5 financial myths that may be hurting your credit

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How to Save on Your Credit Card Bill


Common financial myths persist among a large segment of the population, and that may be hurting Americans' credit scores, a recent NerdWallet survey found. When asked about how a number of basic actions would affect a person's credit – including canceling a card, carrying a balance or paying a bill late – the majority of Americans answered incorrectly.

Let's dispel these myths with facts and tips to help you improve your credit health. Having good credit can save you money through lower annual percentage rates on loans and better insurance rates, and can make it easier to rent an apartment and even get a job.

Myth No. 1: Carrying a balance from month to month helps your credit score.

Truth: The lower your balance, the better. Aim to keep credit utilization low for a high credit score.

Over half of those surveyed (54 percent) didn't know that carrying a credit card balance does nothing to help a person's score. In fact, carrying a balance is both unnecessary and costly. You'll likely pay double-digit interest rates on your debt and get no benefit to your credit score. What does help a score is lowering your credit utilization – that is, how much of your available credit you're using.

What you should do: Having a credit card and using it regularly is important for good credit health. You need to make only the minimum payment to keep your account in good standing, but your best move is to pay the balance in full every month to keep your utilization low and avoid paying interest.

[See: 12 Simple Ways to Raise Your Credit Score.]

Myth No. 2: Closing an older, paid-off card helps your credit score.

Truth: Closing a card reduces your available credit, which increases your utilization.

Almost 8 in 10 Americans surveyed (78 percent) didn't know that closing an older, paid-off credit card hurts a person's credit score both in the short and long term.

The short-term impact is that it reduces your overall available credit, which results in higher utilization. For example, say you have two credit cards, each with a $5,000 limit, and a total monthly balance of around $2,000. This is a 20 percent credit utilization. However, if you close one of those cards, your utilization jumps to 40 percent.

The long-term impact is that the average age of your credit accounts will be reduced. A closed account remains on your credit report for 10 years, but its impact on your credit score diminishes as time goes on. This means you'll lose the positive impact that a paid-off credit card in good standing has on your score.

What you should do: If your old card doesn't have an annual fee, leave it open. To keep it active, set up a small recurring charge on the account, like a Netflix subscription or Starbucks card reload, and automatically pay it off from your checking account each month.

[See: 12 Ways to Be a More Mindful Spender.]

Myth No. 3: Paying a bill late always hurts your credit score.

Truth: If you pay your bill within 30 days of the due date, it likely won't hurt your score.

Only 8 percent of Americans knew how paying a bill late affects a credit score. If you've ever forgotten a bill and paid it a few days late, it probably wasn't reported to the credit bureaus. Generally, creditors don't report late payments if they're less than 30 days late, so if you pay within a month, your score probably won't be affected.

Of course, there are downsides to paying a bill late that aren't score-related. Late payment fees are standard on most cards, and some issuers impose higher annual percentage rates as a penalty on those who pay late. There's also the risk of getting into bad habits. If you pay late once and it doesn't hurt your credit in a significant way, you may do it again and again. You could rack up unnecessary fees and potentially forget to pay within the 30-day window, which could harm your credit score.

What you should do: Pay your credit card bill on time, every time. But also know that if something happens and you do pay a few days late, your wallet may take a hit, but your credit score likely won't.

Myth No. 4: Carrying multiple credit cards directly affects your credit score.

Truth: The number of cards a person has isn't factored into credit scores.

More than 9 in 10 Americans (91 percent) didn't realize that having several different credit cards doesn't have a direct impact on a person's credit score. Although there are indirect effects of owning multiple cards – both credit-related and otherwise – the simple fact of carrying several cards neither helps nor harms your FICO score.

Applying for a new credit card can ding your score. But having several cards also lowers your credit utilization by increasing your overall available limit. Carrying multiple cards also allows you to optimize your rewards strategy and provides you with a backup option if your primary card is lost or stolen.

What you should do: If you're in the market for a new card, space out applications by at least six months to minimize any credit-score impact. But don't be concerned if you have quite a few cards in your wallet, since that alone isn't a factor in your FICO score.

[See: 10 Foolproof Ways to Reach Your Money Goals.]

Myth No. 5: You have three credit scores, one from each bureau.

Truth: A consumer can have hundreds of credit scores, but they aren't all equally valid.

Only 9 percent of Americans knew that most consumers have more than three credit scores. There are three major reporting bureaus – Experian, Equifax and TransUnion – so it's likely that consumers think each of these bureaus calculates one score, but that isn't the case. While credit reporting data are taken from these three bureaus, there are lots of different scoring models, and not all of them are widely used by lenders.

The most popular scoring model is called FICO; when a potential lender pulls your credit score, it's probably one of your FICO scores from the three major bureaus. The scores offered by free scoring sites typically are calculated using the VantageScore model. Although these scores indicate your overall credit health, they probably aren't the same numbers your creditors are seeing.

What you should do: You can purchase your FICO scores directly from the major credit bureaus for about $10 to $20. Make sure you are buying the FICO versions, not the proprietary scores offered by each of the bureaus. You can also check your credit card statements; many issuers now offer customers free FICO scores from one of the bureaus.

