Most people know the basics of maintaining good credit such as paying bills on time and keeping their debt to a minimum, but there are also quite a few myths out there when it comes to building credit. A good credit score can make all the difference when it comes to purchasing a new home or financing a car, so here is a look at 6 credit card myths that could be hurting your credit and your bank account.
1. Debit and Credit Cards Affect Your Score the Same
While a credit card and debit card may look the same, they have almost no similarities outside of their appearance. Debit and ATM cards have no bearing on one’s credit unless they are also connected to a credit account such as Mastercard. Credit cards, on the other hand, are one of the primary factors when determining a credit score.
2. Canceling Your Cards Raises Your Score
This is one persistent myth that has actually damaged the credit score of quite a few people. When a credit card is canceled it may actually negatively impact an individual’s score for quite some time. This is due to the fact that part of factoring the score is figuring out the total amount of credit extended to a person. When the total amount of available credit goes down, so does their score.
3. Checking Your Credit Hurts Your Score
Credit scores can be checked in a variety of manners and a regular credit check carried out on your own score will have no bearing on the numbers. A credit score is only affected when a “hard check” is made on the credit. This is usually done by banks or loan companies and the credit only dips slightly due to the fact that the person may be looking to extend their line of credit beyond their means.
4. Fixed Rates Stay Fixed
When first applying for a line of credit such as a Visa card, the company may offer fixed rates for a certain amount of time. While there are strict rules about why a rate may remain fixed, almost every card has a number of clauses determining when interest can be raised or lowered. This generally takes place if payments are missed, the card is maxed, or after a certain period of time.
5. Your Credit Is Improved by Maintaining a Balance
Maintaining a balance on a credit card not only has little or no effect on the score itself, it is also going to result in the accumulation of interest and more money being spent. Instead of maintaining a balance, it is better to put money on the credit card and then pay it off completely at the beginning of the next payment cycle. On-time payments and lower debt are much more appealing to lenders.
6. Sticking with Minimum Payments Will Improve Your Credit
One of the primary ways in which credit card companies make their money is by having their clients only make the minimum payments. Many think that minimum payments cover the interest, but the opposite is in fact true. Minimum payments generally match the interest rates or are lower than the monthly interest rates, and this means more money out of pocket.
The path to a great credit score will almost always involve the use of credit cards. By keeping balances as low as possible and paying on time, anyone can ensure that their credit score steadily improves throughout the years.