Myth 1: Carrying a Balance Helps Your Credit Score
Reality: Categorically false. This is perhaps the most financially damaging credit myth. Carrying a revolving balance costs you interest at 22% to 30% APR and does nothing positive for your credit score. Payment history (on-time payments) and low utilization are what improve your credit score. A cardholder who pays in full monthly has both better credit utilization and perfect payment history than someone carrying a balance. Never carry a balance to build credit.
Myth 2: Closing Old Credit Cards Improves Your Credit
Reality: Usually the opposite. Closing old accounts reduces your total available credit, potentially raising your utilization ratio on remaining balances. Closing your oldest account also reduces your average account age, a factor in credit scoring. Keep old paid-off cards open with zero balance or one small recurring charge. Close only cards with annual fees that are not justified by rewards value.
Six credit card myths, realities, and financial cost of believing each
| Myth | Reality | Financial Cost of the Myth |
|---|---|---|
| Carrying a balance builds credit | Completely false; hurts through utilization | $500 to $3,000 per year in unnecessary interest |
| Closing old cards improves credit | Usually reduces credit score | 20 to 50 point score drop; higher future borrowing costs |
| Debt settlement is better than bankruptcy | Both damage credit similarly; settlement adds fees | 15 to 25% fees to settlement company plus credit damage |
| Minimum payments are designed to help you | Designed to maximize issuer profit | 20 to 30 years of debt vs. 1 to 4 years at reasonable payments |
| Consolidating debt eliminates it | Only restructures; new charges create double debt | Potential to double total debt if cards reused |
| All 0% APR offers are the same | Deferred interest vs. true 0% are fundamentally different | Hundreds to thousands in surprise retroactive interest |
Myth 3: Debt Settlement Is a Good Alternative to Bankruptcy
Reality: Debt settlement is a credit-damaging strategy promoted by for-profit companies that charge 15% to 25% fees. The method deliberately defaults on payments to try to force a settlement negotiation. This causes the same credit damage as bankruptcy while adding substantial fees. Nonprofit credit counseling through NFCC member agencies provides Debt Management Plans that reduce interest rates without deliberate default and with much lower fees.
Myth 4: Minimum Payments Are Designed to Help You
Reality: Minimum payments are engineered to maximize issuer profit by keeping you indebted as long as possible while accruing maximum interest. The minimum payment formula (1% to 2% of balance declining over time) was carefully designed to be low enough to seem affordable while ensuring balances survive for decades. On $5,000 at 22.99% APR: minimum payments mean approximately 30 years and $10,000 in interest to pay off. This is a profitable outcome for the issuer, not a helpful structure for borrowers.
Myth 5: A 0% APR Offer Is Always Beneficial
Reality: True 0% APR offers are beneficial when used correctly. But deferred interest offers, common on retail store cards and some consumer electronics financing, are fundamentally different and potentially dangerous. With deferred interest: if any balance remains at the end of the promotional period, ALL interest from the entire period is retroactively charged. Always verify whether an offer is true 0% APR or deferred interest before using it.
Debt settlement companies often collect fees even when settlements do not happen. The credit damage from deliberate default is as severe as bankruptcy. Before using any debt settlement service, consult an NFCC credit counselor (free) and a bankruptcy attorney (initial consultation often free) to understand all options. In nearly all cases, Debt Management Plans through nonprofit agencies are a better option than for-profit debt settlement.
Test the Myths Against Real Numbers
Enter your balance and see the true cost of minimum payments versus a real payoff strategy.