5 Credit Card Myths to Avoid

Avoid these credit card myths at all costs.These common myths and mistakes can end up costing you a fortune in the long run and be extremely detrimental to your financial health.

You Need to Have Debt to Have Good Credit

The is the biggest myth and piece of misinformation I’ve heard about credit is “I need to have debt to have good credit”. This is 100% false. You do not need to have debt or a running balance to maintain good credit. Not sure how and why this myth is still perpetuated but I believe it stems from a mix up about keeping your credit lines active and open. You should definitely try to keep your credit card accounts active and open. In order to keep your account active, you just have to makes charges on it occasionally. However, when you make those charges just pay them off before the statement period. You do not need to have a balance that is accruing interest charges in order to keep your accounts active!

It Doesn’t Matter When You Pay off Your Credit Card Bill

Become familiar with your “grace period” and take advantage of it! You can avoid paying interest indefinitely so long as you have a $0 balance at the end of each statement. At the end of the day, consumers that maintain a $0 statement balance are the ones who are “winning” and are reaping the benefits of credit card rewards. If you pay interest on your credit cards (which are the highest of any financial product) any rewards/benefits from your credit card purchases are wiped out. Credit card companies would prefer consumers make this mistake, don’t fall for it!

As Long as You Make Your Payments on Time You’ll Have Good Credit

Besides making timely payments (which everyone is aware is a requirement for good credit) make sure you keep your utilization rate low! Credit Utilization is the second most important factor in determining your credit worthiness (accounting for 30% of your credit score) and is often times the “hidden killer” in terms of maintaining good credit worthiness. Consumers often overlook utilization. Always make sure you keep your utilization rate below 30%. Which means if you have a $10,000 credit limit, keep you balance below $3,000 in order to maintain good credit.

I Can Just Keep Transferring My Balance for 0% Interest

Beware of balance transfers and promotional interest rate periods. These introductory promotions can be great but make sure you do not keep a balance by the end of the promotional period. Many credit card accounts have “fine print” and overlooked “clauses” which allow them to charge you retroactive interest after a balance transfer or promotional period expires.

The More You Check Your Credit the Worse It Gets

“Checking your credit score is bad for your credit.” Credit monitoring should be encouraged, not discouraged! Soft credit checks should not negatively impact your score unless you are doing them very frequently and applying for many lines of credit. Checking or monitoring your credit score does negatively affect your credit unless you are applying for credit way more than you need to be!