The Simple Credit Mistake Costing Americans Millions
A new study by CreditCards.com sheds more light on a common credit myth that causes millions of Americans to underpay their credit card balances in an effort to improve their credit score.
While the components that make up your credit score are publicly disclosed, the actual calculation itself is shrouded in mystery. Many consumers struggle to understand what types of actions will help or hurt their score. For example, while opening a new credit card may temporarily ding your score a small amount, it can actually improve your score in the long run because higher cumulative credit limits result in lower utilization (the amount of your total credit line that you use).
It’s no wonder then that credit myths run wild. One myth in particular is costing unsuspecting consumers millions of dollars in unnecessary interest fees.
Carrying a Credit Card Balance Does Not Help Your Credit Score
The CreditCards.com study found that almost one quarter of cardholders who carry a balance choose to do so not because they can’t pay the balance down, but for the express purpose of improving their credit score – despite the fact that doing so has absolutely no discernible impact on credit scores. Similarly, another survey by Nerdwallet found that more than 40% of Americans mistakenly believe this myth that carrying a balance month-to-month like this will help their credit score.
Fortunately, there is no truth to this concept. Lenders checking your credit report can see the utilization reported by your credit card issuer and whether or not you pay your bills on time. However, they won’t actually know whether you carry a balance month-to-month or whether you pay it in full.
What This Means for Your Wallet