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5 Credit Card Myths Hurting Your Wallet and Credit Score

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There are many myths and rumors out there about how to spend on a credit card, when to pay it off and whether or not to even have a card. Unfortunately, some of these credit card myths, if followed, will cause more harm to your wallet – and your credit score – than good.

Here are five of the most common credit card myths – and the reality.

1. The myth: It’s better to never get a credit card

There is a common misconception that carrying a credit card will ultimately lead to damaging credit card debt. Sure, some people don’t understand how to handle credit cards, and end up overspending and getting into deep, unmanageable debt.

Reality check: For the responsible individual, however, a credit card offers one of the easiest ways to establish and build a credit history.

Instead of just listening to scare tactics, consider your time perspective (which you can test here), responsibility levels and history with debt. If you’re the kind of person who understands how to budget and manage your finances, you can probably handle a credit card. After all, having a credit card in your wallet doesn’t just mysteriously incur debt, but it can  help you improve your credit score.

And remember: Having no debt or payment history at all, which means you will have no credit score, can be just as damaging when you are trying to get a loan as having a low credit score.

2. The myth: Carrying a balance on your credit card helps your score

You may have heard that carrying a balance on your credit card and only paying the minimum due each month will help your credit score, as it shows lenders you have debt and can manage to pay it off, even if slowly.

Reality check: This is 100% untrue.

Each month, you should pay your credit card bill on time and in full. Sure, if you can’t afford to pay off the balance in full, then pay at least the minimum (preferably more than the minimum) on time. But it does not boost your score if you keep the debt and chip away at it slowly.

If you’re carrying a balance on your credit card and paying the minimum month-to-month because you heard you should, you aren’t damaging your score, nor are you improving it. But you are losing money each month in interest to your lender. Why throw away money? And carrying a high balance from month-to-month can actually hurt your score, because you look irresponsible to lenders and have a higher credit utilization rate (the amount of debt you have in relation to your total credit limit). It’s ideal to have a utilization rate below 30%, at least. The lower, the better in this area.

If you’re struggling with credit card debt, consider  a balance transfer to cut the interest rate and cost of paying down the debt.

3. The myth: You should only have one credit card

This myth is linked with the notion that people can’t have a credit card in their wallet without incurring debt. This is valid for some, but not everyone.

If you feel you can’t handle paying off bills on multiple credit cards because you’ll either a) forget b) rack up too many purchases or c) get overwhelmed, then stick with one.

Reality check: If you are organized, responsible and like to take advantage of cashback rewards, however – go ahead and get more than one credit card. This can even help boost your credit score, as it can lower your overall utilization rate.

We recommend finding a card that matches your particular spending habits, which may help you to get money back on your purchases. We make this easy with our cashback rewards tool.

4. The myth: Opening a credit card will drastically lower your credit score

You may believe that opening a new credit card will cause your credit score to automatically plunge.

Reality check: Opening a credit card will only drop your credit score by a handful points. If you have a score resting comfortably in the 700s, this is no big deal.

If you’re in the 500 to 650 range, then you should focus on improving your score, and you likely won’t be eligible for many of the better credit cards, anyhow. Instead, you may need to focus on getting a secured card first, to help improve your score.

One exception to the rule: If you’re applying for a mortgage or another loan, you should hold off on applying for any forms of credit, or doing anything that may cause even a small dip in your score. The higher your credit score when applying for a loan, the lower your interest rate will likely be.

If you are in the market for a new card, here is a roundup of some low-interest credit cards.

5. The myth: You should never accept a credit limit increase

Did you recently get an offer to increase your credit limit? You may think your lender is trying to lure you into a spending trap.

Reality check: You can use a credit limit increase to your advantage.

To understand why, let’s recap how your FICO credit score works:

  • Payment history (35%)
  • Amounts owed (30%)
  • Length of credit history (15%)
  • New credit (10%)
  • Types of credit used (10%)

“Amounts owed,” which accounts for 30% of your score, includes utilization. As discussed before, that’s the amount of your credit limit you use. As discussed above, a lower utilization rate is ideal.

