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Though the terms “charge card” and “credit card” 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 repay the full amount that you owe each month.

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 typically don’t have the option of carrying forward a balance, you won’t pay 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 fuel cards, typically geared toward businesses, that are true charge cards.

Credit cards 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 are 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 than credit cards 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 around 21%. 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 traditional 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 typically 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 Plum Card, for example, is currently $250.) 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. As noted above, 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 nor 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 having both a charge card and a credit card. You may find there are reasons to keep both types of cards in your wallet. You can learn more about credit cards by exploring this credit card guide.

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.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

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

SoFi Credit Cards are 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.

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 .

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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Credit cards provide an easy way to pay for purchases, but their benefits go beyond convenience. Credit cards provide protections that cash and debit cards often lack and create opportunities to earn rewards on purchases you already plan to make. When used thoughtfully, credit cards can also support long-term financial goals such as building credit and improving financial flexibility.

Below, we take a closer look at the perks of using credit cards, along with guidance on using them wisely.

10 Benefits of Credit Cards

From rewards and welcome bonuses to payment protection and credit building, credit cards can be powerful financial tools when used responsibly. Here are some key advantages of using credit cards:

1. Cash Back Rewards

Many credit cards offer cash back on everyday purchases like groceries, gas, and dining. Cash back typically comes as a percentage of what you spend. Depending on the card, you may be able to:

•   Apply rewards as a statement credit

•   Deposit cash into a bank account

•   Redeem cash back for gift cards or purchases

Over time, these rewards can add up and effectively reduce the cost of your spending.

2. Welcome Bonuses

Some credit cards offer introductory bonuses if you spend a certain amount within the first few months of opening the account. For instance, you might earn a $200 statement credit after spending $500, or 75,000 bonus miles after a $4,000 spend — typically within the first three months of opening the card. These incentives can provide significant immediate value for new cardholders.

3. Reward Points

Points-based programs reward you for everyday spending by offering points for each dollar spent. These points can typically be redeemed for travel, gift cards, merchandise, charitable donations, or statement credits. Many cards also offer bonus points for spending in specific categories such as dining or travel.

4. Fraud Protection and Security

Credit cards generally include strong consumer protections, including zero-liability fraud policies that limit your responsibility for unauthorized charges. Additional safeguards often include chip technology, encryption for online purchase, and real-time fraud monitoring, which together provide a strong layer of security compared with many other payment methods.

5. Interest-Free Grace Period

Credit cards typically provide a grace period between the end of the billing cycle and payment due date. By paying your statement balance in full by the due date, you avoid interest charges entirely. This strategy effectively creates an interest-free loan, allowing you to use the bank’s money for short-term expenses without the cost of borrowing.

6. Built-In Insurance and Protections

Many credit cards include travel and purchase protections that can add significant value. Depending on the card, benefits may include trip cancellation coverage, rental car insurance, extended warranties, purchase protection, and price protections. These features can provide peace of mind when making large purchases or booking travel.

7. Wide Acceptance Worldwide

Credit cards are accepted almost everywhere, whether you’re shopping in stores, paying bills online, or booking travel. Major card networks operate in hundreds of countries, making credit cards especially useful for international travel. Using a credit card abroad can also reduce the need to carry large amounts of cash or worry about currency exchange.

8. Building Credit History

Using a credit card responsibly can be a powerful way to build a robust credit profile. Since issuers report your activity to the three major bureaus — Transunion®, Equifax®, and Experian® — your habits can directly impact your score. You can add positive information to your credit profile by making consistent on-time payments, using less than 30% of your total available credit, and maintaining long-term accounts to increase the overall age of your credit accounts.

9. Increased Purchasing Power

A credit card provides access to a revolving line of credit, which can help you manage large or unexpected expenses. This flexibility can be helpful when clash flow is temporarily tight, though it’s important to pay balances quickly to avoid interest charges.

10. Dispute and Chargeback Protection

If a merchant fails to deliver goods or services as promised, credit card issuers allow you to dispute the charge. The issuer will typically provide you with a temporary credit for the disputed amount while they investigate. If the merchant can’t provide evidence that the service was rendered or goods provided, the refund becomes permanent. This added layer of protection is especially valuable for online purchases, travel bookings, and large transactions.

