6 Credit Card Myths | The Financial Diet

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Hi i’m chelsea and i’m laura and we are the financial diet and today we’re going to be talking about something that i think is one of the scariest parts of personal finance and i don’t just say that as someone who ruined her own credit with a visa at 18 and that’s credit cards but when it comes to money like with most other things in life knowledge is power and

Really understanding credit cards can make them go from something that’s intimidating and scary to something that you can actually use to your advantage shall we spoke to a personal finance professional to find out some of the biggest myths about credit cards and the truth behind them so that we can all understand them and really get over our credit card fear

So myth number one is that making the minimum payment is enough now this is untrue because what can happen is that you’re left with a pretty sizable balance once that very low introductory interest rate expires in short keeping a running balance can mean that interest payments add up very quickly and it’s also good to remember that the higher percentage of your

Available credit that you’re using month-to-month the worse you’re going to look myth number two opening a new credit card will hurt your credit score for a long time so the short answer is that opening a new credit card does not hurt your credit score in most cases but the truth is that it can impact your credit score in four important ways now the first potential

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Impact is that when you apply for a credit card the lender performs what is called a hard inquiry onto your credit score which is generally what happens when you’re applying for a line of credit now too many of these hard inquiries in a certain period of time can negatively impact your credit score because it could mean that a you’re really shopping around for a

Loan because you’re not getting approved through one or b you’re trying to borrow a lot of money at once so a positive impact that credit cards can actually have on your score is having different types of accounts with your credit cards because this shows lenders that you’re experienced at managing different types of credit now the third impact and this is another

Good one is credit utilization and that basically means the gap between what you can do with your credit card the maximum what you are doing and a good way that opening another credit card might help you with this is that let’s say you’re already using a certain percentage of one card it’s not too high but it’s you know somewhere in the middle and you open up

Another one so now you’re using even less on that first card as well as not a lot of the second one that means your overall gap between what you’re using and what you use is even better now the last impact that your cards can have is in the length of time that you’ve had them now this one isn’t so much about you know the number of cards you have or whatever but

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It is good to keep in mind that having cards open for a longer time and using them responsibly is good for lenders because it shows that you can manage your credit longer term now the third myth is that you need to carry a balance in order to improve your credit score now this is totally untrue of course and what’s important is that you actually use your card not

That you retain a balance month to month so building credit history means that you can manage your debt responsibly over time not that you can simply keep a balance month-to-month occurring interest so myth number four is that interest rates are fixed now the truth is that even though it used to be very common to find fixed interest rate cards now it’s relatively

Rare to find cards that aren’t at least somewhat variable in interest now this is largely due to the 2010 card act which stands for credit card accountability responsibility and disclosure and you can read more about that act in the description myth number five is that it’s okay to max out your credit cards what no way that’s absolutely untrue that is of course

Not the case you don’t need to max out your credit cards do not max out your credit card all that’s going to do is accrue dizzying interest payments and also show the lenders that you have a very high credit utilization which as we discussed earlier is not good generally speaking you should keep your credit utilization under 30 percent to avoid harming your credit

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Score so our last myth is a really big one and one even i believe until we were researching this video waves that you only have one credit score false you have many credit scores and like ben & jerry’s they come in many different flavors currently there are two main models used to calculate credit scores and the three major credit bureaus use these two major

Models which are fee co and vantagescore and this means that you’ll have both the vantage score and the fee co from each of these three major bureaus and lenders choose which model they’d like to use and within each scoring model there are multiple variations we hope that uncovering the truth behind those six credit card omits will help you feel like they’re not

That scary because in reality they’re not and will help you really see them as a tool to your financial advantage so thank you as always for watching and don’t forget to hit the subscribe button and to go to the financial dicom for more bye

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6 Credit Card Myths | The Financial Diet By The Financial Diet

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