Financial Topics Archives | Page 24 of 778

Aug

2024

How to Take Advantage of Credit Card Limited-Time Offers

By Becca Stanek | Credit, Financial Independence | Comments Off

Limited-time credit card offers require you to take action within a certain time frame to maximize cash back, travel miles, and other perks in return for charging everyday purchases. Setting reminders and taking other steps can allow you to enjoy these credit card offers to the fullest. Learn more about how these programs work.

How Do Credit Card Bonus Offers Work?

To understand how credit card bonus offers work, it’s helpful to first understand the basics of reward credit cards. Whether it’s a cash back card, travel credit card, or some other type of rewards card, these credit cards allow cardholders to earn back a small percentage of the value of their purchases. Account holders may get their rewards in the form of cash back, credit card points, or airline miles.

With credit card bonus offers, credit card issuers layer limited-time offers atop the regular benefits. Some common types of credit card promotions follow.

Welcome Bonuses

Designed to help make a specific credit card more appealing, welcome bonuses can fuel purchases in the first weeks or months after signing up for a new card. How welcome bonuses work varies from card to card, but they generally provide increased reward earnings either up to a certain expenditure limit or for hitting a minimum spend.

The rewards may come in the form of flat-rate cash back or points, a better rewards rate, or another limited-time perk, depending on the type of credit card. For example, a card might provide a bonus for cardholders who charge at least $1,000 within the first three months of receiving their credit card. Another offer might double the rewards rate for a set time period, up to a maximum rewards dollar value. In some cases, cardholders might receive a welcome bonus simply for signing up.

Lower APR

The annual percentage rate, or APR, is the rate of interest that is applied to credit card balances and transactions like cash advances. Some credit card promotions offer a lower — or even 0% — APR for a limited time.

These promotional periods may last anywhere from six months to 21 months. After that point, your APR will return to your standard rate, which is determined based on factors like creditworthiness and the type of credit card.

Recommended: How to Avoid Interest On a Credit Card

Other Limited-Time Offers

While welcome bonuses are nice, credit card promotions don’t always dry up after the introductory period. Some credit cards may offer additional periodic promotions, such as increased credit card rewards earnings during a specific time period or offers for spending at a particular retailer or partner.

Look out for promotional emails or notifications on your statement or online account to stay aware of such offers.

What Offers are Available to Me?

If you’re not sure what new credit card bonus offers are currently available to you, it’s easy to check. Simply log onto your credit card account and click over to the rewards portal. That should give you a view of the credit card promotions currently on offer, though you’ll want to log on frequently to see the latest offerings.

You might also be able to opt in to communications from your credit card company about current promotional offers. Check your settings on your communication preferences to ensure you’re not missing out on these emails if you’d like to receive them.

Which Limited-Time Offer Should You Choose?

Any credit card promotion that keeps more money in the cardholder’s wallet is likely an attractive one. But some offers are better suited to certain financial situations.

If You Have a Big Purchase Coming Up

Whether it’s booking a big vacation, paying for a wedding or new appliances, or covering some other big-ticket outlay, timing a big purchase with a credit card promotion period can be beneficial.

It might be a stretch for some individuals to max out a welcome offer that requires $4,000 or more in spending within the first few months. But if a big planned expense is on the horizon, it could be a good time to take advantage of a welcome offer that requires a little more spending than usual. (Just make sure to pay off the balance to avoid interest charges and/or reward penalties.)

Recommended: What Is a Charge Card?

If You’re Carrying a Balance With a High APR

Although the best strategy to avoid paying interest on credit card charges is to pay off purchases in full by the statement date (a great way to use a credit card responsibly), that may not always be possible. For those who are trying to pay down a balance, taking advantage of a 0% APR offer (or switching to a balance transfer credit card) may reduce or eliminate interest costs and help with paying down credit card debt.

If You Want To Optimize Everyday Purchases

The best type of credit card promotion for getting the most back from everyday purchases really depends on both the spender and the card. For instance, a credit card that provides a welcome bonus of 30,000 airline miles might be a great deal — but only for individuals who travel.

