3 Biggest Credit Card Myths Exposed!!

In my opinion, I don't think that credit cards are evil at all, but I only say this if you can manage them properly every single month and use them as a tool rather than just free money. So today I'm covering the three biggest myths about credit cards that everybody seems to think are true, but in reality none of them are true if you understand how credit cards actually work. Now if you just found this channel, I'm Jason with Honest Finance and I make a lot of videos on different topics that'll give your life and your finances more value, so for sure subscribe if you guys are into that type of content, but for now let's just start talking about the three myths about credit cards that you definitely need to know about. So getting into this video quickly, I want to talk about the first myth about credit cards, and that's the fact that a lot of people tend to think that if you make any purchases with your credit card then you're going to be paying interest on them, and that is not true at all, because you're never going to pay interest on your credit card if you pay off your statement balance in full every single month by the due date, and that's all you have to do with your credit card to not pay interest. Now the statement balance is just all your purchases that you've had within the billing cycle, and as long as you pay that off in full every single month then you never have to pay any interest, but I'll warn you right now that if you pay anything less than your statement balance, so for instance if you owe a thousand dollars on your statement balance and you pay $999 by the due date, then that is not good, because now you're going to have to pay interest on all of those purchases for the month, and then you're going to lose your grace period, and you're going to be paying interest on all of your future purchases until you actually pay off your statement balance in full twice in a row is typically what the credit cards ask you to do before you don't accrue interest at that point. So rather than getting super techy with how credit card interest works, just remember that you're not going to pay any interest on any of your purchases as long as you pay off your statement balance in full every single month by the due date, and that is all you have to worry about. Now the second myth about credit cards that I want to talk about is a really bad one, because a lot of people seem to think that if you carry a balance on your credit card or you just make the minimum payment due every single month, that this is going to help improve your credit score, and that is not true at all if you know how credit cards work, because remember what I was just talking about, and that's the fact that if you do carry a balance on your credit card or you just make the minimum payment due every single month, then you are for sure not paying off your statement balance in full, and that means that you're paying interest, which is obviously a bad thing, and then on top of that you're also going to be hurting your credit score because of what's called your utilization score, which I'll explain right here. Now your utilization score is actually 30% of your entire credit score, which is a huge chunk of the pie, and the way that it works is it's basically just your amount of credit that you have versus what you're using up every single month, and that's your utilization score. So let's say that all of your credit cards have a total spending limit of $5,000, and throughout the month you spend $3,000 on all the different credit cards. Well what this means is that your utilization score is going to be 60% based on that math, and 60% is not good for your credit score. It's actually going to hurt your credit score, because what you want to be doing is you want to get the utilization score at 30% or lower, or even 10% or lower for the optimal results so that you can get the best credit score possible with the amount of spending that you're doing with your available credit. So therefore carrying a large balance on your credit card is never going to help your credit score at all, because your utilization score is always going to be suffering because of the high balance. So just make sure that you always pay it down as much as you possibly can and get that utilization score as low as possible, and that is going to help your credit score the most that it possibly can. So just remember that you absolutely do not need to keep a balance on your credit card or pay interest in order to be helping your credit score. This all just has to do with the utilization score and it has nothing to do with the interest that you're paying if you're accruing it. Now if this video is making sense for you guys, can you please comment down below and just say, I got it. That way I can actually tell if I'm making sense about what I'm talking about, because I know that this is pretty techie stuff, but hopefully I'm getting through to you guys and this video is making sense. So thanks a lot. Now the last credit card myth that I want to talk about is the fact that if you have too many credit cards, it's going to hurt your credit score, and this is not entirely true and that's why I wanted to bring it to your attention. If you slowly accumulate your credit cards over time and you start to add on one over another, they're actually going to boost your credit limit quite a bit and that's going to help your utilization score because you're going to have a higher limit versus what you're spending. Because let's say that you ended up with four different credit cards and they each had a $5,000 limit on them, well that would mean that you had $20,000 of available credit, and that's actually a good thing if your spending habits are still the same, because if you've got all that available credit and you just spend right down here, then your utilization score is always going to be really good, and that's because you have all of those different credit cards. Just keep in mind that the length of your accounts is also really important, so when you are looking for a new credit card, make sure it's something that you're going to want to keep in your wallet for at least five years, because that does affect your credit score in a good way if you keep them for a long time, and it is going to negatively affect it if you don't keep them for a long time. And another thing to keep in mind is that you don't want to open too many accounts at the same time, because this can also hurt your credit score. You just want to open up about three accounts for every two years, and that's the general rule of thumb to keep that at a minimum, and that's going to help your credit score rather than hurt it. And that includes every time you have a hard pull on your credit, so if you try to get an auto loan or a personal loan or anything like that, that hard pull is going to count as one of those three, and you only want to do those every couple years, and that's going to be the best thing that you can do for your credit score. Just please remember that credit cards really are a great financial tool for your life as long as you manage them well, and just make sure to pay off that statement balance in full every single month by the due date so that you never pay any interest, and then keep that utilization score as low as you can so that you can boost your credit score as much as possible, and then you will be using credit cards the way that you actually should, which most people aren't doing. Now once again, I'm Jason with Honest Finance, and I make a lot of videos on different topics that'll give your life and your finances more value, so if you are interested in this type of content, feel free to subscribe, but for now I'm just going to leave some more credit card videos that you can watch over here, but thanks for watching. Have a good day.