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If you have strong credit, leveraging your credit cards as part of your wealth-building strategy might be possible. Whether you’re looking to use them toward shrewd investments or through tactically accumulating rewards, your credit card can be a powerful tool.

However, before you worry about how to leverage credit to make money, it’s crucial that you understand the high risk involved in leveraging your credit line as investment capital. If you don’t have cash flow ready to immediately repay large credit card purchases, you’re putting yourself in danger of getting buried in debt.

Strategies for Leveraging Credit Cards

Depending on your risk tolerance, how much cash you have on hand for repayment, and your financial goals, you have a few options for how to leverage credit cards. Here’s a look at some of the ways you could leverage your credit to help pave your path toward building financial freedom.

Upgrading Your Property

If you’re looking for new investment options, you could leverage credit cards toward your existing home. Using your card as a cash flow tool to fund renovations and upgrades can help you increase your property’s value.

According to Remodeling Magazine, homeowners who update their kitchen can typically expect a return on investment (ROI) of up to 71%. The approximate ROI on a bathroom remodel is almost 60% or higher. Your ROI will depend on many factors, such as the quality of materials and appliances used, but in general, updating your home can improve its value.

Utilizing 0% Credit Promotions

If you’re wondering how to use good credit to make money, another option is a 0% promotional offer. A 0% APR credit card promotion lets you leverage your credit line at no additional cost for a limited period of time. The temporary promotion is typically reserved for those with excellent credit and is available for a short time frame, such as from six months to 18 months.

You can use your card toward other wealth-building strategies and repay your purchases within the promotional period to avoid interest charges. The main caveat is ensuring that you can realistically afford to repay yourcredit cardcharges within the promotional period. If you don’t, some cards charge deferred interest on any remaining balance after the promotion expires.

Recommended: What Is a Charge Card?

Turning Your Credit Card Debt Into Good Debt

Credit cards can be used as a tool to build your credit profile. A higher credit score can earn you access to lower, more competitive interest rates and a higher borrowing limit when you need a loan in the future.

Practicing sound borrowing habits on a credit card, like maintaining an on-time payment history, keeping your credit utilization ratio low, and not opening too many new accounts in a short period are some factors that can positively impact your score. Keep in mind that the better your credit, the better the terms you may receive to then use toward investments.

Recommended: When Are Credit Card Payments Due?

Flipping Items for More Cash

Flipping, or retail arbitrage as it’s sometimes called, is one way people leverage credit cards to increase their wealth. As an example, say you purchased a vintage Windsor chair from a thrift store for $20 using your credit card. If you successfully sell it on Etsy or eBay for $250 before interest accrues on the purchase, you’ve effectively leveraged your credit to earn a $230 profit.

Before you leverage your credit card in this way, do your due diligence by researching high-value items that can be flipped in a short period of time. Having inventory that’s taking up space in the corner because it’s not a hot item, or too niche, might result in getting hit with interest charges before a profit is made.

Recommended: How to Avoid Interest on a Credit Card

Making Use of Available Discounts

Another way to leverage credit cards is by using a credit card to save money on planned purchases. Many rewards and travel credit cards offer discounted rates on vacation packages or trip costs like flights and accommodations.

Taking advantage of discounts that already come with your card is another way to save money. You can then reallocate this discretionary cash flow toward more lucrative investments.

Maximizing Big Welcome Bonuses

Some credit cards offer lucrative sign-up bonuses for consumers who open a new account. For example, a credit card might offer 60,000 bonus points (that’s valued at $750) to new cardholders who make a minimum of $4,000 in purchases within the first three months of opening the account.

Keep in mind that this option is likely best for cardholders who have a large purchase coming up, or already use a card for everyday expenses that will allow them to hit the minimum purchase requirement.

If you meet the requirements of the sign-up bonus offer, you can use your earned rewards toward a statement credit, travel, and more, effectively freeing up cash flow that otherwise would have come out of your pocket.

Racking Up Cash Rewards

You can also strategically leverage credit card rewards. If your card offers cash-back rewards, use that card to cover your day-to-day expenses rather than your debit card. That way, you can earn money back on each dollar you spend.

For example, you can use a cash-back rewards card for groceries, school supplies, gas, dining, entertainment, vacations, and more. Depending on your rewards program, you could accumulate a sizable amount of cash back that could end up covering a portion of your monthly statement balance or even a trip. Or, you could get your rewards as cash that you then put into the market, allowing you to effectively invest with credit card rewards.