As such, finding the best credit card promotion for regular, everyday spending means taking the time to look at your usual spending habits. Then, compare limited-time credit card offers to find the best personal fit, whether that’s credit card miles or cash-back rewards, or another form of credit card bonus.

Tips for Taking Advantage of Bonus Offers

If you’re hoping to cash in on credit cards bonus offers, here are some key tips to keep in mind.

Do Your Homework

There can be many credit card promotions to choose from, with more limited-time offers popping up all the time. Before choosing a new credit card, it’s always a good idea to do some comparison shopping, considering factors such as annual fees, the APR, and the specifics of any rewards programs.

For those who track their spending, these records can be helpful for gauging actual expenditures across categories in order to estimate the potential benefits of various cards.

Keep Track of Expiration Dates

The important thing to remember about limited-time offers? They expire.

You may want to set up reminders for when offers will end. That way, you’ll remember to meet any minimum spending requirements or get in last-minute purchases before bonus rates end.

Avoid Carrying a Balance

Most credit card purchases don’t incur interest — if the cardholder pays off the full balance by the statement due date. Carrying a balance means interest charges, which are usually applied going back to the date of purchase. This can quickly add up and potentially outweigh the benefits of any credit card promotions.

Furthermore, before only paying the minimum, it’s a good idea to check the terms and conditions, which will tell you specifics of how a credit card works. That way, you can ensure the promotion still applies for those who carry a balance.

Think Before Canceling a Card After an Offer Expires

With so many attractive credit card offers on the market, it might seem like a good idea to open and close accounts in order to keep claiming new promotions. However, this practice, known as credit card churning, may not be the best strategy for those concerned about their credit score.

For starters, each new credit card application results in a hard inquiry to check the applicant’s credit score. Each time a lender conducts such a check, it results in a slight reduction in credit score — which can last up to a year (and will remain on one’s credit report for up to two years). Applying for many cards to claim multiple offers can add up.

Furthermore, as much as 30% of your credit score is informed by your overall credit utilization rate, or how much you owe on all your revolving accounts, such as credit cards, compared with your total available credit.

Canceling cards reduces the total amount of credit you have available — and if it’s a card with a big credit limit, cancellation can have a significant impact on your credit utilization ratio. If your credit utilization goes up when you close a credit card account, your credit score could go down.

Will I Get Approved Immediately?

Even if you find the perfect promotional credit card offer, remember that there’s no guarantee that you’re going to get approved for it. Particularly if reaping the bonus credit bonus offer requires applying for a new card, know that there’s never a guarantee of approval.

Rewards credit cards generally require at least a good credit score (meaning 670 or higher) to qualify for. If your score is too low or there are any credit report concerns, that could impact your approval odds.

Application-related issues could interfere with how fast you’re approved, too. For instance, if there’s an issue verifying your income or you’ve inadvertently turned in an incomplete application, it might take a bit longer for the credit card company to make a decision.

The Takeaway

Whether it’s a welcome bonus, a low APR introductory rate, or a periodic promotion, credit card bonus offers can amplify rewards for those who know how to take advantage of them. To choose the right credit card promotion for your financial situation, it’s important to know the options and how they work. For instance, you might opt for a welcome bonus if you know a big purchase is coming up, whereas a 0% APR promo might be better if you’re working to pay down a credit card balance.

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

FAQ

What time of year do the best credit card offers come out?

Typically, the best credit card offers come out at the end of the year, between October and December. This may be timed to the holiday shopping season, when people are often spending more with credit and looking for deals.

How do you take advantage of multiple credit cards?

If you have multiple credit cards, it’s wise to follow the guidelines of keeping balances low and ideally paying them off in full every month. In addition, you may want to stagger the times at which you apply for cards since each will trigger a hard credit inquiry, which in turn lowers your credit score temporarily by five or so points a pop.

