17 Jun Credit Card Myths You Should Stop Believing
With all of the different ins and outs of credit and the complexities surrounding credit cards, many of us get confused and end up misinformed. Following incorrect advice could end up seriously hurting your credit score, and Pivotal Wealth wants to debunk some of those credit card myths. We are committed to helping our clients make smart financial decisions, and that starts with the ability to distinguish truth from myth when it comes to credit and credit cards.
Myth #1: You Should Cancel Credit Cards You Aren’t Using
It might make sense to cancel something you aren’t using, but this isn’t always the best when it comes to credit cards. Canceling your credit card means losing its credit line. This means you will have less available credit to your name.
Having less available credit causes your credit utilization to increase, and credit utilization accounts for 30% of your FICO credit score. The FICO credit score is the most widely used type of credit score, and most lenders will look at your FICO credit score. Because of this, canceling a credit card actually has the potential to decrease your credit score.
Myth #2: You Should Never Cancel Credit Cards
This one goes hand in hand with myth #1. Just because it can be better to avoid canceling credit cards, that doesn’t mean you should never cancel a credit card. There are certain situations where it may be in your best interest to cancel the credit card. If your card has an expensive annual fee and there is no way to downgrade it to a no annual fee card, it may be better to cancel it.
However, if canceling a credit card would significantly increase your credit utilization, or if you have had the card for a long period of time, then canceling the card could be counterintuitive. If it’s one of your oldest credit cards, the account history can be beneficial to your credit. Don’t ever feel like you need to keep cards open for no reason if you’re not using them.
Myth #3: Missing a Credit Card Payment Always Affects Your Credit Score
Missing a credit card payment can definitely send many credit card users into a panic. You might immediately think that your credit score will be ruined. Don’t get us wrong—late payments can be really bad for your credit score, but you have a bit of wiggle room. If you miss the payment due date by at least 30 days. Banks report payments to credit agencies using codes, and the late payment codes don’t start until payments are at least 30 days late.
Just because you may get a bit of a grace period does not mean you should get in the habit of making late payments. Most credit card companies charge a late payment fee, and it just always looks better if you pay your credit card bill on time each month.
Understanding what’s fact and what’s fiction when it comes to credit cards can be beneficial for your overall credit score, but you shouldn’t stress out over every little thing involving your credit card. If you manage your credit responsibly, and make credit card payments on time each month, you shouldn’t be too worried about your credit score. If you have questions about improving your credit, our team at Pivotal Wealth can help. Contact us today to learn more!