Credit card myths experts say could cost you

Your credit score plays a critical role in your financial life, influencing how much you pay for major expenses such as a car, a home and even insurance. But some commonly shared advice about credit cards may be misleading and could end up costing consumers thousands of dollars each year.

Consumer experts say misinformation about credit usage continues to circulate online and through word of mouth, leading many people to make decisions that may hurt rather than help their financial standing.

“You might have been taught some lessons about how credit works that are either inaccurate or simply not serving where you are in your life right now,” said Sara Rathner, a credit expert with NerdWallet.

One of the most persistent myths is that carrying a balance on a credit card helps improve your credit score.

“I hate that one,” Rathner said. “This is a myth…carrying a small balance from month to month on your credit card is good for your credit scores.”

Experts recommend paying credit card bills on time each month and, if possible, in full. Doing so helps consumers avoid interest charges while still building a positive payment history.

Another common misconception involves closing credit card accounts. While it may seem like a smart move, especially to avoid annual fees, it can sometimes have unintended consequences.

“There are times where it’s appropriate to close a card, but you want to be thoughtful,” Rathner said. “Closing a credit card account could have some unexpected consequences because the average age of your accounts is factored into your score, and older is better.”

Closing an account can also increase a consumer’s credit utilization ratio, which measures how much of their available credit they are using. A higher ratio can negatively impact a credit score.

Instead of closing a card, experts suggest contacting the credit card company to ask about downgrading to a version with no annual fee. This allows consumers to keep the account open while avoiding extra costs.

Debt collection is another area where confusion is common. Some consumers believe that paying off a collection account will automatically remove it from their credit report.

Unfortunately, that is not the case.

“Once a debt goes to collections, it can stick around on your record for several years,” Rathner said.

Because of that, experts advise consumers who are struggling financially to contact their lenders before missing payments. Many lenders offer hardship programs or payment plans that can help borrowers stay on track and avoid long-term damage to their credit.

Experts also recommend checking your credit report regularly for errors. Consumers are entitled to one free report each year from each of the three major credit bureaus through AnnualCreditReport.com.

Reviewing those reports can help catch mistakes early and ensure that your credit history is accurate — an important step in protecting your financial future.