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

Investing in Yourself

Using your credit card to enhance your skills or education can actually be a powerful way to leverage your credit. For example, learning additional coding language might make you a more competitive candidate for a higher paying job.

In this situation, using your credit card toward online courses could potentially boost your long-term wealth and career opportunities.

The Takeaway

Responsible credit card habits are key to leveraging credit cards to build your wealth. If you can confidently repay your credit card charges every month, your card could earn you rewards while leveraging your credit toward investment opportunities.

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

FAQ

What does it mean to leverage your credit card?

Leveraging your credit card to increase your wealth means using your card as a cash flow tool. It’s best when used by cardholders who practice responsible borrowing habits, such as paying off monthly balances in full to avoid finance charges.

How do you make money leveraging credit cards?

Different ways to leverage credit cards include using your card toward a home remodel that increases your home value, or capitalizing on credit card rewards on purchases you already make.

Is leveraging credit a good idea?

Leveraging your credit can be a good strategy if you maintain positive financial habits, like making on-time payments and paying off your full credit card balance each month. If you don’t have the cash to pay back your purchases, this strategy can quickly backfire through accumulated debt and interest charges.

What is credit card arbitrage?

Credit card arbitrage is a strategy that involves borrowing credit from your card, and then using those funds toward a higher-interest investment vehicle. This is commonly seen using promotional 0% APR credit cards. After you’ve earned dividends from your investment during the temporary no-interest period, you’d repay your credit card balance and keep the investment profit.

How do I turn my credit into cash?

One option to turn your credit into cash is to purchase gift cards using your credit card for the balance you need. Just make sure you can realistically repay your credit card statement at the end of the month.

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Photo credit: iStock/Delmaine Donson

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

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

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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When you make a transaction with a credit card, it’s common for a temporary hold to be issued to your account. These pending credit card charges are often used by merchants to verify your account details. While pending credit card charges may affect your total available credit, they don’t have any impact on the amount you owe.

There are several different reasons why you might see a pending charge on your credit card account. If you check into a hotel, the hotel company may put a pending charge on your account to cover any damage or incidental expenses you charge to your room. Similarly, a sit-down restaurant may place a hold or pending charge or hold on your credit card for the amount of the bill, only finalizing the charge once you’ve elected how much to tip.

What Are Pending Transactions on a Credit Card?

Pending transactions on a credit card are temporary holds on your credit card account, often representing transactions that have not been finalized. These transactions usually show up on your online account, but often in a different color or font, differentiating them from posted transactions.

Pending transactions may affect how much credit you have available. However, you won’t have to actually pay them until and unless they actually post to your account.

Recommended: What Is a Charge Card?

What Causes Pending Credit Card Charges?

There are a number of things that can cause pending credit card charges. Here are some of the most common.

Credit Card Holds

One of the most common causes of pending credit card charges are credit card holds. Credit card holds happen when the merchant places an initial hold when you start a transaction.

One common scenario for a credit card hold is when you check into a hotel. The hotel company will put an initial hold on your card when you check in. This initial hold may be for more than your actual hotel bill, so as to cover any potential damages or expenses you charge to your room. Then, when you check out, the hold is removed, and a final charge is posted to your credit card account.

Similarly, when you rent a car, a hold for, say, 120% of the value of the rental may be placed on your credit card. This would act as a security deposit to cover such incidental charges as refilling the gas tank.

Billing Errors

Another potential cause of pending credit card charges are billing errors. If there is a mistake on a billed transaction, it may show up as pending until the merchant corrects the error. This can happen during credit card processing, and it may take several days to resolve.

Fraud

It’s also possible that a pending charge can be the result of fraud. Most credit card issuers regularly and proactively monitor accounts for potential fraudulent transactions. If your issuer spots a transaction that might be fraudulent, they may deny the transaction or keep it in a pending status until they can verify its authenticity.

Anti-Fraud Preauthorizations

Because credit card issuers are actively monitoring accounts for fraud, they may also place a pending charge that serves as an anti-fraud measure. Most credit cards have a $0 fraud liability policy, meaning that you are not liable for any unauthorized transactions. As part of this, you may see pending charges or refunds from your card issuer as an anti-fraud measure.

Changing Your Mind About a Purchase

If you’ve changed your mind about a purchase and the transaction is still showing up as pending, you may be able to more easily cancel it with the merchant. Contact the merchant as soon as possible to see if you can get a credit card refund before the transaction officially posts to your account.

