Aug
05
2024
15/3 Credit Card Payment Method: What It Is & How It Works

15/3 Credit Card Payment Method: What It Is & How It Works

By | Credit, Financial Independence, Money & Life | Comments Off on 15/3 Credit Card Payment Method: What It Is & How It Works

In most cases, people make one credit card payment per month, often on the day it is due, but with the 15/3 credit card payment method, you make two payments each statement period. This is a strategy to help lower your credit utilization ratio — the percentage of your total available credit that you’re using at any one time and a big factor in determining your credit score.

Typically, with the 15/3 credit card method, you pay half of your credit card statement balance 15 days before the due date, and then make another payment three days before the due date on your statement. Learn more about this technique here.

What Is the 15/3 Credit Card Payment Method?

With the 15/3 rule for credit cards, instead of making one payment each month on or near the credit card payment due date, you make two payments every month. You make the first payment about 15 days before your statement date (about halfway through the statement cycle), and the second payment three days before your credit card statement is actually due.

How Does the 15/3 Credit Card Payment Work?

The way credit cards work in most cases is that you make purchases throughout the month. At the end of your statement period (usually about a month), the credit card company sends you a statement with all of your charges and your total statement balance. In an ideal situation, you’d then send a check or electronic payment to your credit card company, paying off the total amount due.

As an example, say you have a credit card with a $5,000 credit limit, and you regularly make about $3,000 in purchases each month. In a typical situation, you might make an electronic payment for $3,000 to the credit card company at the end of the statement period. But just before your payment clears, you’d have a 60% utilization ratio ($3,000 divided by $5,000), which is quite high.

If you use the 15 and 3 credit card payment method, you would make one payment (for around $1,500) 15 days before your statement is due. Then, three days before your due date, you would make an additional payment to pay off the remaining $1,500 in purchases. Making credit card payments bimonthly means that your credit utilization ratio never goes over 30%, which is the percentage generally recommended.

Recommended: What Is the Average Credit Card Limit?

Why the 15/3 Credit Card Payment Method Works

When you’re using a credit card, your credit utilization ratio is constantly fluctuating as you make additional charges and/or payments to your account. The way that the 15/3 credit card payment trick works is by making one additional payment each month. That additional payment can help lower your credit utilization ratio throughout the month, which can be beneficial to your credit score.

Recommended: What Is a Charge Card?

Reduced Credit Card Utilization Through the 15/3 Method

Even if you regularly pay your credit card balance in full each and every month, you may still be carrying a balance throughout the month as you make charges. Because your credit utilization is calculated throughout the month, if you rack up a large balance from purchases you make, your credit score may be affected — even if you pay off your credit card bill in full at the end of the month.

When Does the 15/3 Credit Card Payment Method Work?

While there’s no harm in making two payments each month, most people who are already paying their credit card balances in full each month aren’t unlikely to see a significant benefit. One scenario where the 15/3 credit card method might make sense, however, is if you have a relatively low credit limit relative to your overall monthly spending. If you regularly approach or hit your credit limit in the middle of the month, making a payment in the middle of the month can have a relatively big impact on your credit utilization ratio and thus your credit score.

Another possible reason to pay on a bimonthly basis instead of only once a month is if you have outstanding credit card debt that you’re working to pay down. If you make only the credit card minimum payment, you’ll end up paying a large amount of interest before you pay off your balance. By paying every two weeks instead, you end up making additional payments, which can help lower the total amount of interest that you have to pay before your balance is completely paid off.

Recommended: When Are Credit Card Payments Due?

Pros and Cons of Using the 15/3 Credit Card Payment Method

While there are certainly upsides to taking advantage of the 15/3 credit card payment method, there are possible downsides to consider as well:

Pros

 Cons
Can help reduce your overall credit utilization Paying bimonthly may be harder to keep track of
Useful if need to build your credit score to be as high as possible because you’re applying for a mortgage or other loan May not provide much benefit in most scenarios
Can help you to pay down debt faster Can stretch finances if your income is irregular

Recommended: How to Avoid Interest on a Credit Card

Using the 15/3 Credit Card Payment Method: What to Know

Should you use the 15/3 credit card payment method? Like most financial advice, it depends on your specific financial situation.

