Let’s talk about a topic that a lot of people following us are asking. We’re going to talk about the “truthfulness” of it. So this topic is what credit cards really don’t want you to know about credit cards.

Credit card companies don’t want you to know a lot of things. The reason is that some of them make money.

In fact, all of them make money. But let’s talk about what, here’s the thing.

We know about credit cards. We know what credit cards are. We know how to use them. Some of us know how to use them, and some of us don’t know how to use them.

But there are four questions, four myths. We’re going to talk about those.

We’re going to start with leaving money.

So here’s a question that comes to us a lot. Should I leave money on my credit card each month?

Is this a myth or is this the truth? Should I leave money on my credit card each month?

Now, if you guys watch any of my videos previously, you know that I tell you that probably the best option is right around 7%.

Now, as far as utilization goes, what’s more, important than leaving 7% on is making sure that you’re making your payments on time.

So look at it this way. You’ve got a credit card. You owe $250 on it.

What’s more important is that you make sure that you make that payment a couple of days before the payment is due. Because whatever you pay gets reported.

But let me tell you this way. That’s 35% of your score.

More importantly, is to make the payment on time than the actual percentage.

Another factor being 30% of your credit score is calculated into how much of the credit you’re actually using.

So if you’ve got a $5,000 card and you’re $200 on the card, and that’s your 7%, just think about it this way.

Somewhere along the line banks said, “Keep something on your credit card.”

Why?

Because even if it’s 3%, 4%, they’re making money on it.

Think about how many millions and millions of people have credit cards, and if you’re keeping 3%, 4%, 5%, 6%, 7% on your credit card, they’re making that times millions.

So somewhere along the line, I’m going to say, guess what?

This is a myth that your score will be any different from 3% to 0%.

My recommendation, if you can, is to pay it off.

To pay the credit card off in full each month.

It’ll still be revolving. Your score will still be good.

Now, the downside to that is if you pay it off and don’t use it, a lot of the credit card companies today are actually closing your credit card because of inactivity.

Guy recently had one, threw it in a drawer, didn’t even use the card, and it recently just got shut down because I didn’t use it in two years.

And they said inactivity. They shut the card down.

So the downside of not using the card is greater than actually paying it off in full each month.

I recommend paying in full. Why would we want to give the banks interest?

If you guys can pay it off, you owe 250 bucks at the end of the month. You pay your 250. You pay it off.

You can use the card again, but just pay it off in full.

Your score will not increase any more by leaving 3% to 4% on your credit card versus paying it off. But if you paid off, at least you’re not paying interest on the card.

So if you guys have the availability to pay it off, make sure you pay it off.

That’s myth number one is that your score will be higher if you leave 7% on versus if you pay it off in full.

The answer is it’s not going to make a difference, but at least you’re not paying interest if you pay it off in full.

Question number two or myth number two is having too much credit.

Will this affect me from getting more credit lines? Also car and also mortgage.

You see, back in the early 1980s, and even up until about 1990, creditors would say that if you borrow too much that they believe that if you went out and got finance, financed the car and got a bunch of lines of credit and like some credit cards that you would overextend yourself and not be able to pay back the credit cards and the loans back.

So this is absolutely a myth and the myth has changed back in about 1995, maybe the early 2000s. Today we have FICO.

And actually FICO rewards you for having more, having more lines of credit and they reward you for having a mixture of credit, cards, credit cards, lines of credit, mortgages and revolving and installment, so on and so forth.

So today it will not affect you to have more credit.

In fact, what they have found is that the more credit that you have, the less likely you are to not pay it back.

Today, people are actually making more and more often payments and better payment history with the more credit they have.

Think about it this way.

If you only have one credit card, are you more apt to actually using that credit card, or if you had 15 credit cards, would you be more apt to use the 15?

You’d be more apt to use the one. And if you go back to what I said about utilization, think about it this way.

If you only have one credit card and you use it a lot, your utilization is going to be higher than if you have 15 cards, maybe use a little bit off each one of them.

But you’re keeping your utilization under 30%.

Now the key is 30% because once you go over 30% you go into the negative category.

So always keep it under 30%. Perhaps it will be paid off, but it is definitely a myth, a myth today because FICO actually records it and they actually reward it.

They record it and reward for you to actually be able to use more credit because they have found that the more credit you have, the more likely you are to make your payments on time and be responsible.

So we are busting that myth that by having more credit you will not be able to get more open lines.

That is not correct, and in fact, it’s actually rewarded.

Myth number three. Should I close my old credit cards?

This one comes to us all the time. Should I close my old credit cards?