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

How Long Do Pending Credit Card Transactions Take?

Most pending credit card transactions will stay in a pending state for a few days. After the initial pending period, they will either post to your account, getting added to your total credit card balance, or fall off, in the case of a temporary hold.

In certain rare cases, some pending transactions may stay on your account for a longer time. If that has happened to you, reach out to your credit card issuer to see what options you have.

How Does a Pending Charge Affect My Balance?

Any pending charges do not count toward or affect your statement balance. This means that they won’t be included in your required payment or the amount of credit card purchase interest that you’re potentially charged.

However, pending charges do typically count against your total available credit (there’s a difference between credit card available and current balance). This could mean you have less available to spend than you might otherwise think.

Recommended: When Are Credit Card Payments Due?

Tips for Canceling a Pending Credit Card Charge

Because pending credit card charges have not officially been posted to your account, you generally can’t cancel them by doing a credit card chargeback with your issuer. Instead, if you want to dispute credit card charges that are still pending, you’ll need to contact the merchant directly.

If the merchant is not willing to cancel the charge, you can follow up with the credit card company once the charge is posted to your account.

Recommended: Tips for Using a Credit Card Responsibly

The Takeaway

It is common for new charges to show up as pending when they’re first created. This may be because the merchant is still processing the transaction or due to the placement of temporary hold until the transaction is completed (like with a hotel or rental car). Pending charges do not count toward your statement balance, but they usually do reduce your total available credit. Most pending transactions either post to or fall off of your account within a few days.

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

FAQ

Are pending credit card charges included in the current balance?

Pending credit card charges are not usually included in your current credit card balance. They should not be part of the calculation of your minimum payment due or interest charges. However, pending charges may affect the total amount of credit that you have available to you.

Do pending transactions show on credit card statements?

Pending transactions do not typically appear on your credit card statement as charges that are included in your statement balance. That means that any pending transactions that you have will not be subject to credit card purchase interest charges or credit card fees. You will not be charged fees or interest until the charge actually posts to your account.

Can you pay off pending transactions on a credit card?

Because pending transactions are not officially posted to your account, you won’t be able to make payments against them. One reason for this is that pending charges are by their nature temporary — so it’s possible they may end up posting for a different amount or being removed completely before they hit your account. You’ll want to keep an eye on your account to see what happens when a pending transaction actually posts.

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Photo credit: iStock/damircudic

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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Private label credit cards are a particular kind of credit card that’s typically only good at one specific store. Some stores or other merchants offer private label credit cards to give better terms to certain customers than they might otherwise be able to offer. Many merchants also provide these cards as an incentive for customers to spend more, since they can potentially defer payment and/or earn loyalty rewards.

These perks are among the reasons why private label credit cards are popular. But before you start thinking about how to get a private label credit card, it’s important to consider their pros and cons.

What Is a Private Label Credit Card?

Also called a store credit card or a closed loop credit card, a private label credit card is a credit card that can only be used at one particular store or merchant.

Generally, a merchant’s private label credit card is partnered with and issued by a third-party financial institution, such as a bank. These institutions act as private label credit card issuers, and they’re responsible for funding the credit line and collecting all payments.

Recommended: Tips for Using a Credit Card Responsibly

How Do Private Label Credit Cards Work?

If you understand how credit cards work, you’ll know they usually can be used anywhere the processor (often Visa or Mastercard) is accepted. In contrast, private label cards are intended for use only at the store or merchant where they are issued.

In other respects, private label cards work in much the same way as traditional credit cards. These cards offer a revolving line of credit that cardholders can borrow against, up to their predetermined credit limit. It’s necessary to make at least a minimum credit card payment to avoid a late payment fee. Balances that carry over from month to month will accrue interest.

Recommended: What is the Average Credit Card Limit?

Getting a Private Label Credit Card

In most cases, the easiest way to get a private label credit card is to apply at the store that’s issuing or sponsoring the private label credit card. Many stores offer incentives for applying for their private label card while you’re shopping in the store. You also may be able to sign up for a private label card on the store’s website.

But even if you can get one, should you get a private label credit card? Choosing a credit card depends on your specific financial situation. However, if you have sufficient income and strong credit, you may be able to get a traditional credit card that may offer rewards and more flexibility than a private label card that’s only good at one store may provide.

