Credit Myth Busting: The Opt Out Myth – Credit Countdown With Consumer Credit Expert John Ulzheimer

Credit Myth Busting: The Opt Out Myth - Credit Countdown With Consumer Credit Expert John Ulzheimer - PinterestThe “opt-out” myth is one of many myths that lead consumers astray when it comes to credit. What is the opt-out myth and why does it not work?

What Are Pre-Screened Credit Offers?

Pre-screened credit card offers are preliminary offers of credit that credit card companies send to consumers who have a credit profile that matches with that of the company’s desired customer base. The way that the banks determine this is they purchase pre-screened lists of consumers from the credit reporting agencies.

For example, a credit card issuer could request a list of a million consumers who have a credit score between 650 and 725, do not have any bankruptcies on their records, and have not opened a new credit card in the past six months. The credit bureaus would then compile a list of consumers who fit that set of criteria and sell this list to the lender so that the lender can offer credit cards to these consumers.

Is It Legal for the Credit Bureaus to Sell Your Information on Pre-Screened Lists?

Yes, it is completely legal for the credit reporting agencies to include your information on pre-screened lists of consumers for lenders to purchase. It is not a controversial practice.

In fact, credit card issuers very commonly use these pre-screened lists as a way to acquire new consumers, as you may already know if you regularly receive such offers in the mail yourself.

Do You Get Inquiries on Your Credit Reports From Pre-Screened Credit Offers?

Because your credit report is generated and accessed by a business during the pre-screening process, this results in you getting a soft inquiry on your credit report.

For this reason, you may see soft inquiries on your credit report from companies you do not recognize who may have extended a pre-screened offer to you.

Can You Get Your Name Taken Off These Pre-Screened Lists?

You have the right to order the credit reporting agencies to not include your name on the pre-screened lists that they sell to banks. In other words, you are allowed to “opt out” of the pre-screening process.

Opting out is free and easy to do. All you have to do is go to, which is a website that is operated by the credit bureaus because they are obligated under the Fair Credit Reporting Act to allow consumers the ability to opt out of having their names on these pre-screened lists.

At this website, you can opt out permanently, or, alternatively, you can choose to opt out for just five years.

If you want your mailbox to stop filling up with pre-screened credit card offers, then opting out via this website is the way to do it.

What Is the Opt-Out Myth?

The myth regarding opting out is the belief that if you opt out of receiving pre-screened credit offers, your credit score will go up.

The reasoning behind this myth comes from the misconception that soft inquiries on your credit report will hurt your credit score.

Soft Inquiries vs. Hard Inquiries

There are two types of credit inquiries: hard inquiries and soft inquiries.

Hard inquiries on your credit report are the result of you applying to obtain credit from a lender. When you do this, the lender pulls your credit report to see if you are creditworthy by their standards.

Because your credit report has been accessed by a lender for the purpose of approving or denying your application, a hard inquiry goes onto your credit report, indicating that you are actively looking to borrow. This implies that you are now a higher credit risk, so your credit score may go down a few points as a result of a hard inquiry.

Soft inquiries, on the other hand, may show up on your credit report when businesses check your credit for other reasons, such as a landlord pulling your credit before approving you for a rental or a prospective employer looking at your credit report as part of the job application process. This also applies to credit card issuers including you in groups of pre-screened consumers in order to solicit your business.

That means you can be confident that being pre-screened for credit offers only results in soft inquiries being added to your credit report.

Soft inquiries do not represent applications for credit on your part, which means they do not reflect your risk level as a borrower. For this reason, they do not impact your credit score at all. They just serve as a record of who has accessed your report.

Why the Opt-Out Myth Is Wrong

The myth that opting out helps your credit score would make sense if we were dealing with hard inquiries on your credit report because hard inquiries can hurt your score.

However, as we pointed out, the only inquiries you get from the pre-screening process are soft inquiries, and while soft inquiries do appear on your credit report, credit scores do not consider them as a scoring factor. Credit scoring systems don’t even know whether you are opted in or opted out of pre-screened offers.

Therefore, pre-screened credit card offers do not affect your credit score at all, so opting out of receiving them will not make a difference to your score either.

Avoid Opt-Out Scams

If you try searching for information about the opt-out myth, you might come across some offers to “help” you opt out and increase your credit score—for a fee. Avoid scam artists who try to sell you products and services to accomplish something that:

Will not actually improve your credit score,
You can do yourself,
Is free to do, and
Takes just about a minute.