In most cases, the 15/3 rule for credit cards won’t provide a ton of benefit and may not be worth the extra organizational and logistical headache. However, it may make sense if you’re paying off existing debt, have a low overall credit limit, or need to build or maintain your credit score up for a specific period of time (like when you’re applying for a mortgage).

The Takeaway

The 15/3 credit card payment rule is a strategy that involves making two payments each month to your credit card company. You make one payment 15 days before your statement is due and another payment three days before the due date. By doing this, you can lower your overall credit utilization ratio, which can raise your credit score.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

What is the 15/3 rule in credit?

Most people usually make one payment each month, when their statement is due. With the 15/3 credit card rule, you instead make two payments. The first payment comes 15 days before the statement’s due date, and you make the second payment three days before your credit card due date.

How do you do the 15/3 payment?

When you do the 15/3 credit card payment hack, you simply make an additional payment to your credit card issuer each month. Instead of only paying at the end of the statement, you make one payment about halfway through your statement (15 days before it’s due) and a second payment right before the due date (three days before it’s due).

Does the 15/3 payment method work?

The 15/3 method may be used to help build a credit score. In most cases, you won’t see a ton of impact from using it. Your credit utilization ratio is only one factor that makes up your credit score, and making multiple payments each month is unlikely to make a big difference. One scenario where it might have an impact is if you have a relatively low overall credit limit compared to the amount of purchases you make each month.

Does it hurt credit to make multiple payments a month?

While most people won’t see a major benefit from using the 15/3 payment method to make multiple payments a month, it won’t hurt either. There isn’t a downside to making multiple payments other than making sure you have the money in your bank account for the payment and can handle the logistics of organizing multiple payments.

Photo credit: iStock/Vladimir Sukhachev

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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Aug
01
2024

What Is a Checking Line of Credit?

By | Credit, money | Comments Off on What Is a Checking Line of Credit?

A checking line of credit, also known as an overdraft line of credit, is a type of loan that is attached to your checking account. It essentially acts as a safety net, providing you with access to funds when your checking account balance is insufficient to cover a transaction.

A checking line of credit can help you out during a cash crunch and allow you to avoid hefty overdraft fees, missed payments, and the embarrassment and inconvenience of having your debit card denied. However, these accounts come with costs and risks of their own. Find out if opening a checking line of credit is worth it.

How a Checking Line of Credit Works

A checking line of credit is a type of revolving credit linked to your checking account. If your account balance falls below zero, the credit line automatically covers the shortfall up to your credit limit. This allows transactions to go through despite insufficient funds and avoids bouncing checks, missing automatic payments, or having your debit card denied.

A per-transfer fee may apply, but it may be much less than what you would otherwise be charged for overdrawing your account. You’ll also pay interest on the borrowed balance, which will begin accruing on the date of transfer and continue until you pay off the borrowed funds in full. Missing or late payments can negatively impact your credit, so (like any other forms of borrowing) it’s important to manage a checking line of credit responsibly.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

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Key Features

Here’s a look at some of the features offered by a checking line of credit.

•   Automatic overdraft protection: A checking line of credit can automatically cover overdrafts, preventing declined transactions and bounced checks.

•   Credit limit: The amount you can borrow is predetermined by the lender and may range from $250 to $5,000, though it can be higher for those with excellent credit.

•   Variable interest rates: Interest is charged only on the amount you borrow, and rates are usually variable, meaning they can change over time based on market conditions.

•   Revolving credit: Similar to a credit card, you can borrow, repay, and borrow again up to your credit limit without reapplying.

•   Fees: Some banks charge you a fee for each transfer from your checking line of credit or for each day that a transfer is made from your line of credit to your checking account. Some institutions may also charge a yearly maintenance fee.

Recommended: How Many Lines of Credit Should I have?

Requirements and Eligibility

Not everyone who has a checking account can open a line of credit. Depending on your bank, you may have to meet certain eligibility requirements. These may include:

Good Credit History

Lenders generally look for applicants with a strong credit history, indicating responsible credit management. A good credit score (typically 670 or higher) increases your chances of approval and may result in a higher credit limit and lower interest rates.

