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Debunking common credit card myths

June 23, 2023
min read

Does checking your credit report lower your credit score? Should you have multiple credit cards? We’re clearing up credit card facts from fiction!

Woman checking credit card statement

When did you get your first credit card?

Even if you’ve used one for years, you may have a few misconceptions about how it works.

With a better understanding of how to use your credit card, you can lay the foundation for a great credit score.

Your credit score represents your debt and repayment history. It’s a 3-digit number that measures how responsibly you use credit products.  

Financial institutions use your credit score to see how risky it would be to lend you money, whether that’s through a car loan or a credit card.

Credit cards are a convenient borrowing tool that help build your credit history. A good credit score helps you:

  • Qualify for a better rate on your home or car insurance.
  • Get a lower interest rate on your credit card.
  • Have a higher chance of being approved by a landlord, employer, or lender at a financial institution.

Unfortunately, there are many common credit card misconceptions floating around—and they could be damaging your credit.

Here are the most common myths to watch out for:

Myth #1: Having a credit card balance improves your credit rating

It’s a common myth you’ve probably heard before: Carrying a balance will improve your credit score.

This is not the case. In reality, paying off your balance every month not only saves you money on interest, but also shows your financial institution that you are not a credit risk.

It’s a good practice to pay the balance off in full every month. This will build your credit score and help you avoid paying interest.

In Canada, the average interest rate for a credit card is 19-20%. Rather than carrying a balance on your credit card, consider consolidating your high-interest debt into a PayOff Loan. With a PayOff loan, you can get a lower rate to save hundreds or thousands on interest.

Myth #2: Checking your credit score hurts your credit

The real answer here is a bit tricky. There are two types of credit checks:

  • Soft check. This is when you access your own credit report to see your credit score, lines of credit, and payment history. It’s a check that isn’t done for any credit-seeking purpose.
  • Hard check. On the other hand, a hard check will affect your credit score. The purpose is to evaluate whether you qualify for a credit product you’ve applied for. A hard check is done whenever you apply for a loan, credit card, or mortgage.

Checking your credit score yourself will not affect it, while a hard credit check will.

Myth #3: You can apply for a new credit card without hurting your credit

Whenever you apply for a credit card, your financial institution checks your credit to make sure you qualify for the card. This means that your score will be affected, regardless of whether you are approved or not.

However, having more available credit can improve your credit utilization ratio, which benefits your score in the long term.

What is your credit utilization ratio?

This measures how much of your available credit you’re using; to avoid impacting your credit score, try to use no more than 30%. The lower the percentage, the better.

If you’re consistently using most of your available credit, it may be worth applying for a higher limit or a second card.

You have a credit card with a limit of $2,000.

If you’re currently carrying a balance of $1,000, that means you’re utilizing 50% of your available credit.

Try not to carry more than $600 on your card to keep your credit utilization ratio below 30%.

Myth #4: Don’t accept a credit limit increase if you don’t need it

As you improve your credit score, your financial institution may offer you a credit limit increase on your credit card. This allows you to borrow more money at any given time.

You might think that taking a credit limit increase when you don’t need may hurt your score—but that’s not necessarily true.

In fact, taking an increase can lower the ratio of available credit you use, which is a benefit to your overall credit score.

As long as you continue paying off your credit card in full every month, a credit limit increase can improve your credit score. Just be sure to use the extra credit responsibly!

As a general rule, don’t spend more with your credit card than you can afford to pay back by the end of the month—otherwise, you’ll be paying interest on the outstanding balance and lower your credit score.

Myth #5: A credit card with an annual fee is a waste of money

Many people write off credit cards with an annual fee, but they can actually offer more value than one without.

It all depends on how much you spend and what types of purchases you plan on making. But in many cases, the increased rewards can outweigh the card’s annual cost.

At Cambrian, we’re currently offering the Cambrian Cash Back World Elite Mastercard®. For a limited time, you can get your first annual fee refunded, along with a bonus of 15,000 Welcome Points!

Myth #6: A credit card is bad for your credit

When you use your credit card correctly, it’s good for your credit!

A good credit history shows financial institutions that you’re responsible with your money—and that means you’re less likely to default on a loan.

This is why your credit score can influence whether you’re approved for a mortgage, a car loan, or even a rental application. It can even reduce your rates on other services, such as insurance.

Myth #7: Closing a credit card you're not using is good for your credit

Do you have an old credit card taking up space in your wallet? Closing it might seem like one way to boost your score.

If your debt is compiled on one card rather than spread over two, it can increase your credit utilization ratio. This can lower your credit rating.

Instead, consider keeping it the second card for any emergencies. Be sure to use it once every couple of months to keep the card active.

So, does closing a credit card hurt your credit score? Not directly, but it may end up doing so if you have a higher credit utilization ratio as a result.

Myth #8: Having a higher income will positively impact my credit score

Your salary won’t appear anywhere on your credit report. When it comes to your credit score, it’s not about how much money you make—it’s how you use it.

Let’s talk about credit

Whether you want to improve your credit score through debt consolidation or apply for a new credit card, we’re always happy to help. At Cambrian Credit Union in Winnipeg and Selkirk, we offer a variety of loans and credit products to suit your needs.

Book a meeting to talk about your options today!

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