Credit Card Myths: 65% of People Have the Wrong Idea About Carrying a Balance
Let’s start off with a personal finance quiz. Is it better for your credit score if you: A) carry a balance on your credit card each month, or B) pay off your outstanding balance each month when your bill is due?
If you answered A, you are in the majority of people. Unfortunately, the majority is wrong.
A recent LendingTree survey revealed that 65% of people believe carrying a balance on their credit card will help improve their credit score. Even more alarmingly, 79% of GenZ thought it was good to carry a balance, LendingTree reported in a press release. This misinformation highlights the crucial need for financial education in schools, so the next generation doesn’t make the same kind of money mistakes.
Carrying a balance doesn’t help your credit score and, unless you’re using a credit card with a 0% Intro APR, it is also hurting your wallet. With that in mind, it’s important to note that 35% of credit cardholders don’t know their card’s interest rate. For the 49% of survey respondents who carry a balance, those interest charges add up over time.
“The myth hurts cardholders because it costs them money. If they’re only carrying a small balance, it may not cost them a huge amount of money, but over time, it adds up,” Matt Schulz, chief credit analyst at LendingTree said in the press release.
Since your credit utilization accounts for roughly 30% of your credit score, you want to keep your balance as low as possible. Experts recommend that if you can’t pay your card in full each month, you should at least make your minimum payment and try to keep your credit utilization under 30%, according to Experian. Missing or late payments will severely affect your credit score. Of course, to avoid interest charges, you’ll want to pay off your balance each month.
The survey results are even more surprising (and alarming!), as LendingTree goes on to report that 55% of consumers haven’t checked their credit score in over a month. Another 25% don’t even review their statements monthly to look for erroneous or fraudulent charges — or simply to keep tabs on how much they owe.
Good credit management includes a variety of factors and tactics, from making on-time payments to keeping your credit utilization as low as possible. But according to the LendingTree survey, there’s another element of credit card usage consumers are ignoring: credit card rewards.
A stunning 55% of credit card users pay with cards that don’t offer points or cash back on their purchases, even though 85% of cardholders have at least one rewards card in their wallet. If you’re carrying rewards cards — especially ones with an annual fee — make sure to maximize your rewards by pulling out that card first to make a purchase.
A little bit of knowledge can go a long way when it comes to boosting your credit score, saving money and managing credit wisely.
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