Income and Debt Levels

Lenders typically want to make sure that you have a stable income and manageable debt levels, demonstrating your ability to repay the borrowed amount. Banks can check your current debt levels by accessing your credit reports. You may need to provide proof of income, such as pay stubs or tax returns.

Existing Banking Relationship

You typically need to have a checking account in good standing with the bank that offers the protection line of credit. Some banks may also require that you’ve had the account open for a certain amount of time, or that you’ve made deposits within a specific time frame.

Pros of a Checking Line of Credit

Here’s a look at some of the benefits of having a checking account with an overdraft line of credit.

May Save Money

Overdraft lines of credit are often less expensive than standard overdraft protection programs, which can range from $25 to $35 for each overdraft that hits your account. This can be especially true if you wind up making multiple overdrafts in one day.

Offers Emergency Protection

An overdraft line of credit provides you with a safeguard in the event of a financial emergency. If necessary, you can cover essential expenses that would otherwise get declined from your checking account. Some banks also allow you to withdraw funds directly from your credit line to cover emergency expenses.

Only Pay Interest on What Your Borrow

Unlike a traditional loan, where you receive a lump sum amount up front and pay interest on the full amount starting when it’s disbursed, a credit line allows you to borrow funds as needed and only pay interest on the amount you end up borrowing.

Recommended: Dividend Checking Accounts Explained

Cons of a Checking Line of Credit

Checking lines of credit also come with a few pitfalls. Here are some to be aware of.

High Interest Rates

Interest rates on checking lines of credit can be higher than other forms of credit, such as personal loans or home equity lines of credit. Variable rates can also lead to unpredictable borrowing costs. On top of interest, you may pay transfer fees and account maintenance fees.

Borrowing Limits

An overdraft protection line of credit can help you out in a pinch, but it won’t cover a major unexpected expense. You can often only qualify for credit limits up to $1,000. If your approved line of credit is insufficient to cover a transaction, it likely will not go through.

Debt Cycle Risk

Having a line of credit attached to your checking account is similar to having a credit card — it allows you to spend money you don’t actually have. The ease of access to funds can lead to a cycle of borrowing and repayment that is difficult to break, potentially leading to long-term debt.

When to Consider a Checking Line of Credit

A checking line of credit can provide some peace of mind and be useful for getting through occasional gaps in cash flow. If you do opt for this type of coverage, however, it’s generally wise to use it as little as possible. Once you open the credit line, it’s a good idea to balance your checking account regularly and sign up for low-balance alerts so that you know when you’re running low on funds. This can help keep your overdraft loan at a manageable amount and your interest charges and transfer fees low.

Alternatives to Consider

If a checking line of credit doesn’t seem like the right fit, here are some other options to consider.

•   Emergency savings account: Building a savings account for emergencies can provide a financial cushion without the cost of interest or fees.

•   Linking to another account: Your bank might allow you to link your checking account to a savings account or another checking account for automatic transfers in case of an overdraft. This way, you’re just using your own money to cover transactions instead of the bank’s.

•   Personal loan: For larger, planned expenses, a personal loan may offer lower interest rates and fixed repayment terms.

•   Switching banks: If you feel that the overdraft fees (and possibly other fees) at your bank are exorbitant, it can be worth shopping around for checking accounts that charge lower fees.

The Takeaway

A checking line of credit can be a valuable tool for managing your finances, offering convenient access to funds, protection against overdrafts, and the flexibility of revolving credit. That said, it’s important to understand the costs and potential risks associated with this type of credit. Alternatives to checking credit lines include using a linked savings account to cover overdrafts, building an emergency fund, getting a lower-interest loan, and switching to a bank that charges less in fees for standard overdraft protection.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.

FAQ

How much can I borrow with a checking line of credit?

The amount you can borrow with a checking line of credit is usually up to $500 to $1,000. Some banks may offer higher limits to customers with strong credit, higher incomes, and a long-standing relationship with the bank.

Does a checking line of credit require collateral?

