Seventy-two percent of American consumers have at least one credit card, according to Federal Reserve data. Despite their popularity, there is quite a bit about credit cards that many Americans don't fully understand. Here are seven common credit card myths, and the truth behind each one.

1. If you have poor credit, a debit or prepaid card is the best option

With a low credit score, it can be very difficult to get a credit card. Many consumers who cannot qualify for a traditional credit card simply rely on debit cards or prepaid credit card products for their electronic payment needs. However, this is not the best option.

Instead, a secured credit card is a far better choice. Essentially, a secured credit card works just like a standard credit card, except that you'll have to put a security deposit down in order to open the card.

Close-up of chip in a credit card.

Image source: Getty Images.

Secured cards have a few key advantages over prepaid or debit cards. First off, they are accepted just like standard credit cards. Many businesses, such as car rental companies and hotels, either don't accept prepaid/debit cards at all, or require large holds placed on the account. On the other hand, a secured credit card is indistinguishable from any other credit card in the eyes of the merchant, and can be used for these types of purchases with ease.

Most importantly, a secured credit card is reported to the credit bureaus and can help you build or rebuild your credit over time, while a prepaid/debit card has no positive effect on your credit whatsoever.

There are some pretty attractive secured credit cards available, so if you're relying on prepaid or debit cards, it may be worth a look.

2. My interest rate is set in stone and can't be reduced

Credit card interest rates tend to be rather high. The national average is about 15%, and rates of up to 30% are quite common.

One common myth is that you're forced to accept whatever interest rate your credit card issuer feels like charging you. This is 100% false, especially if you have an established history of being a good customer. In many cases, getting a lower interest rate is as easy as asking for one.

In fact, a report by found that 69% of cardholders who called and requested a lower interest rate got one.

3. My credit card's annual fee is non-negotiable

Many credit cards have annual fees, which help the issuers to pay for the perks offered by the card. For example, my favorite travel credit card has perks like free checked bags, discounts on in-flight purchases and airport lounge access, and an annual buy-one-get-one round trip coach ticket. In exchange for all of these perks, the card charges a $199 annual fee.

However, it may come as a surprise to you that a card's annual fee may not be as much of a fixed charge as you think. In fact, the same report I mentioned earlier found that 82% of cardholders were successful in lowering or eliminating their annual fee. Thirty-one percent were able to negotiate a lower fee, while 51% got it waived entirely.

4. A credit limit increase should be avoided if you don't need it

Credit card issuers will regularly offer customers a credit limit increase, especially after several years of on-time payments and responsible credit behavior. And it's true that by doing so, they're trying to tempt you into charging more purchases.

However, before you turn down an offer of a higher credit limit, you should be aware that a higher limit could potentially help your credit score all by itself.

Specifically, 30% of your FICO credit score comes from a category of information called "amounts owed," and a big part of this is your credit utilization, or your credit card balances as a percentage of your available credit. By increasing your credit limit, you have more available credit, and your existing debts will represent less of your total credit line.

For example, if you owe $500 on a credit card with a $2,000 limit, you are using 25% of your available credit. On the other hand, if the limit is increased to $4,000, your utilization drops to just 12.5% without any change in your debt level.

5. People with high credit scores don't carry credit card balances

It's certainly true that high credit card balances can hurt your credit score. However, it's a popular misconception that you need to pay your credit cards in full every single month in order to maximize your credit score.

According to data from FICO, the average consumer with a FICO score of 800 or higher uses 4% of their overall revolving credit limit with a high usage of 10% on a single account. To be clear, this is still a pretty low credit utilization – the average person in this group with $10,000 in credit limits would carry a $400 balance.

The point is, if you can't maintain a zero balance, you can still achieve a great credit score. In fact, there are some experts who say that a small credit card balance could actually be better for your score than none at all.

6. Applying for a new credit card will hurt my credit score

This one is somewhat true, but consumers commonly overestimate how much it could hurt. Applying for new credit creates something known as a hard credit inquiry. And hard credit inquiries are factored into the FICO formula for one year.

Now, too many hard inquiries can certainly have a significant effect on your score, but a single inquiry is unlikely to drop your score by more than a few points. According to FICO, a single inquiry should cost the typical consumer less than five points from their score. And a responsible payment history on the new account can quickly offset the negative effect.

7. Closing an old credit card that I don't use won't affect my score

Many people who are just establishing credit obtain "starter cards" with low limits, high interest rates and annual fees, and little or no rewards. Then, as they build credit and start getting more attractive credit card offers, it can seem tempting to close these old accounts.

If you decide to close an older, unused credit account, be aware that doing so can have an adverse effect on your FICO score. This has to do with the concept of credit utilization I discussed earlier. By closing an account, you're reducing your total available credit, and increasing your credit utilization represented by your outstanding debt. In addition, older and accounts are treated more favorably than newer ones in the FICO formula, so it could affect the "length of credit history" category as well.

Having said that, if you have an unused credit card for which you're paying an annual, or even monthly fee, without utilizing any perks from the card, closing it can be worth the temporary hit to your credit. Just don't be surprised to see a mild drop in your credit score.

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