Don’t let these 3 credit myths cost you money as interest rates rise

Here's what you need to know about your credit score

Credit scores play a key role in your financial life. Generally speaking, the higher your credit score, the better off you are when it comes to getting a loan.

And yet, many Americans make the same common mistakes with credit, putting their future financial well-being at risk. As interest rates rise at the steepest annual pace ever, there is even more at stake in the year ahead.

Here are some of the most common myths about credit cards and credit scores and how to avoid them going forward.

Myth #1: You can’t qualify for credit with a low score

Nearly 70% of Americans mistakenly believe that having too low of a credit score will prevent them from qualifying for any type of credit card, according to a recent report by Capital One.

Choosing the right type of card can make a difference, according to Ted Rossman, senior industry analyst at Bankrate and For example, getting a secured credit card or “piggy-backing on a parent’s card as an authorized user” are good places to start, he said.

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Some secured cards require a cash deposit that then serves as the credit line, which can be a good fit for those without a proven payment history. Otherwise, consider a card that requires a co-signer, Rossman advised. In that case, the parent, or co-signer, is responsible if the account isn’t in good standing.

Myth #2: Paying utility bills can boost your score

Myth #3: Carrying a small balance helps your score

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Another common credit card misconception is that carrying a balance month to month will give your credit score a boost.

According to Capital One, 37% of borrowers wrongfully believe that leaving a balance on their card is better for their credit score than paying off the balance in full each month. A separate NerdWallet study found that as many as 46% of Americans make this same mistake.  

That’s the most expensive misconception. In fact, any amount of revolving debt costs you in interest charges. Those typically are not calculated based on how much debt you roll over to the next statement period, but rather on your daily average balance.

If you’re not paying in full, make sure to at least pay the minimum due. Paying less than the minimum is “the same as not paying it at all,” according to Michele Raneri, vice president and head of U.S. research and consulting at TransUnion.

“That’s what a delinquency is,” Raneri said, which could also ding your credit score in as soon as 15 to 30 days, she added.

Credit experts generally advise borrowers to keep revolving debt below 30% of their available credit to limit the effect that high balances can have on your credit score.

Still, nearly half of credit card holders carry credit card debt from month to month, according to a Bankrate report, just as the interest charges on those balances are getting more expensive. 

Credit card rates are now over 19%, on average — an all-time high — after rising at the steepest annual pace ever, in step with the Federal Reserve interest rate hikes to combat inflation.

With the Fed’s rate increases so far, those credit card users will wind up paying around $22.9 billion more in 2022 than they would have otherwise, according to a separate analysis by WalletHub.

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Read More:Don’t let these 3 credit myths cost you money as interest rates rise

2022-12-24 14:00:01

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