Conclusions on the Opt-Out Myth

Despite the fact that misinformation about this topic is commonplace, we can safely say that opting out of pre-screened credit card offers will not help your credit score because being pre-screened does not affect your score in the first place.

However, if you do not want to be included on lists of pre-screened consumers for other reasons, you can quickly and easily opt out on for free.

View the Credit Countdown video on this topic below and then check out our YouTube channel for more informative videos!


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How to Use Credit Cards Responsibly Without Going Into Debt – Credit Countdown With John Ulzheimer

How to Use Credit Cards Responsibly Without Going Into Debt - Pinterest

Credit cards are often vilified for their high interest rates, which can be very costly to consumers who carry a balance from month to month rather than paying off the full balance that was accrued. Credit expert John Ulzheimer believes that credit cards do not deserve the bad reputation they have earned.

In a Credit Countdown video on our YouTube channel, John explained why credit cards are not necessarily as bad as they are made out to be and how to use them responsibly without going into credit card debt.

Keep reading to learn more on this topic and watch the video below!

Credit Card APRs

It’s true that credit cards do have high interest rates compared to other forms of credit, even if you have a good credit score. For this reason, once you get into credit card debt, it can be a very deep hole to climb out of, because the interest charges keep adding to your total amount of debt. 

However, as John points out in the video, no one forces you to open a credit card or go into credit card debt, so in his opinion, it seems unfair to blame the credit cards with high interest rates for actions that consumers choose to take.

If you choose instead to pay off your balance every month, then you do not have to pay interest on your purchase, so the APR of the card is irrelevant. Therefore, if you are going to use credit cards responsibly, then there is no need to choose a credit card based on its APR.

Always Pay Off Your Credit Cards in Full

The most important rule when it comes to using credit cards correctly is this:

Only charge as much as you can pay off in full every single month. 

When you pay your bill in full each month, since you are not paying interest, it is essentially free to use credit cards. The exception to this is if your credit card has an annual fee, but for some consumers, the annual fee on some credit cards may be worth paying in order to reap the rewards offered by the card.

If you want to be a responsible user of credit cards, it is essential to pay off your balance in full every month rather than carrying a balance and paying interest.

If you want to be a responsible user of credit cards, it is essential to pay off your balance in full every month rather than carrying a balance and paying interest.

Maintain a Low Balance-to-Limit Ratio

If you want to have a good credit score, it’s important to keep a low balance-to-limit ratio (also commonly called the credit utilization ratio). The closer your balance is to your credit limit, the fewer points you can earn toward your credit score.

This goes for both FICO credit scores and VantageScore credit scoring models.

Don’t take this to mean that you cannot use your credit card often or make large purchases with it. Just be aware that since a higher balance-to-limit ratio means a lower credit score, you may want to avoid doing anything to substantially increase your balance before you apply for a loan, especially a large loan, like a mortgage loan or an auto loan. Otherwise, you could end up with a higher interest rate that could cost you thousands of dollars in additional interest over the course of the loan.

Do Not Skip a Payment

Credit card issuers sometimes offer “skip a payment” programs that allow you to “skip” a payment for one month, especially around the holidays, when consumers may rely more on their credit cards.

John recommends never signing up for these programs because by skipping a payment, you are obviously opting not to pay in full that month. Since you are carrying the balance to the next month, you will be charged interest on the debt and you will have even more debt to pay back the next month.

Instead of skipping a payment, the more responsible thing to do is to go ahead and pay the statement in balance in full just as you normally would.


While credit cards may be risky in the wrong hands, responsible consumers do not need to forgo using them altogether. It is possible to benefit from using credit cards as a financial tool without going into debt or paying interest.

To that end, make sure you always pay your balance in full and maintain a low balance-to-limit ratio, and never skip a payment.

To hear from John directly, check out the video below. Follow our YouTube channel to see more of our Credit Countdown videos!

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Secured vs. Unsecured Debt: What Are the Pros and Cons? – Credit Countdown With John Ulzheimer

Secured Debt vs. Unsecured Debt - PinterestSecured credit and unsecured credit are types of credit that are very different in terms of risk to consumers and lenders.

