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6 Credit Myths You Should Ignore

Credit cards are similar to any financial product in that they can stir a certain amount of anxiety in people. There are many rumors and myths about spending money on these cards that tends to make this anxiety and confusion even worse. However, worse than the anxiety it can cause is the actual damage that some of these myths can do to your wallet and credit rating. Letق€™s take a look at six credit card myths that you should ignore.

1. آ Credit Limit Increases Are Dangerous

If youق€™ve received an offer to increase your credit limit, then you can be sure that it is your lender attempting to lure you into spending more money. However, instead of running the other way or falling into their trap, you can use a credit limit increase to your advantage. This is because the ق€œAmounts Owedق€ section of your credit score accounts for 30 percent of credit utilization. The more debt you carry, the lower your score and so the ideal utilization is 30 percent or less of your credit limit. However, if your bank offers you an increase on your credit limit, as long as you donق€™t use the extra amount, your score will go up.

2. آ Just Use Debit or Prepaid Cards

There is a common myth that obtaining a credit card will cause you to go into damaging credit card debt. Although it is true that there are plenty of people out there who are not well-versed on how to properly handle a credit card or are over-spenders, credit cards have a definite place for responsible people.

3. آ Never Take Out More Than One Credit Card

This is a myth that originates from the idea that people arenق€™t able to hold credit cards without going into major debt. If you donق€™t think you can stay organized to pay off bills from multiple credit cards because you will make too many purchases or forget to pay on time, then you may be better off just sticking to one. However, if you are responsible and organized and would like to take advantage of major cash back rewards, then there is no problem with taking out more than one credit card.

4. آ Closing Credit Cards Increase Your Score

This rumorآ is entirely false. Your credit score will increase when you make on-time payments and carry a low level of debt. However, when it comes to canceling credit cards, it can actually do more harm than good. Every time you close out your account, you not only shorten your credit history if youق€™ve held out the account for a while, but you will also increase your debt ratio, which will cause your credit score to fall even further.

5. Opening New Credit Cards Wreck Your Credit

This rumor is false for the same reason that people think closing out their credit card will increase their score. Opening a new credit account will increase your history over time, while lowering your debt to credit ratio, both of which aids your credit score. Although it is true that opening up a new credit card account will temporarily ding your score, the effect is minor and your score will ignore the inquiry after one year.

6. آ No Credit After Foreclosure or Bankruptcy

Those that entirely give up on credit once theyق€™ve run into major problems such as bankruptcy and foreclosuresآ will have an extremely tricky time recovering their credit score. Although you wonق€™t be approved for the majority of standard credit cards, you can get a secured credit card. This type of card works much the same as a regular credit card. However, it requires that you give a refundable security deposit before opening your account. Once you start making timely monthly payments, youق€™ll be able to rebuild your credit score and qualify for a regular, unsecured credit card once again .