If you are just starting out on your own, you may have a hard time getting credit cards or loans because of a lack of credit history. You must build credit to get access to the best credit cards and loans, but you can mess things up if you don’t know how to do it correctly. Here are some common myths people have on building credit.
Myth 1 – You must use your credit card all of the time to build credit.
It’s common for people to think they must be using their credit card to build credit. However, this information can work to your disadvantage if you do it the wrong way. Using your card and not paying down the balance can actually hurt your credit. Credit reporting agencies look at how much credit you use to partially determine your score.
If you carry a high balance, you may end up with a lower score even if you make the minimum monthly payments on time. It’s better to only use your credit card occasionally just to keep it active. Pay off the balance to get the most benefit.
Myth 2 – Maxing out the card is okay as long as you pay it off.
A maxed-out card can do major damage to your credit score even if you pay it off quickly. It depends on when you pay off your balance. If it is after the monthly cycle ends, it will show up as maxed out for that month on your credit score. It will cause your score to drop because of how much credit you used.
You should know when your cycle ends and make sure the payment is credited to your account before that date. You want to show a zero balance on your credit report to get the best credit score.
Myth 3 – You need debt for a good credit score.
Showing you know how to use credit and stay out of debt is much better for your score than having debt. As long as you have an active credit card, it can be paid off and still improve your credit.
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