Your credit card might be your favored method for paying everyday bills and expenses big and small, but how well do you know its effect on your credit score?
With so many credit score myths out there, you could inadvertently be making some major mistakes without even knowing it.
Read more: 3 things to never pay for with a credit card
We’ve debunked some of the most common credit card myths and rumors that permeate the Web to prevent you from harming your credit.
5 credit card myths that could hurt your credit score
1. Credit cards are bad for your credit.
This myth is popular due to the countless horror stories of people falling behind on their credit card payments and succumbing to a mountain of debt. The truth is that revolving, responsible credit card activity is a good thing, since it’s reflected positively on your credit report.
Responsibly using a credit card gives you an opportunity to demonstrate your creditworthiness to would-be lenders. Having a history of making your payments on time could make it easier to qualify or loans down the road when it comes time to buy a home or car.
2. Keeping a balance on your card helps your credit score.
It’s a misconception that an outstanding balance demonstrates good, frequent credit activity.
Any balance, big or small, shows lenders that you fail to pay off your debts. Looking at 2013 data, Americans were carrying between roughly $1,600 and $3,800 in credit card debt, on average.
What actually helps your credit scores (monitored by TransUnion, Equifax and Experian) is paying off your balance each month, in full. If that’s not doable, you have the option of paying your minimum balance, but beware: it could leave you paying high interest rates on the unpaid portion, which could lead to credit card debt and a damaged credit score.
Read more: How to start paying off credit card debt
3. Reaching your credit limit won’t affect your credit scores.
Maxing out your card—even if you pay your balance in full each month—shows lenders that you rely too much on credit. It could signify that you’re a lending risk.
This will be reflected on your credit report and can hurt your credit scores. The solution is to maintain the perfect credit utilization ratio: the percentage of credit you use compared to available credit. This is tracked by credit bureaus and lenders alike.
A commonly cited rule of thumb is 30%. So, on a credit limit of $1,000 this would be $333 that you actually use.
4. More accounts will improve your credit scores.
Applying for several new credit cards at once can be harmful to your credit. However, having many cards can be a good thing if they’re opened over a longer period of time and you demonstrate responsible use.
The same goes for closing older accounts.
“When you close a credit card account, you’ll reduce the total amount of credit extended to you,” according to Fox Business. “As a result, it can raise your credit utilization ratio.”
It’s wise to keep an eye on your available credit, payments and hard credit checks at any given time.
5. Co-signing a credit card has zero effect on your credit scores.
When you cosign for a credit card, you become as responsible for your credit scores as the card holder, even if you never charge a single dime to the card. If the cardholder spends unwisely or misses payments, your credit scores will be penalized, too.
Only cosign for someone you trust and clearly communicate what constitutes good credit behavior. A safe bet is to avoid co-signing in the first place.
Knowing fact from fiction when it comes to your credit scores and your credit card use can only help you successfully improve your scores, whether it’s already high or on the lower end.