Consider this scenario when thinking about getting a credit limit increase:  If you  have only one credit card with a $2,000 credit limit and spend $800 a month on your card, that’s a 40% utilization ratio.

Now let’s say your bank offers you a $1,000 increase on your credit limit. If you keep your monthly spending the same at $800, but have a limit of $3,000, your utilization will decrease to about 27%. This small change should help boost your credit score.

Of course, if you tend to overspend and know you’ll just max out a card with a higher credit limit, you might want to avoid getting an increase. However, the idea that you should never accept an offer to increase your credit limit is simply wrong.

The bottom line

The myths we discussed here should, for once and for all, be vanquished. If you take them as gospel, you may cause unintended harm to your credit score, and end up paying more than you should for items charged to your credit card. The most important thing when it comes to credit cards is being a responsible user and not incurring debt you cannot manage.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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The Best Options for Rebuilding Your Credit Score in 2020

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The Best Options for Rebuilding Your Credit Score

A strong credit score is a vital part of your overall financial health. But rebuilding a damaged (or non-existent) credit score can feel impossible. Don’t despair. There are plenty of avenues you can take in order to rehabilitate your credit score and it all begins with identifying your starting point.

How Bad is Your Bad Credit Score?

Before you start to panic about rehabilitating your bad credit score, let’s determine if it’s even bad. Where do you fall in the range of FICO® credit scores? Below you’ll find what your credit score is considered, with ranges from Experian.

  • Above 740: Excellent Credit
  • 670 – 739: Good Credit
  • 580 – 669: Fair Credit
  • Below 579: Bad Credit or No Credit Score/Thin File

Your credit score isn’t the only thing that will keep you from being approved for credit. These factors are common reasons for being declined.

  • Your debt-to-income ratio is above 50%
  • You have no credit score
  • You have been building up a lot of debt recently
  • You are unemployed

In order to focus on rehabilitating your credit score, you’ll need to start with getting a line of credit. This may sound impossible because you’re constantly getting declined. Fortunately, there are options tailored specifically for people looking to re-establish credit.

[Read more about bad credit scores here.]

Rehabilitating a Bad Credit Score (579 and under)

Get a Secured Card

You’ll use your own money as collateral by putting down a deposit, which is often about $150 – $250. Typically, the amount of your deposit will then be your credit limit. You should make one small purchase each month and then pay it off on time and in full. Once you prove you’re responsible, you may be able to get back your deposit and upgrade to a regular credit card.

Check out two of our favorite secured cards below, and more options for a secured credit card here.

The Discover it® Secured

Perhaps our favorite secured card, the Discover it® Secured, has numerous benefits for those looking to rebound from a bad credit score. There is a $200 minimum security deposit that will become your line of credit, which is typical of secured credit cards.  An additional perk is the rewards program (very rare for secured cards) that offers 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter. Plus, earn unlimited 1% cash back on all other purchases – automatically. This card has another great feature: Discover will automatically review your account, starting at month eight, to see if your account is eligible to transition to an unsecured card. Discover will decide if you’re eligible based on a variety of credit factors, and if you are, you will receive notification and get your security deposit back.

The Capital One® Secured Mastercard®

The Capital One® Secured Mastercard® is another option for those who want to strengthen their credit score. This card offers a potentially lower minimum security deposit than other cards, starting as low as $49. Be aware the lower deposit is not guaranteed and you may be required to deposit $99 or $200. You can deposit more before your account opens and get a maximum credit limit of $1,000. There is a feature that will assist your transition from a secured to an unsecured card. Capital One automatically reviews your account for on time payments and will inform you if you’re eligible for an upgrade. However, there is no set time period when they will review your account — it depends on several credit activities. If you receive notification that you’re eligible, you will be refunded your security deposit and will receive an unsecured card.

