Credit card questions: How does paying the minimum impact your credit? Are annual fees worth it?

Chances are, you have at least one credit card you use on a regular basis. But how much do you really know about credit cards and how they work?

Unfortunately, there’s a lot of misinformation out there surrounding credit cards, and getting to the bottom of it could help you protect your credit score and save money at the same time. With that in mind, here’s a mix of truths and myths about credit cards. How many of the latter can you identify?

1. If I make my minimum payments, my credit score will be fine

This one’s a myth. While it’s true that you’ll be considered timely with your payments by making your minimums by their respective due dates, too much credit card debt could hurt your score. And if you only make your minimum payments month after month and your balance builds, you could end up using too much of your available credit and damaging your score in the process.

You’re better off trying to whittle down your balance as much as possible by making more than your minimum payments, or, better yet, avoiding having a balance at all.

Learn more: Best credit cards of 2023.

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2. It’s smart to keep old credit cards open, even if I’m not using them

This one’s true. A big factor that goes into calculating your credit score is your credit utilization ratio, which measures the amount of credit you’re using at once. The higher your total spending limit across all of your cards, the lower that ratio is apt to be, so it pays to hang on to a card you don’t use for the spending power alone.

Also, the length of your credit history helps determine your credit score. Closing a card you’ve had for a long time could cause your credit score to drop if your other cards are newer, so it generally pays to hang on to older cards, even if they don’t get much use.

3. Using a credit card can help me build credit

This one’s also true. If you pay your credit card bills on time and in full every month, it could help you boost your credit score. It’s when you go overboard on spending that you risk damaging your score.

4. Sign-up bonuses are a scam

This one’s a myth. Not only are sign-up bonuses legitimate, but they can, in some cases, be easy to attain. For example, you might get an offer of $200 cash back for spending $500 within three months of opening a new credit card. If you normally spend that much on your regular monthly expenses anyway, that’s an extra $200 coming your way.

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The only thing you need to be careful with is chasing sign-up bonuses. If you apply for too many new credit cards at once, your credit score could take a hit. Plus, if you make too many expensive purchases in an attempt to snag different bonuses, you could end up losing money to costly interest charges.

5. Annual fees are a waste of money

This one’s also a myth. Though annual fees can be a waste of money, in some cases, they can more than make up for themselves.

Say that by paying a $95 annual fee, you manage to score extra cash back on one of your cards that not only covers that $95, but leaves you with hundreds more in your pocket. In that case, the fee is worth it. Fees for travel reward credit cards can also result in perks like free checked bags on flights, so it pays to run the numbers and see if paying a fee makes sense rather than just assume it’s a bad idea.

The more you know about credit cards, the better positioned you’ll be to maximize yours. Keep reading up about credit cards so you know what information to believe and what myths to avoid.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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