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6 Common Credit Card Myths

That little rectangle of plastic burning a hole in your wallet is one of life's trickier essentials.

You can't make it much past your mid-twenties without some kind of credit line attached to your name. On the other hand, though, credit cards can get you into a lot of trouble – and by trouble, I mean debt.

Let’s face it, credit cards and their terms are known for being unclear, and there are a lot of credit card myths out there that continue to confuse consumers year after year.  Here are the six biggest credit card lies you should know and understand:

1. Smart spending on my debit card will improve my credit score.

Debit card holders who never overdraw their checking accounts are safe and smart with their money – but that won't affect their credit score (and neither will accidentally overdrawing).  Debit and credit are two separate cards with two different functions.

[Related: How to Build Credit, an Infographic]

2. The higher the limit on the credit card, the worse your credit score.

A high credit score is not the same as announcing you like to spend lots of money. On the contrary, a higher credit limit can often indicate a better credit score. The high limit can be your reward for paying off your credit card charges in full and on time, and shows potential lenders that you are a good credit risk.

Some consumers complain that they have "too much available credit" to improve their credit score, but in actuality until you reach 850, there is always room for your FICO score to improve. 

3. Paying more money than what is owed will give your credit score a boost.

Some credit card users will pay off more than what is owed for the temporary boost in available credit, but that's just it: the results are temporary. Regardless of if you have a credit limit of $500 or $5,000, and regardless of if you are at times below zero on an account, the balance still shows at just zero for scoring purposes.

4. Not having a credit limit means you can spend as much money as you want.

All those credit cards with the claim to fame "no preset spending limits" do actually have limits that are calculated from the cardholder's income, credit history and spending habits. Someone with a no-limit credit card who only spends $4,000 each month still won't necessarily be able to go out and buy an entire country on a whim.

Those super big spenders with their "black cards" also have credit limits that just appear to be limitless. Usually, credit cards like that require minimum charges of around $250,000 and their limits are so astronomical it would be hard to overspend.

5. Writing “See ID" in place of your signature is a sure-fire way to avoid identity theft.

True, crooks would have a harder time forging a face than a signature, but "See ID" is not considered a valid signature. Technically, any retail store can consider your un-signed credit card invalid.

In addition, if you unsigned credit card is stolen and used, the "See ID" on the back has no legal bearing. You could still be liable for charges up to $50. Your best bet: Signing the card and keeping really good track of it.

6. Carrying a balance will help your credit score.

This is probably the most common myth when it comes to credit scores and credit cards. However, it’s absolutely false. Carrying a balance on your credit card can actually be detrimental to your credit score. Paying off your balance in full each month is the most surefire way to improve your credit score.

[Related: Leaving Monthly Balances Won't Help Your Credit Score]

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Logan Abbott's picture

Logan Abbott is a personal finance and credit card expert with over 5 years of experience writing about each topic. He is a graduate of the USC Marshall School of Business, and also contributes to other online finance publications. He has been quoted in the New York Times, San Diego Union Tribune, TheStreet, and more.

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