Rebuilding from a Fair Credit Score (580 – 669)

Apply for a Store Credit Card

You might be used to checking out at a store and being asked if you’d like to open a credit card. While these credit cards come with really high interest rates and are great tools to tempt you into buying items you don’t need, there is a big perk to store credit cards: they’re more likely to approve people with low credit scores. Just be sure to only use the card to make one small purchase a month and then pay it off on time and in full. Unsubscribe to emails about deals and don’t even carry it around everyday in your wallet if you can’t resist the desire to spend. Read more here. 

Those unable to get a store credit card should apply for a secured card to build credit. With proper credit behavior, you can see your score rise and then you may qualify for a store card.

Here are our picks for two store credit cards:

The Walmart Rewards Card

Walmart Rewards Card

The information related to Walmart Rewards Card has been independently collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card prior to publication.

Walmart Rewards Card

Regular Purchase APR
26.99% variable
Annual fee
$0
Rewards Rate
5% back on purchases made at Walmart.com and on the Walmart app, 2% back on Walmart purchases in stores outside of the introductory offer, and 2% back at Walmart Fuel Stations.

The Walmart Rewards Card offers a great rewards rate. Earn 5% back on purchases made at Walmart.com and on the Walmart app, 2% back on Walmart purchases in stores outside of the introductory offer, and 2% back at Walmart Fuel Stations. The sign-up bonus has the potential to be an excellent value, too. Get 5% back for the first 12 months when you use your card with Walmart Pay for in-store purchases, upon approval. Just remember that your cashback rate on purchases in Walmart stores will go down after the intro offer ends, so after your first year with the card, make sure to do most of your shopping on Walmart.com or in the Walmart app to take advantage of the higher rate you get for shopping that way. Note that this is a store card, so you can’t use it outside the Walmart ecosystem.

The Target REDcard™ Credit Card

Target REDcard™ Credit Card

The information related to Target REDcard™ Credit Card has been independently collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card prior to publication.

Target REDcard™ Credit Card

Regular Purchase APR
25.15% Variable
Annual fee
$0
Rewards Rate
5% at Target & Target.com

The Target REDcard™ Credit Card offers great perks that are sure to please frequent Target shoppers. You receive a discount of 5% at Target & Target.com off every eligible transaction. The discount automatically comes off your purchase — no redemption needed. Other benefits include free shipping on most items, early access to sales and exclusive extras like special items, offers, and 10% off coupon as a gift on your REDcard anniversary each year.* Recently, cardholders received early access to Black Friday deals. Reminder: This card can only be used at Target and on Target.com.

Check If You Pre-Qualify

If you’re on the higher end of the spectrum, you may want to consider checking to see if you’re pre-qualified for any cards. This may help minimize your chance of rejection upon applying because pre-qualification performs a soft pull on your credit. This doesn’t harm your credit score.

Your goal in this credit range should be to use no more than 20% of your total available credit. Pay your bills on time and in full. And keep pumping that positive information onto your credit report until you reach the 700+ category. 

Who You Need to Avoid

Access to credit and loans may come easier than you expect, but that should also be a danger sign. There are several lenders who are willing to provide lines of credits or loans to people with poor credit. These options are often very predatory. If you’re simply trying to rebuild your credit history and improve your credit score, then there is no need to take these offers.

Here are the options you need to avoid when trying to rebuild credit:

1. Payday and Title Loan Lenders – There is never a need to take out a payday or title loan if you’re trying to merely rebuild or establish credit history. Most of these lenders don’t report to the bureaus and you’ll likely end up in a painful vicious cycle of borrowing and being unable to pay it down.

[How to get out of the payday loan trap.]

2. First Premier – The bank claims to want to offer people a second chance when it comes to their finances, but its fee structure and fine print prove the exact opposite. First Premier charges you a processing fee of up to $95 just to apply for a credit card. Then it levies a $75 annual fee on the credit cards and most cards only come with a $300 limit. You’re paying $170 for a $300 credit line! The APR is a painful 36%. In year two the annual fee reduces to $45, but then you’re charged a monthly servicing fee of $6.25. And to top it all off, you’ll be charged a 25% fee if your credit limit is increased. Stay away from this card! Use the $170 it would take to open the card and get a secured card instead.

