Credit Archives

Mar

2023

What Does a Credit Score of 800 Mean?

By Sarah Li Cain | Credit, credit card, Financial Independence | Comments Off

On a credit scoring scale of 300 to 850, a credit score of 800 is considered exceptional. Having an 800 credit score has the potential to open up many doors for you financially, including competitive interest rates on loans, higher chances of approval and at better loan terms, and even access to premium credit cards.

As such, when you have a credit score of 800, it’s worth taking steps to ensure you maintain it — or if you’re ambitious, even improve it. That way, you can continue unlocking the benefits that a high credit score can offer.

What It Means to Have an 800 Credit Score

Your credit score is a three-digit number that’s an indicator of your creditworthiness. The higher the number, the more likely you appear to lenders as a responsible borrower who will pay back what’s owed on time.

Credit scoring models count an 800 credit score as being excellent. For instance, a 800 FICO credit score is considered “exceptional,” and VantageScore considers it in their “superprime” range.

These scoring models use your credit history to calculate your score — having such a high score means that you most likely haven’t missed any payments and have maintained a low credit utilization. It could also mean you’ve had a relatively long credit history and held a variety of types of credit and loan accounts — in other words, you’re well past the point of a starting credit score.

To stay at this point on the credit rating scale, you’ll need to keep exhibiting the responsible financial behaviors you’ve already displayed. Further improving it could be a matter of continuing these behaviors over a longer period of time. Or, you might look into your score to see if there’s any one area you can tweak to further improve your credit behavior.

Recommended: When Are Credit Card Payments Due?

Is 800 a Perfect Credit Score?

No, 800 is not a perfect credit score. Both FICO and VantageScore scoring models have a maximum credit score of 850. That being said, an 800 credit score can be considered near-perfect.

Benefits of an 800 Credit Score

Having an excellent credit score comes with a few perks, such as increased odds of getting approved for lower interest rates and higher credit card limits, as well as offers for better loan terms.

Better Credit Offers

Lenders are more likely to approve consumers with excellent credit, and with more favorable terms, compared to someone with a minimum credit score for a credit card. If you have a high credit score, you’re a good candidate for better credit offers, such as personal loans with higher loan amounts and a wider selection of credit cards.

You also may be able to qualify for premium rewards credit cards. These cards tend to offer more benefits like airport lounge access, better earnings opportunities, and more.

Recommended: How to Avoid Interest On a Credit Card

Lower Interest Rates

Lenders generally are willing to lend to those with a credit score of 800 at lower interest rates than other applicants. That’s because people with a credit score in this range generally pose less risk to the lender. With a credit score of 800, you’ve already proven that you can handle loans responsibly.

Getting approved for lower interest rates helps you to save significant amounts of money over your lifetime. For instance, if your 800 credit score gets you a mortgage interest rate that’s 1% to 2% lower than someone with a fair credit score, that alone can save you tens of thousands of dollars over the life of your home loan.

Higher Credit Limits

Not only will you be more likely to get approved for a credit card with an 800 credit score, but credit card issuers may offer you access to higher credit limits. Having increased spending power is great for when you need to make bigger purchases. It’s also helpful for keeping a low credit utilization, which in turn can help you maintain or even boost your credit score.

Since you’re also more likely to be eligible for rewards credit cards, each purchase can help you earn more in points or cash back — meaning, you can use your credit card to maximize your purchases. That deal becomes even better if you can pay off the entire balance each month so you’re not paying any interest.

Monitoring and Managing Your Credit Score

Even if you have an excellent credit score now, it doesn’t mean it will stay that way forever. It’s important to regularly monitor your credit score so you know exactly where you stand.

There are free ways to check your credit score. Some credit cards will show you your score on your credit statements, and some banks offer this feature as well. If your score changes in any way, you can then figure out the types of financial behaviors that may have contributed to the change. Also don’t be surprised if you have different credit scores depending on where you look — this is because credit scoring models can vary in how they calculate scores.

Checking your credit report will also help you monitor and manage your credit score. That’s because the activity on your credit report affects how your credit score is calculated. You can check your credit report for free once a year through all three major credit bureaus: Experian, Equifax, and TransUnion.

By checking your credit report, you’ll be able to see if there is any information on there that may affect your score. If you spot any errors, it’s best to dispute them right away, especially if they’ll have a negative effect.

Factors That Can Damage Your 800 Credit Score

You’ve worked hard to build your credit score. To maintain it, you’ll want to avoid the following behaviors that could damage your 800 credit score. While it’s a long drop to a bad credit score from exceptional, it’s not a given that your good credit will last.

