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It is very unlikely that you can directly pay your mortgage lender with a credit card. However, there are a few workarounds that can help you pay your home loan with plastic. But it’s important to understand other factors involved when paying your mortgage with this kind of card, such as possible fees and other financial consequences.

Read on to learn how to pay your mortgage with a credit card and what to consider before you do so.

How to Pay Your Mortgage With a Credit Card

It’s highly unlikely that you can pay your mortgage directly with a credit card. That said, there are several ways you can use workarounds to pay your mortgage with a credit card, including using a money order, utilizing third-party services, and getting a cash advance.

Use a Third-Party Service

Some third-party services facilitate mortgage payments using your credit card and send a payment to your lender on your behalf. Companies like Plastiq allow you to use select credit cards (including American Express) to make mortgage payments through their platform.

For the privilege, you’ll most likely need to pay a convenience fee — Plastiq charges a processing fee of 2.9% — each time you make a mortgage payment using your credit card. And, depending on how that payment is delivered (say, check or bank transfer), you may also be charged an additional fixed fee that can range from 99 cents to $39. You may also have the option to make recurring payments or to make your payments manually.

Buy a Money Order

Depending on your location and the retailer, you may be able to purchase a money order with your credit card. Then, you’ll simply take the money order and deposit it at your bank and transfer the amount to your mortgage lender.

Keep in mind that many retailers may not accept credit cards as a form of payment for money orders — it’s best to check ahead of time if you plan to do so. Even if you can, money orders tend to have a limit of $1,000. That means if you want to go this route, it may take you a few transactions before your money orders total enough for your mortgage payment.

Additionally, you may incur a fee for each money order you buy. Also keep in mind that some credit card issuers treat money order purchases as cash advances, which can result in a fee and interest charges at a rate that’s usually higher than the standard purchase APR on a credit card.

Transfer a Balance to Your Bank Account

You could attempt to conduct a balance transfer, with the funds going into your bank account — some credit card issuers may allow this type of transaction. Most commonly, credit card issuers provide cardholders with balance transfer checks to facilitate these types of transactions. There may be balance transfer fees involved, and interest may accrue depending on your credit card terms.

Get a Cash Advance

As another method to pay your mortgage with a credit card, you can get a cash advance at the ATM with your credit card. You’d then deposit the cash into your bank account and use the funds to make your mortgage payments. You could also consider using the funds to purchase a cashier’s check and mail it to your lender.

Going this route most likely means you’ll have to pay a cash advance fee, and interest on cash advances will accrue on your credit card with no grace period and often at a significantly higher rate than on your everyday purchases. Credit limits may be lower for cash advances as well.

Recommended: Charge Card Advantages and Disadvantages

Do All Mortgage Lenders Accept Credit Card Payments?

No, most mortgage lenders do not accept credit card payments directly from the borrower.

If you’re curious about why this is, know that paying debt with a credit card isn’t usually a financially responsible move. Mortgage companies likely don’t want the added risk that someone is paying for their home loan with credit vs. cash. Also, it can be expensive for lenders to accept credit cards, given that processing and other fees can take a bite out of every incoming amount of money.

Factors to Consider When Paying a Mortgage With a Credit Card

Before paying your mortgage with a credit card, consider the following.

Fees vs Rewards

Similar to those considering paying taxes with a credit card, many people tend to pay their mortgage with a credit card because they want to earn rewards. Since third-party services will charge you fees — or you’ll pay the fees charged directly by your credit card issuer for balance transfers — you’ll want to make sure the value of the rewards outweighs what you’re paying in fees.

Sure, the fees may seem small, but they can quickly add up over time. Also, in many cases, rewards cards may only count certain transactions as eligible for rewards. Many issuers don’t consider balance transfers as qualifying transactions, for example.

The Cost of Interest

If you don’t pay off your balance each month, interest will start to accrue on your credit card — and credit card interest rates are typically much higher than your mortgage interest rate, even if you have a good APR for a credit card.

Additionally, if you go the cash advance route, these transactions may have higher credit card interest rates, and there’s no interest-free grace period.

Effect on Your Credit Score

If your credit card balance starts to get too overwhelming and you miss making the credit card minimum payment, it could negatively impact your score.

Even if you make on-time payments, having a high balance could affect your credit utilization, which is the ratio between your balance and your available credit. The higher your credit utilization, the more it could negatively impact your score.

Challenges You May Face When Paying a Mortgage With a Credit Card

One challenge with using a credit card for mortgage payments is the time it takes to do so. Any of the above mentioned methods will take you some time and effort to complete successfully. That’s because it’s unlikely your lender will accept a direct credit card payment and you will instead have to use a workaround.

There are also the fees to consider — determining whether paying the extra charges and potentially a higher interest rate is worth it takes some careful calculations.

Should You Pay Your Mortgage With a Credit Card?