Related: The worst cities for saving money

16 PHOTOS
The Worst Cities for Saving Money
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5 financial myths that may be hurting your credit

15. Sacramento, Calif.

  • Population: 485,199
  • Median income: $50,013
  • Unemployment rate: 5.5%
  • Median home listing price: $530,000
  • Median monthly rent: $1,395
  • Average gas price: $2.223
  • Average cost of groceries: $42.94
  • Sales tax: 8.5%

The capital of California is more affordable than most of the states' major cities. But that doesn’t make it an ideal place for savers. Home prices still are high, and the median income in Sacramento is lower than the national median income of $53,482, leaving residents without a lot of wiggle room in their budgets to set aside money in savings.

Photo credit: Andrew Zarivny/Shutterstock.com

14. Bakersfield, Calif.

  • Population: 368,759
  • Median income: $56,842
  • Unemployment rate: 10.2%
  • Median home listing price: $245,000
  • Median monthly rent: $1,395
  • Average gas price: $2.35
  • Average cost of groceries: $35.68
  • Sales tax: 7.5%

The unemployment rate in Bakersfield is the second highest among the worst cities for savers. However, the median income of those who are employed is higher than many of the other cities on this list. Housing costs also are more affordable, which is why Bakersfield ranks lower than most of the other California cities that are the worst places for savers.

Photo credit: Gary C. Tognoni/Shutterstock.com

13. San Jose, Calif.

  • Population: 1,015,785
  • Median income: $83,787
  • Unemployment rate: 3.8%
  • Median home listing price: $725,000
  • Median monthly rent: $3,300
  • Average gas price: $2.38
  • Average cost of groceries: $40.95
  • Sales tax: 8.75%

The median home listing price in San Jose is the second highest among the worst cities to save. It’s also one of America’s most expensive rental markets, according to CNN. But a high median income — as a result of its booming tech industry — helps offset the high housing costs somewhat and doesn’t make it quite as hard to save as other places on this list.

Photo credit: Mariusz S. Jurgielewicz/Shutterstock.com

12. Long Beach, Calif.

  • Population: 473,577
  • Median income: $52,944
  • Unemployment rate: 5.4%
  • Median home listing price: $479,950
  • Median monthly rent: $2,197
  • Average gas price: $2.567
  • Average cost of groceries: $36.58
  • Sales tax: 9%

This city on the Pacific Coast is a slightly better city for savers than neighboring Los Angeles. But the median income in Long Beach isn’t high enough to offset high housing costs, leaving residents with little left over to save.

Photo credit: Jon Bilous/Shutterstock.com

11. Stockton, Calif.

  • Population: 302,389
  • Median income: $45,347
  • Unemployment rate: 8.8%
  • Median home listing price: $ 239,450
  • Median monthly rent: $1,300
  • Average gas price: $2.21
  • Average cost of groceries: $45.33
  • Sales tax: 9%

Stockton has two big strikes against it for savers: a median income that’s well below the national median income and a high unemployment rate. The city itself filed for bankruptcy in 2012 because fiscal mismanagement left it unable to pay its workers and fund the pensions of former city employees, according to Reuters. It emerged from bankruptcy in 2015.

Photo credit: Terrance Emerson/Shutterstock.com

10. San Diego

  • Population: 1,381,069
  • Median income: $65,753
  • Unemployment rate: 4.7%
  • Median home listing price: $589,900
  • Median monthly rent: $2,850
  • Average gas price: $2.488
  • Average cost of groceries: $37.79
  • Sales tax: 8%

National Geographic Traveler magazine selected San Diego as one of the best destinations in the world. It’s certainly a nice place to visit, but it can be a tough place to live if you’re trying to save money. Although the median income in San Diego tops the national median, high housing costs can make it difficult to have money left over to save.

Photo credit: Dancestrokes/Shutterstock.com

9. Fresno, Calif.

  • Population: 515,986
  • Median income: $41,455
  • Unemployment rate: 10.3%
  • Median home listing price: $219,900
  • Median monthly rent: $1,250
  • Average gas price: $2.314
  • Average cost of groceries: $33.95
  • Sales tax: 8.23%

The largest city in California’s Central Valley has the lowest house list price and lowest median rent in GOBankingRates' ranking of worst cities for savers. In fact, housing costs are lower here than half of the best cities for savers. The unemployment rate, however, is the highest of all cities on this list. The lower housing costs aren't enough to offset other expenses, so it's still hard to save money in this city.

Photo credit: Tupungato/Shutterstock.com

8. Miami

8. Miami

  • Population: 430,332
  • Median income: $30,858
  • Unemployment rate: 5%
  • Median home listing price: $459,000
  • Median monthly rent: $2,500
  • Average gas price: $1.874
  • Average cost of groceries: $39.06
  • Sales tax: 7%

Miami has the lowest median income on this list of worst cities for saving money, which means it’s harder for the city’s residents to afford the high cost of living there. On the plus side, though, Florida has no state income tax. And the 7 percent sales tax rate in Miami is the lowest among the worst cities for savers.

