Credit Card F.A.Q

You Asked, We Answered:  Credit Card FAQs

By Mike Peterson
In February 3, 2016

What’s the deal with “soft” vs. “hard” inquiries?  How does a secured card work?  How many credit cards is too many?

As someone who has made a career out helping people with debt and credit card problems, I answer a lot of questions, and with good reason.  Credit cards are complicated, and there’s a lot of information – and misinformation – out there, and it’s not always easy to tell the difference.  That’s why I decided to dedicate an entire blog post to answering some of the most common questions and points of confusion about credit cards and debt.  Hope this helps!

Q: I finally paid off a high-interest credit card.  Should I close the account?

A: Definitely not!  Part of your credit score is determined by looking at your credit usage – essentially, this means comparing the amount of credit you have available to the amount you’re actually using.  Closing a card brings down your amount of available credit, which can result in your credit score taking a hit.  Keep the account open.

If you’re worried about running up a new balance, keep the actual card out of reach: Cut it up, lock it in a drawer, stash it in the freezer – whatever it takes to keep it out of your wallet!

Q: How many credit cards should I have?

A: This is a tricky one – and a quick Google search will tell you that there’s no “right” answer.  Credit is complicated:  As I mentioned above, your credit score tends to be higher when you have more available credit.  That said, if you have too many credit cards – or if you attempt to open several credit cards at once – your credit score may take a dive.

In general, I think most people will do just fine having one to three credit cards – provided, of course, that they use those cards responsibly by paying them off every month and not treating them like a source of extra income.  I’d also recommend sticking to major credit cards and avoiding store-specific credit cards (store cards typically have lower limits, so they don’t increase your available credit as much as traditional credit cards).

Q: How do credit card payments affect my credit score?

A: Every bank and credit reporting agency has a slightly different formula for calculating your credit score.  Sure, they all want to see that you pay your credit card bills on time – but they also like to see that you pay your balance in full each month.

But payments are only part of the picture:  Your score is also determined by your ratio of available credit to credit used (just one more reason to never carry a balance!), along with the length of time you’ve had a credit history, which is why younger folks may have slightly lower scores, even if they have a history of responsible use.

Q: What’s the difference between a “hard inquiry” and a “soft inquiry” – and what do they mean to my credit score?

A:  A hard inquiry is what happens when you apply for a credit card.  The lender pulls your credit history and uses the information to decide if they want to approve your application. This kind of inquiry may lower your credit score, and it will show up on future credit reports, which is why you should try to avoid applying for several credit cards at one time.

A soft inquiry is a more general credit check. Soft credit inquiries are often part of a more general information-gathering process.  Employers and landlords, for example, may do a soft inquiry as part of a background check.  Banks and credit card companies do soft inquiries, too.  Ever gotten a letter saying that you’ve been “pre-approved” for a credit card?  The company that sent the letter ran a soft inquiry on you first.  Unlike hard inquiries, soft inquiries don’t affect your credit score.

Q: Will checking my own credit report hurt my credit score?

A: No.  Checking your own credit report is considered a soft inquiry, so there’s no harm in checking.  And you should check your credit report just to make sure there are no errors or suspicious activity that could be dragging down your score. Check away!

Q: I have good credit but I was turned down when I applied for a credit card.  What gives?

A:  It’s possible that the credit card lender is looking at other factors.  In addition to credit score, a lender might look at things like how long you’ve had a credit history and your debt-to-income ratio. Past issues such as late payments or large balances can also affect a lender’s decision – even if you’ve got excellent credit now.

Q: What’s the deal with “chip” cards — are they any safer than the old magnetic strip?

A: Chip cards – also known as “EMV cards” or “smart cards” – do offer an extra layer of protection against scammers.  I could spend an entire post talking about this, but the basic idea boils down to this:  That little “chip” in your new credit card generates a new authorization code every time you make a purchase.  That code can only be used once, which means that it’s pretty much useless if it falls into the wrong hands.  That old magnetic strip card, on the other hand, contains all the information needed to make a transaction — without the extra protection.  In other words, that chip makes it much, much harder for scammers to use any information they manage to get form you.

Read our in-depth discussion on chip credit cards


That’s it for this round of credit card FAQs – I hope I cleared up some of your credit card questions!  But if you still have questions, or if you need debt advice or want to talk to someone about spending, saving, budgeting, or credit cards, you can always contact the Debt Guru team today for a free debt consultation.

Mike is the author of “Reality Millionaire: Proven Tips to Retire Rich” and he has been published in a variety of local and national publications including Entrepreneur Magazine, Deseret Morning News, LDS Living Magazine, and Physicians Money Digest. He holds a B.S. in business administration from the University of Phoenix.

Click "More" for important American Credit Foundation client transition information