5 Pieces of Personal Finance Advice to Ignore

1. Use Your Credit Card as Little as Possible

Maintaining healthy credit is a critical part of financial wellness. Whether you're applying for a mortgage, auto loan or credit card, lenders will consider your score when reviewing your application. The following factors are used to calculate your FICO^® Score^☉ , the score used by 90% of top lenders:

• Payment history: 35%
• Amounts owed: 30%
• Credit history: 15%
• Credit mix: 10%
• New credit: 10%

Using a credit card responsibly can go a long way in helping you build credit—while also offering perks like cash back, points and miles. The idea is to use your card every month and then pay off the balance in full when the bill comes due. If you must carry a balance, aim to keep it low. Taking these steps can help strengthen your credit score and show lenders that you know how to manage your credit. On top of credit card rewards, some cards also offer zero liability fraud protection, travel benefits and more.

2. Close Your Credit Card Once You Pay It Off

Paying off a credit card is a great feeling, especially if you previously had a high balance. One common piece of personal finance advice is to cancel your card when the balance gets to zero. It makes sense in theory—wouldn't that help your credit score? It actually can have the opposite effect. Closing a credit card can cause damage to your credit score because you're losing that account's available credit limit. That increases your overall credit utilization rate, which is the total amount of available credit you're currently using.

You ideally want to keep your total credit utilization on revolving accounts such as credit cards below 30%, but the lower, the better for your credit scores. That applies to individual credit cards too. If your credit limit on one card is $1,000, shoot to keep the balance below $300.

3. All Debt Is Bad Debt

Not all debt is created equal. While some forms of debt, like high-interest credit cards and loans, can hurt your finances, others can offer long-term financial benefits. Those include:

• Mortgages: A mortgage can be a smart investment. If you stay in the home long enough, you could eventually turn a profit when it comes time to sell. In this way, a mortgage can help pad your retirement nest egg. You're also building home equity with each mortgage payment you make. A home equity loan or line of credit could come in handy if you need cash later down the road.
• Auto loans: A reliable vehicle can provide daily transportation for your work and personal life. Additional costs for maintenance and repairs come with the territory, but the convenience of having a car may be well worth it.
• Student loans: Investing in your education might put you on the path to a higher-earning career. Before taking out student loans and committing to a course of study, it's wise to research your earnings trajectory to see if it's worth the investment.
• Business loans: Taking out a loan or line of credit to fund a business can take your career to new heights. That's assuming you have a well-thought-out business plan. If things go well and your business grows, you could eventually sell it to generate retirement income.

Keep in mind that "good debt" is only good if you can comfortably afford your monthly payments. Overextending yourself could lead to late payments, which will damage your credit score.

4. Carrying a Credit Card Balance Improves Your Credit Score

While some say it's best to never use your credit card, or to close it out after paying off the balance, others swear that maintaining a balance is good for your credit. This isn't exactly true. Again, using credit accounts responsibly is the best way to improve your credit score. That includes:

• Paying your bills on time
• Keeping your credit utilization rate below 30%
• Maintaining several open and active credit accounts
• Rectifying past-due accounts
• Being careful not to apply for too many new accounts at once

Intentionally leaving a balance on your credit card each month won't directly improve your credit. In fact, it could come back to bite you if your credit utilization rate gets too high. You're also paying interest on whatever you owe. Using a credit card regularly and paying off the balance each month can go a long way toward improving your credit score.

5. Wait Until You're Debt-Free Before You Start Investing

As of the first quarter of 2023, the average credit card annual percentage rate (APR) was over 20%. Meanwhile, the stock market has produced average annualized returns of around 10% over the last century. Prioritizing paying off credit card debt is usually the smart move—but if your employer will match a portion of your retirement contributions, that's essentially free money. Can you contribute enough to get the match while also paying down your credit cards?

You might also want to invest if your projected returns outweigh the money you're shelling out in interest. For example, let's say your only debt is a student loan balance that has a 4% interest rate. You may choose to invest in the stock market while continuing to make minimum payments on your loan. While returns are never guaranteed, you might feel comfortable taking on some risk to hopefully grow your wealth over the long term.

The Bottom Line

Personal finance advice is all around, but not all of it is worth heeding. It's always smart to do your own homework to decide what makes the most sense for you. That might include consulting a financial professional. The most important thing is to make decisions that will support your short- and long-term financial goals.

Reaching your financial goals goes hand in hand with your credit health. Poor credit can make lenders feel reluctant to loan you money. Stay on top of what's on your credit report with free credit monitoring from Experian.