No, a checking line of credit usually does not require collateral. It is an unsecured form of credit, meaning that it is not backed by any assets like a house or car. Instead, approval and credit limits are based primarily on your credit score and history of repaying past debts.

How do I apply for a checking line of credit?

Here are the steps typically involved in applying for a checking line of credit:

•   Make sure you meet the bank’s requirements, such as having a checking account in good standing.

•   Gather the necessary documents, which might include a photo ID and proof of income.

•   Fill out and submit an application (you may be able to do this online, by phone, or by visiting a branch).

If approved, the checking line of credit will be linked to your checking account, ready for use as needed.

Photo credit: iStock/AleksandarNakic

SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Aug
01
2024
A Guide to Credit Card Amortization

A Guide to Credit Card Amortization

By | Credit, credit card | Comments Off on A Guide to Credit Card Amortization

The term amortization is usually used to refer to the process in which debt is paid off on a set schedule, with fixed payments each month. An amortization schedule can show you the amount of your payment that goes toward the principal and interest each month. Because credit cards are considered revolving loans, amortization is not often used with credit cards.

However, a credit card amortization schedule can be helpful if you’re trying to pay down your balance. Understanding credit card amortization can help you decide how big your payments should be each month, as well as what the impact of additional credit card payments would be.

What Is Amortization?

Amortization is the process where debt is paid down on a set schedule, usually with fixed monthly payments. One common example is a 30-year mortgage — each month, you make a mortgage payment for the same amount.

Every time you make the mortgage payment, part of your payment is an interest payment, and part of the payment goes toward paying down your mortgage principal. Each month, as the principal balance goes down, more and more of your monthly payment goes toward the principal, until the mortgage is completely paid off.

Recommended: When Are Credit Card Payments Due

What Is Credit Card Amortization?

Because credit cards are considered revolving debt — meaning you can continually borrow and repay your debt — they don’t have amortization in the same way that a mortgage or car loan does. However, one area where a credit card amortization schedule may apply is if you’re trying to pay down a credit card balance.

In this instance, understanding the amortization schedule for your credit card can help you decide how making additional payments to your credit card issuer will impact your overall balance.

Recommended: How to Avoid Interest On a Credit Card

How Does Credit Card Amortization Work?

One of the credit card rules is that the higher your balance is, the more interest you’ll owe each month.

To be more specific, by only making the credit card minimum payment, it could take you many years to pay off your debt. If you’ve decided to rein in your credit card spending and pay down your balance, you can use a credit card amortization schedule to determine how long it will take.

Looking at credit card amortization will allow you to see how much less you’ll owe with each subsequent payment — assuming you’re no longer actively using your credit card. This schedule will take into account your current balance, your card’s annual percentage rate (APR), and how much you can afford to pay off each month. Then, you can determine how many months it will take until your balance is paid off in full.

Factors That Affect Credit Card Amortization

One of the biggest factors that affects a credit card amortization schedule is the interest rate on your credit card. The higher your credit card interest rate, the more of each monthly payment that will go toward interest. That will mean your amortization schedule will last longer.

Another factor to consider is the consequences of credit card late payments. If you delay credit card payments and incur late fees, that will increase your overall balance. That will also increase your amortization schedule and extend the length of time it will take to pay down your total credit card balance.

Guide to Calculating Credit Card Amortization Period

Since credit cards are considered revolving debt, it can make it difficult to calculate a credit card amortization period. If you continue to use your credit card for new purchases, you won’t be able to calculate an amortization period because your total balance will change each month.

One way you can calculate a credit card amortization period is if you decide to stop making any purchases on your card. If you have a $5,000 balance on your credit card, you can use any online amortization calculator and input the credit card payment amount you want to make each month. The resulting amortization schedule will show how long it will take to completely pay off your credit card, assuming you make payments by your credit card payment due date.

Debt Consolidation and Credit Card Amortization: What to Know

If you’re looking to lower your credit card debt, one option is credit card debt forgiveness. But because this isn’t always easy to get, another is to consolidate your debt by taking out a personal loan.