High Utilization Rate

Your credit utilization is the percentage of your available revolving credit that you’re using. The higher the percentage, the more it seems to lenders that you’re relying on too much credit, which could negatively impact your score.

To help maintain your credit score, try to keep your credit utilization to 30% or under. You can do that by paying down your balances, even making extra payments if you can. That way, your balance will be as low as possible before the credit card issuer reports it to the credit bureaus.

Late and Missed Payments

Your payment history is one of the biggest factors that affects your credit score. A late or missed payment could have a major effect on your credit score — even if you’ve paid consistently on-time beforehand.

If you’ve been a responsible borrower, you may be able to contact your creditor and ask to have the late payment removed from your credit report. That way, it won’t impact your score.

Credit Applications and New Credit Accounts

Each time you submit an application for a new loan or credit card, lenders will conduct a hard credit inquiry, which may temporarily affect your credit score. While one hard inquiry may not have major consequences, applying for multiple loan products at once could signal to lenders you’re stretched thin financially. Your score could take a dive, since it looks like you need to rely on credit.

To maintain your credit score, apply for new accounts sparingly. Or, if you’re shopping around for large loans like mortgages, applying for a few within a short span of time will typically show up as one hard inquiry on your credit report. This may prevent your applications from impacting your score as much.

Public Records Appearance

Public records such as bankruptcy can appear on your credit report. These negative remarks can damage your credit score. In some cases, you may have to explain to lenders in more detail about these public records.

Recommended: What is the Average Credit Card Limit?

The Takeaway

Having a 800 credit score means you have excellent credit. As such, lenders are more likely to offer you better rates and terms. Other benefits include saving money on interest and higher credit limits. Even with a high score, it’s still important to continually monitor your credit behavior to ensure you can maintain it.

Looking for a credit card that earns rewards? Consider the SoFi Credit Card, which offers cash-back rewards on qualifying purchases. You’ll also get access to other perks, such as the ability to lower your APR through on-time payments and cell phone protection.

Enjoy unlimited cash back rewards with fewer restrictions.

FAQ

How long does it take to reach a credit score of 800?

How long it takes you to get an 800 credit score will depend on several factors, including your current credit score and how long your credit history is. You may be able to reach it faster if you exhibit responsible behavior, such as consistent on-time payments and the maintenance of a low credit utilization ratio.

What percentage of the population has a credit score of 800 and above?

According to the credit bureau Experian, 21% of consumers have a FICO score of 800 and higher, or in the “exceptional” range.

Why is it difficult to reach a credit score of 800?

It’s difficult to reach an 800 credit score because you’ll typically need a long credit history and to show responsible credit behavior consistently over a period of time.

What credit limit is possible with an 800 credit score?

The credit limit you’ll qualify for will ultimately depend on the credit card issuer. However, with an 800 credit score, you’ll generally get higher limits compared to someone with a lower score.

Photo credit: iStock/milan2099

¹See Rewards Details at SoFi.com/card/rewards.

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.

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.

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Nov

2022

Which Debt to Pay Off First: Student Loan or Credit Card

By Maureen Shelly | Credit, Debt Payoff, Financial Independence, Fresh Out of School, personal_loan, Student Loans, student_loan | No Comments

It’s a common dilemma: Should you pay off credit cards or student loans first? The answer isn’t totally cut and dried. But if your credit card interest rates are higher than your student loan interest rates, paying down credit cards first will probably save you more money in interest.

But don’t stop there. Keep reading to learn how to calculate what’s best for your situation, and why. Along the way, you’ll learn more about how credit cards work, the complexities of student loans, and two very different strategies for paying down debt.

Prioritizing Your Debts

Experts are split over the best debt to pay off first. Some recommend you tackle the smallest balance first because of the psychological boost that comes from erasing a debt entirely.

However, from a purely financial standpoint, you’re better off paying off the debt that carries the highest interest rate first. That’s because the higher the interest rate, and the longer you hold the debt, the more you end up paying overall. This usually means tackling high-interest credit card debt first.

Keep in mind that prioritizing one debt over another does not mean that you stop paying the less urgent bill. It’s important to stay on top of all debts, making at least minimum monthly payment on each.

Failing to make bill payments can hurt your credit score, which can have all sorts of effects down the road. For example, a poor credit score can make it difficult to secure new loans at low rates when you want to buy a new car or home, or to take out a business loan.

You might consider setting up automatic payments on your loans. Automatic payments can make it easier to pay bills on time and juggle multiple payments.