What to Look for in a Credit Card

Before applying for a credit card, it helps to compare cards based on your spending habits, financial goals, and how you plan to use the card. Ideally, the rewards structure should align with your lifestyle — whether that involves earning cash back on daily essentials, accruing travel miles, or securing a low interest rate.

The annual percentage rate (APR) is especially key if you expect to carry a balance at any point. It’s also important to consider whether the card charges an annual fee and whether the benefits are likely to outweigh the cost.

Finally, you’ll want to review the full list of potential fees, including late payment fees, foreign transaction fees, and balance transfer fees. Understanding the total cost of a card can help you choose one that fits your needs and avoids unnecessary expenses.

Using a Credit Card Responsibly

Using a credit card responsibly involves treating it as a financial tool rather than a source of extra cash. These strategies can help you reap all the perks of credit cards without racking up costly debt:

•   Pay in full whenever possible: Paying the full statement balance allows you to take advantage of the grace period, where no interest is charged on your purchases.

•   Pay on time: Even if you can’t pay your balance in full, it’s important to pay at least the minimum amount due on time. Late payments can trigger fees and negatively impact your credit.

•   Keep utilization low: Aim to use less than 30% of your total credit limit. For example, if your limit is $2,000, try to keep your balance below $600. Keeping this ratio low can have a positive impact on your credit profile.

•   Monitor statements regularly: Go over your credit card spending at least monthly to check for fraudulent charges, billing errors, and monitor your spending.

The Takeaway

Credit cards offer a host of advantages, from building credit history and providing increased purchasing power to offering valuable rewards and essential consumer protections like fraud and chargeback safeguards.

To maximize these benefits and avoid debt, it’s important to use your card responsibly by paying the full statement balance on time, keeping your credit utilization low, and selecting a card with features — such as rewards, low APR, and minimal fees — that align with your financial habits and goals.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

How secure are credit cards?

Credit cards offer robust security features. Major credit cards typically have zero-liability policies, meaning you aren’t responsible for unauthorized purchases. They also use chip technology, encryption, and real-time fraud monitoring to protect your account information and transactions. Unlike debit cards, credit card fraud doesn’t directly remove money from your bank account, offering an extra layer of protection while an issue is investigated.

How can I protect myself from credit card fraud?

To protect yourself from credit card fraud:

•   Monitor your accounts: Review statements and transactions frequently to spot unauthorized activity quickly.

•   Enable alerts: Set up real-time text or email alerts for every transaction via your bank’s app.

•   Use secure websites: Only shop on sites with “https://” in the URL and a padlock icon.

•   Never share your password or card details: Be wary of unsolicited calls or emails asking for this information.

•   Be careful with public Wi-Fi: Avoid making purchases or accessing financial accounts on unsecured networks.

Can credit cards allow you to save more?

Yes, credit cards can allow you to save more money, provided they are used responsibly and the balance is paid in full each month. Savings can come through rewards programs, such as cash back or points, which effectively reduce the net cost of your purchases. The built-in insurance and purchase protections offered by many cards can also save you money by covering unexpected costs, such as rental car damage or an item that is lost or stolen shortly after purchase. If you carry a balance, however, high-interest charges will quickly negate any rewards or savings.

Should I use a credit card if I have a poor credit score?

If you have a poor credit score, you can still use a credit card, but you’ll want to look for options specifically designed for people building credit.

Secured credit cards are often the best starting point. Because these cards require a security deposit that acts as your credit limit, they pose less risk to lenders and are easier to qualify for. By making small purchases and consistently paying your balance in full, you can strengthen your credit profile and eventually transition to more competitive financial products.

Photo credit: iStock/Suphansa Subruayying
SoFi Credit Cards are 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.

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 .

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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The credit card security code is generally found on the back of the credit card, close to or within the signature field. (There are a few exceptions, however; some American Express cards present the security code on the front of the card, separate from the main credit card number.)

In this article, you’ll learn the details you need about credit card security codes: not just where to find them, but also what they are, why they’re important, and tips for increasing your overall credit card security.

What Is a Credit Card Security Code?

A security code is key to how a credit card works. It’s a numerical code, usually three or four digits long, that helps prevent fraudulent charges. When you make a purchase that doesn’t involve physically presenting the credit card — for example, online — the point-of-sale system will usually prompt you to enter this security code.

The security code is not allowed to be stored by merchants, which helps protect against credit card hackers getting the information. Thus, the security code helps ensure fraudsters can’t use stolen credit card numbers to make digital purchases.

