You’ve chosen your new credit card, you’re paying off the bill in full each month, and you are generally rocking your responsibility as a credit card owner. Good job! I’m proud of you.
Credit cards are sort of a wild beast though. Let’s talk about some of the credit card basics we all should know as credit users and a few myths that surround credit cards. We’ll get to the bottom of what you need to know, and what’s just plain untrue.
Need to know: Credit is different from debt.
Credit and debt sometimes get used interchangeably but they are two different things.
Credit is the amount of money you have access to from a lender. Credit means you haven’t spent any money yet, but that you could.
Debt means you’ve spent some or all of your credit and you need to pay it back.
Say you have a credit card with a $3000 limit and you spend $700. That $3,000 is the total amount of credit you have available. The $700 is the amount of debt you now have.
MYTH: Carrying a balance helps your credit score.
This is a myth that needs to die! I hear it a lot from younger people that carrying some credit card debt is the best way to boost your credit score.
This is totally a lie. What people mean when they say this is that making payments over time is a good way to boost your score. But you don’t have to carry debt to do that’ just pay off your entire bill each month.
If you want to boost your credit score use these tips; don’t carry debt month to month.
MYTH: Credit is cheap.
This is another common myth. You may hear people say ‘credit is cheap!’ in a celebratory way. Credit is fairly easy to come by, but it isn’t cheap.
Credit becomes debt, and debt needs to be paid off. If you don’t pay off debt as you incur it, you’ll lose money. In fact, the more credit you use each month, the more you could potentially hurt your credit score. That could mean higher interest rates and be losing more money in the long run.
You should open a new credit card if you can meet a couple of requirements:
-you can pay off your balance in full each month
-you actually need a credit card
-you don’t rely on credit to live your life
The old saying ‘If it’s too good to be true, it probably is’ can be generally applied to credit cards. Good credit habits are developed over time and using the right knowledge.
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Kara Perez is the original founder of From Frugal To Free. She is a money expert, speaker and founder of Bravely Go, a feminist financial education company. Her work has been featured on NPR, Business Insider, Forbes, and Elite Daily.