Making mortgage payments with a credit card may be a good idea if you’re looking for a way to earn more rewards or get some financial breathing room. However, given the downsides, such as high fees and the impact it may have on your credit, you may be better off pursuing other options first. Also keep in mind that using a credit card to pay your mortgage may trigger a higher cash-advance interest rate than your typical interest rate since you can’t pay directly.

Alternatives to Using a Credit Card for Your Mortgage

Here are several options you can choose from instead of paying your mortgage with a credit card:

•   Consider mortgage forbearance: If you’re struggling with your payments and experiencing a significant hardship, you can contact your lender to see if mortgage forbearance is possible. This could allow you to temporarily stop paying or have your monthly payments reduced until you can get back on your feet.

•   Seek help with a housing counselor: You can find a reputable housing counselor that’s approved by the U.S. Department of Housing and Urban Development (HUD) by contacting the Homeowners HOPE Hotline or using the housing counselor tool on the Consumer Financial Protection Bureau’s website. They could suggest options to help you manage your mortgage payments. You may have to pay a small fee for the service, but it could be more affordable than using a credit card to pay your mortgage.

The Takeaway

While you probably can’t pay your mortgage directly with a credit card, there are workarounds that are possible, as long as you understand what you’re getting into and are strategic about how to do so. Before you move forward with paying your mortgage with your credit card, make sure you weigh the fees involved vs. the rewards you could earn as well as any interest you could accrue and potential impacts to your credit. Understanding the pros and cons of this scenario is an important step in using your credit card responsibly.

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

Can you use a credit card to pay a mortgage?

You probably can’t pay your mortgage directly using a credit card, but you can do so through indirect methods. Some of these include going through a third-party service, making a balance transfer, purchasing a money order using your credit card, or getting a cash advance. Each of these methods will come with its own set of fees and/or higher interest rates.

Can paying a mortgage with a credit card impact credit score?

If you end up with a high balance on your credit card as a result of your mortgage payment, it could negatively impact your score if you have a high credit utilization. Or, if you end up missing or being late on a payment (perhaps you’re struggling to make the monthly payments), then your score could also be impacted.

Are there fees for paying a mortgage with a credit card?

There are fees depending on how you use your credit card to pay for your mortgage. For instance, you may incur balance transfer, cash advance, or third-party fees.

Photo credit: iStock/vgajic

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Beyond making purchases more convenient, credit cards can provide a number of additional and valuable layers of protections. For instance, they can help cover you if you are traveling abroad, buying something pricey or if you were to lose your job or otherwise become unable to pay your bills. Some credit card protections, like travel insurance, are perks of the card included in the annual fee. For others, like credit card payment protection, you may have to opt in and pay an additional fee.

Read on to learn more about the types of credit card protection that are available, how they work, and when they may be worth it.

What Is Credit Card Protection?

Credit cards may offer various forms of protection in their perks and benefits. These protections can help protect your purchases and ensure you don’t pay for charges that aren’t yours.

They can also help you in a dispute with a vendor. For example, if you ordered an item that never made it to you and the merchant won’t give you a refund, you could invoke a credit card chargeback with your credit card company.

Perhaps the most common form of protection associated with the term “credit card protection” is credit card payment protection insurance. This is an insurance plan that you can opt into for a monthly fee that would offer protection if something were to happen that prevented you from paying your bills.

Recommended: Charge Cards Advantages and Disadvantages

Types of Credit Card Protection

Read on for more details on the various forms of credit card protection.

Fraud Protection

One basic benefit of a credit card is typically fraud protection, and this can be why people use credit cards over debit cards or cash. If someone were to steal your credit card number or your physical card, fraud protection shields you from being responsible or liable for charges.

Under the Fair Credit Billing Act (FCBA), creditors cannot “take actions that adversely affect the consumer’s credit standing until an investigation is completed.” This means that all credit card companies will launch an investigation if fraud occurs. During this time, you will not be held liable for the charge in question (though make sure to make your credit card minimum payment so you don’t incur late fees or ding to your credit during the investigation).

Some credit card companies may go beyond that and offer even more fraud protection, including $0 liability. (The FCBA caps liability in case of fraud at $50 if the thief presents the card. The liability is $0 if the card is not physically present, as in the case of someone stealing a credit card number and using it online).

While fraud protection can offer peace of mind, it’s also important to be proactive about recognizing fraud. If you lose your credit card, call your issuer to have the card frozen. And always let your issuer know ASAP if you notice a charge that isn’t yours.

Return Protection

Return protection is another form of purchase protection offered by some credit cards. It allows you to return an item for a set period of time defined in your membership agreement. This return window may offer more leeway than that of the merchant you made the purchase from (for example, 90 days instead of 30 days.)

There are exclusions to what can and can’t be returned. Further, there also may be a cap on the cost of the item being returned, as well as an annual cap per card, though it depends on how your credit card works specifically.