Other Common Names for Credit Card Security Codes

You may also hear the credit card code referred to as:

•   CVV, or Card Verification Value

•   CSC, or Card Security Code

•   CVC2, or Card Verification Code

•   CID, or Card Identification number

All of these terms signify that same three- or four-digit code on the back (or occasionally front) of your card.

When Do You Need Your Credit Card Security Code?

Your credit card security code is usually requested by the merchant whenever you’re making a credit card transaction without being physically present with the card.

The most common instance of this by far is when you make an online purchase. But you may also make a credit card purchase over the phone and be asked to provide the security code.

Recommended: Understanding Purchase Interest Charges on Credit Cards

Why Credit Card Security Codes Are Important

Again, credit card security codes work to make your credit card information more secure — at least during purchases where you’re not physically present with the card. (When you are physically inserting, swiping, or tapping a credit card, other security features, such as the EMV chip, offer security measures.)

Where to Find Your Credit Card Security Code Number

Your credit card security code number is almost always on the back of your credit card, usually toward the right-hand side of the card beside or within the signature box. Some credit cards may list the credit card number on the back of the card, as well, but the security code is separate.

American Express cards list the security code on the front of the credit card, usually to the left of the card and always above the main credit card or account number.

Recommended: Guide to Checking Your Credit Card Approval Odds

How to Find Card Security Code Without the Card

The whole point of your credit card’s security code is to make the card impossible to use without being physically present. So, unfortunately, if you’ve lost your credit card, there’s no way to recover the code separately.

You may be able to ask the credit card issuer for a virtual version of the card, which will allow you to see the security code, or you may need to report the card lost or stolen and wait for a new card — with a new account number and security code — to arrive by mail.

Example of Credit Card Issuers That Use a Credit Card Security Code

These days, just about every major credit card issuer uses credit card security codes to help ensure the safety of cardholders. Discover, Visa, MasterCard, and American Express all use security codes — though as noted above, American Express cards are the only ones that list the code on the front of the card instead of the back.

Tips on Credit Card Security

Keeping your credit card information safe is the first step in preventing identity theft and fraudulent purchases. Fortunately, security measures like CVCs help make it easier, but here are some tips to help double your defenses. You can learn more about credit cards by exploring this credit card guide.

•   Use secure passwords. Most people manage their credit cards (and many other types of financial accounts) online. Using secure passwords helps ensure fraudsters can’t hack into your online profiles to steal your information. Using a long password with a mix of numerical, alphabetical and special characters can help increase your level of security. If your credit card utilizes a PIN, change it often.

•   Be careful how you share credit card information. Though it may be safe to make a purchase through a legitimate, secure website or on an official company phone line, you should never email your credit card information or write it on a slip of paper for someone. If a merchant requests you to do so, shop elsewhere.

•   Sign up for alerts. Many credit card accounts can alert users by email, text message, or phone call when suspicious activity, like very high-priced purchases or transactions done at a different physical location than your home area, are made. Some cards may also automatically decline such transactions. (Don’t worry: if the charges are legit, you’ll be able to quickly verify them with the credit card company to get the transaction approved. It can also be helpful to let your credit card company know ahead of time if you’re planning to travel.)

The Takeaway

Want to know where the security code is on a credit card? Your credit card security code is almost always located on the back of your card, close to or within the signature box. American Express cards list the security code on the front of the credit card. No matter where it is, the code helps keep your information safe when making transactions online or over the phone.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

Is a credit card security code 3 or 4 digits?

Credit card security codes can actually be three or four digits long. Discover, Visa, and MasterCard all use three-digit codes that are printed on the back of the credit card, while American Express employs a four-digit code printed on the front of the card.

Is the security code the same as a CVV?

The credit card security code is the same as the CVV, which stands for Card Verification Value. The code can also be known as a CSC (Card Security Code), CVC2 (Card Verification Code), or CID (Card Identification number).

Are all credit card security codes 3 digits?

Credit card security codes can be three or four digits long, depending on what kind of card you have. The four- or three-digit code on a credit card is typically found on the back, but occasionally on the front.

Photo credit: iStock/Kantamard Lamasai

SoFi Credit Cards are 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.

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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Your available credit and the total credit limit on a credit card are both tied to the potential amount that you can spend. But there is a difference between them. Your credit limit is the total amount of credit that the card issuer is willing to lend you. On the other hand, your available credit is the potential amount you can spend right now.