In a Credit Countdown video on our YouTube channel, credit expert John Ulzheimer explains the benefits and drawbacks of each type of credit and how different types of credit can affect your credit score. Read what he has to say below and watch the video on our channel!

What Is Secured Credit?

Secured credit is a form of credit that is backed by some sort of physical asset as collateral. If the borrower defaults on a secured loan, the lender can take the asset in order to recoup the loss.

Examples of Secured Credit

When you take out an auto loan, the loan is secured by your vehicle. Technically, the lender is the owner of the car until you finish paying off the debt. If you fail to repay the loan as agreed, the lender can take back the car using the process of repossession.

Similarly, when you take out a mortgage, that loan is secured by your home, and the bank still “owns” the home until you pay it off. In this case, not paying your mortgage can lead to the bank foreclosing on your home, meaning that they evict you from the home and then can sell it to someone else.

Pawn shop loans and title loans are also examples of secured loans.

While most credit cards are typically unsecured, secured credit cards do exist for consumers who may not be able to qualify for unsecured credit cards due to bad credit or a lack of credit history. With a secured credit card, you make a security deposit that counts toward your credit limit that the lender can keep in the event that you are not able to make the required payments on your credit card.

Mortgage loans are secured by your home.

Mortgage loans are secured by your home.

What Is Unsecured Credit?

Unsecured credit is credit that does not have a physical asset as collateral, so the lender cannot take back an asset if you default on the debt.

Examples of Unsecured Credit

A student loan is an example of an unsecured loan because there is no material asset that can be taken away if you do not pay your student loans. Student loans are used to pay for an education, and obviously, the lender cannot “take back” the education you have already received.

Credit cards are generally extensions of unsecured credit, except in the case of secured credit cards, as we described above.

Secured Credit
Unsecured Credit

Auto loans
Unsecured credit cards

Mortgage loans
Student loans

Home equity lines of credit
Unsecured personal loans

Secured credit cards
Unsecured lines of credit

Motorcycle loans

Boat loans

Pawn shop loans

Title loans

The Impact of Secured and Unsecured Debt on Your Credit Score

Secured and unsecured accounts are treated equally by credit scoring models, according to John. You are not penalized or rewarded by credit scores based on your accounts being unsecured or secured.

Different types of accounts are still treated differently by credit scores due to other factors (e.g. credit cards are treated differently than installment loans), but this particular factor does not play a role.

Secured Credit Cards: Use Them Carefully

Secured credit card accounts are commonly used by consumers to establish credit or rebuild their credit after having bad credit. This is a valuable credit-building strategy, but you should be cautious about how much you spend on your secured credit card.

Why? Because secured credit cards often have very low credit limits. That means you can quickly get to a high utilization ratio on the account even from modest spending. For example, if your secured credit card has a credit limit of $500 and you spend $250, you already have a utilization ratio on that account of 50%.

Having heavily utilized credit card accounts can have a significant negative impact on your credit score, so if you’re trying to keep your credit score as high as possible, you’ll want to keep an eye on the balance of your secured credit card and not let it creep too high relative to your credit limit.

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The Top 3 Credit Myths That Won’t Go Away – Credit Countdown With Credit Expert John Ulzheimer

Top 3 Credit Myths - PinterestMyths about credit, unfortunately, are extremely common, even among people who purport to repair credit. We’ve previously compiled a list of common credit myths, which you can find in our Knowledge Center.

In this post, we’re going to focus on the top three credit myths that just won’t seem to go away, according to credit expert John Ulzheimer in a Credit Countdown video on the topic. Check out the video version at the end of this post.

Myth 1: Your revolving utilization ratio is worth 30% of your credit score.

While the general category of how much debt you owe does contribute 30% of your FICO score, the specific metrics regarding revolving utilization are just part of that category, not the whole thing. There are several other metrics included in this category, which FICO lists on their website. These include:

The total amount you owe on all of your credit accounts.
The amounts you owe on different types of accounts, such as installment loans and credit cards.
The number of your accounts that have balances on them.
The ratio of how much you still owe on your installment accounts, such as auto loans and student loans.

Therefore, your revolving utilization must necessarily be worth less than 30% of your credit score, although it is true that it is a highly valuable metric.

Myth 2: Closing an old credit card means the age of the card no longer counts toward your credit score.