If you’re having trouble making your monthly payments, consider strategies to make your payments more manageable, such as refinancing.

Student Loan vs Credit Card Debt

Before we get into if it’s better to pay off credit cards or student loans first, let’s look at how each debt is structured.

Student Loan Debt

A student loan is a type of installment loan used to pay for tuition and related schooling expenses for undergraduate or postgraduate study. Borrowers receive a lump sum, which they agree to pay back with interest in regular installments, usually monthly, over a predetermined period of time. In this way, student loans are similar to other installment loans such as mortgages, car loans, and personal loans.

At a high level, there are two types of student loans: federal and private. The U.S. government is the single largest source of student loans. Federal student loans have low fixed interest rates: Current rates are 4.99% for undergrad loans, and 7.44% for graduate and professional loans. These loans come with protections like income-driven repayment plans, deferment and forbearance, and loan forgiveness.

Private student loans are managed by banks, credit unions, and online lenders. They may have a fixed or variable interest rate, which is tied to the borrower’s credit score and income. Average interest rates range from 3.22% to 13.95% for a fixed rate, and from 1.29% to 12.99% for variable.

Private student loans don’t come with the same protections as federal student loans. For instance, they are not eligible for President Biden’s loan forgiveness plan.

Payback timelines vary widely. As with other loans, the longer your repayment timeline, the lower your monthly payment will be — but you’ll pay more in interest over the life of the loan. The shorter your repayment period, the larger your monthly payment, and the less interest you’ll pay.

Recommended: Types of Federal Student Loans

Credit Card Debt

Credit cards offer a type of revolving credit, where account holders can borrow money as needed up to a set maximum. You can either pay off the balance in full or make minimum monthly payments on the account. Any remaining balance accrues interest.

Credit cards usually come with higher interest rates than installment loans. The average credit card interest rate in September 2022 was 21.59%. But an individual credit card holder’s rate depends on their credit score. People with Excellent credit will pay an average of 18.04%, while those with Bad credit will pay closer to 25.14%.

Depending how the account is managed, credit card debt can be either very expensive or essentially free. If you always pay off credit cards in full each month, no interest usually accrues. However, if you make only minimum payments, your debt can spiral upward.

Should I Pay Off Credit Card or Student Loan First?

When it comes to student loan vs credit card debt, there’s no universal answer that fits everyone in every situation. A number of factors can tip the scales one way or another, especially the interest rates on your loan and credit card.

We’ll explore two scenarios: one in which paying off credit cards is the best move, and another where student loans get priority.

The Case for Paying Down Credit Cards First

If you are carrying high-interest credit card debt, you’ll likely want to focus on paying off credit cards first. As you saw above, the average credit card interest rate (21.59%) is significantly higher than the maximum student loan interest rate (13.95%). Even if your credit card interest rate is lower than average, it’s unlikely to be much lower than your student loan’s rate.

Credit card debt can add up quickly, and the higher the interest rate, the faster your debt can accumulate. Making minimum payments still means you’re accruing interest on your balance. And as that interest compounds (as you pay interest on your interest), your balance can get more difficult to pay off.

A high balance can also hurt your credit score, which is partially determined by how much outstanding debt you owe.

Paying Off Credit Card Debt

Once you decide to focus on paying off credit cards first, start by finding extra funds to send to the cause. Look for places in your budget where you can cut costs, and direct any savings to paying down your cards. Also consider earmarking bonuses, tax refunds, and gifts of cash for your credit card payment.

Next, make a list of your credit card balances in order of highest interest rate to lowest. The Debt Avalanche method refers to paying off the credit card with the highest interest rate first, then taking on the credit card with the next highest rate.

It bears repeating that focusing on one debt doesn’t mean you put off the others. Don’t forget to make minimum payments on your other cards while you put extra effort into one individual card.

You may also choose to use a Debt Snowball strategy. When using this method, order your credit cards from smallest to largest balance. Pay off the card with the smallest balance first. Once you do, move on to the card with the next smallest balance, adding the payment from the card you paid off to the payment you’re already making on that card.

The idea here is that, like a snowball rolling down a hill gets bigger and faster as it rolls, the momentum of paying off debt in this way can help you stay motivated and pay it off quicker.

Managing Your Student Loans

Meanwhile, it’s important that you continue making regular student loan payments while you’re prioritizing your credit card debt. For one thing, you shouldn’t just stop paying your student loans. If you do, federal student loans go into default after 270 days (about 9 months). From there, your loans can go to a collections agency, which may charge you fees for recouping your debt. The government can also garnish your wages or your tax return.

