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Biggest Credit Card Myths Debunked

In today's economy, a good credit score is more valuable than ever, and your credit card is at the heart of everything. Do you know how to use it properly?

On "The Early Show" Wednesday, CBS News Business and Economics Correspondent Rebecca Jarvis debunked some of the most common myths about credit cards and told how you can better protect your credit score.

Why does your credit score matter so much?

Jarvis expalined, "(Your credit score) is what almost every company in your life uses to determine whether you are a credible, trustworthy borrowing candidate. From your prospective employers to your prospective landlords, most companies will check your credit score in order to gauge their risk. No one likes a deadbeat!"

Check out the myths and Jarvis' explanations for consumers:

Credit Card Myth: Your Account Isn't Open Until You Call To Activate It

Most people think your credit card account isn't opened until you activate it using the issuer's toll-free number. Several readers have changed their minds about opening new credit cards after they've applied, then asked if they could undo the damage to their credit scores by not calling to activate the card. Sorry, but the ding to your credit scores -- typically 5 points or less -- happens as soon as the issuer pulls your credit reports, which is usually within seconds of receiving your application. The account shows up as active on your credit reports shortly after the card is approved. You do need to call the activation number, though, if you ever want to use the card. That number is typically listed on the removable sticker on the front of your card when it arrives in the mail.

Credit Card Myth: It's Standard for ID To Be Required When Using a Card

Merchants' agreements with Visa, MasterCard, American Express and Discover specifically forbid them from requiring identification. Your signature is supposed to be enough. Furthermore, merchants' contracts with Visa and MasterCard are supposed to prevent them from even asking for ID. American Express and Discover don't prohibit asking but strongly discourage it. Merchants typically ask for ID because they're trying to reduce their own fraud costs. But if a clerk memorizes or writes down vital information from your driver's license -- your address or date of birth, for example -- you're the one who could be at greater risk of identity theft.

Credit Card Myth: If You Pay On Time, Your Report Is Fine

Experts say 80 percent(!!) of all credit reports have erroneous information, ranging from a wrong birth date to accounts you never applied for. There can be a lot of other activity going on that you don't have any clue about. Know what's on yours or pay the price!

Most credit reports contain at least one error, but you still should fight it. Write a letter detailing wrong information; include documents to back up your claim. Send a copy of report with questions circled. Credit bureaus have to give you results and need to send you updated copy free of charge.

Paying your balances in full is good for your wallet, and paying on time is good for your credit scores. But you can still mess up your credit even if you're diligent in doing both. How? By using up too much of your credit limit.

Your credit scores are incredibly sensitive to how much of your available credit you use, especially on your credit cards. And the balance used for these calculations is typically the balance that shows on your most recent credit statement. So if you've charged $9,000 on a card with a $10,000 limit, your scores will reflect the fact that you're using 90 percent of your available credit, even if you pay off the balance the day you get the bill. Such a misstep can knock dozens of points off your scores.

How to fix this? Ask for higher limits, spread your purchases among several cards or make two payments each month -- one just before the account's statement closing date and another just before the due date. The first payment will reduce the balance that is reported to the credit bureaus and is used to calculate your credit scores. The second payment ensures your account won't be marked late, since many issuers require some kind of payment between the statement closing date and the due date, even if a payment was made earlier in the billing cycle.

Credit Card Myth: You Can Boost Your Credit Score By Overpaying Your Card

Paying more than you owe does temporarily bump up the amount of available credit on your card. It's also true that using a smaller percentage of the credit available in your accounts -- known in the industry as keeping a "low utilization" -- helps your credit score. Lastly, it's thought that early credit scoring models may have given people a boost when they paid a personal or car loan a month early, so some may think that the same thing would apply to their plastic.

"Even though you may be below zero on an account, it's assumed that's a temporary situation," says Roslyn Whitehurst, a spokeswoman with the credit bureau Experian. "Whether you've got a credit of $100 or $1,000, it still shows as a zero balance for scoring purposes."

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