While many people think they know what credit cards are and how to use them, there are many popular misconceptions tied to their use. A lot of these credit card myths are perpetuated by the credit card companies, and for good reason; these ideas often put consumers more in debt and make money for the credit card companies. Some common myths about credit cards include:

• Making regular monthly payments on time leads to a good credit score. Actually, even if you are making your minimum monthly payments, if your debt-to-income ratio is greater than 30%, it will reflect negatively on your credit score and lower your credit rating. If you want to improve your credit score, you must get rid of some of your debt so that it occupies a smaller percentage of your income.

• The credit card companies wouldn’t send me credit applications if I couldn’t afford it. Credit card companies send applications to everyone; you have not been selected because they think it will be beneficial to you. Credit card companies make the most profit when people stay in debt for years, because they earn enormous amounts of interest as debts are slowly paid back. Understand this: credit card companies want you to be in debt! They don’t care whether or not you can afford it!

• Closing accounts will improve my credit score. Wrong! By the time you have opened a new account, the damage to your credit score has already been done. When you close accounts it may actually harm your score by increasing the ratio of used credit to available credit. It will also make your credit rating look younger and less stable if you close old accounts. So remember, be cautious in opening and closing accounts.

• If I don’t use credit, I’ll never be able to buy anything. What happened to the days of paying with cash? Really, though, you do not need to pay for everything with a credit card to improve your credit score. Paying with cash is always cheaper. Save your money and then buy the things you want. It is possible to build credit history through auto loans and other personal loans from a bank or credit union.

So be careful with your credit cards. Don’t believe everything you hear, and always be cautious and make informed decisions. Remember that it is your money and you should be in control!

This entry was posted on Friday, January 6th, 2006 at 6:15 pm and is filed under Credit. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.