We’ve all been given information regarding credit and how to use it that may be incorrect. It’s important to sift through the myths and get to the truths that will help us to maintain, rebuild, or start a good relationship with credit that will last for many years.
Most of us have been passed down information that tells us to get rid of cards that we don’t use or to only use them for emergencies. These practices are presented to many of us as healthy ways of showing good credit use. Although the myths are many, a little bit of information is all you need to right a lot if the wrong information.
Myth #1 You Should Only Use Credit Cards for Emergency Purposes
A credit card that is used frequently and paid on time shows the credit card company that you can handle credit responsibly. The more activity that a credit card company sees being handled responsibly improves your credit score.
A card that is used just for emergencies doesn’t give the credit card company enough opportunity to observe how you handle credit. The routine credit activity that is paid on time shows responsible handling of credit and these are the things that boost credit scores and credit limits.
Myth #2 You Should Close Cards that You Haven’t Used in a While
The longer you have a card the better it reflects on your overall credit. This means a card that you’ve had for 5 or 10 years that doesn’t get used much is still valuable. If you close that card your available credit decreases and this reflects negatively on your credit.
Credit age shows credit maturity, your ability to positively maintain a credit account over a long period of time. This is attractive to the issuing companies. A better approach to handling those older credit cards that don’t get a lot of use is to plan to make small purchases every few months, just to keep the card active. The loan activity is positive if the cards are being paid on time.
Myth #3 The Minute You Use Your Credit Card Interest Begins to Accrue
You don’t ever have to pay interest on credit purchases if they are paid in full within the day grace period. Interest only accrues on any leftover balances that remain after the grace period.
The more on-time payments that are made, the more your credit is improved and this is reflected by your rising credit score. Every on time payment reported to the credit bureau is a positive notch on your credit belt.
Myth #4 Merchants Can Pre-set the Required Amount for Credit Purchases
By law, a merchant can only require a $10 minimum purchase for credit cards. No more than that. Beware of merchants that require more than $10 to spent if you use a credit card, this is not legal.
Myth #5 You Should Pay Your Balance Off Before the Due Date
If you are paying your balance off before your due date you aren’t accruing a payment history because you aren’t being billed. Allowing your purchases to remain unpaid for a full billing cycle allows a bill to be created and an on-time payment to be reported to the credit bureau.
It’s OK to do this because your purchases aren’t accruing interest until the end of the billing cycle after the grace period has passed. If you allow a bill to be created and paid you are doing everything within your power to benefit your credit positively. These positive on-time payments will be reflected in your credit score and with the increase in your credit limit.
There are many credit myths out there that keep many people confused and using their credit cards in non-beneficial ways. It pays to do your homework and debunk the many myths that surround credit card use.