Credit cards seem to be pretty straightforward – you swipe a piece of plastic and pay the money back later. But if you’ve ever been shocked by your credit score or heard stories of good credit card users ending up buried in debt, you know that credit isn’t as easy as it seems. Credit cards and their terms can be very unclear, and there are a lot of credit card myths that continue to confuse consumers year after year.
Here are the top 6 credit card myths that you should know the truth about before using your credit card:
1. Smart debit card spending will boost your score.
- Although a debit card may seem just like a credit card, using your debit card will not affect your credit score (even if you are a smart spender and never overdraw your account). Debit and credit are two separate cards with two separate functions. A debit card automatically deducts money from your account and has no bearing on your credit score. When you use a credit card, on the other hand, you borrow money. Paying the money back on time shows the lender how reliable of a borrower you are, thus determining your credit score.2. Leaving a monthly balance will help your credit score.
2. Smart debit card spending will boost your score.
- Many consumers believe that they should only pay the minimum balance each month. In return, they will have good credit and will owe no interest on the remaining balance. However, this is absolutely false. Carrying a balance can actually be detrimental, because cardholders now have to pay inflated interest rates on the remaining balance. So, don’t expect to improve your credit score by only paying the minimum. Pay those credit card bills on time and in full each month.
3. Checking your credit score will harm your credit score.
- If you are trying to rebuild credit, it is especially important to know where you stand. And some people are afraid that a self-check will make their score even worse. Although it is true that your credit score may drop a couple points when lenders or other institutions make an inquiry, not all credit checks will cause your score to drop. A credit self check will not hurt your score. So don’t be afraid to check your credit report; it won’t have any influence on your score.
4. No credit limit means spend away.
- Many exclusive credit cards advertise that they offer “no preset spending limits.” However, don’t let yourself get into debt over this. Every credit card has a limit, even if they may not disclose it. These limits are usually based on your income, credit history, and spending habits. So, don’t go racking up as much as you like on your accounts. Eventually your card will be declined once you’ve maxed it out, and your score will drop.
5. Canceling your credit cards can help your score.
- It seems tempting to close a credit card that you have misused. You may want to get rid of your late payments, debt, and overage, assuming that your credit score will then go up. But this is false- closing a credit card can actually hurt your score. Part of your credit score is your credit utilization ratio. When you cancel a card, you are using a higher amount of credit out of what is available to you, which can lower your score. Furthermore, your old cards play into your credit history. Canceling these old cards can get rid of your history and further damage your score.
6. Writing “See ID” in place of your signature is a surefire way to avoid identity theft.
- For one, there is no surefire way to avoid identity theft. But many consumers think that writing “See ID” on the back of your card can stop crooks. Anyone can forge a signature, but it’s impossible to forge a face. However, “See ID” is not considered a valid signature. As a result, your card could be turned away from any store and is considered invalid. If your card is stolen and used, the “See ID” has no legal bearing, and you could still be liable for charges up to $50. So, sign your card and keep track of it.
If you know what’s fact and what’s fiction, credit doesn’t have to be a mystery. Stop listening to these myths and you will be on your way to an improved credit score.
This article was written by Alice Bryant, a personal finance and credit card expert who also contributes regularly to Creditnet.com.