You can, however, typically adjust your student loan repayment plan to make monthly payments more manageable. If you have federal loans, consider an income-driven repayment plan, which bases your monthly payment on your discretionary income.

While this may reduce your monthly student loan payments, it extends your loan term to 20 to 25 years. That can end up costing you more in interest. So make sure the extra interest payments don’t outweigh the benefits of paying down your credit card debt first.

Refinancing Your Student Loans

It can also be a smart idea to refinance student loans. When you refinance a loan or multiple loans, a lender pays off your current loans and provides you with a new one, ideally at a lower rate.

You can use refinancing to serve a couple of purposes. One option is to lower your monthly payment by lengthening the loan term. This can free up some room in your budget, making it easier to stay on top of your monthly payments and redirect money to credit card payments. Just remember that lengthening the loan term can result in you paying more interest over the course of your loan.

Or you can shorten your loan term instead. This can be a good way to kick your student loan repayment into overdrive. Your payments will increase, but you’ll reduce the cost of interest over the life of the loan. In other words, you’re giving equal weight to paying off your student loans and your credit card debt.

When you refinance with SoFi, there are no origination or application fees.

To see how refinancing with SoFi can help you tackle your student loan debt, take advantage of our student loan refinancing calculator.

Take control of your debt by refinancing your student loans. You can get a quote from SoFi in as little as two minutes.

FAQ

Should you pay off your student loans or your credit cards first?

The answer depends on a number of factors, especially the interest rates on your loans and credit cards. But if your credit cards carry high interest rates, you’ll likely save more money in interest by paying off your credit cards before your student loans.

What is the best debt to pay off first?

From a purely financial perspective, it’s best to pay off your highest interest-rate debt first. This is called the Debt Avalanche method. Paying off the most expensive debt (usually credit cards) first will save you the most money in interest.

Is it smart to pay off credit card debt with student loans?

This is probably not a good idea. First of all, paying off credit cards with student loans may violate your student loan agreement, which limits the use of funds to tuition and related expenses. If you use a credit card exclusively for educational expenses like textbooks and computers, you might be able to use loan funds to pay it off. However, you should check your loan agreement carefully to make sure this is allowed.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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

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Oct

2022

Guide to Credit Card Outstanding Balance

By Timothy Moore | Credit, credit card, Debt Payoff | Comments Off

Your credit card statement can feel like information overload with all of its numbers and terminology. Understanding the definition of terms like outstanding balance, statement balance, and billing cycle can help you to navigate this monthly statement a little more easily.

So what is an outstanding balance, how is it different from a statement balance, and can it affect your credit score? Put simply, the outstanding balance on a credit card is what the amount of money you still owe to the credit card company is called. Knowing this figure is important to avoiding interest and potential effects on your credit.

What Is an Outstanding Balance on a Credit Card?

Outstanding balance is another way to express current balance. In fact, depending on your credit card issuer, your monthly statement and mobile app may use the term “current balance” instead of “outstanding balance.”

But what is an outstanding balance in credit card terminology? A credit card outstanding balance is simply the amount of money you have not paid to the credit card issuer — i.e., it’s what you still owe.

Your outstanding balance includes any purchases you have made on your credit card but have not yet paid off (from the current and previous billing cycles), but it also includes:

• Interest earned on previous balances

• Balance transfers (and any balance transfer fees)

• Cash advances

• Any other fees you may owe, like late fees or foreign transaction fees

Recommended: Closing a Credit Card with a Balance

Where to Find Your Outstanding Balance on a Credit Card

You can check your outstanding balance by calling your credit card issuer or accessing your account online or through the mobile app. Depending on the terminology the company uses, you may see the outstanding balance listed as your current balance or simply your credit card balance.

Current Balance vs Outstanding Balance

Current balance is simply another term for outstanding balance. Depending on your credit card issuer, you might see one term or the other used. In some cases, it may simply be labeled “account balance” or “credit card balance.”

Recommended: How to Avoid Interest On a Credit Card

Statement Balance vs Outstanding Balance

So what’s the difference between a credit card statement balance and outstanding balance? Your credit card statement balance is the total amount owed after a billing cycle. It can include any purchases made during the billing cycle, plus any balance, interest, and fees carried over from the previous billing cycle.

Once issued, the statement balance amount does not change, even if you continue to swipe your card for more purchases during the grace period (this is the period between statement closing date and due date, during which you won’t earn interest on your unpaid statement balance). As long as you pay off the statement balance in full by the due date, you should not accrue any interest.

