Common Credit Misconceptions

Man holding a credit card

A solid understanding of credit cards and how your credit rating works is important to lay the foundation for a good credit score. Unfortunately, there are many common credit card and credit misconceptions floating around that could be damaging your credit. Lorne Warren, Retail Sales and Service Manager at Cambrian breaks down some of the most common credit myths.

“We often see people who are a little bit unclear on credit utilization and applying for credit,” says Warren. “Ideally, people should choose a credit card or a couple of credit cards and pay off each card in full each month,” he says. It is common for people to believe that maintaining a balance will improve their credit score, but paying off your card will not only save you money on interest, but it will show your financial institution that you are an excellent credit risk. Can’t pay your card off in full? Warren suggests looking to your financial institution to consolidate your credit card debt with a loan, or a line of credit. This could save you money on interest.

As you develop a positive credit score, you may be offered a credit limit increase on your credit card. Many people believe you should not accept a limit increase if you do not need it, but Warren suggests taking the increase, as it will give you a lower credit utilization rate and benefit your overall credit score. “Of course, you should continue to pay your credit card off in full every month,” he says.

Many people write off credit cards with an annual fee, but Warren says they may be worthwhile. “It’s important to speak to a Financial Services Officer to understand what type of credit card works best for you,” he says. “In some cases an annual fee may offer increased rewards that can be put towards trips or cash back that you wouldn’t receive with a no-fee card.”

Used correctly, credit cards are good for your credit. “They’re one of those products that really does determine your ongoing credit – it’s active each month and shows your ability to handle credit month over month. They can increase your credit, and your ability to borrow money and potentially receive reduced rates on other services financial institutions offer when used correctly,” Warren says.