If there’s one thing I’ve learned over the years, it’s that there’s a ton of misinformation out there about credit cards and debt. And as someone who has made a living helping folks pay down debt and get their finances back on track, I feel like I hear the same myths over and over again – especially when it comes to credit scores. I thought I’d take some time to address some of the most common myths – and set things straight once and for all.
If you’ve ever heard conflicting advice about whether or not to carry a balance, or if you’ve ever wondered if it’s good to close credit cards after you pay them off, this blog is for you. Happy reading!
Credit Score Myth: There’s a “right” number of credit cards to have to optimize your credit score.
Credit Score Fact: When it comes to your credit score, there’s no magic amount of credit cards that will make or break you. Far more important is how you use the credit cards you do have. Responsible credit use – including doing things like paying off your balance in full each month and keeping your credit utilization low — matter much more. My only recommendation is that you have more than one credit card, if possible. Creditors typically like to see that you’ve got more than one line of credit.
Credit Score Myth: The amount of money you have in the bank affects your credit score.
Credit Score Fact: This is simply not true. Your credit score has nothing to do with your bank account. The only exception is if you rack up a bunch of unpaid overdraft fees that get turned over to a collections agency. But as long as there are no unpaid fees involved, your bank balance doesn’t matter a bit.
Credit Score Myth: Your job – and your income – affect your credit score.
Credit Score Fact: Credit reporting agencies don’t care what you do for a living. They don’t care how much money you make, either. They care that you pay your debts on time, end of story. Although I should point out that if you’re looking to get a car loan or a mortgage, most lenders like to see steady, regular employment – it’s a sign that you’re reliable and will have a source of income to make payments. If you’ve got long gaps of unemployment or a history of changing jobs every two months, that might raise a red flag or two.
Credit Score Myth: Debit cards can help you build credit.
Credit Score Fact: Unfortunately, no. Your debit card may have a Visa or MasterCard logo – but that’s about the only thing it has in common with a credit card. Using a debit card is essentially the same as paying with cash or a check. The money is coming directly from your checking account, and there’s no debt, lending, or repayment involved. (On a related note: if you’re trying to build credit, a secured card can be a useful tool.)
Credit Score Myth: Once you pay off a credit card, you should close it.
Credit Score Fact: If you’re a regular reader, you already know the answer to this one. I’ve said it before (many times!) and I’ll probably say it again: You should never close a credit card with a zero balance. One factor that determines your credit score is utilization, which is your available credit vs. the amount of credit you’re actually using. The more available credit you have, the lower your utilization – and that’s a good thing. There’s nothing wrong with having one or more credit cards with zero balances.
And speaking of zero balances, let’s talk about another common misconception . . .
Credit Score Myth: Carrying a balance is good and it helps your credit.
Credit Score Fact: Honestly, I have no idea why this myth is as widespread as it is. Because honestly, there’s nothing good about carrying a balance. I recommend paying your balance in full every month, end of story. If that’s not an option, I recommend that you come up with a solid strategy to help you pay down your debt as quickly as possible – that’s what will help your credit.
Credit Score Myth: Your credit score is permanent. If you have bad credit now, you’ll always have bad credit.
Credit Score Fact: Sure, it takes time and effort to repair a less-than-stellar credit score – but your score definitely isn’t set in stone. A bad credit score today does NOT mean a bad credit score for life. Lots of folks bounce back from bad credit. You can, too.
Credit Score Myth: If your spouse’s credit score is off-the-charts awesome, you don’t have to worry about your score.
Credit Score Fact: Your credit score is yours and yours alone – there’s no such thing as a combined credit score. It’s true that your spouse’s awesome credit will be a big help if you want to buy a home or apply for a loan – but chances are good that the lender will look at your credit, too. And if they don’t like what they see, that could affect your interest rate or your ability to get approved. Remember, marriage is a partnership. Coasting by on your spouse’s good credit isn’t a good strategy.
Credit Score Myth: Your credit score only matters if you’re about to buy a house or apply for a credit card.
Credit Score Fact: Your credit score always matters to someone: Insurers look at your credit history and use that information to decide what kinds of rates and offers they give you. Some potential employers look at your credit score to get a feel for how financially responsible you are. And most landlords and property management companies run credit checks before they let you rent an apartment.
Credit Score Myth: It’s okay to miss a credit card payment if you think there’s a mistake on your bill or credit card statement.
Credit Score Fact: A missed payment can be really bad for your credit score. If you suspect that there’s an error on your bill, it’s much, much better to contact the credit card company before you make any rash decisions. Chances are, they’ll be willing to work with you to resolve the error – and you won’t hurt your credit score in the process.
So, that’s it for credit card myths – I think this covers the big ones. I hope this cleared up any confusion. And here’s one last fact for the road: If you need debt advice or have questions about debt, credit, or credit cards, you reach out to Debt Guru. Contact the Debt Guru team today for a free debt consultation.