Don’t Fall for These Credit Card Myths

National nonprofit credit counseling agency Take Charge America helps consumers dispel fact from fiction when it comes to credit limits, scores, balances and more

PHOENIX--(BUSINESS WIRE)--Credit cards are essential tools in today’s financial landscape, offering purchase flexibility and a path to establish good credit. But there’s a downside, too, and consumers who don’t understand how credit card use impacts their credit scores and greater financial outlook could find themselves in trouble.

“Getting a credit card is easy, but building a solid credit history and avoiding the temptation to overspend is trickier,” said Manuel Salazar, chief executive officer of Take Charge America, a national nonprofit credit counseling and debt management agency. “As Americans hit record debt levels, it’s apparent that more people need guidance on how credit cards work and the repercussions of misuse.”

To help consumers build their credit card knowledge, Salazar dispels five common myths:

• “Always Close Accounts You’re Not Using”: Closing a card might seem like a good way to avoid overspending, but it can actually hurt your credit score. When you close a card, you lower your total available credit limit. This means your credit utilization rate — the amount of debt you have compared to your credit limit— will increase. A higher utilization rate can lower your credit score, even if there isn’t a balance on the closed card.
• “Carry a Balance to Build Credit”: Carrying a balance means you’re paying more in interest, plus this move also increases your credit utilization rate. The best approach for building credit is to pay off your balance in full each month. If you’re unable, aim to pay more than minimum to reduce total interest paid.
• “Credit Repair Erases Bad Credit History”: No service can legally remove accurate information from a report. To repair credit, make on-time payments, pay down balances and limit new credit applications.
• “Higher Credit Limits Boost Your Score”: A higher credit limit can lower your credit utilization rate, but only if you maintain the same spending habits. Increased spending can undo the benefits and add to your debt.
• “Balance Transfer Cards Will Improve Your Credit”: Transferring a balance to a new card doesn’t erase the debt — it moves it around. Balance transfer promotions can be helpful for managing high-interest debt, yet this only works if you’re able to pay it off before the promotional interest rate ends. If you don’t, the high rates and fees can worsen your debt.

For personalized action plans to reduce debt, schedule a free credit counseling session.

About Take Charge America, Inc.

Founded in 1987, Take Charge America, Inc. is a nonprofit agency offering financial education and counseling services including credit counseling, debt management, housing counseling and bankruptcy counseling. It has helped more than 2 million consumers nationwide manage their personal finances and debts. Learn more at takechargeamerica.org or call [phone].