Unlike revolving loans which are what a credit card is, a personal loan is a type of fixed loan that has an amortization schedule. Following that amortization schedule lets you know when you’ll completely satisfy your debt obligation.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

The Takeaway

An amortization schedule shows how much of each loan payment goes toward interest and how much goes to principal. Because credit cards are considered revolving debt, they don’t have amortization schedules in the same way that fixed loans do. Still, you can use a credit card amortization schedule as a tool if you’re trying to eliminate your credit card balance.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

What does credit card amortization payment mean?

If you’re looking to pay down or eliminate your debt, one strategy is to stop making any new purchases with your card. That way, you can concentrate on lowering your total payment. If you only make the credit card minimum payment each month, it could take years before you pay off your balance. Following a credit card amortization schedule can help pay off your debt sooner.

How can I calculate my credit card amortization period?

A credit card amortization period mostly makes sense if you stop making any new purchases on the card. If you’re still regularly using your credit card, your total balance will change with each purchase and payment. On the other hand, if you aren’t regularly using your card for new purchases, you can calculate your credit card amortization period using your total balance, interest rate, and monthly payment amount.

What is a credit card amortization term?

An amortization term is how long it takes to completely pay off a loan. If you’re making regular payments on the credit card payment due date each month, you’ll gradually lower your total credit card balance. A credit card amortization term can make sense if you are no longer actively using your card and focusing on eliminating your debt. You can use your total balance, interest rate, and the amount you’re paying each month to figure out how long it will take to eliminate your balance.

Photo credit: iStock/AmnajKhetsamtip

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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01
2024
A Guide to Reopening a Closed Credit Card

A Guide to Reopening a Closed Credit Card

By | Credit, credit card | Comments Off on A Guide to Reopening a Closed Credit Card

You may or may not be able to reopen a closed credit card. More specifically, the reason why your credit card account was closed in the first place will make a difference, as well as whether your specific credit card issuer allows the reopening of closed accounts.

Though your request may get denied, it can still be worthwhile to ask to reopen a closed credit card account if you really want to do so. Here, a closer look at why your account may be closed and how to reopen a closed credit card account.

Can You Reopen a Closed Credit Card?

Whether or not you can reopen a closed credit card will depend on several factors, including:

•   The reason why your credit card is closed

•   Whether your credit card issuer allows cardholders to reopen accounts

•   How long ago the credit card account was closed

For instance, if the issuer closed your credit card account due to nonpayment, you most likely won’t be able to reopen it, given what a credit card is and the risk a lender assumes. However, if you chose to close the account yourself and now regret the decision, you may be able to get the credit card reinstated.

Why Your Credit Card May Be Closed

There are several reasons why your credit card may be closed, such as:

•   Your account was inactive: If you haven’t used your credit card in a number of months or years, your issuer may decide to close a credit card due to inactivity.

•   Your account was considered delinquent: Most issuers will close your account if you haven’t been paying your bills or are in default. Although the account is closed, you’ll still owe the amount borrowed when closing a credit card with a balance.

•   Your credit score dropped: Though not always the case, if a credit card issuer notices red flags, such as a sharp drop in your credit score or major negative remarks on your credit report, it may choose to revoke your card.

•   You didn’t agree to the new terms: Sometimes credit card issuers update their terms and conditions and need you to agree to them before continuing to use the new card. If you don’t agree to the terms, your card may be closed.

Recommended: Does Applying for a Credit Card Hurt Your Credit Score?

Reopening a Closed Credit Card Account

If you decide you want to reopen a closed credit card, here’s how you do it.

Review the Reason for the Account Closure

Assuming you didn’t contact the credit card company to cancel a credit card yourself, you’ll need to determine the reason why the issuer did. It’s most likely due to one of the five reasons mentioned above.

Consider when you last used the credit card, whether you’ve had to agree to new terms, or if you were behind on payments. Credit card issuers may not notify you when the account is closed, so if you’re unsure of the exact reason why, it’s best to contact them.

Gather Relevant Documentation

Before asking the credit card issuer to reopen your account, it’s best to be as prepared as possible so you’re as efficient as you can be. For one, you’ll need to ensure that you have the credit card account number — you can find it on your physical credit card or a previous credit card statement.

