There are a number of myths about the use of credit cards. Find out how to separate the myths and facts.

Credit cards have become an indispensable financial tool for many Americans today. Unfortunately, a number of myths have arisen that have caused confusion among some people when it comes to how credit cards really work and their potential effect on credit scores.

Here are a few of these common credit card myths debunked.

The Truth About Credit Cards

Myth: Applying for a new credit card won’t affect my credit score

Fact: Some people think that their credit scores are only affected after they actually use a new credit card they’ve applied for. However, your score will be impacted as soon as you apply for new credit, regardless of whether you are approved or use it.

In fact, applications for new credit count for 10% of a consumer’s overall credit score. As a result, applying for new credit too frequently can negatively impact your credit score.

Myth: If I pay less than the monthly minimum due on my credit card, this won’t count as a missed payment

Fact: Any monthly payment that’s less than the full minimum payment due could be reported by your credit card issuer as a missed payment, which could drag down your credit score. Therefore, it’s important to pay at least the minimum amount due on your credit card account by the due date each month.

An even better strategy is to pay off the full amount every month and to not spend more than you can pay off monthly. For the sake of your credit score, always pay on time.

Myth: I should close out unused credit card accounts with zero balances to boost my credit score

Fact: It’s generally smart to keep unused credit card accounts with zero balances open instead of closing them out because closing the account will reduce your total available credit. This, in turn, will increase your credit utilization rate, or the ratio of your outstanding credit card balances to your total credit limit.

This increase could be an indication to the credit reporting bureaus that you represent a higher credit risk, thus lowering your credit score.

Also, a credit card issuer can make the decision to close your account due to inactivity and is not required to notify you before doing so. You should try to use your card regularly -- at least once every couple months -- to keep it active.

Myth: The more credit cards I’m carrying in my wallet or purse, the better this will be for my credit score

Fact: 10% of your credit score is calculated based on the types of credit you have. The credit reporting bureaus generally like to see a variety of different kinds of credit — for example, a home mortgage, car loan and student loans in addition to credit cards.

Having many credit cards but no other types of credit could actually damage your credit score.

Myth: All the interest rates on my credit card balances are the same

Fact: There may be different kinds of charges and balances on your credit card that carry different interest rates. For example, different rates usually apply to balance transfers and cash advances than apply to regular purchases.

The good news is that all amounts you pay above the minimum payment due are automatically applied to the balance with the highest interest rate.

Myth: It’s not beneficial for me to have a high credit limit on my credit cards

Fact: Having a high credit limit can be beneficial if you manage your credit cards well. Here’s why: Your debt-to-credit ratio (or credit utilization rate) accounts for about one-third (30%) of your credit score. Having a high credit limit while keeping balances low will lower your debt-to-credit ratio, which may boost your credit score.

Myth: I must carry a credit card balance if I want to build my credit history

Fact: Many young people who are using credit cards as a tool to establish their credit history think that they have to carry an unpaid balance on their card to do so. But this isn’t the case. It’s usually better to pay off your balance in full each month since this will lower your debt-to-credit ratio and possibly increase your credit score.

What You Need To Know About Credit Cards

How you use credit cards could have a major impact on many different aspects of your personal finances, including your credit score. Therefore, it’s important to understand how credit cards really work and not be confused by these and other common credit card myths.

Contact Cadence Bank today if you have more questions about how credit cards work and how they could affect your personal finances and credit score.

This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.