Prominent sources in the credit arena often advise consumers not to close their oldest credit cards, claiming that this will cause consumers to lose the benefit of the card’s age. In theory, this idea makes sense because your credit age is worth 15% of your credit score and it is directly connected to your payment history, which is worth an additional 35% of your score.

However, the problem with this advice is that you actually do not lose the age of a credit card once you close the account. In fact, according to John, credit cards continue to increase in age and contribute to your average age of accounts even after they have been closed.

Still, it is important to remember that closing a credit card is not completely free of consequence. When you close a credit card account, you no longer get the benefit of the unused credit limit that was associated with the account, which was likely helping your credit score.

Myth 3: Employers can check your credit scores.

In truth, this myth likely exists because employers can check your credit reports, but credit reports and credit scores are not the same thing. Your credit report contains information about your credit accounts, while your credit score is a three-digit number that represents how creditworthy you are deemed to be by the credit scoring model.

Furthermore, the credit reports that employers receive are different from the versions that are provided to lenders, and these credit reports do not come with credit scores.


If there are other credit myths you think we should cover, leave a comment on this article or the accompanying video on our YouTube channel!

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Fair Credit Reporting Act

Using a credit card is easy — you use the card to buy things and then pay the credit card bill.

A credit card can sometimes be difficult, however, when dealing with your credit file.

From a  missed payment to a loan that isn’t yours that’s incorrectly listed on your credit report, there are all kinds of ways your credit score can drop.

And not all of them are from something you did wrong.

What Is the Fair Credit Reporting Act?

Consumers have protections under the law regarding their credit reports — which is where credit scores and credit problems are listed for lenders to check before offering you credit.

Errors on a credit report can drop your credit score, making it harder to get a loan, credit card, rent an apartment, or qualify for insurance coverage, among other things.

The main law that protects consumers from credit errors is the Fair Credit Reporting Act, or FCRA.

Your Rights Under The FCRA

Here are some of the rights you have under this law and how to use it to protect your credit:

View Credit Reports

The FCRA entitles you to review your credit file from each of the three main credit bureaus for free once every 12 months.

You can do one check every four months from each of the three — Equifax, Experian, and TransUnion — if you really want to be on top of it.

Start by going to to request your credit file online.

Only use that website and don’t use a copycat site that charges fees for what should be a free service.

You’ll need to verify your identity to get online access. You can also request your credit file through an automated phone system or the mail.

The FCRA applies to all consumer reporting agencies.

You can also look at reports from other consumer reporting agencies that collect noncredit information about you.

These include rent payments, insurance claims, employers, and utility companies.

The Consumer Financial Protection Bureau lists the reporting companies and how to request a free report from each.


Getting a credit report in your hands can lead to all sorts of eye-opening concerns. Anything that’s listed as negative should be checked for accuracy. Here are some things to look out for:

Eviction that wasn’t legal.
Creditor listed that you didn’t have an account with.
Loan default.
Wrong name.
Wrong address.
Wrong Social Security Number.
Incorrect loan balance.
Closed account reported as open.
A loan you didn’t initiate.

Some errors may be simple to resolve and others you may need to do more research on before disputing them to ensure they’re incorrect.

For example, you may not recognize the name of a creditor and assume you don’t have an account with them. But it may just be a store credit card you recently applied for that is listed by the issuing bank’s name. Or maybe a home or auto loan was sold to a new loan servicer.

Other errors could be reason to suspect identity theft, or there could just be wrong information that’s bringing down your credit score.

If you suspect identity theft, such as someone taking out a credit card in your name, then file a police report and report it to your credit card company and the credit reporting agencies.

To dispute erroneous information, use certified mail to send the credit bureau a letter and copies of documents explaining the error. If a loan still shows an outstanding balance and you have written proof that it was paid off, for example, send a copy to the credit agency.

The Federal Trade Commission has a simple sample letter to dispute errors on your credit report.

Credit agencies have 30 days to investigate and respond to your dispute, unless they deem it frivolous.

If it corrects an error, it must send you a free copy of your credit report through so you can see that the corrections have been made.

Check Your Credit Score

The law allows you to request a credit score, though it’s legal for credit agencies and other businesses to charge you a fee for this service.

Some credit cards provide scores for free, so check with your credit card issuer first.

A credit score isn’t the same as a credit report.