3. Credit One – Credit One does an excellent job of confusing consumers into thinking they’re applying for a Capital One card. The logos are eerily similar and easily confused.

Creditone

Capital one

While Credit One is not as predatory as First Premier or payday loans, there is really no need to be using one of its cards to rebuild your credit score. For starters, Credit One cards have annual fees that range from $0 to $75 for the first year, then $0-$99 in subsequent years. If you’re approved for a card with an annual fee, it will be deducted from your initial credit limit. For example, receiving a $300 credit limit and $75 annual fee means you’ll only have access to an initial $225 credit limit. In addition, there is a high 19.49% -25.49% Variable APR. Given the high annual fees, we recommend saving your money and using a secured card with no annual fee to begin rebuilding your credit score.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners. This site may be compensated through a credit card partnership.

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View Your Free FICO Score for all 3 Credit Bureaus

There are lots of free credit scores floating around, but most of them are not the true FICO® score that lenders subscribe to and use as part of their decision.

However FICO® is working to change that by allowing banks and credit unions to give you free ongoing access to the real score they use to make lending decisions as long as you are an account holder.

One of the easiest ways for anyone to get their free FICO® score is via the Discover Credit Scorecard. You do not need to be a customer of Discover – anyone can register and get their official FICO® score for free. The data is from the Experian credit bureau. You can also get a free Experian FICO® 8 score by signing up directly with Experian.

To find out where to get your FICO® score from the other credit bureaus, read on.

Every bank chooses at least one of three credit bureaus to calculate a FICO® score: Equifax, Experian, and TransUnion. The FICO® score one bank uses can be different than another depending on which credit bureau they pulled a report from.

You may be able to get a free FICO® score from your credit card issuer or bank. Financial institutions belonging to the FICO Score Open Access Program offer this service. Visit this page for a list of participating banks. FICO® itself charges monthly for you to see your scores ($19.95, $29.95 or $39.95, depending on which plan you go with) — though they also throw in full copies of your credit reports, which the free bank scores do not.

Be aware that FICO rolled out the FICO Score 10 Suite in the beginning of 2020. This includes FICO Score 10 and FICO Score 10 T — the latter of which looks at trended data for a historical view of a consumer’s behavior. Under FICO Score 10, credit card debt will have a bigger impact than it used to, so it’s more important than ever to keep your utilization ratio less than 30%.

Here’s where to find your real, free FICO® scores from banks or credit unions anyone can join:

Equifax Scores

Citibank

  • Available with: Any Citibank branded credit card. This does not include Citibank cards with other brands like the American AAdvantage or Hilton HHonors cards.
  • Score updated: Monthly
  • Where to find it: On your online account or the Citi app
  • Learn more

DCU Credit Union

  • Available with: Any credit card, or a checking account with direct deposit
  • Score updated: Monthly
  • Where to find it: Look for an invitation in your online account
  • Learn more

Huntington Bank

  • Available with: The Huntington Voice credit card – you will get a FICO® Bankcard Score 2 from Equifax
  • Where to find it: Log into your account and you’ll see a link

PenFed

  • Available with: PenFed members with active checking accounts, installment loans, and revolving lines of credit
  • Score updated: When PenFed refreshes – no set schedule
  • Where to find it: Login to your account and click ‘Your FICO® Score is Ready’
  • Notes: PenFed uses a more advanced ‘Next Gen’ FICO® score that has a different scale than traditional FICO® scores, with 150 as the lowest score and 950 as the highest score. Most banks use a score with a scale of 300 to 850. Because of this the score you see on PenFed’s site may be higher or lower than what you see from others.
  • Learn more

State Employees Credit Union of North Carolina

  • Available to all credit card holders

Experian Scores

Capital One and American Express regularly use Experian’s FICO® among others for credit decisions.