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

How to Set up a Private Label Credit Card

Because banks or other financial services companies serve as the credit card issuers for most private label credit cards, you’ll likely be familiar with the setup process if you’ve ever had any other credit card.

Once you’ve applied for and been approved for a private label credit card — assuming you met the credit card requirements — you’ll typically go through the process of setting up your card. You’ll want to make sure to log in to your online account, review your statements, and set up payments.

Next, you’ll want to make sure to log in to your online account, review your statements, and understand when your credit card payments are due.

Benefits of Private Label Credit Cards

Wondering why are private label credit cards popular? Here are some of the upsides of these types of credit cards:

•   Easier to qualify for: Private label credit cards are often thought of as being easier to get approved for than general purpose credit cards. So if you don’t have an excellent credit history, you may consider a private label credit card as a way to help build your credit.

•   Earn rewards and other benefits: Another benefit of private label credit cards is that stores often use them to build loyalty with their best customers. This might include offering rewards, loyalty points, or even nixing the credit card annual fee some cards have.

Drawbacks of Private Label Credit Cards

Even if the pros of private label credit cards may seem enticing, it’s also important to account for the downsides. These include:

•   Lack of flexibility in use: The biggest drawback of a private label credit card is that it typically can only be used at one specific store or merchant. The lack of flexibility means that it is difficult for a private label credit card to be your only or main credit card.

•   Potentially higher APRs: Another potential drawback is that many private label cards have annual percentage rates, or APRs. Make sure you read the terms and conditions before signing up for a private label credit card to ensure you know the consequences of carrying a balance. Otherwise, you could end paying exorbitant interest — which is how credit card companies make money.

Recommended: How to Avoid Interest On a Credit Card

Private Label vs General Purpose Credit Cards

As you can see, slightly different credit card rules apply to private label credit cards. Here are the major differences to keep in mind when comparing a private label card to a general purpose credit card:

Private Label Credit Cards	General Purpose Credit Cards
Can usually only be used at one store or merchant	Can generally be used anywhere the issuer (e.g. Visa, Mastercard, etc.) is accepted
Only offers store-specific rewards or perks	May offer cash back or travel rewards on every purchase
Generally are easier to get approved for than traditional credit cards	Often more difficult to get approved for than private label cards

Private Label vs Co-Branded Credit Cards

Some merchants offer a co-branded credit card that offers specific perks for their particular store but is issued by a major credit card processor (i.e., Visa or Mastercard). This means that you can also use the co-branded credit card at other merchants. As one example, Old Navy and Barclays offer the Navyist Rewards Mastercard, which offers Old Navy perks but can also be used anywhere that Mastercard is accepted.

Here’s a breakdown of the key differences to keep in mind to distinguish between private label credit cards and co-branded credit cards:

Private Label Credit Cards	Co-Branded Credit Cards
Can usually only be used at one store or merchant	Can be used anywhere the issuer (e.g. Visa, Mastercard) is accepted
Only offers store-specific rewards or perks	Also offers store-specific rewards or perks but can also offer rewards on purchases at other merchants
Generally are easier to be approved for than traditional credit cards	Often more difficult to be approved for than private label cards

Alternatives to Private Label Credit Cards

Two alternatives to private label credit cards are general purpose credit cards and co-branded credit cards. Here’s what you need to know about each of those other options as you’re deciding which type of card is right for you:

•   General purpose credit cards are what you probably think of when you think of a credit card. These cards can be used anywhere that processing network, such as Visa or Mastercard, is accepted.

•   Co-branded credit cards are cards that share branding between a bank or credit card issuer and another merchant or company. Examples include airline or hotel credit cards or the credit cards of some retail stores. With a co-branded credit card, you can also use the card anywhere the processing network is accepted, and you’ll often earn brand-specific perks on every purchase.

Recommended: What Is a Charge Card?

The Takeaway

A private label credit card is a type of credit card that can typically only be used at one particular store or merchant. Many merchants use private label cards as a way to incentivize and reward their most loyal shoppers. It can also motivate shoppers to spend more, since they have the convenience of a credit card and can defer payments to a later date.

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

FAQ

How can I get a private label credit card?

The easiest way to get a private label credit card is to apply on the website or in the store of the merchant that offers the card. If you meet the credit card requirements, you will be approved for the card. Then you can start using it while shopping at this particular merchant.

How do private label credit cards make money?