How do I use my credit card to my advantage?

You can use a credit card to your advantage by finding offers with sign-up bonuses, rewards, or low interest rates that suit your needs. Once you have a new card, it’s wise to pay the balance in full every month to avoid interest charges, keep your credit utilization ratio low, and take other steps to use your credit responsibly.

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

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

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Aug

2024

Guide to Buying Real Estate With a Credit Card

By Jennifer Calonia | Credit, credit card, Home Ownership | Comments Off

Investing in real estate can be a lucrative endeavor. But if you don’t have hundreds of thousands of dollars saved in cash to put toward a property, using a credit card to secure a real estate investment might be an option.

There are ways to execute this investment approach. However, there are also serious caveats to consider before moving forward with using a credit card to invest in real estate.

Can You Buy Real Estate With a Credit Card?

You can’t purchase a physical real estate property outright with a credit card the way you would when using a credit card to buy lunch or a new television. One reason for this is because a typical consumer credit card likely doesn’t offer a credit line large enough to cover the entire home price.

Even if you do qualify for a credit line to cover all or a significant portion of the home price, you’ll face another challenge. The title company or real estate agency that’s facilitating the deal requires that payment is provided using bank-certified funds — such as a cashier’s check, certified bank check, or wire transfer — to finalize your investment transaction. Given what a credit card is, it won’t meet those standards.

How to Finance Real Estate Investments With a Credit Card

While you can’t swipe your credit card to purchase real estate, there are ways that you can leverage your credit card to help fund your real estate investments.

Through a Cash Advance

If you have a high enough credit limit, a viable way to buy real estate with a credit card is by getting a cash advance against your card. By doing this, the funds you borrow from your credit card will become quickly available for use on a real estate investment, which might be helpful if you’re buying real estate in a hot market.

Keep in mind that fees typically apply for cash advances. Typically, you’ll pay a fee in the range 3% to 5% of the transaction amount, depending on your particular card.

Also know that cash advances typically come with interest rates that are higher than the card’s standard annual percentage rate (APR). Plus, interest begins to accrue immediately rather than at the end of the grace period like it does on regular credit card purchases.

Recommended: What Is the Average Credit Card Limit?

For Related Real Estate Costs

Some investors also use credit cards to invest in real estate by using their card for renovation project expenses. If you purchased a low-cost investment property and want to update it for passive rental income, for example, you might be able to invest in your property by putting charges for contractors and materials on your credit card.

By Using Credit Card Rewards

Another unconventional approach to buying real estate with credit cards is directly redeeming earned rewards as cash. Cash redemption values are typically lower compared to redeeming rewards toward travel, for example, but this approach can still unearth the capital you need to invest in your next property.

This strategy is particularly effective if you’ve already amassed years of rewards through a business credit card, and are willing to pool earned rewards from your personal credit card rewards programs, too.

Recommended: Can You Buy Crypto With a Credit Card?

Advantages of Using a Credit Card to Invest in Real Estate

Although buying real estate with a credit card is an unconventional approach, there are some benefits in doing so. In particular, the advantages include that:

• You can invest faster: If you don’t have a lump sum of cash savings ready, it might take years to save up enough capital to get your foot into real estate investing. Using a credit card to invest in real estate can help you realize your investment goals faster.

• You’ll have fewer costs at closing: Since you’re not financing through a mortgage lender, there are fewer fees to worry about. Unlike when buying a home as your primary residence through a mortgage loan, costs like origination fees, appraisals, and escrow fees aren’t a required part of a real estate investment transaction done in cash.

• You might earn rewards in the process: Most card issuers don’t let you earn credit card rewards from cash advances. However, you can accelerate your rewards earnings by using your card for spending associated with your property investment. For example, materials and contractor costs for renovation projects, like a kitchen update or a room addition, can help you rack up rewards faster.