Your outstanding balance encompasses everything you owe at a specific moment in time. Sometimes your outstanding balance can be higher than your statement balance; sometimes it may be lower. Consider this example:

Your billing cycle ends, and you now have a statement balance of $1,000. In the next week, you spend $500 more with your credit card. Your statement balance remains $1,000, while your outstanding balance grows to $1,500. But as long as you pay that $1,000 statement balance by the due date, you will not incur any interest — and your statement balance will drop to $0 until the end of the next billing cycle.

Remaining Balance vs Outstanding Balance

Remaining balance refers to whatever amount is still due after you’ve made your monthly credit card payment. For example, if your statement balance is $500 but you only pay $300, your remaining balance is $200. This, along with the interest it accrues, becomes a part of your outstanding balance.

You can avoid accruing interest on a remaining balance by paying off your statement balance in full each month rather than only the credit card minimum payment.

Recommended: When Are Credit Card Payments Due

What Is an Average Outstanding Balance?

The typical amount of an outstanding balance can vary widely from person to person — it all depends on how much you use your credit card, what your credit limit is, and whether you carry a balance. That being said, your average outstanding balance is simply the amount you owe on a credit card, averaged over a certain period of time.

The average outstanding balance formula for a statement period would be the total of your balance for each day of the statement period, divided by the number of days in the cycle. This can be helpful to know given most credit card issuers calculate interest on a daily basis, based on your average daily account balance.

Recommended: What is the Average Credit Card Limit

Paying Your Credit Card Outstanding Balance: What to Know

The nuances of credit card balances can be tough to nail down, but understanding how they work — particularly outstanding balances — may help you avoid interest and impacts to your credit score.

Here’s the short version:

• Paying the minimum balance due each month will help you avoid late fees and negative marks for late payments on your credit report.

• Paying the statement balance in full by the due date will keep you from accruing interest.

• Paying down the outstanding balance, or current balance, even outside of your normal payment cycle, can reduce your overall credit utilization, which influences your credit score.

How Interest Contributes to Outstanding Balances

When you make purchases with your credit card throughout a billing cycle, the card issuer has lent you money to cover the expenses. And if you don’t pay the lender the statement balance in full by the specified due date, any remaining balance will become part of your outstanding balance — and it will start accruing interest.

The best way to avoid paying credit card interest is to pay your statement balance in full by each due date.

How an Outstanding Balance Affects Your Credit Score

When you carry over unpaid balances, you’ll do more than earn interest that you have to pay. You’ll also increase your overall credit utilization, which is the amount of your total available credit you’re using. That’s because your outstanding balance counts toward your credit limit.

For example, if your credit limit is $5,000 and your outstanding balance is $2,500, you’ve utilized 50% of your credit limit. In general, creditors prefer to see a credit utilization of 30% or lower. This signals to them that you can responsibly pay back your debts.

In fact, credit utilization is the second most important factor affecting your FICO credit score. It accounts for 30% of your overall credit score. Thus, carrying a high outstanding balance regularly can adversely affect your credit score.

For this reason, experts typically recommend paying off your full statement balance every month if you’re able. And if you make a large payment on your credit card during a billing cycle that increases your outstanding balance tremendously, you may want to pay it off early to reduce your credit utilization — or else you chance a drop in your credit score.

The Takeaway

Credit cards can be confusing, especially when you’re new to the terminology. But once you understand how your statement and outstanding balances work and can responsibly make payments in full and on time, credit cards can be a great tool for boosting your credit score.

Enjoy unlimited cash back rewards with fewer restrictions.

FAQ

Does outstanding balance mean past due?

Having an outstanding balance does not necessarily mean it’s past due. Your credit card requires a minimum monthly payment; if you have satisfied that payment, you do not need to immediately pay your outstanding balance. But keep in mind that you generally need to pay the full statement balance each month to avoid accruing interest.

How do I clear the outstanding balance on my credit card?

To clear the outstanding balance on a credit card, you can make a payment equal to the amount. This should bring the balance down to zero. However, you do not always have to pay your outstanding, or current, balance to avoid interest. Paying your monthly statement balance in full should keep you from accruing interest, even if your outstanding balance is higher.

Why is my outstanding balance negative?

Your credit card outstanding balance can go negative if you pay off the card and then receive a credit for a returned item or claim cash-back rewards from your purchases. If you want, you can request a check from the credit card issuer in the amount of the negative balance. Or, you can apply the negative balance on a credit card toward future purchases on the credit card.