Photo credit: PHOTOSVIT/Shutterstock.com

7. Santa Ana, Calif.

  • Population: 334,909
  • Median income: $52,519
  • Unemployment rate: 5.4%
  • Median home listing price: $430,000
  • Median monthly rent: $2,598
  • Average gas price: $2.545
  • Average cost of groceries: $40.42
  • Sales tax: 8%

Forbes named Santa Ana one of the coolest cities in America in 2014 based on a ranking of entertainment and recreational amenities, diverse population and foodie culture. But that cool factor comes with a high cost. The median home list price and monthly rent — as well as average grocery and gas costs — are high, and the median income in Santa Ana is slightly below the national median, all of which can make it a tough place to save money.

Photo credit: iStock.com/Davel5957

6. New York, N.Y.

  • Population: 8,491,079
  • Median income: $52,737
  • Unemployment rate: 4.4%
  • Median home listing price: $699,000
  • Median monthly rent: $2,700
  • Average gas price: $1.984
  • Average cost of groceries: $46.17
  • Sales tax: 8.88%

Frank Sinatra was right when he sang the following line about living in New York: “If I can make it here, I can make it anywhere.” If you can manage to save money while living in this city with its exorbitantly high cost of living, then, yes, you can probably find a way to save in most other cities. Not only is it hard to save in New York because housing costs and daily expenses are high, but the median income is below the national median.

Photo credit: Atanas Bezov/Shutterstock.com

5. Anaheim, Calif.

  • Population: 346,997
  • Median income: $59,707
  • Unemployment rate: 5.4%
  • Median home listing price: $535,000
  • Median monthly rent: $2,500
  • Average gas price: $2.545
  • Average cost of groceries: $47.72
  • Sales tax: 8%

Anaheim is home to Disneyland Resort, which is great for visiting, but the city might not be the best place to call home if you want to save money. This city near Los Angeles rivals its bigger neighbor when it comes to a high cost of living. But a higher median income and lower housing costs keep Anaheim from being ranked as high as LA on this list of worst places to live if you’re trying to save money.

Photo credit: Juan Camilo Bernal/Shutterstock.com

4. Irvine, Calif.

  • Population: 248,531
  • Median income: $91,999
  • Unemployment rate: 5.4%
  • Median home listing price: $847,922
  • Median monthly rent: $3,400
  • Average gas price: $2.545
  • Average cost of groceries: $44.67
  • Sales tax: 8%

Irvine is an affluent city in Southern California that has the highest median income of the 15 worst places for saving money. The city has been included in several "best places to live" lists in recent years because of its strong economy, well-regarded schools, and, as a planned community, thousands of acres of green space. But high home listing prices, rent, and daily expenses such as gas and groceries can take a big bite out of the big salaries in Irvine, leaving little money to save.

Photo credit: iStock.com/Davel5957

3. Oakland, Calif.

  • Population: 413,775
  • Median income: $52,962
  • Unemployment rate: 3.9%
  • Median home listing price: $480,000
  • Median monthly rent: $4,650
  • Average gas price: $2.373
  • Average cost of groceries: $53.43
  • Sales tax: 9.5%

For years, Oakland has been considered the cheaper alternative to San Francisco. However, it’s by no means a cheap place to live relative to other cities in the U.S. In fact, rent prices in Oakland increased more in 2015 than any other major city — including San Francisco — according to the 2015 Zumper National Rent Report. Considering the median income here is lower than the national median, residents have little left over to stash into savings after covering high housing costs and daily expenses.

Photo credit: iStock.com/Davel5957

2. Los Angeles

  • Population: 3,928,864
  • Median income: $49,682
  • Unemployment rate: 5.4%
  • Median home listing price: $650,000
  • Median monthly rent: $3,950
  • Average gas price: $2.567
  • Average cost of groceries: $39.01
  • Sales tax: 9%

For the second year in a row, California’s largest city lands in the second spot on GOBankingRates' list of worst places to live for saving money. LA is considered the worst major city for housing affordability, according to a report by Southern California Public Radio. Although places such as San Francisco have higher rents and home listing prices, median income in Los Angeles is lower, making it harder to cover the high cost of living and leaving little room in household budgets to save.

Photo credit: iStock.com/Sean Pavone

1. San Francisco

  • Population: 852,469
  • Median income: $78,378
  • Unemployment rate: 3.9%
  • Median home listing price: $998,000
  • Median monthly rent: $4,650
  • Average gas price: $2.516
  • Average cost of groceries: $58.76
  • Sales tax: 8.75%

San Francisco retains its No.1 spot on this list of worst places to live if you’re trying to save money. Known for being one of the most expensive areas in the U.S., the City by the Bay has the highest median home listing price, highest median rent and highest average cost of groceries on this list. With such high housing costs and daily expenses, a median income of $78,378 doesn’t go far in San Francisco.

Photo credit: iStock.com/Lenin RzSz

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