Price Protection

Have you ever bought something, only to see the item go on sale a week later? That’s where credit card price protection comes in. With this perk, you may be able to receive a refund for the difference in price if you purchased the item with your card.

Generally, it’s your responsibility to track price drops. And your issuer may have certain terms, such as limiting the protection to price drops within a set time period. Price protection also may exclude certain types of purchases, such as tickets to sporting events or concerts.

Purchase Protection

Similar to return protection, purchase protection can help protect you if purchases are lost or damaged or if services aren’t rendered or delivered as expected. Generally, you would bring the issue up with the merchant or service provider. But if they don’t initiate a refund, then you can dispute the charge with your credit card company. This process initiates what’s called a credit card chargeback.

There may be limitations and exceptions to purchase protection. It can be a good idea to talk directly with the merchant before reaching out to your credit card company.

Travel Insurance

Travel insurance can be a big reason to put a trip on a credit card. In fact, some card issuers offer insurance as a perk for using the card.

The specifics of credit card travel insurance depend on the card issuer, but it may include insurance for lost luggage or coverage for trip interruption or cancellation. In general, these insurance policies may not be as comprehensive as a standalone policy, but they can provide some peace of mind when planning a trip.

Car Rental Insurance

Car rental insurance is another type of insurance offered as a credit card perk. If you rent a car with the credit card, the card may provide insurance protection in case of damage. Generally, this includes collision/loss damage waiver coverage.

Car rental insurance through your credit card may allow you to forego the (sometimes pricey) insurance options offered by the car rental agency. However, as with any insurance policy, it’s a good idea to read the fine print to know exactly what is and is not covered.

How Credit Card Protection Works

Most protections are part of the overall perks and benefits of the card. But credit card payment protection is a little bit different. It’s generally an opt-in program that offers protection if you are no longer able to pay your credit card bill. The protection offered can be short term, such as for a life event like a change in employment, or long term, extending for 12 to 24 months in the event of a job loss or hospital stay.

Usually, credit card payment protection carries an additional monthly fee. Also note that payment protection doesn’t let you off the hook from paying the bill down the road. Rather, for a set period of time, your credit card issuer would offer a break on making payments or lower your minimum payments due, as well as pause any fees. Your issuer will continue to report your account in good standing during that time.

Tips to Keep Your Credit Card Safe

Protection programs can give you peace of mind. But losing a credit card or dealing with fraudulent activity can be stressful regardless of what protections you have in place. It can also potentially open the door to identity theft, which could potentially harm your credit.

That’s why it’s smart to set up some smart security behaviors. Read on for some tips for how to keep your credit card safe.

Practice Credit Card Protection From Day One

When you’ve applied for a credit card, keep an eye out for the card to arrive in the mail. It should come in between five and 14 days; your issuer may provide a timeline.

If you don’t receive your card within that time period, call your issuer. They will issue you a new one. And as soon as you do get your card, follow the steps to set it up for use.

Keep Your Account Number Private

Don’t write down your credit card account number, expiration date, and CVV. Don’t share this information with anyone else. Also consider whether or not you want to save payment information online. While it can be convenient, it could leave your information vulnerable. If you are using your credit card to make a payment, make sure that you are doing so through an encrypted service.

Keep Your Information Current

Make sure that the email address, mailing address, and telephone number on file with your card issuer are up to date. By doing so, you will be aware of any communication between you and your card issuer. Further, this will prevent a new card from being delivered to the wrong address.

Be Careful With Your Receipts

While federal law prohibits how much credit card information is on receipts, this may not be true in other countries. If you’re traveling abroad, it may make sense to be even more mindful about how you dispose of receipts. Don’t leave them lying around.

Secure Your Devices and Networks

Being mindful of how and when you use your credit card online can help you avoid fraud. Using your own network, rather than public WiFi, can be one security step. It can also be helpful to check that a website uses encryption for payment and that it’s a secure site.

Protect Yourself Online

When you’re using a credit card for payment, it’s important to be cyber-savvy. Credit card scams to try to obtain your information or your credit card number are not uncommon.

You’ll want to be on the lookout for phishing attempts. If a merchant or bank asks you to email your credit card number, call the merchant directly. Know that banks will never ask for sensitive information over email. Also be on the lookout for requests to “verify” your information via email or text. Again, these may well be scams designed to get your account information.

Additionally, pay attention to any odd links, misspellings (such as Citii for Citi), or emails that include a link. Instead of following the link within the email, consider manually typing in the URL of a website.

Check Your Account Often

It can be good to get in the habit of regularly checking your credit card balance. Doing so a few times a week, instead of just waiting for a statement to come out, can alert you to fraud as soon as it happens. And remember, a fraudster could steal your information even if your physical card has always been in your possession.

