5 Myths About Travel Credit Cards and Credit Scores

If you’re new to the world of points and miles, you’ve likely heard about travel credit cards and how cardholders use them to earn points and miles towards free flights. But are these cards all that they’re cracked up to be? Maybe you’ve heard that applying for new credit cards ruins your credit? Or that if you use travel credit cards you’ll be charged huge interest fees?

The fact is that there is a lot of misinformation out there, and it’s best you have all the facts before you make any decisions.

Myth #1: Applying for a new credit card ruins your credit score

Your FICO credit score is made up of 5 factors: payment history (35%), credit utilization (30%), length of credit history (15%), new inquiries (10%), and your number of accounts (10%).

So what does this tell us? This means that new credit requests on your credit report only make up 10% of your overall score. So while your score will likely dip if you open a new credit card, it usually isn’t more than 5 points. If your score is already above a 700, this makes almost no noticeable difference in your creditworthiness.

Factors like your overall utilization and your payment history are extremely more important. Not only that but new credit cards add to your overall number of accounts which increases your available credit and decreases your credit utilization! Two factors that can help increase your score!

Myth #2: Having more than one credit card will hurt your credit score

For some reason, many people believe that the more credit cards you have the worse your credit score will be. The fact is that nothing could be farther from the truth.

If you are just starting to build your credit or have never had a credit card before, then yes it is best for you to just start with one or two and learn how to properly manage those.

However, if your credit profile already has a few years of history and you’ve shown you can responsibly manage your cards, adding multiple travel rewards credit cards will not hurt you. After all, it truly isn’t the number of cards that matter, but rather your ability to manage them properly that will keep your credit score in good shape.

Don’t believe me? As of writing, I currently have 14 active credit cards and my credit score is a strong 780. I keep my utilization low by paying my bills in full each month and I make sure I NEVER miss a payment. If you are responsible enough to manage your cards properly, you’ll have no problem keeping a high score!

Myth #3: Travel credit cards charge insane interest rates

To be fair, this is only a half-truth. Let me clear some things up…yes travel credit cards on average do come with interest rates that can be significantly higher than most other cards. However, if you are paying your statements off in full each month, then the interest rate makes no difference.

Many new readers are often under the impression that credit cards charge you the interest fee on each purchase by default. This is 100% false! The fact is that if you always pay off your full balance when your statement is due, you pay absolutely $0 in interest. Credit cards only charge you interest on a balance that you carry over to the next month.

This means that, as long as you are paying your bills in full each month, all the points and miles that you accrue from each purchase you make come at zero cost to you! Here’s a pro tip for you, I set up automatic online payments for each of my cards. That way, when my statement is due, payment is made automatically without my needing to lift a finger. This makes sure I never miss a payment and keeps everything easy to manage.

Myth #4: Carrying a balance on your credit card helps improve your credit score

If there is one myth that drives me absolutely crazy, it’s this one.

Let me clear the air here so that everyone is on the same page…NO IT DOES NOT!

“But I heard…” NO!

“But what if it’s your first credit card?” NO!

“But my Uncle said…” NO! Your Uncle is wrong. In fact, if you know anyone who has said this to you, show them this article and save a life.

It is not true. It is flat out completely wrong.

Jokes aside, I have absolutely no idea where this myth came from or why so many people believe it.

Remember earlier I mentioned how your credit utilization makes up 30% of your credit score? Well the closer this number is to zero, the better! You should be paying your balances off in full each and every month. Any balance you leave on your card is simply costing you money in interest charges and is certainly NOT helping your score.

Myth 5: You should never use credit cards and instead pay for everything with cash or a debit card

Give me a break…did Dave Ramsey tell you that?

Look, folks, I am not unaware of the temptations of credit cards. I know it can feel easy to swipe away as your amount owed racks up. It’s also easy to say “I’ll just pay the minimum this month and pay the rest next month.”

If you have habits like these you need to break them now. But swearing off credit cards is not the way to go. If you aspire to ever own your own home or get a car loan, you’re going to need credit – good credit. The best way to do that is by actually using your credit card and paying the balance off in full each month.

So while you’re on your way to building a long and healthy credit history, why not earn some valuable travel rewards in the process?