Photo credit: iStock/SARINYAPINNGAM

Oct

2022

Understanding Taxes on Crypto Credit Card Rewards

By Dan Miller | Credit, credit card | Comments Off

As crypto credit cards gain popularity, it’s becoming critical to understand how crypto credit card rewards are taxed. In some cases, crypto credit card rewards are considered a rebate on spending and therefore not taxable. But in other cases, the cryptocurrency you earn with a credit card may be taxable.

In either case, it’s important to keep in mind that you’ll also pay tax on any gains you make when selling the cryptocurrency you earned as credit card rewards. Keeping good records is important to ensure you accurately pay taxes associated with crypto credit card rewards.

What Is a Crypto Credit Card and How Does it Work?

There are several different kinds of crypto credit cards, and each one might work differently. The most common type of crypto credit card is one that will earn crypto rewards instead of cash back or travel rewards. You might earn cryptocurrency as part of a welcome offer, or on every purchase, or both.

Outside of the involvement of cryptocurrency, crypto credit cards otherwise don’t diverge from how credit cards work usually. Cardholders are extended a line of credit they can borrow against, and they’ll pay interest on balances that carry over from month to month.

Recommended: How to Avoid Interest On a Credit Card

What Are Crypto Credit Card Rewards?

Crypto credit card rewards are a type of credit card reward that you can earn with a crypto credit card. Crypto credit card rewards are similar to cash-back rewards or airline miles that you might earn with a different type of credit card.

With many crypto credit cards, you earn a certain cash percentage with each transaction (e.g. 1.5% back). But instead of getting the actual cash back, the rewards you earn are converted to the applicable cryptocurrency.

Are Crypto Credit Card Rewards Reported as Income?

The IRS has stated that income generated from any source must be reported on your tax return. That being said, the IRS has also given guidance that most credit card rewards are considered a rebate against spending rather than taxable income.

While most credit card issuers do not issue a 1099 form for credit card rewards, some may. If you receive a 1099 form, you will probably want to report the amount as income, or contact a tax professional for advice.

Are Crypto Credit Card Rewards Taxable?

The IRS has generally given guidance that most credit card rewards are considered a rebate on spending, and therefore not taxable. However, any gain you realize from the cryptocurrency that you earn as crypto credit card rewards is taxable.

If you receive cryptocurrency as a credit card reward, typically your cost basis will be the fair market value of the coins on the date you earn them. That means if and when you sell them, you’ll have to pay tax on the full crypto redemption amount minus your cost basis.

Do You Have to Pay Taxes on Crypto Credit Card Rewards?

Whether or not you have to pay taxes on crypto credit card rewards depends on how you receive your rewards. While the IRS has not ruled definitively on crypto credit card rewards, you may want to consider how the IRS treats non-crypto credit card rewards, like cashback, points or miles.

Generally, one of the credit card rules that the IRS has held is that rewards earned as part of spending are considered a rebate against that spending, and therefore not taxable. However, if you receive a reward (like a sign-up bonus) without having to make any purchase, that may be considered taxable income.

When Are Crypto Rewards Taxed?

In some scenarios, crypto rewards are taxable, while in other cases they are not. If you’re not sure if or how your crypto rewards should be taxed, consult with a tax professional.

When Crypto Are Taxable

If you receive cryptocurrency as part of a sign-up bonus where you did not have to make any purchase to earn that bonus, the cryptocurrency you receive may be considered taxable income.

You also will have to pay capital gains tax when you sell any cryptocurrency, even if you got it as a reward from a crypto credit card. The crypto rewards that you receive from a credit card generally will have a cost basis of the fair market value of the cryptocurrency on the date you receive the rewards. That means that when you sell, you’ll pay tax on any increase in the value.

When Crypto Rewards Are Not Taxable

Generally speaking, any credit card rewards that you receive after making a purchase are considered a rebate against that purchase. That means that in most cases, you won’t need to pay income tax on these rewards. However, you would still need to pay tax on any gains you make when you sell the crypto you earned as a crypto credit card reward.

Recommended: Can You Buy Crypto With a Credit Card

Can You Protect Yourself from a Crypto Tax Audit?

While there’s no strategy that will completely eliminate the chance that you’ll be audited, there are a couple things you can do to help minimize your risk:

• Make sure that you include any income or information that you receive via an official IRS form, like a 1099-MISC form.

• Keep detailed and accurate records of all of your cryptocurrency transactions. That will minimize your chances of being audited as well as any interest or penalties you might have to pay if you are audited.