Report Lost Cards and Fraudulent Activity Right Away

If you see something odd on your credit card balance, let your card issuer know right away. The same goes if you can’t find your credit card.

Even if you’re 99% sure your card is somewhere in your house or car, it can be a wise idea to contact your card issuer. In some cases, they can freeze your card. This means that you’ll be able to unfreeze it once you’ve found it, without getting a new card and a new card number.

Recommended: When Are Credit Card Payments Due?

What Does Credit Card Payment Protection Cover?

In general, credit card payment protection insurance has restrictions regarding when it applies, and it may require documentation.

Some reasons you may be able to request long-term credit card payment protection may include:

•   Job loss

•   Disability

•   Hospitalization

•   Death of a child, spouse, or domestic partner

•   Leave of absence (for family or child care, or for military duty)

•   Federal or state disaster

Meanwhile, you may be able to get short-term protection for the following reasons:

•   Marriage

•   Divorce

•   Graduation

•   Childbirth

•   Adoption

•   Retirement

•   New job and job promotion

•   A move to a new residence

Situations that may not qualify for payment protection include incarceration or voluntarily leaving your job, such as to pursue higher education.

Pros and Cons of Payment Protection

Is payment protection right for you? That depends. The opt-in program usually costs an additional fee. Plus, while paying your full balance each month is ideal, you could potentially pay the credit card minimum payment if you were going through hard times to keep your account in good standing, though your annual percentage rate (APR) would still apply.

In many cases, it may make sense to focus on bringing down your balance so your minimum payment is relatively low. That way, if the worst were to happen, you might still have enough room in your budget to manage minimum payments.

Is Credit Card Payment Protection Worth It?

Weighing the pros and cons of credit card payment can help you assess whether it makes sense for you. If you carry a very high balance and are in the process of paying it down, payment protection may give you peace of mind — especially if you don’t have a good APR for a credit card. But keep in mind that you could potentially switch to minimum payments during a hard time and still maintain your payment history.

To decide if credit card payment protection is right for you, it’s important to read the fine print and assess how these credit card fees would impact your overall financial outlook. Also take into consideration your current financial situation, your savings account balance, and the general stability and security of your job and lifestyle.

Credit Card Protection Scams and How to Avoid Them

As credit cards offer protection, scammers see opportunities — and these can be tailored, beyond just credit card skimming. There are several credit card protection scams that may target card holders, including:

•   Phone scams offering loss protection for a fee. Some scammers have been calling people and telling them they may be liable for charges beyond $50 on their credit card. They then try to get people to buy loss protection and insurance programs. If you get this call, know that credit cards include fraud protection at no additional fee — plus, your liability is limited to $50 by law. Call your credit card company if you have any questions about its fraud protection programs.

•   Scams claiming your account has been compromised. In this case, the scammer will ask you to provide personal details, such as your credit card number, claiming your account has been compromised. Don’t ever give sensitive credit information over text or via email. If someone calls claiming to be your credit card company, call the company directly from the number on the back of the card. Scammers can mask their true phone number and make it appear as if they are legit.

•   Fraudulent text alerts. Scammers also may send text messages asking for your CVV number on a credit card to “fix” a security problem or “verify” or “update” your account. A real credit card company would never ask for this information nor send text messages like this.

•   Fake account protection offers. Any account protection should come directly from your credit card company, not from a third party. If you receive these offers, don’t take them up on it.

The Takeaway

Credit card protection can be one of the great benefits of using a credit card. While some credit card protections are standard, including fraud protection, it can be helpful to consider what protection offers are most important to you before paying for additional services.

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 there limits to credit card payment protection?

There may be limits on what qualifies for credit card payment protection, and your issuer may need to see proof of hardship. Further, there may be a time limit on how long credit card payment protection is offered.

Is there a time limit on credit card payment protection?

Generally, issuers have a time limit for credit card protection policies. These vary between issuers, but may be as short as several months or as long as two years, depending on the circumstances.

Should I get credit card payment protection insurance?

Credit card protection insurance may incur an additional fee, unlike other protection options offered as part of your overall perks and benefits within your card. That fee can add to your balance. If your credit card balance is at or near $0, credit card payment protection insurance may not be necessary.

Photo credit: iStock/9dreamstudio

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

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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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The concept of a credit card can be dated back to the early and mid 1900s. There were actually a number of early iterations of what we know and use today as a credit card. Over the decades, these financial tools have evolved, and variations have multiplied.

Read on to learn about the major milestones in the history of credit cards and how this payment method came to be so popular, as well as what the future holds.

Invention of Credit Cards

There were several precursors to the modern version of the credit card. Credit card history can be traced back to 1914, when Western Union rolled out the idea of “Metal Money.” These metal plates were granted to a handful of customers and allowed them to push back payment until a later date.

