For most of my adult life I have heard many people recite credit cards myths to me. It’s almost as if these people were living in this ancient world and have never been exposed to the same credit card principles as I. This still happens in the information overload age that we live in today. A large amount of adults are clueless about credit cards and their core principles.
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In this post, I won’t be getting into heavy detail about this topic because I can write an entire novel about it. That said, l will just be addressing 3 key issues. The first one being credit card quantity. I can’t tell you how many people told me that it is bad to have more than one credit card. This couldn’t possibly be more wrong. The reason behind this is because of the core credit card principle behind credit usage. To break it down simply, if you have one credit card with a $2,000 limit on it but you accrue $500 in monthly spending on it that means that your credit usage is at 25%. Credit usage is actually what negatively impacts you more than credit card quantity. In fact, having several credit cards helps keep your usage down. If you have five credit cards with a $2000 limit the $500 revolving spending that is normally done decreases to 5% which is not as bad.
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The second big one that I hear is that people cancel credit cards that they don’t use. There are two core principle with credit that would make doing this a bad move. The first would be the credit usage issue like we discussed. The second would be that it would shorten your average credit age. Credit age has a strong impact on your overall credit score so it actually doesn’t make sense to ever close out an account unless you have to. In some cases if a card is hitting you with an annual fee it would make more sense to downgrade the card to a non-annual fee card and retain the available credit and account age.