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Though the terms may be used interchangeably, there are major differences: With a credit card, you can either pay your full monthly bill or a portion of it. With a charge card, no matter how much you owe, you’re expected to pay the monthly bill in full.

That’s not the only thing that sets these cards apart. The two also vary in their accessibility, flexibility, spending limits, and costs. If you’re wondering if a charge card vs. a credit card is a better fit for you, read on to understand their key differences, which can help you decide.

How Charge Cards Work

In some ways, a charge card is much like a regular credit card. When you use it to make a purchase, you’re borrowing money from the card issuer. And when you pay your bill, you’re paying the card issuer back.

But there are several things about the way charge cards work that make them very different from traditional credit cards. And because of the way they work, there are benefits and risks of charge cards to consider.

As mentioned above, a charge card holder’s obligation to pay the bill in full each month is probably the most important distinction. Because you don’t have the option of carrying forward a balance, you won’t pay any interest. But if you don’t pay the balance in full by the due date, you could be subject to a late fee and restrictions on your future card use.

Another thing that makes a charge card unique is that there’s no pre-set credit limit. This offers charge card holders some added flexibility, but it doesn’t mean you can go out and spend as much as you want any time you want — even if you’ve stayed current with your charge card payments.

A transaction still may be declined if it exceeds the amount the card issuer determines you can manage based on your spending habits, account history, credit record, and other financial factors. To avoid any confusion, card holders can contact their charge card issuer before making a major purchase to ask if the amount will be approved.

Recommended: When Are Credit Card Payments Due

How Credit Cards Work

Because they’re more common, you may be more familiar with how credit cards work than you are with charge cards. With a traditional credit card, card holders are given a preset credit limit that’s based on their income, debt-to-income ratio, credit history, and other factors.

Once your account application is approved and you receive a card with a unique credit card number, you can use your card as much or as little as you like — as long as you stay within that limit.

Each month when you receive your billing statement, you can decide if you want to repay the full amount you owe or make a partial payment, but you must make at least the minimum payment that’s due. And if you carry forward a balance, you can be charged interest on that amount. (Similar to your spending limit, interest rates are typically based on a cardholder’s creditworthiness.)

A credit card is classified as “revolving credit” because there’s no set date for when all the money you’ve borrowed must be repaid. As long as you make at least your minimum payments on time and stay within your credit limit, the account remains open, and you can use the available credit over and over again.

Differences Between a Charge Card and Credit Card

Here’s a side-by-side look at some key differences between charge cards and credit cards:

Payment Obligations

With a charge card, you’re required to pay what you owe in full when you receive your monthly billing statement. With a credit card, on the other hand, you can make a full or partial payment, but you’re only required to make a minimum monthly payment.

Even if you’re waiting for a refund that hasn’t yet shown up as a credit on your statement, you’ll be expected to pay the full amount of your charge card bill. With a credit card refund, you’ll just have to make sure you pay at least the minimum amount on your current bill.

Availability

If you’re looking for a new card, you’ll find there are far more credit cards available than true charge cards these days. Even American Express, the only major card issuer that still offers charge cards, has gone with a more hybrid approach.

American Express still offers cards that don’t have a preset spending limit. But those cards now come with a feature that — for a fixed fee — allows a card holder to split up eligible large purchases into monthly installments.

There also are some fuel cards, typically geared toward businesses, that are true charge cards.

Credit cards also are generally easier to qualify for than the charge cards that are available. Even if you have a poor or limited credit history, you may be able to find a secured or unsecured credit card that suits your needs.

Acceptance

Whether you shop local most of the time or hope to use your card as you travel the world, you may want to look at the acceptance rates of charge cards vs. credit cards.

Your card may not do you much good if you can’t use it where you like. American Express says its cards can now be accepted by 99% of the vendors in the U.S. that accept credit cards. If you aren’t sure your favorite local boutique or grocer will accept a particular card, you may want to ask or look for the card’s network logo in the store window.