The next version of credit cards was introduced in 1946, when New York City banker John Biggins introduced the Charg-it card. These charge cards were usable within a two-block radius of Biggins’ bank. Purchases made by customers were forwarded to his bank account, and merchants were reimbursed at a later date.

Recommended: Charge Cards Advantages and Disadvantages

When Were Credit Cards First Used?

Here’s an overview of which types of credit cards were used when, from the first store card to the first international card.

First “Use Now, Pay Later” Cards

The Diners Club Card was the first card that gained widespread use. The idea for the card arose when businessman Frank McNamara misplaced his wallet and couldn’t pay for dinner at a New York City restaurant. The good news is that his wife was there to cover the tab.

In 1950, McNamara returned to the same restaurant with his business partner, Ralph Schneider, where he used a cardboard card to pay the bill. That card was the Diners Club Card, and the dinner became known as the “First Supper.”

First Bank Cards

In 1958, American Express developed its first credit card that was made of cardboard. The next year, the plastic credit card was developed and released.

Also in 1958, Bank of America mailed its credit card to certain segments of the market in California, where it was based. The bank offered a pre-approved limit of $300 to 60,000 customers in Fresno.

Then, in 1966, Bank of America’s BankAmericard became the U.S.’s first general-use credit card, meaning more places would accept credit card payments with it.

First Interbank Cards

In 1966, a cluster of California banks joined together to form the Interbank Card Association (ITC). The ITC soon launched the nation’s second major bank card. Initially called the Interbank card and later the Master Charge, this card was renamed Mastercard in 1979.

First International Cards

The credit card soon went international, with Diners Club laying claim to being the first international credit card. It’s said to have become the first globally accepted charge card in 1953 when businesses in Cuba, Mexico, and Canada began accepting payments from customers with Diners Club cards.

And in 1970, Bank of America rolled its BankAmericard on a global scale, prompting the formation of the International Bankcard Company (IBANCO).

Regulation and Litigation

Over the decades, credit cards have undergone several rounds of regulation. Here’s a look at some of the major regulatory milestones in the history of credit cards:

1970:

•   The Fair Credit Reporting Act was passed to regulate the collection, access, and use of data concerning consumer credit reports.

•   Also this year, the Unsolicited Credit Card Act was introduced. It prohibited credit card issuers from sending credit cards to customers who didn’t request them.

1974:

•   The Fair Credit Billing Act of 1974 was created to protect consumers from unfair credit billing practices. For instance, it stated that consumers have the right to dispute unauthorized charges, charges made due to errors, and charges when goods weren’t delivered and services not rendered.

•   The Equal Credit Opportunity Act (ECOA) was passed as well. This prevented lenders from discriminating against credit card applicants based on gender, race, age, religion, marital status, national origin, and whether you receive benefits from a public assistance program. It also specified that a lender can’t charge higher fees or a higher than average credit card interest rate for any of those reasons.

1977:

•   The Fair Debt Collection Practices Act was introduced to prevent debt collectors from using deceptive, unfair, or abusive practices when collecting debt that is in default and handled by debt collectors. It limited calls from such agencies to between the hours of 8am to 9pm and prohibited contact at an unusual time or place. In addition, it specified that if you’re represented by a debt attorney, the debt collector must stop calling you and reach out to your attorney instead.

2009:

•   The CARD Act boosted consumer protection by “establishing fair and transparent practices related to the extension of credit.” It prohibits credit card issuers from offering credit without first gauging the consumer’s ability to pay. Additionally, it introduced special rules when it comes to extending credit to consumers under the age of 21. The CARD act also limits the amount of upfront fees an issuers can charge during the first year after an account is opened, as well as the instances that issuers can charge penalty fees.

Technological Evolution of Credit Cards

Here are some of the main technological milestones and changes of credit cards throughout their history:

1969: Magnetic Stripe

Credit card networks and banks started rolling out cards with the magnetic stripe, which became widely adopted. While it’s on the verge of being phased out, consumers still use magnetic stripe for payment today.

2004: Contactless Credit Cards

Contactless credit was used for the first time in 2004. They started to become more popular in 2008, when major credit card networks (including Visa, Mastercard, and American Express) started offering their own versions of contactless cards.

2010: Chip Cards

Pin-and-chip technology made its way to America in 2010. This credit card chip technology offers greater security than magnetic cards, which can be copied. These days, the majority of credit cards in America have EMV (which stands for Europay, Mastercard, and Visa) chips.

2011: Mobile Wallets

In 2011, Google introduced the first mobile wallets, and Apple followed in its footsteps in 2012. In 2014, Apple Pay was released, followed by Android and Samsung Pay in 2015. As mobile wallets are stored on your smartphone, they can grant greater security than physical cards, which can more easily be lost or stolen. Plus, smartphones have security features, such as fingerprint recognition and passcodes, which can provide higher levels of security.

How Do Credit Cards Work?

