Credit Facts and Myths to Help Manage and Build Your Credit (2024)

You might have heard that it’s only after you use a new credit card that the account affects your credit score. However, applying for new credit comprises 10 percent of your credit score. It doesn’t matter if you’re approved for the card or if you use it; it’s the inquiry that counts. Frequently applying for new credit can hurt your credit score, so make sure you really need that new card before you apply for it.

If you don’t pay the total minimum payment on your credit card bill, your credit card company may report it as a missed payment. This can bring down your credit scoreand make it more difficult to qualify for credit in the future. Check your statement for the minimum amount due, and be sure to pay it on time to keep your account current. And remember: Paying more than the minimum amount due is a great way to pay down your debt—and until you pay it off, interest will continue to be charged each month.

Your account may include balances with different interest rates (such as one rate for a balance transfer and another for a cash advance). And that points to another good reason to pay more than the minimum due: When you do, your card issuer has to apply any amount above the minimum to the balance with the highest rate—which can help you reduce that higher-rate debt more quickly, saving you money, according to Experian.

You might accrue interest even after you’ve reduced your balance to zero. This is called residual interest, and it’s due to the gap between the date on which you’re billed and the date you make your payment. To avoid residual interest, call your credit card issuer and request a calculation of the exact amount owed on the date you expect your check to arrive or your online payment to process, and pay that amount.

If you manage your credit cards wisely, a high credit limit can be an advantage. Thirty percent of your credit score is based on your debt-to-credit ratio (the amount you owe in proportion to your total credit limit). If you have a high credit limit and you keep your balances low, your debt-to-credit ratio is also low, which can help your credit score.

Credit cards are great tools for building your credit history, and you don’t need to carry an unpaid balance to do so. Your best strategy is to use your credit cards and pay off the bill in full each month, so you keep your overall debt-to-credit limit ratio low.

Having more credit cards isn’t necessarily better. Ten percent of your credit score is determined by the type of credit you have. For example, you may have student loans, a mortgage and credit cards. Credit agencies look for a good mix. If all you have is credit cards, you may not help your score.