Downsides of Using a Credit Card to Buy Real Estate

There are major disadvantages to using a credit card to invest in real estate. If you’re considering how to buy rental property with credit cards, keep in mind the following drawbacks:

• You’ll have a hard time using credit cards directly to invest in real estate: A notable downside to buying real estate with credit cards is that you’ll likely be unable to throw a credit card onto the table to close a real estate transaction. You’ll have to undergo the extra step of getting a credit card cash advance. But be aware that card issuers might set a lower available limit for cash advances and will impose a higher APR. Plus, you’ll pay cash advance fees.

• You’ll face high interest rates: If you have to draw a cash advance against your credit card to buy real estate, you’ll face expensive APRs, compared to other financing sources, like a personal loan. According to the latest Federal Reserve data, the average credit card rate across all accounts with balances is currently 22.76%. By comparison, the average personal loan rate is 12.36%.

• You’re taking on a lot of risk: How credit cards work is that they let you purchase goods and services, even if you don’t have the cash to cover the full amount, immediately. The caveat, however, is that you’ll need to repay the amount either in a lump sum when your statement is due or over time.

If you successfully buy real estate with a credit card, you’re legally liable for that debt and must repay it based on the rate and terms of your credit card agreement. This holds true regardless of whether your investment turns a profit. Plus, if you choose to pay back the funds you borrowed over many months, you’ll incur exorbitant interest charges in addition to the principal balance.

Recommended: How to Avoid Interest On a Credit Card

Factors to Consider Before Using Your Credit Card to Invest in Real Estate

After assessing the pros and cons of investing in real estate using a credit card, also consider the following factors that might impact your investment:

• Whether you’ll need additional funding sources: If your credit card doesn’t provide a sufficient amount for your real estate investment, you’ll need to seek funds elsewhere.

• What the local real estate market is like: Whether your goal is buying a property to flip and sell or buying rental real estate, do your homework. This includes finding a desirable neighborhood and a suitable property, as well as assessing renovation projects and other repairs necessary to set your investment up for profitability.

• If you can repay your credit card bill: At best, consider your credit card as a short-term loan tool. Plan to put profits you’ve earned toward paying down your debt ASAP.

Alternatives to Buying Real Estate With Credit Cards

If you don’t have hard cash stowed away for your next real estate investment, but aren’t ready to leverage your credit cards for the investment, you have a couple of other options:

• Personal loans: A personal loan is another financing option, particularly if you have strong credit. It offers a higher borrowing limit and longer repayment timeline compared to a credit card. Also, as mentioned earlier, personal loan interest rates are generally lower than credit card APRs.

• Personal savings: Another option is using cash and avoiding credit cards and other methods of borrowing altogether. If you have personal savings that you can tap into or are willing to hold off on investing in real estate until you’ve built up enough savings, you can potentially avoid costly finance charges.

The Takeaway

Tread carefully when using a credit card (i.e. borrowed money) to fund any investment, including real estate. Adhering to important credit card rules — like staying on top of your credit utilization and paying your credit card statements in full — can help you avoid going into debt for your investment.

FAQ

How can I buy rental property with a credit card?

If done strategically, you can use a credit card to finance a rental property either through a credit card cash advance or by using the credit card to pay for renovations on an investment property flip.

Can I use a business credit card to buy real estate?

Yes, you may be able to use a business credit card to invest in real estate. Doing so separates the debt from your personal credit profile, so the high credit utilization on the business credit card doesn’t affect your personal credit score.

Is it a good idea to buy real estate with a credit card?

Whether buying real estate with credit cards is a good idea depends on your investment risk tolerance. A credit card might work as a short-term funding option, but plan on repaying the debt with your profits quickly to avoid an underwater investment.

Photo credit: iStock/SDI Productions

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

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Aug

2024

Credit Hardship Program: What It Is & How It Works

By Jennifer Calonia | Credit, credit card | Comments Off

If you’re experiencing a temporary financial setback and have fallen behind on your credit card debt, you’re not alone. According to Federal Reserve Economic Data, credit card delinquency rates increased 10.7% in the first quarter of this year.

