7 Key Credit Card Truths You Should Know
Understanding how credit cards impact your financial profile is essential for building and maintaining a strong credit history. Let’s clear up some common myths with these real facts about how credit cards work:
1. A New Card Can Affect Your Credit Score—Even If You Don’t Use It
Many people assume a credit card only impacts their credit once they start spending. But the reality is, applying for a card affects your credit right away. Credit inquiries make up about 10% of your credit score. So, even if you don’t get approved—or never swipe the card—just applying can slightly lower your score. Avoid frequent applications unless truly necessary.
2. Paying Less Than the Minimum Counts as a Missed Payment
Even if you send a partial payment, anything less than the minimum due can be reported as missed. This can hurt your credit score and make it harder to borrow in the future. Always check your bill and pay at least the minimum by the due date. Better yet, pay more when you can to reduce debt and cut down on interest.
3. Not All Credit Card Balances Have the Same Interest Rate
Your credit card may have multiple interest rates at once—for example, one for purchases, another for cash advances, and a different one for balance transfers. When you pay more than the minimum, your lender must apply the extra toward the highest-interest balance first. That helps you pay off your most expensive debt faster.
4. Your Balance Might Not Be Fully Paid Even If It Says $0
Ever heard of residual interest? It’s the interest that continues to build between your statement closing date and when you make your payment. Even if your balance shows $0, you might still owe a little. To avoid this, ask your issuer for the payoff amount as of your payment date to ensure you truly clear the balance.
5. A High Credit Limit Can Actually Help Your Score
Used responsibly, a higher credit limit can be beneficial. Why? Because your credit utilization ratio (how much you owe versus your available credit) plays a big role in your score—roughly 30%. Keeping your balances low and your limits high gives you a better utilization rate, which is great for your credit.
6. You Don’t Need to Carry a Balance to Build Credit
A common misconception is that carrying a balance improves your credit score. It doesn’t. Using your card and paying it off in full every month shows lenders you’re responsible—and keeps your utilization low. This is one of the smartest ways to build your credit history without paying interest.
7. More Credit Cards Isn’t Always Better
It might seem like having multiple cards boosts your credit, but that’s not always the case. Lenders like to see a healthy credit mix, such as a combination of credit cards, loans, and perhaps a mortgage. If your credit portfolio is made up only of cards, it might not strengthen your score the way you expect.
Final Thoughts
Now that you know these often-overlooked truths, you’re better equipped to use your credit cards wisely and build a solid financial foundation. Credit is a tool—and when used well, it can work in your favor.
Thinking of getting a new card? Make sure you choose one that fits your needs and financial habits.