Gum takes seven years to digest, cracking your knuckles causes arthritis, and Thomas Edison invented the light bulb. What do all three of these things have in common? They're all myths. There are myths associated with many things in life, and credit cards no different. Unlike most myths, though, believing certain credit card myths can have real-life negative consequences.
Here are seven credit myths you should stop believing:
1. You need to carry a balance on your credit card to improve your credit.
This is undoubtedly one of the biggest credit card myths floating around, and it's simply not true. Your credit utilization accounts for 30% of your credit score and keeping your utilization low (ideally below 30%) is one of the best ways to improve your credit score. Not only will carrying a balance increase your credit utilization, but it's also the quickest way to have interest charges sneak up on you like a thief in the night. If you're worried about your account not being active (which you probably shouldn't be) pay a single bill with the card each month and then pay it off immediately.
2. Having too many cards hurts your credit score.
Your credit score is not affected by how many credit cards you have. What's more important is the balances you have on your cards. One benefit of having multiple cards is that it increases your total amount of available credit and lowers your credit utilization. As long as you're spending responsibly and paying your bills in full each month, you can have enough credit cards to build a treehouse from 'em if that's what you desire.
3. Checking your credit report hurts your score.
"Ignorance is bliss" is an old saying that applies to many things in life. For our good, there are some things in life that we're just better off not knowing — like how The Sopranos really ended. Your credit score isn't one of those things. When you check your credit score, it counts as a soft inquiry so it won't hurt your credit score. Don't let this myth stop you from being in the know.
4. You should avoid cards with annual fees.
Trust me when I say that you're not the only person walking on God's green earth that hates paying fees. We all hate it, fam. Some annual fees are worth paying, though, because the benefits from the card outweigh the fee you'll pay. This isn't to say that all annual fees are worth paying because that's about as true as news from The Onion. It's still important to look at the benefits of the card before deciding to take on that fee. If the rewards don't add up to the fee, leave it be — you never wanna hustle backwards.
For example, if a card with a $50 annual fee offers 1% cash back, it wouldn't make sense to have it if you don't plan on spending at least $5,000 that year because you'll end up paying more than you receive.
5. Closing a credit card helps your score.
People sometimes get the urge to close out a credit card they're not using because they think it will help their credit score. This is NOT true. When you close a credit card, you automatically lower your amount of available credit, which increases your credit utilization and hurts your credit score. So while people will close a credit card with the intent of helping their credit score, they ironically end up hurting their score by doing it. Don't make that mistake.
6. Your minimum spend time clock begins once you activate your card.
Oftentimes credit cards will come with intro bonuses that you'll receive if you spend a specific amount of money within a certain timeframe. For example, a credit card may offer bonus flight miles or statement credits if you spend $5,000 within three months of opening the account. It's important to note that the timer starts when you get approved for the card, NOT when you receive or activate the card. So if you got approved on January 1st but didn't activate your card until January 15th, you would still be considered two weeks into your 3-month timeframe. Don't get caught slippin' and miss your spend deadline because you misinterpreted the timeframe.
Hopefully, this could go without saying, but please don't go from a Wendy's 4 for $4 budget to an Outback Steakhouse budget just to make your spend quota. If you wouldn't reasonably spend that much money in that period before, don't start now.
7. Credit Cards are bad for you.
Listen, fam, there's pros and cons to everything in life; that's how it works. Credit cards are no different. A lot of us have been warned about the dangers of credit cards all our lives to the point where we think credit cards and stress go hand in hand like white girls and Starbuck's pumpkin spice latte. Don't let these misguided warnings scare you away from using credit cards and blocking your blessings. When used responsibly, credit cards can be an excellent tool to help you reach your financial goals.