7 Credit Card Myths and the Truth Behind Them

When it comes to financial myths, credit-card-related misconceptions rank right up there alongside needing a cash windfall to kickstart your savings or that you need a significant amount of money to invest in stocks.

In some ways, credit card myths may arguably be the most pervasive. Case in point: a recent Capital One survey on credit beliefs finds that 70% of U.S. consumers think that having too low a credit card can block them from qualifying for any type of card. Nearly 4 in 10 (37%) believe that carrying a balance on their card can increase their score.

While credit cards can be a helpful tool to lift your credit or provide valuable perks, their proper use is often misunderstood. Whether rebuilding or trying to establish credit when you have none, falling for a myth can hurt one's effort to build credit. It can result in a series of foibles and missteps, negatively impacting your credit score.

Here are the most common credit card myths, debunked:

Myth #1: Applying for a Credit Card Always Hurts Your Credit Score

A common misconception about credit cards is that hard inquiries always lead to a devastating dip in your score.

Truth: While hard inquiries to open new credit cards usually linger on your report for up to two years, they typically cause a small, temporary drop in your credit.

Action Tip: To minimize the potential negative impact on your score, space out your applications. Don't try to add too many new credit cards at once. That way, it won't have such a substantial impact on your credit.

When you apply to too many credit cards at once, it sends a signal to creditors that you might be financially stretched and need to open multiple lines of credit. In turn, it looks like you might be a higher-risk borrower. That's because companies have found that, in the past, consumers who apply for a high number of accounts at the same time have a harder time keeping up with their monthly credit card payments.

Before you apply for a new credit card, see if you can get prequalified online. By providing some personal and financial information, such as your Social Security Number and income, you can see if you get the green light for a credit card. It can also give you an estimate of the credit limit for which you'll likely be approved. The beauty of pre-qualification is that it requires a soft pull on your credit, so it won't affect your score.

Last, make a point to monitor your credit regularly. You can order free weekly reports from the three credit bureaus—Equifax, Experian, and TransUnion— at AnnualCreditReport.com. Some credit card issuers, credit monitoring apps, and money management apps also give you a free credit score.

Myth #2: You Need to Carry a Balance to Build Credit

As mentioned, according to a Capital One survey on pervasive credit beliefs, 37% of U.S. consumers mistakenly believe that carrying a card balance each month can increase their score.

Truth: Paying off your balance in full each month shows conscientious credit use. Plus, it can help you steer clear of interest charges. With the average credit card interest rate at 21.47%, and the average balance as of November 2024 at nearly $6,700, paying your balance in full each month can help you avoid expensive credit.

Action Tip: Use your card for small, necessary purchases and pay them off promptly. If you're concerned about racking up debt, put your card away—but don't close your account. Closing your account can lower your credit limit, increasing your credit utilization ratio, which can ding your credit.

Myth #3: Canceling Unused Credit Cards Lifts Your Score

Another common credit card myth is that closing cards that have been inactive can elevate your credit score.

Truth: Closing a card reduces your available credit. It can increase your credit utilization ratio, which may lower your score. The credit utilization ratio is how much credit you use against the total credit limit at an individual card level and among all your cards.

Action Tip: Keep unused cards open and use them occasionally to maintain activity. If you can, consider using a credit card solely for recurring subscriptions or one type of expense, such as gas to fill up your tank.

Limit how much balance you want to rack up each month. Then, aim to pay off the balance in full each month. That way, you can keep the card active without accumulating huge debt.

Myth #4: Missing One Payment Won't Affect Your Credit

This one seemingly seems pulled out of thin air. But sure, maybe people equate missed payments for bills that don't typically get reported to the credit bureaus, such as rent payments or utility bills, as not harming one's score. (True story: Now, you can have nontraditional payments such as your rent, cell phone bill, or utilities reported to your credit file.)

Truth: Payments more than 30 days late can hurt your credit score and stay on your report for up to seven years.