Information in a credit report determines a credit score, and each credit bureau can use a different scoring model that requires it to provide different information.

You have different credit scores, depending on which factors are weighed more heavily.

Monitoring your credit is vital. Make sure that you review your credit report for any inaccuracies.

Know Who Can View Your Credit Report

The FCRA doesn’t allow a credit reporting agency to share your credit file with someone who doesn’t have a valid need.

Some inquiries, such as from a potential employer or landlord, require your written consent.

And, they can only check your credit report, not your credit score.

The credit reporting agencies can share your credit report for legitimate reasons, such as when you’re applying for credit, insurance, housing, or with a current creditor.

A Time Limit To Negative Information

The FCRA doesn’t allow credit bureaus to report negative information that’s more than seven years old, though it allows some forms of bankruptcy to remain on a credit report for 10 years.

There’s also a time limit for positive credit information such as on-time payments and low balances — up to 10 years after the last date of activity on the account.

Rejections Based on Credit Report

If your application for credit, job, insurance, or housing has been denied because of information in your credit report, the law gives you the right to know this information.

The landlord, employer or other entity that denied your application must notify you and give you the name, address and phone number of the credit reporting agency that provided the information.

The FCRA allows you to get a free copy of your credit report from that reporting agency within 60 days of the action against you. That’s in addition to the three free credit reports allowed annually.

To best deal with a potential rejection ahead of time, it’s smart to check your credit report before applying for credit, rental unit or related use of your credit report and check it for errors. Give yourself enough time to fix them.

The post Fair Credit Reporting Act appeared first on Better Credit Blog | Credit Help For Bad Credit.

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Ask an Expert: How Do I Build Good Credit From Scratch?

The NFCC often receives readers questions asking us what they should do in their money situation. We pick some to share that others could be asking themselves and hope to help many in sharing these answers. If you have a question, please submit it on our Ask an Expert page here.

This week’s question: I need some advice in regards to my credit report and good ways that I can begin to build up my credit. I have no credit at all. Eventually within five years once I’m out of school I want to buy a house.

Building credit from scratch will take some time and effort, just like getting a job after graduating from school. You can think about good credit as a means to an end: you need good credit to finance big purchases and get the best interest rates and repayment terms on loans and mortgages. So, getting your credit ready is an excellent start to buying a home in the near future.

What is on Your Credit Report? 

Your credit is a record of your monthly financial credit transactions. Your creditors report your activity to the three credit bureaus, Equifax, Experian, and TransUnion, and they use that data to generate a credit score. Your credit report also includes your personally identifying information such as your name, addresses, social security, and some public records such as bankruptcies and judgments and tax liens, if you have any. To start generating data for your credit report, you need to get a credit line. The easiest way to do that is to get a secured credit card. Many banking institutions issue secured credit cards, and they work pretty much like a regular credit card. The main difference is that these cards are backed by a cash deposit, which usually corresponds to the card’s credit limit.

Be Strategic

Learning how to use your credit card strategically is equally as important as getting that credit line. Your credit score takes into consideration several factors. The factor that influences your score the most is whether you pay your accounts on time and as agreed. Late or insufficient payments are very detrimental to your credit history. So, you should plan to pay in full and before your due date. Another important factor is your utilization ratio, which is how much you owe compared to your available credit. To have a balanced ratio, experts recommend that you use only 30% or less of your available credit in every billing cycle. For instance, if you have a $500 credit limit, you should be using less than $150.

Yet another factor is the age of your credit history. The older your credit history, the more history and data you’ll have to establish a solid credit history. Achieving this will just require time and your continued effort. The other two factors to keep in mind are the mix of credit you have (credit cards and loans) and how often you ask for new credit. Too many new credit inquiries reflect negatively on your score, so it’s important that you only apply for new credit sporadically. In your case, you should keep your secured credit card for at least a year before applying for a regular credit card. In some cases, your creditor may even upgrade your secured credit card to a regular one and return your cash deposit.

It’s never too soon to start building your credit. And once you learn healthy credit management habits, it will be very easy for you to manage your credit and use your credit cards responsibly on a daily basis. If you feel you need additional guidance or personalized help to get you started, you can always reach out to an NFCC Certified Financial Counselor. They are ready to help over the phone, online, and in-person if it’s available in your state. Good luck!

The post Ask an Expert: How Do I Build Good Credit From Scratch? appeared first on NFCC.

