There seems to be several myths surrounding credit cards, their use, and how they may (or may not) impact your credit score as a consumer. We thought we would debunk some of the more common misconceptions.
Myth #1. Applying for multiple credit cards will hurt your credit score.
When you apply for a credit card it does result in a "hard" inquiry which can cause a temporary dip in your credit score. However, for most people, opening a new credit card card can actually help your credit score (over time) because it helps you establish more credit history and reduces your debt-to-credit ratio. Of course, the exception is when someone applies for multiple cards in a very short period of time and has limited credit history. The dip in credit score from the multiple hard inquiries may not be so temporary.
Myth #2. If you need to improve your credit score, cancelling credit cards helps.
Cancelling credit cards can actually HURT your credit score. The reason is, when you cancel a card you are reducing the amount of credit available to you. This can increase your debt-to-credit ratio (the amount of debt you have compared to the amount of credit available) and thus have a negative impact on your credit score. It's better to pay off the cards, but leave the accounts open if you are trying to improve your credit score.
Myth #3. My card has no spending limit ... cha-ching!
Many of the "exclusive" credit cards (Platinum, Signature, Black, etc.) appear on the consumer side not to have spending limits. Don't be fooled if have one of these cards ... you do not have cart blanc to spend whatever you'd like. Every credit card has a spending limit, some higher than others. What the credit card companies aren't telling you is that non-disclosure of their NPSL (Non-Preset Spending Limit), is how they attract consumers and make them think their card is more "exclusive" than other cards.
Myth #4. Ordering a credit report will hurt my credit score.
There are two types of inquiries associated with your credit report, "hard" and "soft". A hard inquiry is generated when you are applying for credit, seeking pre-approval for a loan, or an inquiry used to determine rates you will pay (e.g. insurance). Hard inquiries require your signature authorization and can ding your credit score temporarily by a few points. Soft inquiries are generated by credit report requests, "pre-approved" credit card offers, employer inquiries, etc. Soft inquiries do not impact your credit score.
Myth #5. People who use credit cards all the time must have a lot of debt.
While it's possible that someone who uses credit cards all the time may have a lot of debt, this should not be your immediate assumption. There are a large number of people who use credit cards for practically everything and pay them off in full each month.
Myth #6. I pay my bill in full each month, so I pay no interest. That means my credit card company probably doesn't like me very much.
This is not true at all. While they may not be earning monthly interest fees from your account (good for you), the credit card company earns a fee from the merchant each and every time you use your credit card. Trust us, you are a valued customer to your credit card company ... whether you pay your bill in full each month or not.
About Novera Payment Solutions
Novera Payment Solutions is a leader in the credit card payments industry.
Why do we care about credit card myths? Because while you may be a business owner, you are also a consumer who uses credit cards. We care about the success of our clients and strive to provide information and content which can be useful not only in their business but in their personal lives, as well!
We are committed to helping businesses improve their bottom line by providing significant savings on credit card processing fees through our innovative and trasparent flat fee merchant account pricing models.
