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The myth about credit cards and credit scores that’s costing you


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There’s a pervasive myth about credit-card balances and credit scores — and it may be costing you money.

According to Lending Tree’s recent survey, sixty-five percent believe that keeping a balance on their credit cards each month can improve their credit scores. The share is higher among young consumers — 79% of Generation Z hold that belief, for example, according to the surveyThe polls showed that 1,323 people were registered to vote in February.

Matt Schulz from Lending Tree, the chief credit analyst, says that this belief is false. It could have the opposite effect depending on how customers use their cards.

He said, “The problem is with this myth. It eventually costs people money.”

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This myth may be the result of tension. While responsibly using cards can help young consumers build credit, infrequent card purchases could lead to lenders closing them.

Schulz stated that some consumers mistakenly believed they were a frequent card user and needed to maintain a credit card balance. A balance is when consumers pay the minimum monthly card payment instead of fully paying their bill.

In general, consumers who make a minimum monthly repayment keep their credit standings with creditors in good standing. Schulz says that even though the minimum monthly payment can help maintain your credit rating, it could also cause you to lose it.

Indirectly, a large balance may reduce credit scores through an increase in consumers’ credit utilization rate. It is the amount of credit owed to consumers relative to total credit limit.

Schulz stated that credit utilization is one of the key factors in determining a credit score. Bad credit can make it more difficult for consumers to get loans, or lead to higher interest rates when they borrow money.

He said that having a low to zero utilization rate was actually good because it showed you are responsible for paying off those balances as they arise.

This can be achieved by consumers making small, recurring purchases each month (for example, a telephone bill) and paying the entire card off in full.

Consumers are the second. owe interest paymentsIf they fail to pay all their bills on time, the balance will be charged. High interest rates are common on credit cards. Average interest rates for credit cards were over 16% as of last Wednesday, March 30th.

These rates will likely be increased by card issuers as well as the Federal Reserve continues hiking its benchmark interest rateIn the coming months.

Lending Tree found that 35% of cardholders do not know what their credit card interest rates are. 49% of cardholders don’t pay all their monthly credit card bill in full.