debt. While you certainly can get into debt if you don’t pay your credit card balance in full each month, having a credit card won’t automatically get you in debt.
Stay on top of due dates and only charge what you can afford. In addition, making your payments on time and in full can prevent you from getting into debt with credit cards. Consider linking your checking or savings accounts to your credit card and setting up automatic payments to ensure this happens. Know the payment policies of your credit card companies to be sure your payments are on time.
Credit cards can improve your credit score when used responsibly. This means paying your bills on time and in full each month and keeping your balances low. Also, you should pay attention to your credit utilization, or how much you charge on your credit card. Keeping your balances below 30% of your credit limit is typically recommended, as this can help your credit score.
Myth #2: Checking your credit score can lower it
Your credit score is a number that illustrates how good of a borrower you are. It is influenced by the types of credit you have, including credit cards and loans. It shows your “creditworthiness” and tells lenders how responsible you are with payments.
As a consumer, you’ll want to check your credit score to know where you’re at. Yet, there’s a myth that checking your credit score can lower it.
Not exactly. There’s a difference between a “soft pull” and a “hard pull” on your credit. When you check your own credit, that’s considered a soft pull or soft inquiry. It appears on your credit report, but doesn’t affect your credit score.
Creditors do hard pulls, or hard inquiries, on your credit when you officially apply for credit cards. To assess your creditworthiness or ability to repay, they want to see your complete credit history. That requires a signed application by you.
Only hard pulls can affect your credit score temporarily. Your credit score may drop a few points for each hard pull. That’s why it’s important not to have too many on your credit report.
But, checking your credit score is a soft inquiry and doesn’t affect your credit score. You should check your credit score and check it often. Checking your credit score is part of being a financially responsible consumer.
Pro tip: You can track your FICO® score in the Chime app for free.
Myth #3: You need to carry a consistent credit card balance
One of the most pervading credit card myths is that you need to carry a balance to improve your credit. Not true!
Carrying a balance on a credit card may lead to debt, but it will also affect your credit utilization, especially if your interest rate is high. That interest gets added to your balance, making it higher. So, no more asking, “When should I pay my credit card?” because you think a balance is a good idea. Pay the balance by the due date!
To be a responsible credit card user, paying your cards on time and in full each month is best practice. While credit card rewards can incentivize spending, make sure you’re mindful of what you’re charging and how much you’re spending. Keep tabs on your spending and only charge what you can afford so that you can focus on paying off credit cards in full each month.
Remember, the total available credit on your credit cards affects your credit utilization ratio.
Myth #4: You should cancel credit cards you're no longer using
You often hear that you should cancel services you no longer use. Credit cards are not like that.
If you no longer use your credit card, you shouldn’t automatically cancel it. Why? Because when you cancel it, you’ll affect your length of credit history. This can cause your credit score to go down.¹
Keeping your accounts open even if you’re not using them can positively impact your credit score. While you’ll want to cancel a card for some reasons – like a high annual fee – make sure you evaluate this decision carefully.
Myth #5: You should only have one credit card
Some people think that having multiple credit cards will hurt your credit score. For this reason, you may think it’s better to have just one card. That’s not true.
It’s more important that you use your cards wisely. For example, having a high credit limit on your credit cards but keeping your balances low can help your credit score. On the other hand, if you max out all of your cards, you may be considered a risk to credit card issuers.
Multiple cards can be a smart choice. Instead of worrying about how many credit cards you have, focus on your credit utilization and payment history. If you keep your balance low on all of your credit cards and focus on paying off credit cards in full and on time, you can use this to your advantage.
Myth #6: Opening a new credit card account will significantly lower your credit score
You might think opening a credit card account will hurt your credit score, but that’s not necessarily true.
Opening a new credit card account will result in a “hard pull” on your credit report, which can result in a small drop in your credit score. But, you can quickly get your FICO® score back up since it’s the one lenders use more than others to make credit decisions.² So, don’t be scared of opening a new account.
Opening a new credit card doesn’t significantly impact your credit score. However, having too many credit inquiries may hurt your credit if you’re looking to get a mortgage. Be mindful of that fact when deciding the timing of opening new credit card accounts, including those you use for balance transfers. Check your Experian, Equifax, and TransUnion credit reports for new inquiries to make sure you don’t have too many.
Myth #7: You should never accept a credit limit increase
Sometimes, your credit card issuer may offer you a credit limit increase. You may think this will lead to more debt and hurt your credit score, but this isn’t always the case.
When used correctly, a credit limit increase can help your credit score. How? Because an increase in available credit can lower your credit utilization. This, in turn, may boost your credit score.
A credit limit increase can be helpful if you pay off your cards on time and keep your balances low. However, if you’re already maxing out your cards and struggling to pay back your balance, you’ll want to hold off on getting a credit limit increase.
If a credit limit increase is too much temptation to spend, don’t do it. It’s important to keep your credit utilization rate low by not maxing out your credit cards, which can lead to bad credit. Even maxing out your credit for a short period can hurt your credit.
Myth #8: Late payments affect your credit score automatically
Many believe that missing a credit card payment immediately damages your credit score. This isn’t entirely true. Late payments can affect your score, but not instantly.
The reason is credit card issuers typically don’t report payments that are less than 30 days late to credit bureaus. So, if you miss your payment due date, you have a short grace period. During this time, if you make the payment, it won’t be reported as late to the credit bureaus, and your credit score remains unaffected. However, consistently missing payments or delays over 30 days can lead to negative reporting.
While a single late payment might not immediately hurt your credit score, you should maintain timely payments. Regular on-time payments are key to building and maintaining a good credit score. Late payments can result in late fees and increased interest rates, which affects your financial health.³
Myth #9: Debit cards build a good credit score
A common myth is that using debit cards helps build a good credit score. This is not true, because debit cards are not a type of credit.
Debit cards are linked to your checking accounts and do not involve borrowing money. Debit card usage does not impact your credit score and is not reported to credit bureaus. Credit scores are influenced by how you manage borrowed money, like credit cards and loans, not by your debit card transactions.
If you’re looking to build or improve your credit score, focus on credit management: using and managing credit cards responsibly. This includes paying your bills on time, keeping balances low, and not applying for too much new credit at once. These actions are reported to credit bureaus and positively affect your credit score.⁴
Myth #10: A higher-paying job provides a better score
It’s a common belief that a higher salary leads to a better credit score. However, this isn’t how credit scores work. Your job’s pay does not affect your credit score because credit scores are calculated based on your credit history, not your income. They reflect how you’ve managed debts and credit, not how much you earn.
While your income doesn’t affect your credit score, it can influence a lender’s decision. Lenders may consider your income alongside your credit score to assess your ability to repay a loan. A good income can be beneficial when applying for credit, even though it doesn’t change your score.⁵
It's time to ditch these credit card myths
As you can see, there are many damaging credit card myths out there. Hopefully, we’ve busted these ten myths to help you take control of your credit.
Remember: Being a responsible credit user is key. You can improve your credit score over time by keeping your balances low and making timely payments.