Private label credit cards make money in much the same way that any other credit card companies make money. They make money from the fees associated with the card (late fees, possible annual fees, etc.) and interest paid by cardholders who carry a balance. Additionally, they may rake in money from “swipe fees” paid by the merchant each time the card is used.

Who do you make payments to when using a private label credit card?

While a private label credit card often has the logo of a particular merchant or store, the day-to-day processing is handled by a bank or other financial services company. You’ll make your payments directly to the processing company, usually not to the store itself. One of the credit card rules for successfully managing your credit is to pay your bill in full, each and every month, so make sure you understand who and when you need to pay.

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Photo credit: iStock/gazanfer

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

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

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When a cash-back rewards credit card features a 2% cash back feature, that means you receive a flat 2% back on all purchases. This can be a solid way to reap rewards.

Read on to learn the ins and outs of what 2% cash back actually means, as well as the pros and cons of a 2% cash-back credit card, to help you determine whether it’s worth your while.

What Is Cash Back?

Cash back is a form of reward that cash-back credit cards offer that allows you to earn money back on purchases you make. Other examples of credit card rewards include points or travel miles.

With a flat-rate cash-back card, all of your purchases earn the same amount in cash back. Other credit card issuers might offer higher cash-back rates on certain spending categories, such as on gas or groceries.

Meanwhile, some may feature rotating bonus categories to give your rewards-earning abilities a boost. For example, you might earn 5% cash back in the fall months on purchases made at restaurants and on gas.

You can redeem the cash-back rewards you earn in the form of a check, bank transfer, or gift card, or as a statement credit. Other options might include making a charitable donation or making a purchase through the issuer’s online portal. Depending on the credit card, there might be a spending threshold you need to meet before you can redeem your cash-back rewards.

What Is 2% Cash Back?

Earning 2% cash back simply means that for every $100 you spend on your credit card, you’ll get $2 back. So if you were to spend $1,000, that’s $20 back in your pocket — though you’ll then have to redeem that cash back in order to make the rewards usable.

How 2% Cash-Back Credit Cards Work

As mentioned previously, having a 2% cash-back credit card means you’ll earn two cents back for every $1 you spend using the card, or $2 for every $100, and so forth.

There might not be a limit to how much you can earn in cash back. However, in other cases, the card may cap the amount of cash-back rewards you can earn for either regular spending or spending in bonus categories.

Pros and Cons of 2% Cash Back

While a 2% cash back card does come with some advantages, there are some drawbacks as well. Take a look at both:

Pros and Cons of a 2% Cash Back Card
Pros	Cons
Easy to use	Higher APRs compared to non-rewards credit cards
Can rack up rewards quickly	Earning caps may apply
Often no annual fee	Don’t often offer travel rewards or perks

Pros

•   Easy to use: A major benefit of a 2% cash-back credit card is that the rules are simple: You spend money, and get a certain amount back. Plus, redeeming rewards is usually pretty straightforward, and you have a choice of how to do so.

•   Can rack up rewards quickly: If you use your credit card for everyday purchases, you’ll accrue rewards fairly fast. Of course, only put everyday purchases on your card if you can afford to pay them off, and always use your card responsibly, considering what a credit card is and the implications overspending can have for your credit score.

•   Often no annual fee: Many cash-back cards don’t have an annual fee. That means you won’t need to worry about spending enough to offset the fee.

Cons

•   Higher APRs compared to non-rewards credit cards: While your annual percentage rate (APR) on a card partly depends on your credit and other financial factors, rewards credit cards like cash-back cards tend to carry higher interest rates. If you keep a balance on your account, you can expect to pay a pretty penny in interest, given how credit cards work.

•   Earning caps may apply: While some credit cards allow you to earn unlimited cash-back rewards, others place a limit on how much you can earn. If you’re looking to max out your rewards potential, a cap could make that harder to do.

•   Don’t often offer travel rewards or perks: If you’re hoping to earn rewards that apply to travel, such as airline trips or hotel stays, a cash-back credit card likely isn’t the form of rewards credit card for you. While some cards may offer travel redemption options, most don’t, and many also charge foreign transaction fees.

Recommended: When Are Credit Card Payments Due?

Is a 2% Cash Back-Credit Card Worth It?

Whether a 2% cash-back credit card is worth it really depends on how you’ll use the credit card. This includes what types of purchases you’d like to make, and if you plan on using your card for bills and everyday expenses, such as gas and groceries. If you use the credit card regularly, you’ll be able to earn a greater amount of cash-back rewards.