If you were delinquent on your account, you may need to provide other forms of proof, such as documentation like that you’ve paid back the credit card balance you’d owed. Your card issuer may also want other information, like your full name, address, and Social Security number.

Contact Your Card Issuer

Finding the best number to call can be as simple as checking the back of your physical credit card or looking up the issuer’s phone number on their website. Otherwise, you can try calling your credit card issuer’s general customer service number and asking to be transferred to the relevant department.

When you request to reopen the account, you may be asked to provide a reason why you want to do so. Additionally, you may need to address any concerns or issues that caused your account to get closed. For instance, if your card was closed because you didn’t agree to new terms, then you’ll need to do so.

If your request is approved, you should receive information about the account, such as whether the account number is the same and if you can keep any rewards you’d earned before the account closure. Some issuers may conduct a hard credit inquiry to make sure you can still qualify for the credit card in question.

Things to Know When Reopening a Closed Credit Card

If you’re reopening an account you held previously, you might find some differences in how a credit card works. Here’s what to look out for specifically if you reopen a closed credit card.

Fees and Interest Rates May Be Different

The annual percentage rate (APR) and fees for the credit card may have gone up or down. Before you reopen your account, it’s best to check all of the card’s terms and conditions to determine whether you want to proceed.

Recommended: How to Avoid Interest on a Credit Card

Your Credit Limit Might Be Lower

Depending on the issuer and other factors like your credit score, your credit limit may be lower than the original amount you were approved for. You may have to wait a few months or demonstrate that you can adhere to key credit card rules, like consistently make on-time payments, before you’re approved for a larger credit line.

Recommended: What is the Average Credit Card Limit?

You May Lose Out on Previously Unused Rewards

If you’d racked up rewards before closing your credit card account, you may not be able to access any unused points or miles after your credit card gets reopened. However, it doesn’t hurt to ask the credit card issuer if it can reinstate the rewards — though remember there’s no guarantee it will happen. This is why checking your credit card balance and your rewards balance is important to do before closing out a credit card account.

How Long Does a Closed Account Stay on Your Credit?

How long a closed account remains on your credit report will depend on whether it’s based on a negative remark. For accounts that were in good standing, the closed account can remain on a credit report for up to 10 years and will generally help your credit score. However, if the closure was due to an adverse remark, such as delinquency, it could remain on your report for up to seven years.

How Closing a Credit Card Can Hurt Your Credit

The decision to close a credit card can weigh negatively on your credit score. Specifically, here’s how closing a credit card affects your credit:

•   Increases your credit utilization: Once a credit card is closed, your overall credit limit is lowered. This typically increases your credit utilization ratio — the percentage of your total available credit that you’re currently using — even if your credit card balance remains the same. A high credit utilization ratio can lower your credit score.

•   Decreases your credit mix: Though it may not affect your credit score that much, closing a credit card means there may not be as many different types of credit in your credit history. If so, this could affect your score negatively depending on the other types of accounts you have.

•   Potentially lowers the average age of your credit accounts: If the closed credit card account was one of your oldest accounts, it could lower the age of your credit history. This can negatively affect your credit score.

Reopening a Closed Credit Card Account vs Getting a New Credit Card

Although there may be advantages to reopening a credit card, such as accessing a high credit limit or offered perks, you’ll have to open a new one if your issuer refuses your request. You might also look into getting a new card instead of going back to your old one if you think you could access better rewards or more favorable terms than your closed card offered.

Whatever your needs and credit score are, it’s best to do some research to find a card that you have a high chance of qualifying for and that offers features you want.

When Not to Reopen a Closed Account

Sometimes, it’s better to leave a closed credit card account closed. Instead, you could use the account closure as an opportunity to search for a better credit card that may have a lower interest rate or offer better rewards, for instance. You could even look into options offered by the same credit card issuer.

Plus, there are some valid reasons for when to cancel your credit card, like if it had an unnecessarily high annual fee. In those instances, it’s likely not worth second guessing your decision.