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Things Everyone Should Know About Credit Cards

Things Everyone Should Know About Credit Cards - Pinterest graphicCredit cards are not only a useful payment method for making purchases but also an essential component of a solid credit-building strategy

After all, credit cards are the most common form of revolving credit, which is given more importance than installment credit (e.g. auto loans, student loans, mortgages, etc.) when it comes to calculating your credit score.

Unfortunately, credit cards often get a bad rap because it’s easy to rack up excessive amounts of debt and destroy your credit score if you do not know how to use credit cards properly.

However, when you have the knowledge and ability to use credit cards to your advantage rather than to your detriment, they can be an extremely powerful financial tool to have in your arsenal.

If you’re unsure if using credit cards is the right choice for you or confused about how they work, then keep reading to learn the basics of credit cards that everyone should know.

What Is a Credit Card?

A credit card is a card issued by a lender that allows a consumer to borrow money from the lender in order to pay for purchases.

The consumer must later pay back the funds in addition to any applicable interest charges or other fees.

They can choose to either pay back the full amount borrowed by the due date, in which case no interest will be charged, or they can pay off the debt over a longer period of time, in which case interest will generally accrue on the unpaid balance.

Each credit card has an account number, a security code, and an expiration date, as well as a magnetic stripe, a signature panel, and a hologram. Most credit cards also now have a chip to be inserted into a chip reader rather than swiping the card at the point of sale. In addition, some credit cards offer contactless payment capability.

Credit cards allow consumers to pay for goods and services with funds borrowed from the credit card issuer.

Credit cards allow consumers to pay for goods and services with funds borrowed from the credit card issuer.

How Do Credit Cards Work?

Although using credit cards may feel like using “fake money” or spending someone else’s money, it’s important to understand that the money you borrow when you pay with a credit card is very much real money that you now owe to the lender.

Credit Cards Are Unsecured Revolving Debt

With most credit cards, the funds you borrow are considered to be unsecured debt because you are borrowing the money without any collateral. That means the credit card issuer is taking on additional risk by giving you a credit card, since there is no collateral that they can take from you if you fail to pay back the debt, unlike with secured debt, such as a mortgage or a car loan.

Furthermore, the lender allows you to decide when and how much you want to pay back the funds instead of requiring you to pay the full balance on each due date. You can choose to only pay the minimum payment and “revolve” the remaining balance from month to month, which extends the amount of time during which you owe money to the credit card company.

Most credit cards now come with a chip in addition to a magnetic stripe.

Most credit cards now come with a chip in addition to a magnetic stripe.

For the above reasons, credit card interest rates are typically significantly higher than the interest rates for installment loans.

However, credit cards are also the only form of credit where paying interest is optional—there is a “grace period” of at least 21 days before the interest rate for new purchases takes effect, and you only get charged interest if you do not pay back your full statement balance by the due date.

(Keep in mind that the grace period usually only applies to new purchases, as stated by The Balance. This does not include balance transfers or cash advances, which typically begin accruing interest immediately.)

Understanding Credit Card Interest Rates

To reiterate, the interest rate of a credit card technically only applies when you carry a balance instead of paying off your full statement balance each month. However, most people will likely end up carrying a balance on one or more credit cards at some point, so it is still a good idea to be aware of what your interest rates are.


The interest rate of a credit card is usually expressed as an annual percentage rate (APR). This is the percentage that you would pay in interest over a year, which can be confusing because interest on credit card purchases is charged on a daily basis when you carry a balance from month to month.

You can find your average daily periodic rate (ADPR), which is the interest rate that you are being charged each day, by dividing the APR of your card by 365.

Average Credit Card Interest Rates
The interest rate of a credit card, expressed as the APR, is important to know if you ever carry a balance on the card.

The interest rate of a credit card, expressed as the APR, is important to know if you ever carry a balance on the card.

As of October 2020, the average credit card interest rate as reported by The Balance is 20.23%. However, credit card issuers are allowed to set their APRs as high as 29.99%. It is not uncommon to see APRs upwards of 20%, even for consumers who have good credit.

The highest interest rates are generally seen on credit cards for bad credit or penalty rates that credit card issuers can implement when you are 30 or more days late to make a payment. You may also get penalized with a higher interest rate if you go over your credit limit or default on a different account with the same bank, according to ValuePenguin.

