5 Lies You’ve Been Told About Credit Cards

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5 Lies You’ve Been Told About Credit Cards. Credit cards are a common financial tool used by millions of people around the world. They offer convenience, rewards, and a way to build credit. However, there are many myths and misconceptions about credit cards that can lead to confusion and poor financial decisions. Here are five lies you’ve been told about credit cards and the truth behind them.

Lie #1: Carrying a Balance Improves Your Credit Score

One of the most persistent myths about credit cards is that carrying a balance from month to month will improve your credit score. The truth is, carrying a balance does not positively impact your credit score. In fact, it can have the opposite effect.

The Truth

Your credit score is determined by several factors, including your payment history, the amount of debt you owe, the length of your credit history, new credit, and the types of credit you use. Paying off your balance in full each month shows lenders that you can manage credit responsibly. Carrying a balance can increase your credit utilization ratio, which can negatively impact your score. Additionally, carrying a balance means you’ll pay more in interest charges, which can add up over time.

Lie #2: Closing a Credit Card Will Always Hurt Your Credit Score

Another common misconception is that closing a credit card will always hurt your credit score. While it’s true that closing a credit card can affect your credit score, the impact depends on several factors.

The Truth

Closing a credit card can affect your credit score in a few ways. First, it can reduce your total available credit, which can increase your credit utilization ratio. Second, if the card you close is one of your oldest accounts, it can shorten the average age of your credit history. However, if you have multiple credit cards and manage them well, the impact of closing one card may be minimal. It’s essential to consider your overall credit profile before deciding to close a credit card.

Lie #3: You Need to Have a High Income to Get a Credit Card

Many people believe that you need to have a high income to qualify for a credit card. This misconception can discourage individuals with lower incomes from applying for credit cards and building their credit history.

The Truth

While income is a factor that credit card issuers consider when evaluating applications, it is not the only factor. Lenders also look at your credit history, credit score, employment status, and existing debt. There are credit cards designed for individuals with varying income levels and credit histories. Secured credit cards, for example, require a security deposit and can be a good option for those with lower incomes or limited credit history.

Lie #4: Applying for Multiple Credit Cards Will Destroy Your Credit Score

It’s a common belief that applying for multiple credit cards in a short period will ruin your credit score. While applying for several credit cards can have an impact, it may not be as severe as some think.

The Truth

When you apply for a credit card, the issuer performs a hard inquiry on your credit report, which can temporarily lower your credit score by a few points. However, the impact of hard inquiries diminishes over time. Applying for multiple credit cards within a short period can be a red flag to lenders, but the key is moderation and timing. If you space out your applications and manage your credit responsibly, the impact on your credit score can be minimized.

Lie #5: Credit Cards Are Only for People with Good Credit

Many people believe that credit cards are only available to those with good credit scores. This misconception can prevent individuals with fair or poor credit from exploring credit card options that can help them improve their credit.

The Truth

There are credit cards available for individuals with all types of credit scores, including those with fair or poor credit. Secured credit cards, for example, are designed for individuals with limited or damaged credit histories. These cards require a security deposit, which reduces the risk for the issuer. Using a secured credit card responsibly by making on-time payments and keeping balances low can help improve your credit score over time, eventually qualifying you for unsecured credit cards with better terms and rewards.

Conclusion

Understanding the truth behind these common credit card myths is essential for making informed financial decisions. Carrying a balance does not improve your credit score; closing a credit card does not always hurt your score; you do not need a high income to get a credit card; applying for multiple credit cards will not destroy your credit score if done responsibly, and credit cards are not only for people with good credit.

Credit cards can be powerful financial tools when used responsibly. By debunking these myths and understanding how credit works, you can make better decisions that will benefit your financial health in the long run. Always do your research, read the terms and conditions of any credit card you are considering, and consider your overall financial situation before applying for or using credit cards.

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