If you plan to use your card overseas, you may want to check ahead on the acceptance rate in that country and also find out if you’ll have to pay a foreign transaction fee. Charge cards tend to have a lower rate of acceptance overseas.

Costs

If you’re trying to decide between a charge card vs. a credit card, how much a credit card costs compared to a charge card — both in interest charges and fees — could be an important consideration.

Interest

You can find a full explanation of how your card issuer calculates interest in your card’s terms and conditions. But as noted above, if you carry forward a balance on your credit card, you can expect to pay interest on the outstanding amount.

According to the Federal Reserve, the average credit card’s annual percentage rate (APR) is currently around 22.8%. Your rate may be higher or lower, depending on your creditworthiness.

You may not have just one interest rate associated with your account either. Your account may have a different APR for purchases, for example, than for credit card cash advances or balance transfers. Or you might have a lower, introductory APR for the first few months after you get a new card. If, over time, you miss payments or make late payments, the card issuer also could decide to raise your APR.

Because you don’t carry a balance with a charge card, you don’t pay interest. But if you pay off your credit card balance by the due date every month, you also won’t have to worry about accruing interest on a credit card account.

Annual Fees

You won’t pay interest with a charge card, but you may end up paying a significant annual fee just to own the card. (The annual membership fee for an American Express Platinum Card, for example, is currently $695.)

Some credit cards also charge annual fees, but you can find many that don’t.

Rewards and Perks

You may decide it’s worth paying a higher annual fee to enjoy the extra benefits some charge cards offer. American Express, for example, has a reputation for offering its card holders prestigious perks, including travel and retail purchase protections, early access to tickets for concerts and other entertainment events, and special offers from partner merchants.

However, plenty of credit cards also come with special benefits, such as cash back rewards, travel rewards, retail discounts, and more. And many of those card issuers don’t charge an annual fee.

Both charge card and credit card issuers also occasionally offer generous welcome or sign-up bonuses to new card holders, so that might be another benefit worth looking at when you’re searching for a new card.

Before you sign up for any card to get the perks it offers, though, it can be a good idea to step back and assess whether it’s worth paying a higher annual fee (or accruing interest on a balance you can’t pay off) to reap those rewards.

Spending Limit

With a credit card vs. a charge card, you’ll know exactly how much you can spend, because your credit card will come with a pre-set limit. You can go online or use an app to check your credit card account at any time to see how much available credit you have.

Charge cards don’t have hard spending limits. But that doesn’t necessarily mean you can use your card to buy a car or take a trip around the world. Your card issuer may decline a charge if you’re spending more than it thinks you can afford.

How Card Choice Can Impact Your Credit Score

When it comes to what a charge vs. credit card can do for (or to) your credit score, there are few things you should know.

Inquiries

Whether you’re applying for a charge card or credit card, you can expect the card company to run a hard inquiry on your credit. This could temporarily lower your credit score, but usually only by about five points.

Payments

Whether you use a charge card or a credit card, paying your monthly bill on time is critical to building and maintaining a good credit record.

Payment history makes up 35% of your FICO® credit score, so consistency is key. If your payment is 30 days or more past due and your card issuer reports it to the credit bureaus, that negative news could remain on your credit report for up to seven years. And it could come back to haunt you when you try to borrow money to buy a car or house.

Utilization

Credit utilization (the percentage of your available credit that you’re currently using) makes up 30% of your FICO score, so it’s important to keep your credit card balances well under the assigned limit.

To maintain or positively impact your credit score, the general rule is that you should try not to exceed a 30% credit card utilization rate. If you’re using up a big chunk of the pre-set limit on your credit card, it could have a negative effect on your score.

Because charge cards don’t have a pre-set credit limit, it can be difficult to determine if a card holder is at risk of overspending — so neither FICO or VantageScore include charge card information when calculating a person’s utilization rate.

This can have both pros and cons for charge card holders. The advantage, of course, is that you don’t have to worry about negative consequences for your credit score if you spend a lot in one month using your charge card. On the flip side, though, if you have a large amount of available credit that you aren’t using, it won’t do anything to help your score.