Credit cards are a tangible card that you can use to make purchases. If you’re wondering how credit cards work, they’re a type of revolving loan, which means that you can tap into your line of credit at any given time. You can borrow funds up to your credit limit, which is set when you apply. Your line of credit gets depleted when you make transactions, and it gets replenished when you pay back what you owe.

Here are some more details on how credit cards work:

•   Credit cards have an interest rate, expressed as annual percentage rate (APR). This represents how much interest you pay during an entire year and includes any fees and other charges along with the interest rate. You’ll only pay interest if you have a remaining balance after your payment due date. When you pay the full balance that you owe on your card, your balance is zero, and you will not owe interest.

•   If you pay more than you owe, or if a merchant issues you a refund for an amount larger than your total balance, then you have a negative balance on your credit card.

•   Credit cards may also come with perks, such as rewards points and cash back. Cardholders may also enjoy additional benefits like travel insurance and discounts at select merchants.

•   Credit cards also have built-in security features, such as pin-and-chip technology, fraud monitoring, and a three-digit CVV number on a credit card.

In terms of how to apply for a credit card, you’ll first want to know your credit score, as this will indicate which cards you may be eligible for. You may consider applying for preapproval to determine your odds of getting approved. When you’ve compared your credit card options and decided which one is right for you, then you can apply online, over the phone, or through the mail.

Credit Cards and Credit Scores

Credit cards can have a major impact on your credit score. For one, your account activity is reported to the three major credit bureaus: Equifax, Experian, and TransUnion.

Making on-time credit card minimum payments can help build your credit, as payment history makes up 35% of your FICO consumer credit score. On the flipside, making late payments can drag down your score.

You’ll also want to keep an eye on how much of a balance you rack up relative to your total amount of credit available (aka your credit limit). Your credit utilization ratio, which measures how much of your available credit has been used, accounts for 30% of your score. It’s generally recommended to keep your credit utilization below 30% (10% is even better) to avoid adverse effects to your credit score.

Other factors related to how your credit card can impact your score include:

•   The length of your credit history, which makes up 15% of your score

•   Your mix of different credit types, which accounts for 10% of your credit score (more is better)

•   Having a longer credit history, meaning accounts open for longer, can help build your score

•   Not applying for too much new credit is also a way to build your credit score. Too many hard credit inquiries related to new lines of credit can make it seem as if you are more of a risk.

Types of Credit Cards

Today, there are a number of types of cards to choose from. Take a look at the different types of credit cards available.

Rewards Cards

Rewards cards feature a way to earn rewards through travel miles, cash back, or points. You usually collect rewards when you make purchases. For example, you may earn one point for every dollar spent and/or a multiple of that for certain types of purchases or ones made at specific retailers.

You usually can redeem the rewards you earn in different ways, such as on travel accommodations, airline tickets, gift cards, merchandise, or as credit toward your balance statement.

Low-Interest Cards

As the name suggests, low-interest cards feature a low APR. Having a card with a low APR can certainly benefit you if you carry a credit card balance or plan to use your card to make a large purchase, as you may be able to save money on interest.

When looking for low-interest credit cards, you usually need to have a strong credit score to qualify.

Credit-Building Cards

If you have a short credit history or less-than-stellar credit score, a credit-building card can help you boost your credit. As payments made on a secured credit card are reported to the three major credit bureaus, using your card can help build your credit as long as you stay on top of your payments.

While these cards are more accessible than many other credit cards out there, they also tend to have higher interest rates and fees. They may also offer a lower credit card limit.

Secured Credit Cards

If you have a low credit score, you might also look into a secured credit card, in which you put down cash, which becomes your credit card limit. Use these cards responsibly, and you may be able to graduate to a standard credit card.

Recommended: When Are Credit Card Payments Due

The Future of Credit Cards

As demonstrated in the past few decades, credit card technology is constantly evolving to meet the needs and demands of consumers. The next time you reach your credit card expiration date, you could see an updated product in the mail.

It’s expected that contactless payments, which increased in popularity during the pandemic, will continue to proliferate. In the future, it may even become possible to make payments via voice command tools. Wearable payments, such as paying for goods and services with payment technology that’s embedded in a wristband, ring, or keychain, is another avenue being explored.

Additionally, the security protocols used in credit cards will continue to evolve. It’s anticipated that magnetic stripe cards will soon fall by the wayside and be replaced by biometric cards, which use fingerprints and chip technology to enhance security.

The Takeaway

As you can see from learning the history of credit cards, a lot has changed since the payment method was first introduced. Credit cards remain as popular a payment method as ever, and it’s expected they’ll continue to evolve as technology and consumer needs shift. One thing that probably won’t change is the importance of understanding how credit cards work, what your card agreement’s fine print says, and how to use these cards responsibly.

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

Who invented credit cards?

