About 40% of Americans have admitted to being clueless about how credit works. No one really sits you down and explains how to build your credit score and compare different credit card options.
Here are 4 debunked myths about credit cards that you might still believe to be true.
1. If you want to build credit, you have to have a standing balance.
It’s actually recommended that you don’t have a standing balance if you’re trying to build credit. You want to pay your credit card bills on time so that you don’t accrue any interest and you can rack up points with a reliable credit history.
The average credit card interest rate is about 16.11%. This is a significant amount if your borrowed balance is worth hundreds or even thousands of dollars.
2. You’ll fall into debt if you get a credit card.
You won’t automatically be in debt if you use a credit card. Financial advisor Dave Ramsey suggests that it’s best to treat credit cards the same way you would use a debit card.
The key to using these cards is only making purchases with money that you have. Make sure that you don’t wait until your credit card bill is due to come up with the money you need to pay it off on time.
3. You shouldn’t get cards with a high credit limit.
The opposite is true. Depending on how you handle your card payments, you can use your credit utilization rates to your advantage.
It’s suggested by financial experts that you only use 30% of your credit limit so that you can give your score a boost. Since using a greater percentage can put your credit score at risk of maxing out, having a high credit limit can give you a bigger budget for large purchases while following credit utilization rules.
4. You can apply for credit cards without affecting your current credit score.
Whether or not you end up using the car, every card you apply for will require a credit check. A hard inquiry can drop your score significantly if you have a poor credit history.
If you want to apply for more credit cards, it’s better to wait until your score is more established. Having too many inquiries in a small amount of time can wreak havoc on your account.