While being a few days late on your credit card payment typically won't impact your score, it can mean getting hit with a late fee, or you might even lose valuable perks.

Action Tip: Set up autopay or reminders to avoid missing payments. Autopay is a relatively simple process, and you can usually do it through your credit card app or by logging into your account. You can receive balance updates and payment reminders via text or email.

Plus, you can usually change your payment due date so it syncs up better with your cash flow. For example, maybe you move it mid-month, after you get paid.

Myth #5: Having Multiple Credit Cards is Bad for Your Credit

Another credit card misconception that's long been floating around is that having a handful of credit cards can hurt your credit. This might've gotten mixed up with the fact that applying for too many cards at once can lower your score.

Truth: It's not the number of cards you have but how you manage them that matters. So, if you have just one card and are falling behind on payments, your credit could fare worse than if you had several cards and were on top of things.

Action Tip: Focus on keeping balances low and paying on time across all cards. Keeping a low balance helps with your credit usage, which makes up 30% of your FICO® credit score.

Myth #6: Checking Your Credit Report Lowers Your Score

This myth might have prevented you from checking your credit report.

Truth: Personal credit checks result in soft inquiries, which don't affect your credit score. So don't be afraid to check your credit report as often as needed.

Action Tip: Regularly monitor your score to track your progress. As mentioned, you can check your credit for free by visiting AnnualCreditReport.com or through a free credit monitoring service. Some card issuers and money management apps offer free credit scores and monitoring.

Myth #7: You Can't Build Credit if You're on a Tight Budget

Contrary to popular belief, elevating your credit is possible if you're feeling financially stretched.

Truth: You can build credit without going into additional debt by reporting your on-time rent, utility, or cell phone payments. Typically, you'll have to go through a third-party who will report your payments to the consumer bureaus.

For example, Self offers free renting reporting to all three credit bureaus. If you'd like to report your utility bills or cell phone payments to TransUnion, there's a fee of $6.95 a month.

Action Tip: Another way to build credit with a credit card when you're on a tight budget is to prioritize necessities like groceries or utilities for credit card spending, then pay off balances monthly. This will prevent you from racking up a balance.

The Bottom Line on Credit Card Myths

Staying clued into the ins and outs of how credit cards work can help you build credit effectively. In other words, knowing the top credit card myths and debunking them is a great start.

That, coupled with best practices, such as mindful credit card use by keeping balances low and making on-time payments each month, can help lead to a higher score.

Frequently Asked Questions (FAQs)

What is the golden rule of credit cards?
The golden rule of credit cards is to make monthly, on-time payments. Ideally, if you can swing it, aim to pay off your balance in full.

What does a zero credit score mean?
A "0" credit score or a "no credit score" means that there's not enough information to calculate a score. You've likely never had a line of credit and will need to open credit cards or take out loans to start building your credit score.

What is the average credit score?
As of October 2024, the average FICO® credit score in the U.S. is 717, one point lower than the year prior.

About the author

A personal finance writer for over 8 years, Jackie Lam covers money management, lending, insurance, investing, and banking, and personal stories. An AFC® accredited financial coach, she is passionate about helping freelance creatives design money systems on irregular income, gain greater awareness of their money narratives, and overcome mental and emotional blocks.

Her work has appeared in publications such as Bankrate, Time's NextAdvisor, CNET, Forbes, Salon.com, and BuzzFeed. She is the 2022 recipient of Money Management International's Financial Literacy and Education in Communities (FLEC) Award, and a two-time Plutus Awards nominee for Best Freelancer in Personal Finance Media. She lives in Los Angeles where she spends her free time swimming, drumming, and daydreaming about stickers.

Editorial policy

Our goal at Self is to provide readers with current and unbiased information on credit, financial health, and related topics. This content is based on research and other related articles from trusted sources. All content at Self is written by experienced contributors in the finance industry and reviewed by an accredited person(s).