Student loan debt can be such a heavy burden on your finances and credit standing. It’s only natural to approach credit cards with some hesitation, especially since using one may place you further into debt.
However, responsible use of a credit card can boost your credit score and bring some stability to your credit history. Even if you’re struggling with other forms of debt.
That’s why we’ve debunked some misconceptions about credit cards to clear up any confusion you might have about them. Here are five of the most common credit card myths, and how you can avoid falling for them.
Credit card myth #1
Carrying a small balance each month helps your credit score
This is one of the most common credit card myths out there. Many people think that if you pay your credit card balance in full by your due date, it gives the impression that you aren’t using your card at all.
That’s why some credit card users will carry a small outstanding balance from month to month. They think it’s a way of signaling to their bank or credit card issuer that they’re putting charges on their card.
However, the three major credit bureaus already know if you’ve been using your card or not. That’s because your credit activity is reported to them on a monthly basis.
“Credit card issuers and credit scoring models do not need to see you carrying a balance to ‘prove’ to them that you can handle a credit card,” says John Ganotis of Credit Card Insider.
Yet, leaving an unpaid balance, no matter how minor, can subject you to serious penalty interest rates. This, in turn, can foster a larger balance and put you at risk for more potential debt.
According to myFico, your payment history and amounts owed comprise 35 percent and 30 percent of your credit score, respectively. Paying off your balance on time, in full, and carrying no balance at the end of the month is what helps — not harms — your credit score.
Credit card myth #2
Having too many credit cards can harm your credit
It doesn’t matter if you have 100 credit cards or one. What matters is if you’re using too much of your credit, or if you’ve gone into credit card debt.
In fact, having a variety of credit cards can be beneficial. Most likely you use various ones according to your needs. Perhaps you use one for travel rewards, another for cash back, while another has a 0% APR introductory offer.
What may (temporarily) impact your credit is applying for new credit. The “hard” inquiry into your credit report each time you submit an application can cause your FICO score to dip a few points.
That doesn’t mean you should avoid applying for a credit card altogether. In fact, using a revolving line of credit regularly and responsibly can help raise your score more than one or two hard credit checks can lower it.
Conversely, canceling too many credit cards reduces your overall credit available to you relative to the amount you use. That can raise the amount of debt you have compared to your available credit limits, which can have a negative impact on your credit.
The solution? Keep a modest balance of credit cards and use them regularly, but not too much. That will keep your credit utilization ratio in good standing.
Credit card myth #3
The minimum payment is all that you owe
To ensure that you’re paying something towards your credit card balance, your card provider will require you to make a minimum payment each month.
However, many people mistakenly believe that’s all they owe. Or, in worse cases, the minimum payment is all they can afford to make monthly. That’s why this is on our list of credit card myths to be debunked.
But if you only make the minimum payment, you’ll be saddled with interest and a balance that just won’t go away. And if you keep putting new charges on your card, it will take you a lot longer to get out of debt.
The fact is, you are permitted to make more than your minimum payment. And you should aim to pay off your entire balance each month if possible.
Credit card myth #4
A credit limit increase is bad
Many people often think a credit limit increase implies you’re using too much credit, which can reflect poorly on your credit report. It’s one of the biggest credit card myths there is.
If your card issuer grants you an increase, you can actually use it to your advantage by keeping your spending habits level.
“If you increase your credit limit and keep your spending the same, you are lowering your credit utilization ratio, thereby increasing your credit score, ” says Lori Askins of BR Finance Solutions.
Still, that doesn’t mean you should accept a credit limit increase if you’re not disciplined.
“The lender is hoping you’ll take the extra line of credit and earn them interest, but if you use credit wisely, the extra they offer you can actually help your score,” says John Schmoll of FrugalRules.
“Of course, if having more available credit will tempt you to overspend, then don’t take the offer,” Schmoll adds. “But if it doesn’t, it’ll help you more in the long run.”
Credit card myth #5
Getting a cosigner on a credit card won’t affect my credit score
According to a 2014 survey by credit bureau Experian, nine in 10 millennials are familiar with cosigning and nearly two-thirds have used a cosigner in the past.
A cosigner, like a family member or friend, can use the strength of their own credit to get you approved if your own credit profile isn’t strong enough.
But it’s incorrect to assume that a cosigned credit card account will have no effect on your credit score. Depending on how you use your card, both you and your cosigner’s credit scores can be helped or harmed.
Since the cosigner’s name is also on the account, their credit activity affects yours. Even if they don’t use the card. And if you go into credit card debt or fail to pay your bills on time, your credit, and your cosigner’s will both take a hit.
Avoid credit card myths and embrace the facts
The truth about most credit card myths is that they can easily be dispelled with the facts.
Like learning the basics about your student loans, knowing the ABCs of credit cards and how they function can make you a better, more conscious consumer. No matter what type of credit you use.
What are some credit card myths you’ve encountered or wondered about? Feel free to leave them in the comments section below.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.57% – 6.97%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|