The 4 biggest first credit card myths: busted

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The 4 biggest first credit card myths: busted


Getting your first credit card can be an important part of establishing your credit history. If you pay off your balance in full every month and make on-time payments, a credit card may be a useful tool. However, there's a lot of misinformation about credit cards that could cause you to wreck your credit if you're not careful.

At Credit Karma, we want to empower you to be a responsible credit user, so we're exposing four of the biggest credit card myths to help you get your credit history off to a solid start.

Myth #1: Making the minimum payment is enough.

One of the biggest myths about credit cards is that making the minimum payment is enough.

Your credit card issuer will typically require a minimum payment each month to gradually pay down your balance. However, you can pay more than the minimum, and it's generally best to pay off your credit card in full each month if you can. The words "minimum payment" can be confusing for new credit card holders, who might think that's all they owe each month. Instead, they should look at their total current balance to see what they owe. Making only the minimum payment can lead to credit card debt and paying a lot toward interest.

Let's say that you charged $500 on your credit card and have an 18 percent interest rate. According to Credit Karma's Debt Repayment Calculator, if you only make a minimum payment of $25 each month, it would take you two years to pay off the balance (assuming your interest rate remains the same and you don't charge anything else to the card), and you'd pay almost $100 in interest.

And if you make other large charges before you've finished paying off that first one, and continue to only make the minimum payment, your payback timeframe will get a lot longer, and the total interest you'll pay will be much higher.

Myth #2: The 0 percent introductory APR lasts forever.

Some credit card companies offer a zero percent introductory APR as part of a promotion to entice you to apply for their card. APR stands for annual percentage rate and refers to the amount of interest you'll pay annually if your balance isn't paid on or before the due date. A zero percent APR means that you won't pay any interest for the duration of the promotion.

Here's the catch: these promotions typically only last 6 to 18 months. Once the promotional period ends, you may be surprised by how high your APR actually is.

As the APR on credit cards can range from 11 to 20 percent or more, if you carry a balance on your credit card after the promotional period, you may end up paying more in interest than you originally anticipated. Before you apply for your first (or any) credit card, read the fine print on your offer so that you know exactly what your APR is and when the promotional period (if any) expires.

Myth #3: Opening a new credit card will hurt your credit score for a long time.

When you apply for a credit card, this typically results in a hard inquiry, which occurs when the credit card issuer checks your credit report before making a lending decision. A hard inquiry can cause your credit score to drop by a few points. However, hard inquiries typically only remain on your report for two years.

According to credit card expert Jason Steele, opening a credit card generally won't hurt your credit score in the long run -- it can actually "[do] the opposite by adding to your credit history" --- as long as you use the card responsibly and make full, on-time payments.

Myth #4: You must carry a balance in order to improve your credit score.

More and more younger millennials are saying no to credit cards, which many believe is because of their aversion to debt. According to a Bankrate survey, 63 percent of millennials ages 18 to 29 don't have a credit card. In comparison, only 35 percent of adults age 30 and over don't have credit cards.

Using a credit card doesn't necessarily mean you have to live your life in debt. Many people believe you must carry a balance in order to improve your credit score, but this is completely false.

Carrying a balance on your card could cause you to pay more in interest and could potentially lower your score if your credit utilization rate gets too high. Having a credit card doesn't have to mean carrying a balance or being in debt.

When using your first credit card, it's generally good practice to pay your balance in full each month and make your payments on time. You can do this by setting up automatic payments or scheduling reminders in your calendar to pay your bills.

Bottom line

There are a ton of myths and misinformation surrounding credit cards and credit in general. When getting your first credit card, it's important to read the fine print and use your card responsibly by paying your balance in full each month and only using a small portion of your available credit. Your credit score may thank you later.

Do any of these myths sound familiar? What other myths have you come across?

About the author: Melanie Lockert is a freelance writer and editor currently living in Portland, Oregon. She is passionate about education, financial literacy and empowering people to take control of their finances. Her work has been featured on Rockstar Finance, GoGirl Finance, The Globe and Mail and more.

Editorial Note: The opinions you read here come from our editorial team. While compensation may affect which companies we write about and products we review, our marketing partners don't review, approve or endorse our editorial content. Our content is accurate (to the best of our knowledge) when we initially post it, but we don't guarantee the accuracy or completeness of the information provided. You can visit the company's website to get complete details about a product. See an error in an article? Use this form to report it to our editorial team. For questions about your Credit Karma account, please submit a help request to our support team.

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I would like to add to Myth #4. It's a great idea to set up automatic payments. But you still need to keep an eye on your balance. If your balance is over 30 percent of your limit it can hurt your credit score. I personally like to keep mine below 10%.

So a few days before your billing date you should make sure what you owe isn't over 30%. If it is over; make a payment. This will help your credit score. Then when you get the bill pay the rest before the due date. Or just let your automatic payment take care of it.

You don't want to pay all the bill before they send you the bill or it will look like you aren't using the card because they will report that you have a zero balance. You want a small amount on the card when the bill comes out. Then pay it all off and you will never pay any interest.

I see a lot of people get confused by the closing (or billing) date and the due date. You should carry a balance when they issue the bill. That is the closing date. Then pay it all off before the bill is due. That is the due date. That's all you have to do and your credit score will improve and you will never pay interest.

Credit Karma Team
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Helpful to 2 out of 2 people

Thanks for posting! 

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I thought the same thing and jumped through the hoops to pay after the statment came out, but actually, that is not quite correct, different credit reporting agencies poll open accounts at different times each month, not when the statement is issued.  Some of the minor agencies poll more than once per month.  I have seen this first hand on my accounts, they are reported at $xx because they were polled at the first of the month.  I always pay my cards off before the statement is available, it makes no difference.   It still shows paid on time and my ratio is always below 10%.

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I could be wrong, but many of my accounts, even if I'm not using them every month, still show up as being paid on time even if the balance is 0. I guess it differs depending on the company if they report it to the agencies or not?

For instance, I have a Beall's Florida card that I hadn't used in over a year, but they have continually reported to both agencies that I have paid.

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