Unlike your credit limit, your available credit takes into consideration your outstanding balance and any pending charges. So, for example, if your total credit limit is $10,000, and you have an outstanding balance of $2,000, then your available credit is $8,000.

Read on to learn more about these two different types of credit, what happens if you go over them, and how to increase your credit limit and/or available credit.

What Is Available Credit?

Your available credit on a credit card is the total amount that you can spend with your credit card. It is usually calculated as your total credit limit minus any outstanding balance or pending charges. If you attempt a transaction that is larger than your available credit, the credit card company will typically decline the transaction.

What Is a Credit Limit?

The way most credit cards work is that the credit card company issues you a maximum amount that they are willing to lend you. This is called your credit limit. It is usually determined by your financial situation, such as your credit score, income, and other factors related to your credit history.

Why Is Available Credit Important?

Your available credit is one of the most important things about your credit card. The amount of available credit you have is the total amount of money that you can spend on your credit card. Knowing how much available credit you have can help keep you from overspending.

And if you do try to make a purchase that’s more than your total available credit, your credit card company will usually decline your transaction.

Differences Between Credit Limit and Available Credit

The main difference between credit limit and available credit is that your credit limit is the maximum amount that the credit card company is willing to lend you. If you’ve used a portion of your credit limit, that amount is subtracted from your total credit limit and it becomes your available credit. This is the most that you can spend right now on your credit card.

In other words, your credit limit will generally remain the same (unless the creditor adjusts it or you ask for an increased limit), while your available credit will vary based on your spending. If you haven’t spent any money using your credit card, meaning your balance is $0, your credit limit and available credit are the same.

What Happens If You Go Over Your Available Credit?

If you have a credit card balance or outstanding pending charges on your credit card, those amounts are subtracted from the total credit limit that you have on that card. This marks your current available credit, and it’s the most you can charge on your credit card at the current point in time.

If you try to make a charge for more than your available credit, it’s likely that your credit card company will decline the charge. With some credit card companies or specific credit cards, it’s possible that the credit card company will allow a charge above your available credit, but they may charge interest and/or additional fees. Check with your credit card company for the specific rules and terms for your particular card.

What Happens If You Go Over Your Credit Limit?

If you continue to spend all of your available credit until you’ve reached your total credit limit, you may not be able to continue to use your credit card. You’ll first need to make payments to lower your total balance and raise your available credit.

In some cases, if you continue to keep your outstanding balance near your total credit limit, the credit card company may choose to close your credit card account. Or, your card issuer may increase your interest rate, lower your credit limit, or even raise the minimum payment requested.

Going over your credit limit can also have serious implications for your credit score. This is because credit utilization — how much of your available credit you’re currently using — is a major factor used to help determine your score. It’s recommended to keep your credit utilization ratio below 30% to maintain a healthy score; if you’ve reached your credit limit, your utilization will be at 100%.

Recommended: When Are Credit Card Payments Due?

How to Increase Your Available Credit

The best way to increase the available credit on a credit card is to spend less on the card and make additional payments toward the total outstanding balance. Every dollar paid toward the outstanding balance will increase your available credit.

Ideally, you might get to a situation where you’d pay off your statement balance in full, each and every month. In that scenario, your available credit and your total credit limit would be equal.

How to Increase Your Credit Limit

You have a few options for increasing your credit limit. Some credit card companies may regularly review the accounts of their cardmembers, and proactively increase their credit limits.

You also have the option to contact your card issuer directly and ask them to increase your credit limit. Keep in mind that most issuers are more likely to increase your credit limit if you’re already using your credit card responsibly.

If you’re not having any luck increasing the credit limit on your existing credit card, another option is to open a new credit card. This could substantially increase your available credit if you’re approved — especially if the new card’s limit is at or above the average credit card limit.

Recommended: Tips for Using a Credit Card Responsibly

The Takeaway

Your total credit limit and available credit are two terms that refer to the amount of money that you can spend on your credit card. However, there is a difference between credit limit and available credit. Your credit limit refers to the maximum amount that your card’s issuer is willing to lend you. Meanwhile, your available credit is the amount you have to spend right now. It’s calculated by subtracting from your credit limit any outstanding balance or pending charges on the card.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

Why is my available credit less than my credit limit?