There were several early iterations of credit cards, so it’s difficult to pin down exactly who invented credit cards. The credit may go to businessman Frank McNamara and his business partner Ralph Schneider, who invented the Diners Club Card.

How were credit cards first used?

While the concept of paying by credit can be traced back to ancient civilizations, the first modern day example of paying with a credit card was the Diners Club card, which could be used at restaurants. However, this card had one major difference between modern credit cards: You had to pay off the balance in full each month.

What was the first type of credit card?

The first type of credit card was most likely the Diners Club card, introduced in 1950. It was the first credit card that could be used at multiple establishments.

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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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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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While you have to be at least 18 years old to get your own credit card, you can become an authorized user on someone else’s credit card as a 16-year-old. This allows you to have a copy of a credit card with your name on it — though the adult will still be the account holder and be responsible for paying the bills.

Keep reading to learn more about how to get a credit card at 16, which will involve becoming an authorized user.

How Old Do You Have to Be to Get a Credit Card?

Generally, you must be 18 years old to get a credit card on your own. Even after turning 18, you usually must prove that you have independent income or get an older cosigner before the age of 21 in order to get a credit card, due to regulations that govern how credit cards work.

While getting a cosigner (usually a parent) can be doable, many teens may struggle to find a credit card issuer that is willing to accept a cosigner. More often than not, if a teen wants to gain access to a credit card, their best path forward is to become an authorized user on someone else’s credit card.

What Is an Authorized User?

An authorized user is someone who is added to a credit card account by the primary account holder. Becoming an authorized user on someone else’s credit card can make it possible for a 16-year old to have a credit card, as virtually all major credit card issuers accept authorized users who are 16.

If an adult — such as a parent — wants to, they can add a teenager as an authorized user to their credit card. The account holder can then request that the authorized user receive a copy of the credit card with their name on it. This credit card will share the same number as the card of the main account holder.

The teen can then make purchases with the credit card anywhere that accepts credit card payments, but they won’t be legally responsible for paying the bills. Because of this, it’s important that everyone works together to communicate and is aware of what’s being spent and who will pay it off. If the parent is going to put a big purchase on their credit card — such as paying taxes with a credit card — an authorized user’s added spending can drive up the credit utilization ratio.

Recommended: When Are Credit Card Payments Due

Becoming an Authorized User

Becoming an authorized user on a credit card can impact a teen’s credit score and build their credit history. That’s because when a teenager becomes an authorized user on a credit card, the credit card issuer will begin to report the account activity to the three major credit bureaus (TransUnion, Equifax, and Experian).

The primary account holder must contact their card issuer to add you. Then, here’s how being an authorized user can benefit you:

•   When the primary account holder makes on time payments and keeps their balance low in comparison to their credit card limit, the teen’s score should benefit. On the other hand, if the account holder is late on their payments, the teen’s credit score could suffer.

•   It’s important for both the account holder and authorized user to know how much they can afford to spend and how much they can manage to pay off each month. Ideally, you’ll be able to pay more than the credit card minimum payment to minimize the interest that accrues.

•   It’s also wise to double-check that the credit card issuer is reporting the behavior of the authorized user to the three main credit bureaus. Some credit card issuers, like Wells Fargo, accept authorized users who are under the age of 18 but don’t report their behavior to the credit bureaus until they come of legal age — which won’t help the teen build their credit history or credit score.

Credit Card Options for 16-Year-Olds

If becoming an authorized user isn’t a good fit, 16-year-olds have other options. Teens may find that a debit card or prepaid card can give them the convenience of using a card without actually having a credit card or borrowing any money.

•   Because debit cards are connected to bank accounts, a teen can use a debit card to make payments without physical cash on hand. However, they can’t spend more than they have in their bank account.

•   They also won’t have to worry about any potential impacts to their credit score when using a debit card.

Another option: prepaid cards, which can be purchased at grocery stores, gas stations, and pharmacies. These can be loaded with a set amount of money. The user can then spend as much as the prepaid card is worth.

Neither a debit card nor a prepaid card will help teens build their credit score, nor do they offer the protections a credit card does, like requesting a credit card chargeback if there’s an incorrect charge. However, these options can get teens used to the concept of not overspending when shopping with a card instead of cash.

Are There Advantages to Getting a Credit Card at 16?

There are some unique advantages that come with getting a credit card at the age of 16 by becoming an authorized user. In addition to the teen gaining a firm grasp on what a credit card is, these are the main benefits worth keeping in mind.

Building Credit Score

As we briefly mentioned earlier, using a credit card responsibly can help teens build their credit history and credit score. Building credit when you’re young can make it easier to qualify for better credit products as well as rates and terms down the road.

Learning Good Financial Habits Early

Another headstart that teens can get by using a credit card at age 16 is learning good financial habits. Using a credit card can help teenagers learn how to budget, pay bills on time, and spend less than they earn. They can also begin to learn about annual percentage rate, or APR, and understand why it’s so important to find a good APR for a credit card.