However, you’ll also want to balance that spending with sticking to important credit card rules, like not spending more than you can afford to pay off. Because rewards credit cards tend to have higher interest rates, it’s important to avoid carrying a balance so you don’t cancel out the cash back you earn.

A cash-back rewards card might not be worth it if you prefer to use your credit card rewards for travel. In that case, a travel rewards credit card typically will offer more lucrative ways to earn points or miles to use on trips.

Recommended: How to Avoid Interest On a Credit Card

Guide to Using a 2% Cash-Back Credit Card

If you get a 2% cash-back card, here are some tips to keep in mind to use it effectively:

•   Read the redemption rules. Familiarize yourself with credit card requirements, and see if there are any limits on how much cash back you can earn. Similarly, check if you need to hit a minimum amount in cash-back earnings before you can redeem those rewards.

•   Be intentional with your purchases. Devise a plan for how you intend to use your cash-back credit card. Perhaps you would prefer to use it on big-ticket items, or maybe on seasonal purchases, such as during the holidays or back-to-school season. This will help you make the most of your card.

•   Choose how you’ll receive your rewards. YYou’ll also want to decide whether you plan on receiving the cash-back in the form of an ACH transfer to your account, as a statement credit, or as a check dropped in the mail. You also might be able to use your rewards by making online purchases through the credit card’s shopping portal, or by purchasing gift cards or donating to charity.

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

Maximizing 2% Cash-Back Earnings

If you have a cash-back credit card, it’s worth your while to take the time to determine how to maximize your earnings. Here are several ways to do so.

Use Your Card For Everyday Purchases and Bills

Consider using your cash-back card on major spending categories to earn the most on rewards. For example, if you spend $4,500 a year on food for you and your family and put all of your groceries and dining expenses on your card, you’ll get $90 in cash-back on just that spending alone.

You might also consider putting your recurring bills and subscription services on your credit cards. This will allow you to scoop up points in areas you already spend.

Just make sure you aren’t spending beyond your means. Keep an eye on your expenditures, and commit to paying off your balance in full each month.

Put Big-Ticket Buys on Your Card

If you’ve been saving up for a sleek new laptop or coveted designer shoes, consider putting that cost on your 2% cash-back card. That way, you can get the item and earn a bit of cash back on the purchase.

Your card may even come with added perks, such as purchase protection or an extended manufacturer’s warranty.

Look for a Card With No Annual Fee

A card without an annual fee means you won’t need to spend as much to make the cash-back rewards worthwhile. Case in point: If you get a card with a $40 annual fee, you’ll need to put $2,000 in purchases to break even at a 2% cash-back rewards rate.

Pay Off Your Balance in Full Each Month

As cash-back credit cards tend to have higher APRs, make it a point to pay off your card in full. This will help you avoid racking up interest charges, which can cut into the cash-back rewards you earn.

Strategize When You’d Like to Redeem Your Cash Back

To maximize your 2% cash-back rewards card, it helps to be intentional with how you choose to redeem your cash-back rewards as well as when you do so. For instance, if you tend to dig a debt hole during the holidays, use your rewards to pay for gifts and other related expenses. Or, you can put the rewards you’ve accumulated toward a statement credit, or redeem it for a gift card for your loved one.

The Takeaway

Whether a 2% cash-back credit card is right for you may depend on a few considerations, such as how often you plan to use the card, whether you may purchase higher-priced items with it, and if you plan to pay off the balance in full each month. It’s also important to understand all of the rules that apply to the credit card. Some cards have limits on how much you can earn in cash back or have annual fees that could cut into the value of your rewards.

A 2% cash-back credit card that’s used regularly, however, can provide you with a steady stream of extra cash that could benefit your budget, and you can also be strategic about how you redeem the rewards depending on your needs at a given time.

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

FAQ

Is 2% cash back good for credit cards?

A 2% flat-rate, cash-back credit card can be a strong choice as a go-to credit card if you intend to use your card for everyday spending. Earning rewards at a flat rate and in this manner is simple and straightforward, as you don’t have to worry about keeping track of rotating categories or figuring out point conversion values.

Is 2% cash back better than points?

