Whether you just got your first line of credit or you’re looking to expand your knowledge, this informative post on what to know about credit cards should help to clear up some common credit card myths. The simple truth is that confusion can lead to a reduced credit score, which can cause all types of financial problems. Here are five of the most common myths about credit cards that you should know about.
1. You Should Close Unused Credit Cards
It’s quite common for people to close their credit cards after paying them off in full. It makes sense, as closing the card reduces the temptation to spend, right? The problem is that closing that card also reduces your available credit. Your credit utilization rate (debt-to-credit ratio) plays a major role in your score, so closing that card can actually cause damage.
Another thing to know about credit cards, is that you’re usually better off leaving the card open unless you’re paying high fees. If you think you might be tempted to use your credit card again, you could put it in a secure location such as a safe where it’s difficult to access, or you could even cut it up if you’re sure you never want to use it again.
2. Carrying a Balance Proves Creditworthiness
A more common credit card myth is that maintaining a balance and making monthly payments proves that you’re trustworthy. While timely payments certainly help, the truth is that it’s better to pay off your entire balance every month, if possible.
An important fact to keep in mind while you’re learning about credit cards is that your credit card provider wants to see that you’re financially able to make payments, and carrying a balance from month to month can make it seem like you’re not financially stable.
3. Late Payments Damage Your Score Immediately
Another one of the myths about credit cards that often gets repeated is that a late payment will immediately ding your credit score. While a late payment can certainly reduce your score eventually, the truth is that most credit card companies don’t report late payments for 30 days. That said, you should always pay on time, as late payments often lead to steep fees.
As you learn more about what to know about credit cards, you’ll find that credit card companies can be surprisingly understanding and flexible, so don’t panic just yet if you’re a day or two late paying your bill. If you know you’re going to be late, give your credit card provider a call to let them know in advance.
4. Having Many Credit Cards Boosts Your Score
One of the most misunderstood credit card myths is that opening as many accounts as possible will boost your score. Having a higher overall credit limit is indeed ideal, as you want your credit utilization rate to be as low as possible.
However, 10% of your credit score is based on the types of credit you have, and diversity is important. Credit reporting bureaus want to see other types of credit, such as loans or a mortgage. Also, if you apply for 15 different cards at once, it may appear as if you’re in a bad financial situation, which may do more damage than good.
5. You Can’t Refinance Your Credit Cards if You Have a Bad Score
Finally, one of the more common myths about credit cards is that once you’ve damaged your score, there’s no going back. If you’re taking the time to learn what to know about credit cards, you’re on the right track to finding solutions and that’s where we come in.
Here at Superior Financial Services, we offer second chance loans that help you to consolidate your debt. While our loans do require a credit check, a low credit score doesn’t necessarily mean you won’t be approved. Have questions? Contact us now to speak with a helpful loan specialist, or simply apply now to start rebuilding your credit.