Having to repay credit card bills when you’re struggling financially — whether due to an emergency expense or a job loss — can be a challenging burden. In this difficult situation, it’s worth contacting your credit card company to see if it has a credit card hardship program.

What Is a Credit Card Hardship Program?

A credit card hardship program, sometimes referred to as a credit card assistance program, is a repayment plan that’s created based on your hardship circumstances. (This type of modified repayment option was commonly offered by credit card issuers for customers who were financially affected by COVID-19, for example.)

However, credit card issuers aren’t required by law to offer hardship assistance programs, and not all card companies provide this option. Those that do might offer a variety of ways to temporarily ease your repayment burden, if you’re eligible. For instance, it might adjust your credit card payment due date, waive late fees that have accrued, lower your interest rate, or reduce your minimum payment required over a period of time.

Again, these changes are temporary and only designed to get you caught up on your outstanding credit card balance. Once you’ve completed the program, your original terms will be enforced if your account is still active.

Who Is a Credit Card Hardship Program For?

Credit card hardship programs are for consumers who are experiencing an unexpected hardship. Generally, the hardship directly or indirectly impacts the consumer’s ability to make on-time credit card minimum payments.

For example, hardship assistance plans might be offered to those who are unexpectedly facing:

• An income reduction

• Job loss

• Death of a primary earner

• Natural disaster

• Divorce

• Severe illness

• Other emergency

Eligibility for credit card hardship programs varies among credit card companies. Generally, at the very least you’ll need to provide proof of the hardship; however, credit issuers don’t publicly share much information about eligibility since it’s approved on a case-by-case basis.

How to Apply for a Credit Card Hardship Program

If your credit card company offers a hardship program, prepare for your conversation by taking a few steps.

1. Review Your Budget

For starters, evaluate where your finances stand today. Compare your non-negotiable bills, like rent or your mortgage payments, a child’s tuition, groceries, gas, etc., against your monthly income.

Determine how much you can comfortably put toward your credit card payments. Make sure the amount is realistic since you’ll want to make positive strides toward your hardship program, if it’s available to you.

Write out your budget and the amount you’ve determined that you can reasonably afford to make toward your credit card bill each month. Have this information ready for your phone call with your card issuer in the next step.

2. Call Your Issuer

Contact your credit card company by calling the phone number listed on the back of your card. Explain your hardship situation and note that it will impact your ability to repay your outstanding credit card balance. Ask them if they offer a temporary credit card assistance or hardship program.

3. Agree Only to Terms You Can Afford

If they offer this option, this next step is your opportunity to negotiate the terms of your hardship plan. Ultimately, the company would likely rather work alongside you to get repaid, rather than risk you delaying credit card payments and later defaulting on your debt.

Make sure that any terms they initially offer are what you can realistically manage financially. If it still feels too costly, tell them that those terms don’t work for you and ask for further relief. It’s important to make sure to only agree to what’s realistic, given the consequences of credit card late payment.

If you arrive at a credit card hardship plan that you can confidently complete, get all of the terms in writing and read the agreement carefully before signing.

Factors to Consider Before Agreeing to a Credit Card Hardship Plan

One significant impact that credit card assistance programs typically have is a freeze on your credit card activity — meaning using the credit card is no longer an option. Although a credit card freeze doesn’t negatively impact your credit score, that’s spending power that you’ll immediately lose. Though, given your financial hardship, it’s a practical requirement until you can regain your footing.

Some credit card companies might even require that you close your card account entirely while participating in the program. This is what can impact your credit score the most.

Further, closing your account reduces yourcredit utilization ratio, which is the percentage of credit you’ve used compared to your available credit line. According to the Consumer Financial Protection Bureau, it’s best to keep this ratio below 30%. However, if you suddenly have a reduced overall credit line due to a closed account, your credit utilization ratio will increase.

Additionally, a closed credit card can lower your score since you’re losing the benefits of a matured credit card account. ForFICO® credit scores, for example, the average age of all of your credit accounts makes up 15% of your score.

