Common Credit Card Myths People Believe Are True
When it comes to getting a credit card, there are many credit card myths that people frequently believe. These examples of serious credit misconception need to be dispelled as there are reasons that an individual should get a credit card. Here are some of the top credit card myths:
8 Credit Card Myths People Believe
1. Myth: Missing A Credit Payment Is Not A Big Deal
One common credit myth is the idea that missing an occasional payment has little impact on your credit score. This credit myth is one of the more dangerous that’s out there. The biggest component of your credit score is related to your payment history, and a late payment will cause a pretty big ding to your score. This will make it less likely for you to obtain credit at a reasonable rate in the future. This is one credit card mistake you will want to avoid at all costs.
2. Myth: You Should Close Credit Accounts You’re Not Using
Another common credit myth is the belief that closing down old credit card accounts is good for your credit score. One of the components of your credit score is related to your credit utilization percentage. Furthermore, this means that the loss of a credit line will automatically raise this percentage and possibly hurt your score. Additionally, another component of your credit score is related to the age of your accounts. Also, closing an old card will drop the average age of your credit history, which will be a negative mark on your score. Most people do not know how to properly cancel a credit card account. Keeping old cards open, especially if they have no annual fees associated with them, is actually a good idea.
3. Myth: You’ll Lose Your Rewards Points if You Cancel Your Credit Card
Another common credit misconception is related to rewards points. There are many credit cards that offer rewards. These can come in the guise of airline frequent flyer miles, hotel loyalty points or cash back. Many people believe one of the credit card myths that say that these points are lost forever if you close an account. This may or may not be the case. If you close a card that earns points from a bank, you’ll probably lose them. On the other hand, if you have a co-branded card with a third party like United Airlines or Hilton Hotels, you’ll likely be able to keep the points that you’ve earned.
4. Holding A Credit Balance on Your Credit Card Account Helps Build Your Score
Another of the more common credit card myths is related to how holding a balance might help your score. This is patently false for a couple of reasons. The first is related to the payment of interest. You will pay interest on any outstanding balance you have. This is money going out of your pocket. Secondly, any balance that you maintain will impact your credit utilization percentage. Furthermore, the lower this number is, the better for your score. If you maintain a balance of $0 each month, your credit utilization percentage would be 0 percent, which is better than any number above it.
5. You Have To Take On Debt To Use A Card
Another of the common credit card myths says that you have to take on debt to get a card. This debt can come from loans like car loans or home mortgages. This credit misconception is not true either. There are “starter cards” or student cards for people like college students who have never before utilized credit. Credit cards, if used properly, can be a great way to manage cash flow each month. Just keep a zero balance at the end of the month. Therefore, you’d have no need to worry about interest charges or any other debts.
6. Applying For A New Card Will Hurt Your Credit Score
Another common credit myth is related to applying for a new card. Some believe that applying for a new credit card will have a huge impact on your credit score. There is some truth to this credit myth, but the ding is only temporary. There will be a short-term impact to your score that’s estimated at somewhere between two and five points. However, if you’re given the credit card, you will have a bigger line of credit. This should, in turn, lower your credit utilization rate, which is a net positive. This credit myth shouldn’t automatically keep you from applying for a new card with a juicy sign-up bonus.
7. Myth: Not Having Credit Cards Will Give You a Good Credit Score
This is one of the more dangerous credit card myths. Your credit score is directly tied to your ability to utilize credit. If you’ve never used credit before, you may not have a score at all. This is where the damage from this credit myth can come from. Many employers and landlords require a credit score as a part of a background check. If you have no score, you might have trouble getting the job or apartment that you really want. Therefore, this is one common credit myth that you really want to ignore.
8. Myth: Your Income and Credit Score Are Related
This final credit score myth attempts to tie credit scores and income levels. It’s true that you’ll have to claim some income on a credit card application. However, there are certain types of income that you can legally exclude. This means that the credit bureau has no real idea as to your income. The FICO credit score that you have is related to your utilization of credit and nothing else. There is no component of this score that’s tied to your income. Therefore, this is just another of the common credit card myths that are out there.
In conclusion, there are many credit card myths that are floating about. These can keep people from earning great travel or cash-back rewards. The most dangerous credit myth is related to late payments not being a problem. Finally, regardless of which myths people buy into, they can cause financial problems down the road. Therefore, it’s important to research what’s considered common knowledge as it might be tied to one of these credit card myths.