Hi all! With the holidays fast approaching, we run the risk of trying to purchase well above our means. That means we feel pressured and compelled to make credit card purchases for most of our gifts. While this seems like a quick and easy solution, credit card debt can definitely become overwhelming once the novelty has warn off. Now don't get me wrong, credit cards aren't inherently bad. They can even help you build up a credit score, but there are plenty of opportunities for pitfalls and misdirection when it comes to credit card usage. I will be discussing some lesser known credit card myths and do my best to debunk them.
Myth 1:
- Using a credit card for all purchases will increase a credit score
This is a huge myth because while yes credit cards can help you credit score, they can also hurt it. If you are wracking up high rates of spending, and only paying the minimum, you risk your credit score dropping. Essentially, you are spending more than you can pay.
Myth 2:
- Applying for multiple lines of credit at one time won’t hurt my score
Unfortunately, this hurts your score because for every line of credit you open, your average account age lowers. As a result, your score may potentially take a dive. It also makes you look like a risky borrower, if all the lines are new.
Myth 3:
- Closing the account with the highest credit allowance/limit is better for your score than closing a lower limit account
The main issue with this is that say you have four accounts: Three accounts are a limit of $500 each and one of the accounts is a $1000 limit. If you maxed out the three cards at the $500 limit, but have paid off the $1000 card and closed it. Before, it looked like you owed $1500 out of $2500, which isn't very good, but compared to owing $1500 out of $1500, it wouldn't have hurt your credit score as bad. When in doubt, look at the amounts owed on all cards collectively before considering closing out a high limit card.
Myth 4:
- Closing the oldest account can help my credit score
The primary issue with closing out the oldest account is that it makes your credit history look shorter by lowering your account age.
Myth 5:
- Tossing out old cards will make your account disappear
This is a big myth in the sense that unless you actively work to close your own accounts, they will not close on their own. Be sure to pay off your balances, call the customer service department, and insist that they close your account. Typically, upon closing an account, you'll receive letter confirmation about the account closing within a week or so. If you don't get that confirmation, be sure to call the customer service line again.
Lastly, remember to monitor your accounts in order
to notice and address unexpected or authorized activity that could
seriously hurt your credit report. When it comes to
disputing errors that appear on your credit report, always address discrepancies immediately to avoid lasting damage.
I hope that my debunking of myths was useful to
you, and be sure to check out the following guide to learn more about
how a poor credit score can affect your financial health!
Let me know in the comments below what tips you have for people using credit during the holidays.
Till Next Time!
-Hachi