Finally, closing your account can also impact the mix of credit in your credit profile, especially if you’re losing your only revolving account, which is what a credit card is. Having a mix of installment (e.g. car loans, mortgages, etc.) and revolving credit (e.g. credit cards) comprises 10% of your FICO score.

Pros and Cons of Credit Card Hardship Program

There are a handful of benefits associated with a credit card hardship program. However, you should also consider the drawbacks before moving forward.

Advantages of a Credit Card Hardship Plan	Disadvantages of a Credit Card Hardship Plan
Might help build credit long-term by potentially avoiding default	May end up losing access to your credit line
Positive hardships payments are reported to credit bureaus	Might adversely affect your score in the short-term
Allows you to rework repayment features so they’re manageable	Requires proof of hardship and possibly additional paperwork to get a plan
Offers temporary financial relief

Alternatives to Credit Card Hardship Programs

If a credit card assistance program isn’t right for you, there are a few other options for getting through financial hardship.

Balance Transfer Credit Card

If your credit is still in good standing and your account isn’t delinquent yet, consider a balance transfer card. It lets you transfer one or more credit card balances onto a low- or temporarily 0% APR card. A balance transfer fee might apply.

Debt Consolidation Loan

This option lets you combine multiple debts — installment and revolving — into a new installment loan. Ideally, the debt consolidation loan offers a much lower APR with one simple payment to help you chip away at payments. Fees might apply.

If you’re struggling with other payments as well, you could consider another type of loan — a hardship loan. While this could help you continue to make your rent or mortgage payments or stay on top of other necessary daily living expenses, be mindful before assuming additional debt.

Recommended: When Are Credit Card Payments Due?

Debt Management Plan

Debt management plans are typically offered through credit counseling organizations. A credit counselor facilitates an agreement with your creditors on a payment plan.

Generally, a debt management plan requires you to make monthly payments to the counseling service, which will then make payments to your creditors on your behalf. It’s best to work with a nonprofit organization, such as the National Foundation for Credit Counseling.

The Takeaway

If you anticipate falling behind on your credit card payment, a credit card hardship program may help you avoid spiraling debt and future default. Remember, you still owe the debt, but it’s worth talking to your credit card issuer to see how it can help you through this difficult period.
After successfully completing a credit card hardship program — and regaining financial stability — your card issuer might offer to unfreeze your credit card account, based on your hardship agreement.

FAQ

Do credit card hardship programs affect your credit?

Credit card hardship programs, in and of themselves, don’t directly affect your credit. However, the requirements to participate in a hardship program, like closing the impacted account during the hardship plan, or other credit reporting might have an adverse effect on your credit score.

Does credit card debt count as a hardship?

No, credit card debt doesn’t typically qualify as a hardship. Uncontrollable factors like a major illness or injury, disability, sudden unemployment, loss of your household’s primary earner due to divorce or death, or other significant unexpected expenses typically fall under hardship.

What are my options if I can’t pay my credit card?

If you can’t pay the minimum amount due on your credit card bill, contact your card issuer to learn more about your repayment options. Based on your unique situation, it might offer a manageable path forward to repay your debt, whether that’s simply changing your monthly due date or putting you on a credit card hardship program.

Can you ask for forgiveness of credit card debt?

You might be able to secure debt forgiveness on the total outstanding credit card debt that you owe through your card issuer. Some credit card companies might be willing to settle the debt at a lower amount, which you’ll need to pay in a lump sum. The remainder of the debt is then “written off.”

Photo credit: iStock/PeopleImages

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Aug

2024

Leveraging Credit Cards to Build Wealth

By Jennifer Calonia | Credit, credit card, Growing Wealth | Comments Off

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.

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.

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.

Photo credit: iStock/Delmaine Donson

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Aug

2024

Guide to Pending Credit Card Charges

By Dan Miller | Credit, credit card | Comments Off

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.

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.

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.

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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