Your available credit will often be less than your credit limit based on any outstanding balance or pending charges that you have on your credit card. For example, if you have a total credit limit of $7,500 on a card, and an outstanding balance of $1,000, then your available credit is $6,500. The available credit amount is the maximum amount that you can charge on your credit card at the current moment.

Why is my available credit higher than my credit limit?

It’s rare that your available credit will be higher than your total credit limit. Instead, it’s much more common for your available credit to be less than (or equal to) your total credit limit. One scenario where your available credit may be higher is if you have a credit on your account, such as from a refunded transaction.

How is my credit limit determined?

Credit card issuers typically determine your total credit limit based on the financial information that you provide when you apply for the card. This includes your bill payment history, income, and overall creditworthiness. If your financial situation has materially changed since you first applied or if you have a history of responsibly using your card, you may be able to contact your issuer and have your credit limit increased.

What is a good amount of available credit?

Currently the average credit limit for U.S. cardholders is more than $32,000, according to the most recent data from Experian, though credit limits vary widely by card issuer, credit card, and individual. A good amount of available credit is one that allows you to make all of the transactions that you need to make each month, with a little bit of buffer room, and without your utilization going above 30% of your limit.

Photo credit: iStock/Georgii Boronin

SoFi Credit Cards are 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.

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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Contactless credit cards are a method of payment that allows you to simply tap or wave your card near a payment terminal, as opposed to inserting or swiping it. This kind of card has grown in popularity over the past few years.

Here’s a look at the tech that enables contactless credit card payments, as well as the pros and cons of using this type of card.

What Is a Contactless Credit Card?

A contactless credit card looks like a typical credit card, featuring the bank name, account number on the front, and usually a magnetic stripe on the back. However, contactless credit cards allow cardholders to tap or hover instead of inserting or swiping their card in a merchant payment machine.

This technology enables a consumer to complete a purchase at a retail location without their card physically touching a payment device, a feature that led to increased adoption during the COVID-19 pandemic due to health and hygiene concerns.

What Does Contactless Payment Mean?

Contactless payment is a secure and fast way to pay for goods or services without physically swiping or inserting a card into a terminal. Often called “tap-to-pay,” it allows you to complete a transaction by simply tapping or hovering a contactless-enabled card, smartphone, or wearable device (like a smartwatch) near a payment terminal.

Contactless payments use near-field communication (NFC) to create an encrypted, one-time code for transactions, eliminating the need to swipe or insert cards.

How to Know If Your Credit Card Is Contactless

Most major credit card providers now offer contactless cards. You can determine if your credit card is contactless by looking for a contactless card symbol on the front or back of your card. This symbol looks like a wifi symbol flipped on its side, with four curved lines that increase in length from left to right.

Before paying, ensure the merchant’s card reader displays the same symbol. If you don’t see it, you can always ask the cashier. If your physical card isn’t contactless, you can still tap-to-pay by adding the card to a digital wallet like Apple Pay or Google Pay on your smartphone.

How Contactless Credit Cards Work

Like many other credit cards, contactless credit cards have small chips embedded in them. But instead of requiring you to insert the card, this chip transmits a unique, encrypted, one-time code to the terminal, authorizing the transaction faster than traditional dipping or swiping.

You don’t actually even need to tap your contactless credit card to pay — all you have to do is place your card within an inch or so of the contactless symbol. This will initiate payment.

You might then have to wait a few seconds while the transaction processes. Once the transaction is approved, the terminal will provide a confirmation signal, such as a beep, check mark, or green light.

Technology That Enables Contactless Credit Card Payments

Instead of inserting a credit or debit card into a merchant payment terminal, contactless credit cards today typically rely on near-field communication (NFC), which is a specific type of radio frequency identification (RFID), to complete a retail transaction. The card’s NFC chip sends encrypted payment details to the terminal. Once the device grabs the card information, the transaction can be completed and the purchase confirmed.

To protect sensitive data during a contactless transaction, the card’s chip generates a unique, one-time-use code. Even if a criminal intercepts this code, it cannot be reused for another purchase because the bank will recognize it has already been “spent.” In addition, NFC technology has an extremely short range, typically requiring the card to be within about one-and-a-half inches of the reader. This physical constraint makes remote “skimming” from a distance nearly impossible.