How to Know If You Owe Taxes on Crypto Credit Card Rewards

If you receive cryptocurrency as a bonus without a purchase as a credit card requirement, it will almost certainly be classified as taxable income.

Another indicator to know if you owe taxes will be if you receive an official IRS form like a 1099-MISC. Any income on such a form is reported to the IRS, so you’ll want to declare it on your return or indicate with your return why you are not declaring it.

Finally, remember that you will owe tax on any gains you make when selling cryptocurrency, including crypto that you got as a credit card reward.

The Takeaway

Generally, the IRS has provided guidance that credit card rewards earned as part of a purchase are considered a rebate related to that purchase. Rebates on purchases generally are not considered taxable income. On the other hand, any cryptocurrency that you receive as a bonus without making a purchase in order to earn it may be considered taxable income. Consult your tax professional for advice if you’re not sure whether you should pay taxes on crypto credit card rewards.

If you’re looking for a new credit card, consider the SoFi credit card. You can earn unlimited cash-back rewards, which you can use to invest in fractional shares, redeem for a statement credit, or meet other financial goals you might have, like paying down eligible SoFi debt. Learn more and consider applying for a rewards credit card with SoFi today.

Apply for a SoFi credit card!

FAQ

Are crypto credit rewards payouts or rebates?

Whether or not crypto credit rewards are considered a payout or rebate depends on how you earn them. Generally, the IRS has held that credit card rewards received as a result of spending are considered rebates. On the other hand, if you receive crypto credit rewards or any other type of credit rewards without making a purchase, that may be considered income.

Are crypto credit rewards considered virtual currency?

IRS Notice 2014-21 does mention that cryptocurrency (such as Bitcoin) is considered a convertible virtual currency. There are certain tax laws and regulations that deal with virtual currencies, so you’ll want to be aware of that if you receive crypto credit rewards or purchase crypto with a credit card.

What will the IRS do if I do not get audited for my crypto credit card rewards?

The IRS manages tax compliance primarily through taxpayer audits. While the IRS does not publish the criteria it uses to determine who gets audited, there are a few things that you can do to minimize your chances of being audited. But even if you haven’t been audited yet, you may not be out of the woods — the IRS can go back several years in the past. The best thing to do is make sure you keep good records and fully record and report any income that you earn.

Photo credit: iStock/Delmaine Donson

¹See Rewards Details at SoFi.com/card/rewards.

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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.

¹Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points toward active SoFi accounts, including but not limited to, your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Automated Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, Student Loan Refinance, or toward SoFi Travel purchases, your rewards points will redeem at a rate of 1 cent per every point. For more details, please visit www.sofi.com/card/rewards?cardtype=c. Brokerage and Active investing products offered through SoFi Securities LLC, Member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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Oct

2022

What Happens If You Don’t Use Your Credit Card?

By Sarah Li Cain | Credit, credit card | Comments Off

There may come a time when you end up not using one of your credit cards anymore. This can happen because you’ve amassed multiple cards and now have one that offers better rewards, or maybe you have a retail card for a store you no longer frequent. Whatever the reason, it’s valid to wonder what happens if you don’t use your credit card.

In many cases, nothing will happen. However, there may be some instances where not using a credit card will carry consequences. That’s why it’s important to know what happens if you don’t use a credit card.

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Is It Bad to Have a Credit Card and Not Use It?

Typically, no, it’s not bad to have a credit card that you don’t use regularly. Not using a credit card for a few months is usually not that big of a deal as long as you keep making any necessary payments on any credit card charges you’ve made. However, there may be some unintended consequences of not using a credit card for a longer period of time.

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What Happens If You Don’t Use Your Credit Card?

If you’re wondering, ‘Is it bad to not use a credit card?,’ here’s a look at some of the potential consequences.

You Might Overlook Fraudulent Charges and Activities

If you don’t use your credit card, you may end up missing transactions that you otherwise would have noticed on your credit card statement. For instance, if your credit card information were to get stolen and used for unauthorized purchases, you might not spot that activity if you’ve stopped checking your statements. The longer the issue continues, the more damage that can be done, given what a credit card is.

You Might Miss Payments

Another possible consequence of an unused credit card that you’re not checking in on regularly is missed payments. If you need to pay an annual fee for the card, for instance, you could forget that you’ll be charged if you’re not often using the card. Missing a payment can have severe financial consequences, which is why making on-time payments is one of the cardinal credit card rules.

Recommended: When Are Credit Card Payments Due

Your Card Issuer May Close Your Account

If you don’t use a credit card for a long period of time — say, at least a year — your issuer may close your credit card. What’s more, credit card issuers don’t have to give you notice when they’re about to close your credit card, so you may only find out when you go to use it.