American Express

  • Available with: Any American Express credit card
  • Score updated: Monthly
  • Where to find it: On your online account

Discover

  • Available with: All Discover cards and if you are not a Discover cardholder, you can sign up to get your FICO® score for free by visiting creditscorecard.com.
  • Score updated: Monthly
  • Where to find it: On your statement and online

First National Bank of Omaha

  • Available with: Any credit card account
  • Score updated: Monthly
  • Where to find it: On your online account
  • Learn more

USAA

  • Available with: Any USAA credit card
  • Score updated: Unknown
  • Where to find it: On your online account

Wells Fargo

  • Available with: Any Wells Fargo credit card
  • Score updated: Monthly
  • Where to find it: On your online account
  • Learn more

TransUnion Scores

Bank of America

  • Available with: Select credit card accounts
  • Score updated: Monthly, with history
  • Where to find it: Link available on your account summary page under the ‘Tools and Investing’ section

Barclays

  • Available with: Any credit card account
  • Score updated: Monthly
  • Where to find it: Link available on your account summary page

Unknown Bureau

Other, less open to the public free FICO® providers include:

  • Ally, for auto loan holders.
  • Hyundai and Kia Motor Finance allow customers to view their FICO scores through their online accounts.
  • Sallie Mae offers a free, quarterly TransUnion score if you receive a new Smart Option Student Loan.
  • Merrick Bank doesn’t have open applications for its Platinum Visa, but does offer free scores to its cardholders.
  • Some credit unions with limited membership also offer scores, so check yours to see if it provides them.

Find the Best Credit Score for Your Needs:

The credit score that you are looking for varies, depending on what type of credit you are looking to apply for. Each credit score version has different benefits, and lenders pull certain scores in accordance with your application.

Credit Score Monitoring

The best options: All VantageScores and FICO® scores

If you’re simply looking to monitor your credit score and stay on top of your credit, either VantageScore or FICO® score will suffice.

New Credit Card

The best options: FICO® Bankcard Scores or FICO® Score 8 primarily; FICO® Score 3

Where to get them: Get your FICO® Score 8 from Credit Scorecard by Discover or freecreditscore.com

When applying for a new credit card, these scores are most likely to be pulled by credit card issuers. Lenders may pull your score from one or all three bureaus.

Mortgage Loans and Mortgage ReFis

The best options: FICO® Scores 2, 4, 5

Where to get them: Myfico.com for $19.95 a month

These scores are used in the majority of mortgage-related credit evaluations, with lenders pulling your score from all three bureaus. However, these scores are not free and can only be purchased at myfico.com.

Auto Loans

The best options: FICO® Auto Scores 2, 4, 5, 8, 9

Where to get them: Myfico.com for $19.95 a month

Auto scores are industry-specific and used in the majority of auto-financing credit evaluations. Lenders may pull your score from one or all three bureaus. Unfortunately, these scores are not free and need to be purchased at Myfico.com.

Personal Loans, Student Loans, and Retail Credit

The best option: FICO® Score 8

Where to get it: Credit Scorecard by Discover or freecreditscore.com.

For other financial products such as personal loans, student loans, and retail credit, FICO® Score 8 is best. This is the credit score most widely used by lenders, and they may pull your score from one or all three bureaus when making a decision.

LendingTree
APR

As low as 3.49%

Credit Req.

Minimum 500 FICO®

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

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LendingTree is our parent company

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LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender. Terms Apply. NMLS #1136.



As of 17-May-19, LendingTree Personal Loan consumers were seeing match rates as low as 3.49% (3.49% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected). Terms Apply. NMLS #1136

Other Scores and Their Value

FICO® Score 9 is not as widely used as FICO® Score 8. The benefits of this score are that it doesn’t penalize you for paid collections and reduces the ding you get from unpaid medical collections. See our review for more information.

The FICO® NextGen score is used to assess credit risk, but only a small number of lenders use it due to its 150-950 scoring range and older model.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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