The Credit Card Myth That 54% Of Americans Still Believe
According to a Credit Repair survey, more than half of Americans think that carrying a monthly credit card balance helps their credit score.
We already know that credit card debt is one of the biggest financial obstacles the average American household faces, but these findings really bring to light why credit card debt is such an easy trap to fall into. Though high rents, an unstable job market, living beyond our means, and student debt still certainly factor into credit card debt, the lack of education about credit cards is an equally big issue. NerdWallet’s findings reveal that only 9% of consumers know they have more than three credit scores. I am (embarrassingly) not among that 9%, and have always referred to my credit score in the singular. I did some research, and sure enough, found the following on the blog Ready for Zero,
“The truth is that so many scores (and potential scores) exist for each one of us because banks and other lenders want to use several different lenses to evaluate our ability to manage credit.”
Furthermore, NerdWallet’s research implies that most Americans do not know how having multiple credit cards impacts their scores, nor do they realize that closing a credit card affects their score. I think the key learning here is, research the repercussions and effects before you open and close every single credit account you have. While I think each one of these findings shows a concerning gap in all of our credit knowledge, I think remedying the fact that more than half of Americans (again, based on a 2,000-person survey) think that carrying a balance is helping them is a top priority. To address this issue, NerdWallet’s credit card expert, Sean McQuay, says,
“Using your credit card, or another type of credit account, is important to build a solid credit score. But the only thing carrying a balance will do is cost you money. Consumers who don’t pay their card off each month are charged interest on the average daily balance of said card. Sometimes interest charges are unavoidable, but you can’t pay for good credit via interest charges.”
To rectify this situation, the best solution is paying your bill off in full every month, whenever possible. While I don’t think we can rely on this every time we cannot make a payment on time, it is interesting to note that NerdWallet’s in-house expert, who is a former Visa strategy analyst, says paying a bill late will not always affect your credit score. (The study also reports that only 8% of Americans fully understand “how paying a bill late affects their credit score.”) While McQuay reminds us that late payments will still be costly, he says it’s likely that if you pay within 30 days of the due date, the late payment will not be reflected in your credit score.
Reading through this eye-opening survey reminded me of how little credit card knowledge I had when I first got one, and how much I still have to learn. (The survey also touches on the fact that closing an old credit card can hurt your credit score, which I had considered doing a while back. That is a whole other article in itself, but is absolutely a topic I want to circle back to.)
I still only have one credit card, and even though I keep saying that this is the year I get an airline credit card, the truth is, I really like only having one credit card. I don’t know what it’s like to have a running credit card balance, or forget that I have a balance on another card. Of course, I am fortunate to have myself and only myself to take care of, which is the main reason I don’t have to worry about a credit card balance. To make paying my card in full every month possible, however, I’ve gone through times when I had to eliminate nights out completely and babysit extra in order to make my payment.
This year has been particularly stressful on my credit card (because I am paying out an extra $400/month), and it’s been difficult to adjust because my credit card bills are higher than I’m used to. In order to make sure I stay ahead of this, understanding the credit card principles that NerdWallet is discussing in this piece are crucial. I’ve gotten to the point where just reading articles like this, and filing them away is no longer enough. I need to do more than that. I think it’s a good idea to try to absorb and apply this knowledge to our current credit card situation, whatever it may be.
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