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Personal finance experts warn that several myths about the use of credit cards continue to circulate online and through word of mouth, leading many consumers to make decisions that harm their credit score and cost them thousands of dollars each year.
The credit card expert from NerdWallet, Sara Rathner, identified the most common mistakes in an interview with NBC 6 South Florida published this week.
"It is possible that you have been taught some lessons about how credit works that are inaccurate or simply do not fit where you are in your life right now," he/she expressed.
One of the most widespread myths is that closing unused credit cards is beneficial because it avoids annual fees. However, closing an account can have unintended consequences on your credit score, especially if it is an old account or one with a high limit.
"The average age of your accounts is taken into account when calculating your credit score, and the older they are, the better," Rathner emphasized.
Instead of canceling the card, she suggests asking the issuing company if they can switch to a version with no annual fee, allowing the owner to keep the account open without any additional costs.
Another common mistake relates to the credit utilization ratio, which measures what proportion of available credit is being used at any given time. Reducing available credit by closing accounts can raise that percentage and negatively impact the credit score.
The specialist also criticized the practice of maintaining an outstanding balance on the card, believing that it helps improve credit scores.
The ideal situation is to pay credit card bills on time each month and, if possible, in full. This way, you avoid interest charges and maintain a good payment history.
Many consumers also believe that paying a past-due debt automatically removes it from their credit history. In reality, debts in collections can remain on the credit report for up to seven years, regardless of whether they have been settled or not.
Experts also recommend regularly reviewing the credit report to detect errors that may be impacting the score without the consumer's knowledge.
To do this, you can access it for free through the official site AnnualCreditReport.com, the only one authorized by federal law.
The credit report contains an individual's invoice payment history, current debts, and financial information. Companies and lenders use it to calculate your credit score.
A report with errors can cause many inconveniences. Every year, hundreds of people receive their credit reports with typos or faulty data and face the distressing task of correcting them, often without having the necessary knowledge.
One of the main issues often lies in the identification information. Incorrect details such as name, address, date of birth, and social security number are provided, which then leads to confusion and can be harmful.
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