5 credit card myths debunked

Beware of these five myths if you're a credit cardholder or seeking to open a new credit card. (iStock)

When used properly, credit cards can be a helpful tool for strengthening your financial profile. Unfortunately, there’s an incredible amount of misinformation out there about how to handle credit the right way. With that in mind, below are some of the most common credit card myths that need to be debunked.

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Myth: Carrying a balance is the key to establishing credit

One of the most common misconceptions surrounding credit cards is that carrying a balance is the best way to build your credit score, as it shows the credit card bureaus that you’re able to responsibly carry debt and pay it off over time. Unfortunately, this is just not true.

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In actuality, you have the ability to boost your score without going into credit card debt at all. You can do this by using your credit card to make everyday purchases and then paying your balance off in full each month. As a bonus, paying off your card each month will also help you avoid racking up unnecessary interest charges.

Myth: As long as you stay under your credit limit, your score will be fine

While it’s true that staying under your credit limit will keep you from having to pay penalty-level interest rates, maintaining high balances will impact your score. This is because credit utilization -- or the percentage of your total available credit that you’re currently using -- accounts for 30 percent of your overall credit score.

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As a rule of thumb, it’s best to stick to using less than 30 percent of your total available credit. If your current utilization rate is higher than that, focus on making regular payments and paying down as much of your balances as possible to see your score go up.

Myth: It’s worth spending more to get credit card rewards

Many credit card issuers offer certain perks like frequent flyer miles or deposit and reward programs as a benefit of using their card. However, if spending more is going to force you to have to carry a balance, making purchases with the card may not be worth the rewards payout. Often, the interest acquired from carrying a balance can add up to more than the rewards themselves are worth.

Myth: Getting denied for a credit card will ruin your score

While getting denied for a credit card is never fun, according to Experian, receiving a denial won’t impact your score any more than it would if you had been approved for the card.

What will impact your score, however, is the number of hard inquiries you have on your credit report. A hard inquiry goes on your report every time you apply for a card, so it’s best to avoid applying for too many at once, even if you’ve received a denial from the card you were hoping to open.

Fortunately, there are a few things you can do to help keep the number of applications you need to fill out to a minimum. Check your score before you start applying and make sure to only apply to cards targeted toward borrowers in your score range. If you can opt for a credit card that offers a chance at getting a pre-approval, so you’ll know you’re in good standing before you apply.

Myth: There’s no way to combat credit card interest charges

There’s no getting around the fact that credit card interest adds up fast, but if you’re tired of tackling mounting interest charges, there are steps you can take to get them under control, especially if your debt is coming from multiple cards.

If you have a decent credit score, you can consolidate the debt into one payment using a balance transfer card. If you have a lower score, though, you may have better luck consolidating your debt with a personal loan.