Common Credit Card Myths, Debunked
Credit cards have become an integral part of our everyday financial life, as they offer convenience, security, and the opportunity to build credit. Unfortunately, they are also a source of many commonly held misconceptions. Let’s take a look at some common credit card myths.
Myth #1: “Having Many Credit Cards Hurts Your Credit Score.”
A prevalent misconception about credit cards is that having multiple cards can harm your credit score. Here’s the reality: the number of credit cards you have does not inherently affect your credit score. What matters more is how you manage them.
If you struggle to keep up with payments on multiple cards or tend to accumulate high balances on all of them, this can negatively impact your credit score.
Alternatively, if you have multiple credit cards, typically pay your bills on time, and keep your credit utilization low (the ratio of credit used to your total credit limit), having several cards can actually boost your credit score. A diverse mix of credit types, including credit cards, can demonstrate responsible credit management and position you favorably in the eyes of prospective creditors.
Myth #2: “Carrying a Balance Helps Build Credit.”
Another common misconception is that carrying a balance on your credit card and paying interest will help build a better credit history. While it’s true that establishing credit history is important, maintaining a balance from month to month can not only cost you unnecessary interest but also does not have a significant impact on your credit score.
To build and maintain a solid credit history, use your credit card regularly and pay the balance in full and on time every month when you are able. Prompt payment and low credit utilization will have a positive impact on your credit score.
Myth #3: “Closing a Credit Card Improves Your Credit Score.”
While closing a credit card can bring a sense of resolution and relief, it can potentially harm your credit score, especially if it’s one of your older accounts. The duration of your credit history is an important factor in calculating your credit score, and closing an older account can shorten your credit history.
As a secondary consideration, closing a credit card can also affect your credit utilization ratio. If you have other credit cards with balances, closing one card will reduce your total credit limit, potentially increasing your credit utilization, which can negatively impact your score.
So, what’s the alternative? Instead of closing a credit card, consider keeping it open with a zero balance if there’s no annual fee. This way, it can continue to contribute positively to your credit history and help keep your credit utilization low.
Stay on Track
With higher costs of living, credit cards are valuable financial tools that can move us closer to our goals. A strong credit history is a consideration when it comes to purchasing a home or car, renting an apartment, or even getting job clearance. There is no shame in utilizing credit cards, and if you do find yourself struggling to pay down debt, our non-profit partner, GreenPath Financial Wellness, offers free financial counseling to get you and your spending back on track.
Pay off high-rate credit cards when you switch to an NE PA Visa Credit Card with a low, non-variable rate. There’s never a balance transfer fee!
Platinum Visa Card 8.99% APR* since 2006
Classic Visa Card 11.50% APR* since 1994
Plus, both cards offer:
- No Balance Transfer Fee
- No Cash Advance Fee
- No Annual Fee
Whether you're paying off high-rate credit cards, looking to pay off high-rate loans, or paying off other expenses, NE PA Credit Union can help.
(source, October 17, 2023, GreenPath Financial Wellness)
*APR = Annual Percentage Rate. The Annual Percentage Rate is based on creditworthiness and other qualifications.