Alternatives to Consider if You Can’t Reopen Your Account

If you can’t reopen your account, you’re not out of luck. Here are some other options to consider in this scenario:

•   Consider applying for a different card with the issuer. One option is to see what other cards your issuer offers and open one of those instead. Before submitting an application, check to see what the terms and conditions are and whether it has the features you’ll want and need.

•   Take steps to build your credit. If your account was closed due to delinquency, you can focus for a few months on making on-time payments or taking other steps to build your score. Then, you could try again to reopen your card or simply apply for a different one.

•   Apply for easier-to-get funding sources. If you need funding, you can also consider applying for a secured credit card, which is backed by a security deposit that serves as collateral. Secured credit cards tend to be easier to qualify for due to the deposit you’ll make.

Using Your New Credit Card Responsibly

Whether you’re reopening a closed credit card or applying for a new one, using a credit card responsibly is critical. By doing so, you can work to remain in good standing with your credit card issuer and build your score over time. Here are some tips for responsible credit card usage:

•   Don’t spend more than you can afford to pay off each month.

•   Always try to pay off your balance in full to avoid incurring interest charges.

•   Make sure to submit payments on-time (setting up automatic payments can help).

•   Regularly review your credit card statements and credit report to check for any errors or indications of fraudulent activity.

Recommended: When Are Credit Card Payments Due?

The Takeaway

Reopening a credit card can be as simple as contacting your issuer. However, whether or not you’ll get your request fulfilled will typically depend on the reason your account was closed and how long it’s been since you last used the card.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Can you reopen a closed credit card due to inactivity?

You may be able to reopen a credit card closed because of inactivity. However, whether you can do so will ultimately depend on your credit card issuer and their policies on reopening credit cards.

Can you reopen a closed credit card due to nonpayment?

In most cases, you probably won’t be permitted to reopen a card that got closed due to nonpayment. You may be able to if you can demonstrate to your credit card issuer that you’ve paid back the balance due and can be responsible with payments.

Will I get back my rewards if I reopen a closed credit card?

You most likely won’t be able to get your rewards back. Still, it doesn’t hurt to ask your credit card issuer just to make sure.

Do all credit card issuers allow you to reopen closed credit card accounts?

Many credit card issuers won’t allow account reopening, though some do. To find out if yours does, you’ll need to contact them directly.

Photo credit: iStock/insta_photos

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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Jul
30
2024
Guide to Using a Credit Card Like a Debit Card

Guide to Using a Credit Card Like a Debit Card

By | Budgeting & Goals, Credit, credit card | Comments Off on Guide to Using a Credit Card Like a Debit Card

When checking out at a store, you might be prompted to select whether you want the purchase processed as a credit or debit card transaction. Some debit cards with a credit card network logo can be processed as a credit payment, but the reverse — processing a credit card as a debit transaction — isn’t possible.

Still, it can make sense to use credit cards like a debit card. Understanding the difference between a credit card and debit card can help you to make strategic purchasing decisions with your credit card.

Recommended: What is a Charge Card

Can You Use a Credit Card Like a Debit Card?

In terms of being a convenient, cashless payment method, a credit card can be used in-person or online in a similar way as a debit card. Credit cards require you to insert, swipe, or tap the card on a payment processing device to initiate a transaction. If used online, you can enter your credit card information into the payment field at checkout in the same way you would with a debit card payment.

However, there are also significant differences between a credit card and debit card. The most notable distinction is where the funds come from. When you use a credit card, the money is drawn from your card’s available credit line, and you might get charged additional fees and interest on your purchase.

In contrast, a debit card draws the funds you already have in an associated checking or savings account. Also, in certain situations where the final total amount might vary, such as at the gas pump, the processor might request that your card issuer place a temporary hold on your debit card funds to ensure you have enough funds to cover the transaction.

Recommended: How to Avoid Interest On a Credit Card

Reasons You May Want to Use a Credit Card Like a Debit Card

Although credit cards offer numerous advantages when used responsibly, there are valid reasons to prefer using a credit card as a debit card. This may include:

•   To avoid overspending. Debit cards, particularly when you’ve opted out of overdraft protection, help you to avoid spending more than you can afford to pay back. With a debit card, you can only use the funds already in your associated account, which is a tactic you could try with a credit card as well.

