5 credit myths and facts to know

Using credit cards responsibly is an important part of overall credit health. It can help with building and rebuilding credit as well as maintaining a good credit score. And the higher your credit score, the more responsible you might look to potential lenders. 

But with so much information about credit scores and credit cards, it can all get pretty confusing. If you feel unsure about how credit works, you’re not alone. A Capital One Insights Center survey revealed that Americans—regardless of age, credit score and gender—share many of the same misconceptions. Find out about some common credit myths and facts so you can use credit to build a brighter financial future. 

Key takeaways

• There are multiple credit bureaus and credit-scoring companies.
• You have multiple credit reports and credit scores.
• Checking and monitoring your credit won’t hurt it.
• Building credit takes time—beware of any quick fixes.
• Credit cards have multiple interest rates, depending on how the card is used.
• Responsible use is the key to building credit, and you don’t have to carry a balance.

Here are some common misconceptions and facts about credit scores, credit reports, credit cards and how they all work. 

If you check your credit with one of the three major credit bureaus, you’ll see one report. But in fact, most people have multiple credit reports. Each bureau creates its own report, and one bureau could display information differently from other bureaus. And because credit scores are based on information in credit reports, that’s one reason you also have multiple credit scores.

There are many different credit reporting agencies—also called credit bureaus—that compile credit reports. But the three major ones are Experian®, Equifax® and TransUnion®. 

There are also other smaller credit reporting agencies. Sometimes these agencies work with landlords and employers to gather and verify personal data. But they aren’t as widely known as the major ones.

In addition to having multiple credit reports, you have more than one credit score. That’s because there are multiple credit-scoring companies, including FICO® and VantageScore®. And those companies use multiple credit-scoring models. 

Credit scores are used to estimate how likely someone is to pay back a loan on time. And credit scores are calculated using information from credit reports. There are a number of factors that can affect your credit scores. But checking your credit scores or credit history won’t hurt them.

When you check your credit scores or reports, it’s considered a soft inquiry, which doesn’t hurt your credit scores. You can get free copies of your credit reports from each of the three major credit bureaus by visiting AnnualCreditReport.com. 

Another way to monitor your credit for free is with CreditWise from Capital One. CreditWise gives you your TransUnion credit report and VantageScore 3.0. With CreditWise, you can monitor your score and report anytime, without hurting your credit. Plus, it’s free for everyone, even if you’re not a Capital One customer. 

It’s a good idea to check your credit scores and history regularly to make sure there are no errors. And if there are errors, you can take steps to dispute them.

It may sound too good to be true and, unfortunately, it is. There’s no quick way to build or repair credit. And it’s important to be aware of potential scammers that might offer a quick credit fix. However, there are credit counselors who may be able to help people manage their debt and get their credit in order over time.

Building—or rebuilding—credit takes time and responsible credit usage. As a way to build credit, the Consumer Financial Protection Bureau (CFPB) recommends paying credit card balances every month and paying any other loans on time. At the very least, try to make the minimum payments. 

The CFPB also says to try to keep balances low and to only apply for credit you need. 

When searching for a credit card, you might be attracted to a card because of a specific interest rate. You might first notice the annual percentage rate (APR) for purchases. Or if there’s an introductory offer on a card, you might see something like a 0% interest rate for balance transfers, purchases or both.

But once that introductory period is up, cardholders could face interest charges on any unpaid balance they carry from month to month. And the rate can vary.

Keep in mind that different interest rates could apply to various parts of a credit card’s account balance. And those interest rates might be different from the purchase APR or introductory APR.

Here are three types of interest rates you might see:

• Balance transfer APR: This could be charged when someone moves a balance from one credit card to another. If there’s a balance transfer APR, it’s charged to the balance they move. Some issuers offer a 0% introductory balance transfer APR for a limited time. But the APR may increase for any transfer balance that carries over after that promotional period ends. 
• Cash advance APR: If a cardholder borrows cash from their credit card, there may be a higher interest charge for that transaction. Keep in mind that there are other transactions that might be considered cash advances and come with a cash advance APR and cash advance transaction fee—even if actual cash never touches your hands. These include using your credit card to buy casino chips, purchase lottery tickets, exchange dollars for foreign currency, transfer money using digital apps, pay debt like a car loan and use third-party bill pay services.
• Penalty APR: If a cardholder doesn’t make the minimum payment on their credit card, they might face a penalty APR charge.

It’s a good idea to check with your card issuers to see what APRs might apply to the different parts of your account balance. You can also find some information about a card’s different interest rates in its Schumer box.

If you don’t pay your credit card balance in full, it’s carried over to the next billing cycle and considered a revolving balance. And that unpaid balance might accrue interest. 

You don’t need to carry a balance to build credit. According to the CFPB, “Paying off your credit cards in full every month is the best way to improve a credit score or maintain a good one.”

While carrying a balance isn’t necessary to build credit, a healthy credit utilization ratio—which measures how much available credit a person is using—is an important part of credit. 

In addition to paying off credit card balances in full every month, the CFPB recommends keeping a credit utilization rate of less than 30% of your available credit. That can be a way to show you’re responsible with credit.

It takes time and responsible use to build credit. But once you do, it could help you reach your financial goals. And knowing the myths and facts about how credit scores and credit cards work can help you use credit responsibly and create healthier financial habits.

And don’t forget to check out the credit survey results from the Capital One Insights Center to learn more about how others approach credit.