Ask for a Lower Interest Rate

In our article on easy credit hacks that actually work, we suggest trying the simple tactic of calling your credit card issuer’s customer service department and asking for a lower APR. Surveys have shown that a majority of consumers who do this are successful in obtaining a lower interest rate.

Important Dates to Know

Many consumers assume that the payment due date of your credit card is the only important date you need to worry about. While it’s true that the due date is the most important date to be aware of, there are several other dates that are useful to pay attention to as well.

Billing cycle

The billing cycle of a credit card is the length of time that passes between one billing statement and the next. All of the purchases you make within one billing cycle are grouped together in the following billing statement.

This cycle is typically around 30 days long, or approximately monthly, although credit card companies can choose to use a different billing cycle system.

Statement closing date
Your credit card's statement closing date is not the same thing as your due date, so make sure you know both.

Your credit card’s statement closing date is not the same thing as your due date, so make sure you know both.

Sometimes referred to simply as the “closing date,” this is the final day of your billing cycle. Once a billing cycle closes and the statement for that cycle is generated, the balance of your account at that time is then reported to the credit bureaus.

You can look at your billing statement to find the closing date for your account. Because of the 21-day grace period, the statement closing date is usually around 21 days before your due date.

Due Date

This is the most important date to know in order to pay your bill on time every month, which is the most influential factor when it comes to building a good credit history. To make it easy for yourself to avoid accidental missed payments, you may want to set up automatic bill payments.

If your due date is inconvenient due to the timing of your income and other bills, you can try requesting a different due date with your credit card issuer.

Promotional offer dates

Many credit cards offer introductory promotions to attract new customers, such as 0% APR, bonus rewards, or no balance transfer fees. To use these offers strategically, you will need to know when the promotional period ends so you can plan accordingly.

Expiration date
All credit cards have an expiration date past which they cannot be used.

All credit cards have an expiration date past which they cannot be used.

Every credit card has an expiration date printed on it, after which you will no longer be able to use that card, although your account will still be open. You just have to get a new credit card sent to you to replace the one that is expiring.

Usually, credit card companies will automatically send you a new card before the original card expires. If this does not happen, simply call the issuer to ask for a replacement credit card.

A Common Credit Card Mistake

Some consumers think that the closing date and the due date are the same thing and therefore believe that if they pay off the full statement balance by the due date, the credit card will report as having a 0% utilization ratio. They may then be confused to find out that their credit card is still reporting a balance to the credit bureaus every month.

However, the statement closing date is usually not the same date as your due date. This is why your credit cards may report a balance every month even if you always pay your bill in full—the account balance is being recorded on your statement date before you have paid off the card.

If you do not want your credit card to report a balance to the credit bureaus, you will need to either pay off the balance early, prior to the statement closing date, or pay your statement balance on the due date as usual and then not make any more purchases with your card until the next closing date.

Credit Card Payments

With credit cards, you have several different options for payment amounts.

Minimum payment
If you make only the minimum payments on your credit cards, it will take you longer to pay off your credit card debt and you will be charged interest.

If you only pay the minimum payments on your credit cards, it will take longer to pay off your credit card debt and you will be charged interest.

This is the minimum amount that you are required to pay by your due date in order to be considered current on the account and avoid late fees. Although this may vary between different credit card issuers, typically the minimum payment is calculated as a percentage of your balance.

If you make only the minimum payment every month, it will take you a much longer time to pay off your balance and you will be paying a far greater amount in interest than if you were to pay off your statement balance in full. Check your billing statement to see how the math works out; the credit card company is required to disclose how long it will take to pay off the balance if you only make the minimum payments.

Statement balance

This is the sum of all of your charges from the preceding billing cycle in addition to whatever balance may have already been on the card before that cycle. This is the amount you need to pay if you do not want to pay interest for carrying a balance.

Current balance

This number is the total balance currently on your credit card, including charges made during the billing cycle that you are currently in, so it will be higher than your statement balance if you have made more purchases or transfers since your last closing date. You can pay this amount if you want to completely pay off your account so that it has no balance.

Other amount

You can also make a payment in the amount of your choosing, as long as it is greater than the minimum payment. This is a good option to use if you don’t have enough cash to pay the statement balance in full, but want to pay more than the minimum in order to mitigate the amount of interest you will be charged.