Pros and Cons of Contactless Credit Cards

Contactless credit cards come with numerous benefits, along with some tradeoffs:

Pros

Benefits of contactless credit cards include:

•   Quick and convenient to use: Contactless credit cards are extremely convenient to use. All a user has to do is wave their contactless credit card in front of the contactless symbol on the card reader, and the deal is done in less than a second.

•   Added security: Tapping to pay is considered more secure than swiping your card. Like inserting your card’s chip, contactless payment generates a one-time code that protects your card’s sensitive details. Contactless payments also sidestep the risks involved with skimming and shimming since you aren’t inserting your card.

•   Less physical contact: Contactless payments can help reduce the spread of germs since they minimize contact between your card with public surfaces, especially if you hover instead of tap.

•   Reduced wear-and-tear: Cards generally last longer when they are not repeatedly inserted into or swiped through payment terminals.

Cons

Some drawbacks of contactless credit cards include:

•   Spending can feel too easy: Quick taps can make spending even faster and more frictionless than slower payment methods.

•   Not accepted everywhere: Not all merchants or regions accept contactless payments. As a result, you may have to fall back on using your card’s chip or magnetic stripe even if you have a contactless card.

•   Transaction limits: Some credit card issuers put a cap on the amount you can spend using contactless payment (such as $250).

•   Technical Issues: As with any technology, there is the potential for glitches, such as a terminal malfunction or signal interference.

Guide to Using a Contactless Credit Card

When using a contactless credit card, the transaction is enabled and completed in three key steps: look, tap, and go.

1.    Look: Check for a contactless symbol on a merchant’s payment device (this will look like a wifi signal tipped on its side).

2.    Tap: After being prompted by the payment device, wave the credit card an inch or so over the contactless symbol or actually touch (tap) the credit card on the symbol.

3.    Go: Once the payment device confirms the credit card payment, you can take your purchase and receipt and go.

When making a contactless credit card payment, be sure to hold one card — not multiple cards or your entire wallet — over the reader. If more than one card is detected by the reader, the terminal could potentially charge the wrong one. While you’re not at risk of being charged multiple times for the same transaction, you want to be sure to hold only the card you want to use over the contactless symbol.

Are Contactless Credit Cards Safe?

Yes, contactless credit cards are considered highly secure. For one reason, they protect against physical card skimming devices sometimes placed illegally on magnetic stripe readers. In addition, contactless credit cards use dynamic encryption (tokenization) to generate a unique, one-time code for each purchase, making intercepted data useless for fraud. These cards also require close proximity to a terminal, which reduces risk of accidental or remote theft.

As with any credit card, it’s important to monitor your accounts regularly for unauthorized charges and report any suspicious transactions to your issuer as soon as possible.

The Takeaway

Contactless credit cards are emerging as an effective payment technology that’s gathering steam among consumers and retailers alike. Thanks to the tech that enables contactless credit card payment, these credit cards allow you to simply wave or tap the credit card near the contactless symbol on a payment terminal. Though contactless payments aren’t available everywhere, you can figure out if a payment terminal — and your credit card — offer contactless payment as an option by looking for the contactless payment symbol.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

Are there extra charges for using contactless credit cards?

No, there are no extra, direct charges to the consumer for tapping instead of swiping or inserting, since these transactions are processed using the same standard card rates. While some merchants may apply general credit card surcharges, they are not specific to the contactless method itself.

What are the risks with contactless credit cards?

The primary concerns include the risk of overspending due to transaction speed and potential technical issues, such as terminal malfunctions or signal interference. While tokenization (one-time codes) effectively minimize data interception, lost or stolen cards are still vulnerable to unauthorized use. As with any credit card, it’s important to monitor your account and immediately report loss or theft of the card.

Where can I use my contactless credit card?

You can use your contactless credit card wherever you see the contactless payment symbol — the icon that looks like a sideways wifi signal with four curved lines. This symbol must be displayed on both your card and the merchant’s payment terminal for you to use the tap-to-pay feature.

What happens if I lose my contactless credit card and someone else uses it?

If you lose your contactless credit card and it is used for unauthorized purchases, report it immediately to your issuer to freeze the card. Under federal law, your liability for fraudulent credit card charges is generally limited to a maximum of $50, though many issuers offer zero-liability policies. The issuer will cancel the card, issue a new one, and initiate a fraud investigation.

Photo credit: iStock/milan2099

SoFi Credit Cards are 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.

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.

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