A 2% cash back credit card is a no-hassle, straightforward way to earn rewards. While you might earn more points on a travel card, redemption values and ways to redeem points on a travel rewards card can be more complicated. A flat-rate cash-back card can be a good choice to use as a foundation. Then, you can also open a travel card if it makes sense for your needs.

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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.

SOCC-Q324-045

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The FHA Streamline Refinance program is a simplified version of a mortgage refinance for borrowers who already have a loan backed by the Federal Housing Administration (FHA). It’s possible for borrowers to refinance without a new property appraisal, credit check, or income verification — but owners do have to be current on their existing FHA mortgage.

The FHA Streamline Refinance does have its limitations. For example, if you need cash out or want to eliminate the mortgage insurance premium, you can’t do it with the FHA Streamline Refinance and you’ll need to find another mortgage type.

We’ll explore exactly what is an FHA Streamline Refinance, how it works, what the requirements are, the process of getting one, and what the benefits are to help you determine if this program is right for you.

What Is an FHA Streamline Refinance?

An FHA Streamline Refinance refinances an existing FHA loan into a new FHA loan with limited credit and underwriting requirements for the borrower. It’s faster and sometimes cheaper to obtain than a full refinance, especially since it doesn’t require a new appraisal.

Typically, the main goal is to lower monthly payments by refinancing to a lower interest rate, but if the mortgage term is reduced or the loan type is changed to a fixed-term loan, that could also be considered a “net tangible benefit” of the refinance by the FHA.

There are two types of FHA Streamline Refinance: credit qualifying and non-credit qualifying.

Credit Qualifying

As the name implies, your credit and income are used to qualify for an FHA Streamline Refinance and for the lowest interest rates. An appraisal isn’t needed for this type of refinance.

Non–Credit Qualifying

A non-credit qualifying mortgage doesn’t require the lender to assess your credit or ability to repay the loan, but all borrowers on the original loan must remain on the new loan. Like the credit-qualifying refinance, a non-credit qualifying one doesn’t require an appraisal, but there are other eligibility requirements.

Recommended: FHA Loan Buyer’s Guide

Eligibility Requirements for FHA Streamline Refinance

To qualify for an FHA Streamline Refinance, the borrower must derive a “net tangible benefit” from the refinance, such as a lower interest rate, a shorter loan term, or a switch from an adjustable-rate mortgage to a fixed-rate mortgage. If you’re considering a refinance, you might want to run your numbers through an FHA loan calculator to see if a refinance will save you money.

Other requirements relate to the loan type, occupancy, credit score, and payment history.

Loan Type

The loan being refinanced must be an existing FHA loan. The refinanced loan will remain an FHA loan, which means you’ll still need to pay mortgage insurance. If you’re current on your payments, it could make sense to take a look at other types of mortgage loans beyond FHA.

Occupancy Status

An FHA Streamline Refinance can be used in the following occupancy scenarios:

•   Owner-occupied one- to four-unit properties

•   HUD-approved second homes

•   Investment properties with existing FHA-insured mortgages

Credit Score and Payment History

There is no credit score requirement for the FHA Streamline Refinance under the non-credit qualifying option. However, FHA Streamline Refinance rates can be better for those who use the credit-qualifying option and supply credit qualifications to the lender.

Borrowers do need to have made at least six payments and wait 210 days before applying for a refinance on their FHA loan. Borrowers must also be current on their mortgage payments with no delinquencies.

Recommended: Minimum Down Payment for an FHA Loan

Benefits of an FHA Streamline Refinance

Here are a few of the ways in which a homeowner may benefit from the FHA Streamline Refinance program:

A Lower Interest Rate

For borrowers who bought a home when their credit was bent out of shape or interest rates were high, FHA Streamline Refinance rates could be lower than the rate they currently have.

A Different Loan Type

If you have an adjustable-rate mortgage, the FHA Streamline program can change it to a fixed-rate mortgage and help stabilize your payments.

Remove or Add a Borrower

If you need to remove a borrower from the loan, such as the case with death, divorce, or separation, you may be able to do it with a streamline refinance. This may be done if the borrower can supply supporting documentation, such as a divorce decree.

Pay Off a Loan Faster

By refinancing to a shorter loan term, you’ll likely pay off the loan faster and save yourself a good amount of money.

Avoid an Appraisal

The FHA Streamline Refinance uses the value of the home from the original FHA mortgage, with a maximum loan amount of the existing loan balance. Because these numbers don’t need to be adjusted upwards, no new appraisal is needed.

