4 credit card myths that quietly cost you money

Carrying a balance does not build credit, and maxing out a card can make you look financially unstable — two of the most common credit card misconceptions that cost consumers hundreds of dollars a year in interest.

"Making the minimum payment keeps you in good standing with the credit card company, but it's not enough to overcome 19 percent to 30 percent interest rates," Christine Romans, chief business correspondent, said in a recent segment on credit card myths.

The guidance is straightforward: charge up to about 30 percent of available credit and pay the balance off each month. Rolling over balances costs money in interest and can drag down a credit score. Store cards, which often carry rates near 30 percent, are especially costly to carry month to month.

The stakes are real. Interest on a carried balance compounds quickly, and a lower credit score raises borrowing costs on everything from auto loans to mortgages. Knowing which habits help — and which hurt — a credit score can save hundreds of dollars a year.

Paying only the minimum due each month avoids late fees and keeps the account in good standing, but it does little to reduce the principal. At a 19 percent annual rate, a balance paid at the minimum clears slowly while interest accrues on the remainder. Paying the full statement balance each month is the only way to avoid interest entirely.

A common belief holds that carrying a balance demonstrates creditworthiness. It does not. Credit scoring models such as FICO reward on-time payments and low utilization, not interest paid. Keeping utilization near 30 percent of available credit while paying the full statement balance each month is the pattern that supports a strong score.

Closing a credit card reduces available credit, which can push utilization higher and drop a score. The effect is usually temporary. For consumers who want to cut back, downgrading a card to a no-fee version keeps the account history intact while removing the annual fee.

Spending up to the limit each month, even when paid off, signals financial strain to lenders. Spreading purchases across cards, requesting a higher limit, or using a balance transfer can ease the pressure. If maxing out is a recurring pattern, it may be time to cut spending.

Interest rates and credit scoring rules change over time. Consumers should verify current rates and terms against the latest official disclosures from their card issuers and the credit bureaus — Equifax, Experian and TransUnion — before making decisions.

This article is for informational purposes only and does not constitute investment advice.