Exactly what counts as inactivity and the length of time before an account closes will be up to each credit card issuer. If you’re concerned about your card being closed due to inactivity, contact your issuer to find out when they may close your account.

Your Credit Score May Go Down

If your credit card issuer closes your credit card, your credit score could be negatively affected. This is due to a couple different reasons.

For one, the closure of your account will cause your overall credit limit to go down. This could drive up your credit utilization ratio — the percentage of the overall amount you use across the credit limit of your credit cards — which accounts for 30% of your credit score. The higher this ratio, the lower your score can go because creditors tend to take this as a sign you may have issues with handling debt. If the closed credit card had a high credit limit, it could affect your credit utilization even more.

Secondly, the closure of your credit card could impact the length of your credit history, which accounts for 15% of your credit score. Closing a credit card you’ve had for a while could result in a negative impact on your score, marking another way that not using a credit card can hurt your credit score.

Recommended: What is the Average Credit Card Limit

You May Lose Your Rewards

Depending on your credit card, any unused rewards will expire after a certain period of time. What’s more, if your issuer ends up closing your credit card due to inactivity, any rewards you’ve earned on your card up to that point could be lost.

How Long Can You Go Without Using a Credit Card?

How long you can go without using a credit card will depend on your issuer. Some may close your credit card after six months of inactivity, whereas others may only close the card after a year of inactivity or more.

Again, it’s important to check your credit card’s terms and conditions to learn more about how a credit card works. Or, you can contact your issuer to find out what can happen if you don’t use your credit card for a while.

Closing a Credit Card You Don’t Use: What to Know

If you have a credit card you no longer want to use, it might make sense to close it. While the previously mentioned consequences may happen — such as losing your rewards and facing impacts to your credit score — it is still possible to close a card.

Before doing so, determine whether your credit card has a high credit limit and consider how long you’ve had the card. Closing a credit card you’ve had for a while could have a negative impact on your score. Same goes for a credit card with a high limit, since it could significantly raise your credit utilization.

If neither of the above are of concern, then think carefully about whether you’ll likely use the card again in the future. Does this card not help you earn rewards, whereas other ones you own do? Or is this a secured credit card and you can now qualify for an unsecured card?

If there’s no potential major financial impact to closing the card, and you’re sure you won’t use it anymore, then you might consider moving forward with closing it.

Does Not Using a Credit Card Hurt Your Credit Score?

The effect that not using a credit card will have on your credit score depends on whether the issuer closes your account. If the credit card is still open and you’re otherwise responsible for credit that you do use, like making consistent on-time payments, then your credit score most likely won’t be affected.

Keeping Your Cards Active Without Hurting Your Credit Score

Keeping a credit card active is as simple as using the card every few months for regular, small purchases. You might consider using the card to cover a subscription to a streaming service, for example. Or, you could use it to cover another monthly bill.

If you’re worried about checking in frequently enough, you might set up autopay for that credit card. That way, you’ll ensure you’re paying on time.

The Takeaway

It’s normal to not use a credit card if you have other ones that are a better fit. But before closing the card or letting it get shut down due to inactivity, consider making small purchases on it to keep it active. Otherwise, you’ll want to determine whether your credit score can handle potentially taking a dip.

Looking for a credit card with perks you won’t want to lose? Consider the SoFi credit card, where you can earn cash-back rewards on all qualifying purchases, and pay no foreign transaction fees. See what other benefits the card offers and apply for a credit card today with SoFi.

Learn more today about the SoFi credit card!

FAQ

Will I be charged if I don’t use my credit card?

If your credit card typically charges an annual fee, that fee will still apply even if you don’t use your credit card.

What happens if I don’t use my credit card for a year?

Some credit card issuers may close your credit card, even without your knowledge, due to inactivity. This may occur if you don’t use your card for a year or more, though the exact length of time will vary depending on the issuer.

Should I get rid of my credit card if I don’t use it?

You can get rid of your credit card, but know that it may affect your credit score. It’s a good idea to research the potential consequences of closing a credit card before actually doing so.

Do unused credit cards affect your credit score?

Unused credit cards may affect your credit score if you or your credit card issuer closes the account. The account closure could result in an increased credit utilization ratio since your overall credit limit will go down across all of your cards. Plus, if the close credit card is one of your oldest ones, it could diminish the length of your credit history, therefore affecting your score.

Photo credit: iStock/kohei_hara