Choosing Between Credit Cards and Charge Cards

Deciding whether to apply for a credit card vs. a charge card may come down to evaluating the benefits you’re hoping to get from the card and assessing your own spending behavior. Here are some questions you might want to ask:

•   Does the card offer unique, valuable perks you think you’ll use?

•   If there’s a high annual fee for the card, does it fit your budget and are the card’s perks worth the cost?

•   Do you have enough money, discipline, and organization to ensure your bill is paid in full every month? Or could there be times when you’ll want to make a partial or minimum payment and carry forward a balance?

•   Is your credit score good or excellent? If not, you may have more options and a better chance of qualifying if you apply for a credit card instead of a charge card.

•   If you think you’ll pay off your card’s balance every month, would a credit card still be a better fit because of the rewards, low or no fees, and wider acceptance from vendors?

Also keep in mind that you don’t necessarily have to choose. In fact, you could benefit from owning both a charge card and a credit card. You may find there are reasons to have both types of cards in your wallet.

Recommended: Charge Cards Advantages and Disadvantages

The Takeaway

The terms charge card and credit card are often used interchangeably, but they are not the same thing. A charge card must be paid off every month, so there’s no interest to worry about — but there may be a high annual fee to pay. A credit card allows the user to make a minimum monthly payment and carry forward a balance, but the interest on that balance can add up quickly.

Each individual user must decide which is the better fit for their needs. And a card’s benefits vs. its costs may be a deciding factor.

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

Is a credit card easier to get than a charge card?

Because these days there are more companies issuing credit cards, it may be easier to find one that suits your needs and has qualifications you can meet — even if you have a poor or limited credit history. There are very few charge cards available anymore.

Does a charge card build credit better than a credit card?

Both a credit card and a charge card can help or hurt your credit score, depending on how you use it.

When do credit cards charge interest?

Most credit cards come with a grace period, which means the credit card issuer won’t charge you interest on purchases if you pay your entire balance by the due date each month. If you fail to pay the entire amount on your statement balance, however, or if you make your payment after the due date, interest charges will likely appear on your next monthly statement.

Photo credit: iStock/9dreamstudio

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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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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Credit card companies typically report to the credit bureaus monthly. This usually happens at the end of your card’s monthly billing cycle, also known as your statement or billing cycle date. Credit card companies typically spread statement dates throughout the month, so your date may not be the same as your significant other’s or your best friend’s.

The credit reporting bureaus then use this data to update your credit score. Here’s a closer look at how payments are reported to the credit reporting bureaus as well as how factors like on-time payments can affect your three-digit score.

How Credit Card Payments Are Reported to Bureaus

Credit card issuers typically report to credit bureaus on your regular billing cycle date. Each credit card may report at different times, and they may report to some of the major credit bureaus and not others. Reporting is up to the lender’s discretion, so it is also entirely possible that they won’t make a report at all.

Credit bureaus, such as Experian^®, Equifax^®, and TransUnion^®, may collect a variety of information, including:

•   Personal information, such as name, address, date of birth, Social Security number, and employer

•   Credit account information, such as balances, payments, credit limits, credit usage, and when accounts are opened or closed

•   Credit inquiries

How Credit Scores and Reports Are Updated

The credit reporting bureaus will generally update your credit score as soon as they receive information from your credit card company. That means that your credit score could change relatively frequently as you make credit card charges, especially if you have multiple credit cards.

Also, because credit card companies only report credit activity periodically, there can be a bit of a lag in how long it takes for a payment to show on your credit card report. When you read your credit report, it may not match your current account balances, instead reflecting the last information reported to the bureaus. This situation may be particularly irksome if you’ve paid off debts in hope of building your credit score. Fortunately, your information should be updated during the next reporting period.

However, if you notice that no changes are made after a number of months, it’s worth contacting your lender to make sure changes are reported correctly. If they can’t resolve it, you can contact the credit bureau.