Credit Card Fees

Credit cards often charge various other fees in addition to interest. Here are some common fees to be aware of.

Although you may have access to a "cash advance" credit limit on your credit cards, it is generally not recommended to get a cash advance due to the high interest rates and fees you will have to pay.

Although you may have access to a “cash advance” credit limit on your credit cards, it is generally not recommended to get a cash advance due to the high interest rates and fees you will have to pay.

Late payment fees

If you do not make the required minimum payment before the due date, the credit card company will likely charge you a late fee somewhere in the range of $25 – $40 (in addition to potentially raising your APR to a penalty rate). If you usually pay on time but accidentally miss a payment for whatever reason, try calling your credit card issuer and asking if they would be willing to reverse the fee since you have been an upstanding customer overall.

Annual fees

Some credit cards charge an annual fee for keeping your account open. Many times this charge may be waived for your first year as a promotional offer to attract new customers. Cards with higher annual fees will often have additional perks and rewards, but there are also plenty of great options for rewards cards that do not charge annual fees.

Cash advance fees

Your credit cards may give you the option to borrow cash in the form of a cash advance. However, this is usually not advised because cash advance interest rates are often significantly higher than your regular interest rate for purchases. In addition, you will most likely be charged a cash advance fee when you first withdraw the money, whether a flat dollar amount of around $10 or a percentage of the amount you take out, such as 5%.

Foreign transaction fees

Some cards charge a fee to use your card to pay for things in other countries. These fees are typically around 3% of the purchase amount. However, there are many credit cards on the market that do not charge foreign transaction fees.

Be sure to check the terms of service of your credit cards for fees such as these so that you can avoid any unexpected charges.

How Credit Cards Affect Your Credit

Credit cards are one of the most impactful influences on your overall credit standing, and they play a role in multiple credit scoring factors.

Building Credit With Credit Cards

One of the major advantages of credit cards is that it allows you to start building a history of on-time payments, which is extremely important given that payment history is the biggest component of your FICO score, making up 35% of it.

All you have to do to get this benefit is use your credit card every so often and pay your bill on time every month.

Click on the infographic to see the full-sized version!

Click on the infographic to see the full-sized version!

Revolving Accounts Are More Important

We have previously discussed why revolving accounts are more powerful than installment accounts when it comes to your credit score.

Revolving accounts such as credit cards can have a much greater influence on your credit than auto loans, student loans, and even a mortgage—for better or for worse. They must be managed properly because negative credit card accounts will also have a very strong impact on your credit.

Mix of Credit

Although your mix of credit only makes up 10% of your FICO score, it is still worth considering, especially if you aim to achieve a high credit score or even a perfect 850 credit score.

A good credit mix generally includes various types of accounts, including both revolving and installment accounts. You can see the different types of accounts in our credit mix infographic.

Credit cards may help with your credit mix if you have a thin file or if you primarily have installment loans on your credit report.

They also add to the number of accounts you have, which is a good thing for the average consumer. In fact, as we talked about in How to Get an 850 Credit Score, FICO has stated that those who have high FICO scores have an average of seven credit card accounts in their credit files, whether open or closed.

The Importance of Credit Utilization Ratios

Your credit utilization is the second most important piece of your credit score, which is another reason why credit cards are such a strong influence on your credit.

The basic rule of thumb with credit utilization ratios is to try to keep them as low as possible (both overall and individual utilization ratios), meaning you only use a small portion of your available credit. Ideally, it’s best to aim to stay under 20% or even 10% utilization, because the higher your utilization rate is, the more it will hurt your credit instead of help.

Conclusions on Credit Card Basics

Credit cards can be intimidating, especially when you don’t know how to use them correctly.

It is also true that not everyone wants or needs to use credit cards.

It’s not impossible to build credit without a credit card, but it is more difficult since you would be limited to primarily installment loans, which are not weighed as heavily as revolving accounts, and possibly alternative credit data.

However, for those who are able to use credit cards responsibly and follow good credit practices, they can be an incredibly useful credit-building tool as well as a way to reap some benefits and perks that other payment methods do not provide.

We hope this introductory guide to credit cards provides the knowledge base you need in order to feel confident using credit cards and to take advantage of their benefits.

If you found this article useful, please comment to let us know or share it with others who want to learn more about credit cards!

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