•   To avoid finance charges or extra fees. Debit cards generally incur few charges. Additionally, they do not accrue interest since debit transactions are immediately pulled from your deposit account, in contrast to how credit cards work.

•   To amass rewards without debt. The potential to earn credit card rewards is appealing, but “chasing points” can be a risky game if you overspend. The ability to use a credit card like a debit card can help keep your spending in check while earning rewards.

Recommended: Tips for Using a Credit Card Responsibly

Tips for Using a Credit Card as a Debit Card

You can’t technically process a credit card payment as a debit card purchase. But if your purchasing strategy is to use a credit card as your go-to payment method instead of a debit card, remember the following tips and credit card rules:

•   Don’t spend more than you can afford.

•   Do pay your monthly credit card statement in full.

•   Don’t pay your credit card bill late or skip a payment.

•   Do explore credit card rewards programs to earn incentives on purchases you already make.

•   Don’t forget to review annual percentage rates (APR) and fees associated with your card.

•   Do use a credit card for online payments for greater fraud protection.

Recommended: When Are Credit Card Payments Due

Pros and Cons of Using a Credit Card Like a Debit Card

The benefits of credit cards in comparison to debit cards vary since they’re two distinct banking products. However, each payment option has its own pros and cons.

Pros

 Cons
Credit Card

•   Offers greater purchasing power

•   Can buy items now and pay for them later

•   Helps build your credit

•   Potentially zero liability for unauthorized charges

•   Can accumulate burdensome debt

•   Late and missed payments adversely affect your credit score

•   Can incur interest charges and fees

Debit Card

•   Avoids debt by using cash you already have

•   No additional interest charges on purchases

•   Can request cash back at checkout

•   Buying power is limited to the funds you have

•   Insufficient funds may lead to overdraft fees

•   Doesn’t help build credit

•   Fewer protections with fraudulent charges

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

Alternatives to Using a Credit Card Like a Debit Card

If you’re averse to using a credit card in a traditional sense, there are a few alternatives payment options that are akin to a debit-style transaction:

•   Prepaid credit card. A prepaid credit card gets loaded with funds which then become your card’s available credit line. It gives you the convenience of a credit card but taps into cash you already have, which is similar to a debit card. Note that prepaid cards often incur fees for various types of activity.

•   Cash-back rewards debit cards. If you want the perks of a credit card, like cash-back incentives, but in the form of a debit card, a cash-back debit card might be an option. These limit you to spending the funds you already have on deposit, but let you earn cash back when you use the card.

The Takeaway

Using a credit card like a debit card ultimately boils down to only spending on your card with funds you already have. Since a credit card is essentially a loan, it’s easy to accumulate overwhelming debt, plus interest charges, if you’re overspending. If you can comfortably afford to repay your credit card transactions in full each month, using your credit card in lieu of a debit card can provide access to valuable benefits, like earning rewards, enhancing fraud protection, and possibly building your credit.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Can I transfer money from my credit card to my bank account?

No, you can’t transfer money from your credit card to your bank account. A bank account is a deposit vehicle for your available cash; this cash can be accessed using a debit card. Conversely, a credit card is a financial tool that lets you access a credit line that you need to repay.

Can I use my credit card like a debit card at an ATM?

Yes, you can use your credit card like a debit card to get a cash advance at an ATM. Be warned that this is a costly option. Credit card cash advances typically have a different limit compared to your purchase limit, and they usually charge a higher APR with no grace period. Plus, you’ll owe a cash advance fee.

Can I use a credit card as a debit card with no interest?

Possibly. You might be able to use a credit card like a debit card for everyday transactions without incurring interest, if you pay every billing statement in full each month. Rolling over a balance month after month, however, will cause you to incur interest charges.

Is it better to use a debit or credit card?

Whether using a debit or credit card is a better option depends on the types of purchases you’re making and your borrowing habits. For example, credit cards are generally safer when shopping online, but buying on credit can get out of control quickly if you’re not careful.

Photo credit: iStock/filadendron

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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