New to credit cards? Don’t buy into these myths
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Getting the hang of a credit card can be difficult if you’ve never owned one before. Fees and fine print aside, there’s a lot of credit card information online to sift through regarding how to best use them.
Before you start dipping, tapping, swiping or even applying for a credit card, keep in mind the following myths and misconceptions.
Myth: Applying for multiple cards at once increases your chance of approval
When it comes to credit card applications, less is more. In fact, it’s best to limit yourself to one application every three to six months.
For each credit card application you submit, a hard credit check is performed on your credit report to determine whether or not you qualify for the card. Hard credit checks typically result in a temporary decrease to your credit score of around five points or less, according to myFICO.
Submitting multiple card applications within a short period of time has the potential to both significantly lower your credit score and signal to issuers that you’re an unreliable borrower.
Rather than risk your credit score and chances for approval in general, narrow down your options based on cards within your credit range. You can further increase your chances and apply for a card issued by whichever institution you bank with, so long as you have a good history with them.
Myth: You can’t get a credit card without a good credit score (or credit history in general)
No credit history or a bad credit score doesn’t mean you won’t be able to get a credit card. In fact, there are plenty of cards to choose from.
A secured credit card is a great option for anyone with a poor credit score, though you likely won’t receive a welcome bonus, stellar rewards or perks. Most secured cards require an upfront cash deposit to start using the card, with your credit limit set by the amount you deposit. After a few months of responsible card usage, you may qualify for an upgrade.
Those without much of a credit history may consider the Petal® 2 “Cash Back, No Fees” Visa® Credit Card, which doesn’t require a credit score to apply. At first, the card offers you 1 percent cash back on eligible purchases. That percentage increases to 1.25 percent after completing six on-time monthly payments and 1.5 percent after 12 on-time monthly payments.
If you’re a college student, applying for a student credit card may be your best bet for approval. Many student card options don’t require a credit history to apply (such as the Discover it® Student chrome and Discover it® Student Cash Back) and offer rewards programs that can earn you cash back, points or miles for your spending. Your parent or guardian can also sign you as an authorized user on one of their credit cards to help jump-start your credit profile.
Myth: You should cancel credit cards you don’t use
According to a 2019 Bankrate survey, 29 percent of Americans don’t know how closing a credit card account affects their credit score.
Canceling an unused credit card can have a few negative impacts. Firstly, doing so can increase your credit utilization ratio by lowering the amount of available credit you have. Credit utilization ratios should be at or under 10 percent of your available credit, and a higher percentage may portray you as someone who spends more than they can afford to pay off.
A card cancellation can also shorten the length of your credit history and decrease your credit mix, which benefits from being comprised of different types of credit.
“If the card has an annual fee and you aren’t using any perks that might come with the card, call to see if there is a free card [you] can downgrade you to,” says Dan Stous, director of financial planning at Flagstone Financial Management.
By contacting your issuer and asking to downgrade to a no annual fee credit card within their lineup, you can keep the length of your credit history from the old card and leave your credit score untouched.
Myth: Checking your credit score lowers it
Multiple hard credit checks may have the potential to damage your credit score, but personally checking your score does nothing of the sort.
Any time you check your own credit score, a soft credit check is performed. Soft credit checks do not appear on your credit report and have no impact on your credit score.
In fact, it’s important to regularly check your credit score if you want to improve it or catch any inaccuracies in reporting. Personal finance apps like Mint allow you to check your score for free, along with factors positively or negatively affecting it.