The answer is going back to understanding that 35% of your credit score is payment history, 30% is utilization, 10% is your age, 10% is a mixture.

So you have to know how it’s calculated.

What happens is this. You guys have a couple of credit cards you haven’t used.

And again, be careful with not using credit cards, because remember if you go too long without using a credit card, they can actually close the account down.

Certain banks will, certain banks, I mean JC Penny’s don’t care. Yeah, JC Penny from 1989, the thing never used.

They keep it open. Something like Barclay, you don’t use it in two years, they shut the account down.

That being said, should you use and close down the credit cards you haven’t used.

The answer and the myth are if you close them down, you will actually hurt your score dramatically.

Old accounts have history. History counts for 15% of your score.

The age of your account is very important. So if you close down an old account, what’s going to happen?

Two things. The credit line of that card is going to lower your age, your overall age.

So when you close it down, you have a 10-year-old, let’s say you got a $10,000 JC Penny card with 10 years of history.

If you close that account down, you’re taking off $10,000 of revolving credit limit, which is going to bring up your utilization because you’re taking out 10,000 of open line.

And you’re also removing 10 years of perfect payment history.

So by removing it, your score, and anybody who tells you to close old accounts, they’re just pulling your leg and just stay away from people that are telling you negative stuff.

That’s why we do this show.

So you know when it is time to make a credit decision like, “Hey, I’ve got cards I haven’t used in ears. \

What should I do with them? Let me just close them out. I haven’t used them, never need them. They’ve been in my drawer.” Put it away in a place.

Usually what has been very successful with my clients is taking it and freezing it and put it in the freezer.

Take the credit card, freeze it and put it away. If you haven’t used it and you’re not going to use it, freeze it, but do not actually close the account.

By closing it, you are going to affect your credit score dramatically.

So the myth is that if you close old accounts, your score will not drop. That is a myth.

It will drop significantly because you’re losing two factors.

Credit limit, revolving, being taken out of the equation and the age is being taken out of the equation.

So let’s get that one busted right away.

Freeze it, put it away.

Don’t use it if you’re not going to use it, but keep it open.

Number four. Does my credit score drop when closing a bank account?

Two-part question.

Does my score drop when I close a bank account and does my score drop when opening a bank account?

So let’s talk about this first. Closing a bank account has a zero effect on your credit score.

Bank accounts and your credit score are on two different platforms.

So FICO doesn’t recognize the fact that you have a bank account. It’s not considered into the equation of your score.

If you close a bank account, your score will not move up and your score will not move down.

That is different from a credit card.

So let’s say you close your Bank of America account, but you have a credit card attached there and you say, “Hey, I’m wanting to close my checking account, but also my credit line as well.”

Yes, that will make, so this is a two-part, yes, that will make an impact on your credit score when you close an account.

Now here’s the other question. Does my score drop when I open an account?

That’s a good question. And the answer to this one is actually not a myth. This one is true.

The more accounts you open, the more your score will drop. And here’s why. Think about it this way. Number one, you’re going to get what they call a hard inquiry.

So you open up an account, not a bank account.

Either way, it doesn’t matter whether you open or close a bank account, your score doesn’t get affected.

Credit card, yes, open up a credit card. What happens is number one, remember the 10% is the mixture.

So revolving, installment, mortgage. As you open up more accounts, you’re taking off that 10% factor.

Too many open accounts mean that you are lowering your 15%, which is your age. 15% of your score is based on the age of your total profile.

And creditors love the fact that you have many, many years of age. Perfect payment history for 10 years.

As you open accounts, it puts a brand new account and factors it into all that age that you have, and then it divides it overall.

So the more accounts that you open, not only are you getting hard inquiries, which by the way will cost you about two to three points if you get approved, four to five points if you get denied.

So if you apply for a credit card, you get denied. Look for about four points as a negative.

If you get approved, might hit you with about two points.

So applying for a bunch of credit cards, yes, it can affect you dramatically.

You’re going to get the inquiry points removed and then also you’re attacking 15% of your score, which is saying, “Hey, I’m opening up a brand new account and I’ve got 10 years of history.”

Now they’ve got a factor, a brand new account into the equation, so it lowers your overall age.

Okay, so yes, that one there is true, it is not a myth.

I want to make sure you guys know these four things and I’m giving you the education as always.

I want to thank you for watching this channel. Again, if you haven’t subscribed, make sure you hit subscribe button because we are the only channel that does this every day, not just two days a week, not just three days a week, but Monday through Friday and sometimes on the weekend.

So the more education you have, the more it helps.

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