Recommended: Charge Cards: Advantages and Disadvantages

How Credit Card Balances Affect Credit Score

Credit reporting bureaus may collect information about your credit card balance. There is a popular misconception that carrying a credit card balance from month to month will help you positively impact your credit score. However, this is a myth. In fact, carrying a balance can actually hurt your score.

An unpaid balance is not necessarily seen as a bad thing. However, credit utilization — how much of your available credit you’re using — can have an impact on your score. If your balance exceeds 30% of your borrowing limit, it may have a negative impact on your score. Those who keep their credit utilization below 10% tend to have the highest credit scores.

It’s best to pay off your credit card balance each month to protect your credit score and to avoid racking up costly interest charges, which can cause your credit card debt to balloon.

How Applying to Credit Cards Affects Credit Score

Before you apply for a credit card, it’s important to know the difference between a hard and soft inquiry. When you apply, you will trigger what’s known as a hard inquiry when a lender requests to see your credit report.

In contrast, a soft inquiry occurs when you check your own credit or use a credit monitoring service, for example. Hard inquiries will generally have a negative impact on your credit score (though often only by several points temporarily), while soft inquiries will not.

Hard inquiries suggest that you are in the market for new credit. That may seem like a no-brainer. But in the eyes of other lenders, a hard inquiry suggests that you may be in some sort of financial stress that makes you a bigger risk for borrowing money. This is especially true if you have many hard inquiries in a short period of time.
Luckily, the hard inquiry’s effects fade relatively quickly.

In general, it’s wise to avoid causing many hard inquiries in a short period of time. There are some exceptions to that rule. If you’re shopping for a mortgage, auto loan, or new utility providers, multiple inquiries in a short period — typically 14 to 45 days — are usually counted as just one inquiry.

How On-Time Payments Affect Credit Score

Your payment history is one of the biggest factors that goes into calculating your credit score. As a result, making payments on time is one of the best things you can do to maintain a strong credit score or to positively impact your score.

Even a single late payment can have a negative impact on your score, though the missed payment likely will not show up on your credit report for 30 days. If you can make up the payment within that time period, your lender may not report it, though you may still be subject to late penalties.

It’s also important to understand that if you only make a partial payment, that will still usually be counted as late and reported as such to the credit bureaus.

To make sure that you pay bills on time, consider setting up a budget to help control your spending. You might also automate your payments to ensure you don’t miss any payment due dates. But if you do so, make sure that you have enough money in your account to cover your credit card balance.

Recommended: When Are Credit Card Payments Due?

The Takeaway

The credit reporting bureaus collect all sorts of financial information from your various lenders to create your credit score. Your credit card company likely reports your card activity about once a month, on your statement or billing cycle date. Understanding what information has an impact on your score, as well as the impact of on-time payments and credit inquiries, can help you keep your score as high as possible and help keep credit card costs down.

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 time of the month do creditors report to credit bureaus?

Creditors may report to the credit bureaus at any time of the month, though credit card companies will usually make their reports at the end of the billing cycle, or on your statement date.

How often do companies report credit?

Credit card companies usually report to the credit bureaus once a month. However, they do so at their own discretion.

How long after paying off debt until you see an impact on your credit score?

Your credit score should see an impact after paying off a debt as soon as that debt payment is reported to the reporting bureaus, usually within 30 days. If your payment doesn’t show up on your report after a few months, contact your lender to make sure it was reported correctly.

Photo credit: iStock/iamnoonmai

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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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 .

SOCC-Q224-1882973-V1

Card skimmers are small devices that fit into credit card readers (say, at a gas station or outside ATM) and snag your card information. This can then be used to steal your credentials and commit identity theft.

Unfortunately, credit card fraud is all too common, totaling more than 426,000 instances in the most recent year studied. These skimmers, installed by would-be criminals, contribute to this figure. Here’s another indicator of how pervasive skimmers are: The FBI reports that financial institutions and consumers lose more than $1 billion per year to this practice.

To help protect yourself against theft, keep reading to learn what credit card skimmers are, how to spot a credit card skimmer, and what to do if your credit card is skimmed.

What Is a Credit Card Skimmer?

