Do not let these Three credit score myths value you cash when rates of interest rise

Credit scores play a key role in your financial life. In general, the higher your credit rating, the better you are at lending.

And yet, many Americans make the same common mistakes with credit, putting their future financial well-being at risk. With interest rates climbing at their all-time high each year, the stakes are even higher in the coming year.

Here are some of the most common myths about credit cards and credit scores and how to avoid them in the future.

Myth #1: You can’t qualify for credit with a low score

According to a recent report by Capital One, nearly 70% of Americans mistakenly believe that having bad credit prevents them from qualifying for any type of credit card.

Choosing the right card type can be noisy Ted Rossman, senior industry analyst at Bankrate and CreditCards.com. For example, getting a secured credit card or “piggybacking on a parent’s card as an authorized user” are good starting points, he said.

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Some secured cards require a cash deposit, which then serves as a line of credit, which can work well for those with no proven payment history. Otherwise, consider a card that requires a co-signer, Rossman advised. In this case, the parents or co-signers are responsible if the account is not sound.

Myth #2: Paying utility bills can improve your score

Almost as many — about 68% — mistakenly believe that paying your utility bills on time can improve your credit score, according to Capital One’s July 2022 survey of more than 3,500 Americans.

Most utility companies do not report payment histories to credit bureaus, and even if they did, not all credit reporting companies consider this type of bill payment information.

If you try to raise Your credit score, paying those bills on time only matters if you’re signed up for a program like Experian Boost, Rossman said, which counts on-time utility, phone and cable TV payments into your credit history.

Myth #3: Carrying a small balance will help your score

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Another common misconception about credit cards is that the monthly balance gives a boost to your credit score.

According to Capital One, 37% of borrowers incorrectly believe that keeping a balance on their card is better for their credit than paying off the balance in full each month. A separate NerdWallet study found that up to 46% of Americans make the same mistake.

This is the most expensive misunderstanding. In fact, any amount of revolving debt will cost you interest charges. These are typically not calculated based on the debt you carry over to the next billing period, but based on your daily average balance.

If you don’t pay in full, be sure to pay at least the minimum amount due. Paying less than the minimum is “tantamount to not paying it at all,” according to Michele Raneri, vice president and head of US research and advisory services at TransUnion.

“It’s delinquency,” Raneri said, which could also affect your credit score in as little as 15 to 30 days, she added.

Credit experts generally advise borrowers to keep revolving debt below 30% of their available credit to limit the impact that high balances can have on your credit score.

Still, nearly half of credit card holders carry credit card debt month-on-month, according to a Bankrate report, while interest charges on those balances continue to rise.

Credit card rates are now averaging over 19% — an all-time high — after rising at their steepest annual pace ever, in line with the Federal Reserve’s rate hikes to fight inflation.

With the Fed’s rate hikes to date, these credit card users will pay around $22.9 billion more than usual in 2022, according to a separate analysis by WalletHub.

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