Reduce Closing Costs

There are costs involved with an FHA Streamline Refinance, but they may be less due to the reduced requirements. For example, you do not need to pay for an appraisal with an FHA Streamline Refinance.

Close Quickly

With reduced documentation and underwriting requirements, and no appraisal required, it’s possible to close on the loan relatively quickly.

FHA Streamline Refinance Process

The FHA Streamline program reduces the documentation and underwriting requirements for the lender, which usually translates into a quicker refinancing process. Here’s what you’re looking at when it comes to documentation, timeline, and costs.

Documentation Needed

Your lender will be able to see your payment history with a credit check, but there are a few more documentation requirements. If you’re applying as a non-credit qualifying borrower, these include:

•   Residency verification, such as a utility bill in the occupant’s name

•   Evidence of payment history for the past 12 months

•   If a secondary residence, approval from jurisdictional FHA Homeownership Center

If you’re applying with a credit-qualifying mortgage for the lower rate, you’ll likely need to provide the typical documentation required by the lender, such as:

•   Credit score and history

•   Proof of income and employment history

•   Bank statements

•   Debt obligations

•   Assets

Lenders use this information to determine if you have enough income to qualify for the loan, what rate you qualify for, and to verify funds to close the loan.

Refinancing Timeline

An FHA Streamline Refinance takes less time because there’s no appraisal required. In a general sense, the process looks something like this:

•   Find FHA-approved lenders. For an FHA Streamline Refinance, lenders must be approved by the FHA as a direct endorsement lender to qualify.

•   Apply. Talk with lenders to see if your situation fits with this type of mortgage. Apply with your top choices, noting the closing costs and interest rates offered by lenders.

•   Submit documentation. Since there are fewer forms to find and submit, you may be able to complete your part of the application faster.

•   Wait for underwriting. Since the loan isn’t contingent upon an appraisal, income, or credit, your loan will be ready to process more quickly than other types of loans. Alas, it’s still a government-backed loan, so you could be waiting 30 days or more.

•   Close on the loan. Once underwriting has approved your loan, you can close and start making your new payment.

Upfront and Closing Costs

When you refinance with an FHA loan, you’ll need to pay an upfront mortgage insurance premium on the new FHA loan. You may be able to get a refund on a part of your mortgage insurance premium that you previously paid.

You also need to pay other closing costs, such as title insurance. Since the loan amount can’t be greater than the existing loan balance, these closing costs cannot be wrapped into the loan. However, you may see lenders offer no-closing-cost loans in exchange for a higher interest rate.

The Takeaway

An FHA Streamline Refinance makes sense in certain situations, but it’s not always the right option. Going through the FHA Streamline process makes sense if you don’t want your credit pulled or you’re looking to save time or money on a refinance. These types of refinances don’t require an appraisal and there are fewer closing costs as a result.

However, you can’t get rid of your monthly mortgage insurance payment and you won’t be able to refinance to a higher loan amount if you need more than $500 cash out. It’s common to see borrowers refinance to conventional mortgages over FHA mortgages to eliminate mortgage insurance and take cash out.

It all comes back to your goals. If you want a mortgage without the mortgage insurance premium or need cash out, you’ll want to look into other types of mortgages. But if you want to keep an FHA mortgage and go through minimal underwriting, then an FHA Streamline may be the right move for you.

SoFi offers a wide range of FHA loan options that are easier to qualify for and may have a lower interest rate than a conventional mortgage. You can down as little as 3.5%. Plus, the Biden-Harris Administration has reduced monthly mortgage insurance premiums for new homebuyers to help offset higher interest rates.

Another perk: FHA loans are assumable mortgages!

FAQ

Can you remove mortgage insurance with an FHA Streamline Refinance?

No, you can’t remove mortgage insurance from an FHA Streamline Refinance. All FHA loans require mortgage insurance, even if you’re replacing one FHA loan with another.

How long does an FHA Streamline Refinance take?

Give it around 30 days. How long it takes to close on an FHA Streamline Refinance depends a lot on your lender, and it can be quicker due to the limited underwriting requirements. When there’s no appraisal, no loan-to-value ratio, and no credit requirement, the loan can be completed faster than when it was originally funded.

Can you get cash out with an FHA Streamline Refinance?

The maximum amount of cash you can take out from an FHA Streamline Refinance is $500. If you need more, you’ll want to look for another mortgage.

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

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

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^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.

SOHL-Q324-002

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