Money Month

7 Common Myths About Credit Cards (and What Financial Experts Want You to Know Instead!)

published Oct 19, 2021
We independently select these products—if you buy from one of our links, we may earn a commission. All prices were accurate at the time of publishing.
Post Image

October is Money Month at Apartment Therapy! That means we’re sharing stories about saving money to buy a home, hacks to help you stick to your budget, and more all month. Head over here to see them all!

Credit cards can be a great tool for racking up airline miles, scoring deals on hotels, and earning cash back on essential purchases like gas and groceries — if you use them responsibly, of course. They can also be a ticket to high-interest debt, but that doesn’t mean you should stay away from credit cards altogether if they fit into your current financial reality! Building good credit can unlock tons of opportunities, from getting a lower interest rate on a loan to being approved for a bigger mortgage.

Even so, there are plenty of myths about card usage, credit scores, and what to do when you’ve paid off your balance. While some of these myths hold a grain of truth, others are completely false. Here, financial experts chime in on what you really need to know about using credit cards, building your credit score, and navigating an often-complicated financial landscape.

Myth: You need to keep a balance on your card to build credit.
Truth: Pay your credit card balance off in full each month if you can.

You can build credit in a variety of ways, but leaving a balance on your card isn’t one of them. “In the end, carrying a balance from month to month will just cost you interest. It’s important to pay your bills on time, and in full, each month, and try to avoid carrying a balance at all if you can,” says Colleen McCreary, the chief people officer and financial advocate of Credit Karma. Sometimes life happens and you can’t pay your bill until the absolute last minute, but try to make it a habit to pay before the statement date if you can. 

”If you can pay your credit cards in full a few days before the statement date, there’s a good chance you bring your balance to $0 before it gets reported to the credit bureaus, which is the best thing you can do for your credit utilization,” McCreary adds.

Jim Wang, the founder of Wallet Hacks, agrees. “Your balance is reported once your statement closes and there’s no benefit to carrying a balance each month. Simply use [your credit card] responsibly and you’ll improve your score (up to a point),” he explains. “If you carry a balance, you will have to pay interest on the balance with no benefit to your score.”

Myth: When you pay off a card, it’s best to close it.
Truth: This can actually damage your credit.

Don’t say “see ya” to your cards once you’ve paid off the balance. “Closing a card shortens the length of your overall credit history, which is another factor that makes up your credit scores,” says McCreary. “If you have an old card you don’t really use anymore, try putting a small subscription like Netflix or Spotify on it and setting it to autopay to keep it active with very little effort.” 

Myth: Having a high credit limit is a bad thing.
Truth: It’s actually the opposite.

Does having a $10,000+ credit limit mean your lender sees you as a big spender? Maybe, but it’s not necessarily a bad thing, especially if you have the self-control to not max the card out. “A higher limit means your credit utilization, an important factor in your credit score, is better/lower,” says Wang. “The lower your utilization, the better it is. Utilization is simply the amount of credit you’re using divided by the total credit limit across all your cards.” Just avoid using too much of your limit and spend what you can afford to pay off each month.

Myth: The more you spend, the more your credit score goes up.
Truth: Your credit score is determined more by regular payments and credit utilization.

Unfortunately, your credit score isn’t directly linked to how much you spend — it’s about spending responsibly and making payments on time. “What does affect your credit score is keeping your credit utilization (how much of your available credit you’re using) low across all your loan accounts and paying your bill every month so you have a strong payment history,” says Maximillian Hellerstein, the CEO of Extra.

Myth: Checking your credit score lowers it. 
Truth: Monitoring your credit is a good thing.

This is one of the most popular credit myths, but shouldn’t be taken as gospel, especially if you consider that there are multiple ways to check your credit standing. “When you check your credit score, something called an inquiry goes onto your credit report,” explains Hellerstein, who notes the difference between a hard inquiry and a soft inquiry. The former occurs when a car dealership checks out your credit when you apply for a loan, for example. “Inquiries are regarded as bad by some people but that is only the case when they’re related to an application for a new line of credit, also known as a hard inquiry,” he says.

It’s easy to keep an eye on your credit score. Your credit card or bank app, as well as sites like Experian, can show you your score in real time, and maybe even offer suggestions to improving your number. “When you check your credit scores, it is regarded as a soft inquiry and isn’t damaging. In fact, monitoring your credit by checking your credit reports is actually a sign that you’re financially responsible,” Hellerstein says.

Myth: You should only pay the minimum due each month.
Truth: Pay more if you can!

There will be times when all you can swing is the minimum payment, and that’s OK. But try to pay off as much as you can each month. “A minimum payment is simply the smallest amount your lender will let you pay each month. Interest charges will still accrue and your debt can still build,” shares Michelle Schroeder-Gardner, the founder of Making Sense of Cents. “Due to this, I always recommend paying more than the minimum if you are able to so that you can get rid of your credit card debt.”

Myth: You need to keep your credit card usage at 30 percent to build good credit.
Truth: Try not to use more than 30 percent of your credit limit. 

“The best percentage to keep is zero percent,” explains Jen Smith, the founder of Modern Frugality. “Your credit score is meant to help you save money; you negate that benefit if you’re paying high credit card interest rates every month just to ‘build good credit.’” 

According to Smith, good credit isn’t worth paying for. “The most important part of your credit score is your payment history,” she says. “As long as you’re paying your cards off in full every month you can enjoy the credit building benefits without the cost of interest.”