Credit card skimming is a form of theft that occurs when someone installs a small electronic device, known as a credit card skimmer, into a card reader. This device can read and collect information from a credit card when someone makes a purchase. The skimmer does this by reading the magnetic strip on a debit or credit card, which provides the full name on the credit card as well as the credit card number and credit card expiration date.

Credit card skimmers have been around for almost a decade. They are most commonly attached to gas station pumps, ATMs, and other types of machines that accept payments from both secured and unsecured credit cards as well as debit cards.

Identifying Credit Card Skimmers

Knowing how to check for credit card skimmers is a great way to protect against potential theft. Especially when using an outdoor payment machine like a gas pump or ATM, take a look at the card reader for signs of a credit card skimmer. See if the card reader is sticking out at an angle or looks any different from other nearby card readers. Also check if the card reader is loose or the keypad is unusually bulky.

When skimmers first came into play, it was easier to spot a credit card skimmer as the card reader often appeared to be tampered with or wiggled when used. Today, skimmers can fit snugly over the scanner, which makes it much harder to tell if something is amiss.

In the instance that all seems well with the card scanner at a gas station, double check the pump. If a gas pump is open, unlocked, has had the tamper-evident security tape altered or removed, or anything else seems amiss, it’s a good idea to use a different pump.

If possible, it’s best to use a credit card pump that has an encrypted credit card reader. Ideally, use one that has the illuminated green lock symbol near the credit card reader — this symbolizes that it’s been encrypted.

What Happens When a Credit Card Is Skimmed

When a credit card skimmer reads a magnetic strip on the back of a credit or debit card, it can obtain the cardholder’s full name, credit card number, and the credit card expiration date. Sometimes, scammers add a small camera into the equation in order to watch someone enter their PIN number when using a debit card. Really, one of the few things that’s safe is the CVV number on a credit card, which is why it’s so important to keep this secure.

Once the thief has this information in hand, they can use the card anywhere that accepts credit card payments. They may have access to the cardholder’s bank account and could steal their identity. Or the thief can sell the information on the dark web.

Recommended: 10 Common Credit Card Scams and How to Avoid Them

Protecting Yourself From Credit Card Skimmers

If you’re old enough to get a credit card, it’s critical to know how to use it responsibly and safely. Here’s a few tips to keep in mind to avoid falling prey to credit card skimmers.

Use NFC or Supervised ATMs

To help avoid coming into contact with a card skimmer, try to use payment terminals that are supervised by security cameras or skip using the card reader altogether and make a Near Field Communication(NFC) payment. NFC payments are secure transactions made with a smartphone, allowing you to avoid swiping your card at all.

Check and Recheck the Keypad

When it comes to how to spot a credit card skimmer, remember to check the keypad for any signs of tampering. These days, it’s a bit harder to identify when a keypad has a skimmer on it, but if anything seems amiss, use another payment machine or go inside the gas station or bank to make a transaction or withdrawal.

Don’t Leave Your Card Unattended

Whenever possible, make a transaction or withdrawal inside of a gas station or bank. The odds of a criminal accessing inside payment terminals with a clerk watching are much lower compared to outside payment terminals. It only takes criminals a few seconds to add a skimmer to an outside payment terminal where no one is watching.

Just like taking the time to compare the APRs on credit cards, spending a few extra minutes going inside to buy gas or take out cash can pay off. It could help you avoid countless hours of dealing with identity theft as a result of credit card skimming.

Use Credit Cards With a Chip

If you’re familiar with what a credit card is, you’ll know that most credit cards today come with a “chip” that allows consumers to make payments without actually swiping their credit card. With an EMV chip, it’s possible to simply tap a credit card instead of swiping it to make a payment, which helps avoid credit card skimming. If you have a card that is old-school and lacks a chip, you might ask the issuer if an updated version is available.

Be Vigilant

If someone does need to use an outdoor ATM or gas pump, use one that is close to the building and preferably in the line of sight of an attendant, security guard, or security cameras. The more hidden a payment terminal is, the more likely it is that there is a credit skimmer placed on it. Also make sure to be aware of your surroundings when using any exterior payment terminals.

