It is true there are many myths about credit cards and the best approach on how to use them. But many consumers recognize not all the advice about credit cards can be factual. While there is certainly a great deal to know about using credit cards, the reality is there is more fiction than fact out there.
If you are a timid credit card user, or are worried about the various ways credit cards will affect your score, then know you aren’t alone. There is much confusion surrounding best practices when it comes to credit cards, and we are here to help you separate the myth from the truth. Consider the following advice for how to handle your credit spending behavior:
Carrying a balance will not help your credit score
Unfortunately there are many consumers who feel that your credit score only goes up when your lender makes money. Or, as this pertains to credit cards, your debt accrues interest and you end up paying more. This is not the case.
According to Magnify Money, a financial comparison website, you are only harming your credit by carrying around a balance. You should pay in full each month and make sure the payment is in on time. This doesn’t mean sending the payment to the bank that day, but ensuring your bank receives the payment by that day.
If you cannot afford to pay off the balance in full, then you should pay the minimum and treat it as such: a minimum. If you can pay more then you should. Carrying it around will demonstrate to lenders that you used maybe more than you can afford to use, which is never a situation you want to be in.
Education does not play a role in setting your credit score
This is another myth that has crept its way into mainstream gossip, which is simply not true. Education certainly plays into some qualifying items, such as car insurance rates, but it has nothing to do with your credit history at all.
If you have poor credit and think that by taking some classes you’ll be able to build your credit without changing your spending habits, you are wrong. Additionally, there are other factors that some consumers might lump into this myth, such as gender, marital status or religion, but as noted by Experian, these are details that have no impact at all on your credit report.
Debit is not the same as credit
Another common myth is spending habits of all kinds have an impact on your credit score. If this were the case, you might not worry about your credit as much as long as you didn’t overdraft your checking account. But the reality is your debit spending has no bearing at all on your credit report, U.S. News and World Report noted.
Your credit report is concerned with debt, of which debit does not apply. Debt is what you have borrowed from a financial institution, whether this is credit or a loan. Even more importantly is that these bills are paid back. When you use debit, you are using your own money, not money that belongs to someone else that has been lent to you.
This also means you shouldn’t spend them the same. You should use your debit card for everyday purchases and reserve your credit card for larger items. If you use your credit card every day you could be sending a message to lenders that you rely on credit, which is not an image you want to convey. Use credit when necessary and pay it down every month, or as much as you can.
Checking your credit report will not hurt you
A credit report is not something to be afraid of or standoffish about. You can request one at any time and see how your financial situation is looking. However, CreditCards.com noted that if a lender checks your credit report, this will impact your score. It won’t bring it down tremendously, but it will set it back just a bit.
You might ask why or when a lender would check your credit report? This would happen anytime you apply for new credit, whether it be a loan or credit card application. This is known as a hard inquiry, and happens when a lender is evaluating your report to assess the amount of risk you would be as a borrower.
In fact, it is a good habit to get into to check your report on your own before applying with any lenders. This will allow you to know where you stand before you fill out an application. You can also fix any mistake or take some to build your report if you feel it is necessary before applying.
If you have additional questions about credit card myths, contact us today.