When used correctly, credit cards are a convenient and powerful financial tool that may help build your credit history. They can also be a great resource for making everyday purchases. Credit cards come with benefits, but many misconceptions surround them. We're here to debunk some of the most common credit card myths, so you can focus on building credit responsibly.
Here are the most common credit card myths that you need to know about:
Applying for a new credit card will hurt your credit score significantly
Applying for a new credit card may impact your credit score. When you apply for a new credit card, the lenders pull your credit history. This request is called a “hard pull," or hard inquiry. You might see a slight drop in scores at first, but a single inquiry isn't likely to have a significant effect. However, too many in a short period can make it seem as if you're facing financial difficulties.
In addition, when you're granted additional credit, this may lower your credit utilization ratio as long as you don't incur additional debt. A lower ratio may help your credit score, so cardmembers may see their credit score increase slightly when they receive a new card.
You need to carry a balance to build credit
You should actively use your cards to demonstrate responsible credit use, but it isn't necessary to carry a balance. If you're going to use the card on a regular basis, avoid racking up a high balance, which can result in paying interest if you don't pay it off in full by the due date. Carrying a balance can still help build credit, you'll pay the interest though.
Canceling your unused credit cards will help your credit
Canceling your credit cards with the hope of fixing your credit might not be the best option. Closing your account that you've had for years may hurt your credit score and when you cancel your credit card, you're reducing your available credit. This may increase your credit utilization ratio, which could hurt your credit score.
Although it's normal to cancel products and services that you no longer use, this doesn't always apply to credit cards. Rather than canceling your account altogether, it may be better to keep the card open but avoid using the card itself, so you still have its available credit and account history.
Having multiple credit cards is bad for your credit
Yes, a credit inquiry is added to your report each time you apply for a new card, but this doesn't mean that having multiple credit cards is always bad for your credit. Each application requires a hard pull, or inquiry, on your credit history, which may decrease your score. At the end of the day, the number of cards under your name isn't used in calculating your credit score.
You'll want to make sure that you're using these credit cards wisely to avoid getting into any debt. It's not necessary to restrict yourself, but spacing out your applications can help reduce the impact.
Missing your payment will automatically affect your credit score
Realizing that you missed your credit card payment can be nerve- wracking, but it doesn't mean that your score is automatically doomed. Missing a payment may impact it, but only if you miss the payment due date by at least 30 days. Credit card issuers usually don't report payments that are less than 30 days late to the credit bureaus.
It's important to get into the habit of making your payments on time but missing one payment by a day won't ruin your credit. You may receive a late fee depending on your credit card issuer, but it's possible to get this fee waived if this doesn't happen often.
Checking your credit score lowers it
Checking your own credit score won't affect your credit because it's considered a soft inquiry. If you check your credit score yourself, it doesn't lower it. Even if a lender or credit card issuer checks it, it'll only be considered a hard inquiry if you're applying for credit.
You can check your credit score as often as you'd like without hurting your credit. Monitoring your score can help you track the progress that you've made when building credit. You can check your credit score for free using Chase Credit Journey.
How debunking these myths may help keep your financial goals on track
There are several misconceptions out there when it comes to credit cards, which can make it difficult to determine what information you should pay attention to and what you should be ignoring. Debunking these myths may help keep your financial goals on track. The more you learn, the more prepared you are to make financial choices.