Sign Up for Credit and Debt Alerts

One way to catch fraud is to sign up for alerts that send a notification any time a purchase is made with the card. After all, it’s unlikely a fraudster’s activity will result in a negative balance on a credit card.

By receiving an alert right when a purchase is made, you can confirm whether or not you made it. If you believe an unauthorized purchase was made, contact your bank or credit card issuer immediately.

Check Your Account Regularly

To be extra vigilant, double-check debit and credit card statements frequently to make sure that no unauthorized charges slipped through the cracks. It can be easier to stay on top of charges if you check in throughout the month rather than waiting until you receive your credit card statement and being shocked that you’re almost at your credit card limit due to unauthorized spending.

Can You Get a Refund if Your Card Gets Skimmed?

If you realize your credit card or debit card has been skimmed, check in with your bank or credit card issuer about next steps. You should also put a freeze on your credit report to ensure that the fraudsters aren’t applying for new credit cards in your name. In some cases, you may need to file a police report.

The credit card issuer or bank will have fraud protections in place and should refund you for any money lost. These protections are an important part of how credit cards work. Still, the sooner you cancel the cards and stop the fraud, the better. Most top credit cards have zero-liability policies that will refund the full amount of the fraudulent charges. If they don’t, the maximum liability anyone has as a consumer is $50.

The Takeaway

Skimmers, small devices that fit over credit card readers, are unfortunately a common way that financial credentials can be stolen and unauthorized charges or identity theft enacted. These are especially common at gas station pumps and outside ATMs. With a debit card, consumers aren’t entitled to as much protection regarding theft, so it’s helpful to use a credit card whenever making purchases at an outdoor payment terminal that’s vulnerable to skimmers. Still, it’s important to know how to spot credit card skimmers so you can hopefully avoid them.

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 a credit card skimmer do?

Credit card skimmers illegally collect information from credit and debit cards. Skimmers are typically attached to outside payment terminals like ATMs or gas stations.

Are card skimmers illegal?

Yes, credit card skimmers are illegal. This is why credit card issuers are creating new technology like chips to help make purchases more secure.

How common is credit card skimming?

Credit card skimming is all too common. The FBI reports that it costs financial institutions and consumers more than $1 billion per year.

Photo credit: iStock/greyj

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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOCC-Q224-1884859-V1

An ACH credit is an electronic transfer that takes money from an account at one bank and credits it to an account at a different bank. All banks and credit unions in the U.S. are connected electronically via a system known as the Automated Clearing House (ACH). This allows for easier movement of money between accounts at different financial institutions.

One of the most popular forms of ACH credit is the direct deposit of your paycheck from your employer. However, there are other times when you may receive or send an ACH credit.

Here’s what you need to know about ACH credits, including their meaning and how these transactions work.

What Are ACH Credit Payments?

Automated Clearing House (ACH) credit payments occur when someone instructs the ACH network to send or “push” money from an account they own at one bank to an account at a different bank, either owned by them or someone else. One common reason why you might get ACH credits to your bank account balance is if you signed up for direct deposit at work. In this case, your employer pushes money from their bank account (usually via a processing partner) to your checking or savings account each time you get paid.

You may also see an ACH credit if you receive a payment from a government agency, or if a friend sends you money using a peer-to-peer transfer service like Venmo or CashApp.

You’ve likely also sent many ACH credits, perhaps without realizing it. When you set up payment through your bank or credit union to make a one-time bill payment or send money to a friend through a payment app, this would be processed as an ACH credit. In both cases, you are pushing money out of your account and into the other party’s account.

How Does ACH Credit Work?

One way to think about an ACH credit is that it is the digital equivalent of someone writing a paper check. Instead of filling out a check, however, the sender instructs their bank to send money directly into the recipient’s account via the ACH system. To send money via ACH credit, you simply need the recipient’s name, bank account number, routing number, and basic transaction details. The process can take anywhere from a few hours to two business days.

Behind the scenes, your bank batches all of its ACH transfer requests together and sends them out at regular times throughout the day to a clearinghouse that verifies the transfers. The clearinghouse then sends each transfer to the recipient’s financial institution. The National Automated Clearing House Association (NACHA) oversees the ACH network.

What Is an ACH Credit Refund?

An ACH refund (or return) is an electronic transaction that’s sent back to the original sender by the recipient’s bank. This could happen if the recipient’s bank can’t process the transaction due to insufficient funds, an invalid account number, a closed account, among other reasons.

Once the transaction’s been returned, the sender’s bank will notify the original payer and may charge a fee for the return. The sender’s bank may also try to resend the payment, or contact the payee directly in order to resolve the issue.

Recommended: How to Stop or Reverse ACH Payments

What’s the Difference Between an ACH Credit and an ACH Debit?

An ACH credit and ACH debit are two different types of transactions that are processed through the ACH network. The only difference between them is who initiates the transaction.
In an ACH credit transaction, the originator requests to transfer money from their account to the recipient’s account. This is often referred to as a “push” payment.

In an ACH debit transaction, the originator requests to withdraw money from another party’s account and have it transferred to their own account. This is ypically called a “pull” payment.

If you have a service provider you make regular payments to, they might ask you to set up ACH debits to make processing the payment easier on both ends. With a recurring ACH debit, you don’t need to remember to make a payment each month, and the receiver doesn’t need to process manual payments — they automatically pull the money from your account each month.

With ACH credits vs. debits, there is also a difference in transfer speed. A bank can choose to have ACH credits processed and delivered within the same day, or in one to two business days. ACH debit transactions, on the other hand, must be processed by the next business day.

Fees Associated With ACH Credit Transactions

There are fees associated with ACH transactions that are paid to NACHA by the banks involved in the transaction. Banks generally pay both an annual fee to participate in the ACH network, as well as a tiny fee per transaction. There may be an additional fee required for faster or same-day ACH transactions.

These ACH fees may or may not be passed down from the bank to the actual account holder. Check with your bank to see if they charge a fee for sending or receiving an ACH debit or ACH credit transaction.

Future of ACH Credit

The ACH Network has grown in popularity since it was officially established in the mid-1970s, and shows no signs of slowing down. NACHA, its participating banks, and the government continue to work together to make sure that the ACH network remains safe and stable. Other fintech companies are also working to innovate concerning the future of electronic payments.

The Takeaway

The Automated Clearing House (ACH) is a network of banks that allow electronic transactions to be sent to and from accounts. An ACH credit allows you to “push” money online from an account you own at one bank to an account at another bank, either owned by you or someone else.

ACH credits are push transactions. This means the person making the payment originates the transaction. An ACH debit, by contrast, is a pull transaction, and is initiated by the party receiving the money.

There are a variety of reasons why you might see an ACH credit on your account, but one of the most common is a direct deposit or payroll entry from your employer.

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.

FAQ

What is an ACH credit and how does it work?

An Automated Clearing House (ACH) credit transaction is when someone instructs the ACH network to send money from their account to someone else’s.

A common example of an ACH credit is direct deposit of your paycheck. In this case, your employer pushes money out of their bank account and into your bank account using the ACH network. ACH credits are also used for bill payments and peer-to-peer payments.

What does the future look like for ACH credits?

The National Automated Clearing House Association (NACHA), the organization that oversees the ACH network, is working with the government and other stakeholders to ensure that the ACH network remains safe, secure, and stable. While some of the behind-the-scenes details may change, it’s likely that inter-bank credits and debits will continue well into the future.

Is an ACH credit the stimulus check?

An Automated Clearing House (ACH) credit transaction occurs when an individual or organization instructs the ACH network to send money from their account to someone else’s. There are a variety of reasons why you might see an ACH credit transaction on your account, including direct deposit of your paycheck and direct payments from the government, such as a stimulus check.

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SoFi members with direct deposit activity can earn 4.00% 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 4.00% 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 4.00% 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.

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