Access to Emergency Funds

As teenagers gain more and more independence, their parents won’t always be with them when they’re out and about. If an emergency were to arise, like running out of gas, a credit card can give a teen the ability to spend more than just the cash they have on hand.

Rewards for Card Holders

The fun part about credit cards is that it’s possible to earn rewards when you use them. Because the teen will be an authorized user on a credit card, the account holder will be the one to redeem any credit card rewards. Still, this serves as a good opportunity to teach a teenager the benefits of using credit responsibly when it comes time for them to apply for a credit card of their own.

If they want, the primary account holder can even share some of their cash back or other perks with the authorized user.

Convenience for Both Parents and Children

Parents may find that their teen having a credit card saves them a lot of fuss. Do they need money for a yearbook or to buy prom tickets? No worries, they can use their credit card as long as they have permission or know their spending limits. With their own credit card (and the help of a responsible adult when it comes time to pay the bill), teens can use a credit card to manage their college applications, pay for SAT prep classes, or pick up school supplies.

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

Common Pitfalls for 16-Year-Olds With a Credit Card

Of course, credit cards aren’t all fun and games. Here are some pitfalls that 16-year-olds should look out for when using a credit card.

Overspending

The biggest mistake any of us can make when it comes to credit cards is overspending and not being able to afford our bill. It’s important that parents or legal guardians have serious conversations with their teens about how credit works and what the consequences of overspending can be. This can include credit card interest, fees, and a bruised credit score.

Possibility of Credit Card Fraud

Credit cards come with fraud risks that teens who are used to paying in cash may not know what to look out for, such as credit card skimmers. While credit cards can be more secure than debit cards, it’s important to teach teens about how to use credit cards safely so their card isn’t lost or stolen and they don’t fall prey to identity theft.

The Takeaway

It is possible to get a credit card at 16 by becoming an authorized user on an adult’s credit card account. To get your own credit card, you’ll need to wait until you’re at least 18, and even then, you’ll need to prove you have independent income or get a cosigner. When it is time to get a credit card of your own, you’ll want to make sure you’re ready to manage it responsibly and that you take the time to select a credit card that fits your needs.

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 is the minimum age to get a credit card?

You must be 18 years old to get your own credit card. Even then, you must prove that you have a steady source of income or else you’ll need to get a cosigner who is over the age of 21.

Can a 16 year old get a credit card with a cosigner?

No, you must be at least 18 years old to get a credit card — even if you have a cosigner. Those under the age of 18 can become an authorized user on an adult’s credit card account, but they can’t get a credit card of their own.

Can you use a credit card to build a good credit score?

When used responsibly, a credit card can help build a credit score. If a teen becomes an authorized user on a parent’s credit card, for instance, and that parent makes on-time payments and keeps their credit utilization low, they can build their credit score as well as the teen’s.

What payment card can you get at 16?

Before the age of 18, teens can get a debit card or a prepaid card on their own. Neither type of payment card will help build their credit score, but they are easier to obtain than a credit card. A teen can also become an authorized user and get a credit card of their own if approved by the main account holder, though this will not be their own credit card account.

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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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Asset managers use a “glide path” to determine how the asset allocation of a target-date retirement fund will change based on the number of years until the fund’s target date. Each target-date fund has its own glide path, though they typically begin with a more aggressive allocation that gets more conservative over time.

The idea behind most target date fund glide paths is that investors with a longer-term time horizon should have a higher percentage of their portfolio in riskier assets, like stocks, since they have time to recover from short-term volatility. As their retirement date approaches (or once they’ve started retirement), investors likely will benefit from a more conservative portfolio that protects the assets they’ve already accumulated.

What Is a Glide Path?

The glide path is the formula that asset managers choose when they put together a target-date mutual fund that determines how and when that portfolio will adjust its asset allocation over time.

Target-date funds (and their glide paths) are common investment choices in 401(k) accounts, as well as in other types or retirement accounts, such as a Roth or traditional IRA set up through a brokerage account.

A key component to saving for retirement is having a suitable mix of investments that allow for portfolio diversification. Early on, most glide paths focus on stocks that typically offer the greatest potential to grow in value over time and then shift to bonds and other fixed-income investments according to the investor’s risk tolerance to manage volatile price swings as they grow older.

Understanding Glide Path

The glide paths within target-date funds aim to create a set-it-and-forget-it investing option for retirement savers, who may get diversification based on their time horizon within a single fund. Investors who are younger and have 20 to 30 years until retirement typically need to maximize their portfolio growth, which requires a much higher allocation toward stocks.

By comparison, someone who is nearing retirement or has already retired, may need to scale back on their portfolio risk. Glide path investing automatically reallocates the latter investor’s portfolio toward bonds which are typically lower risk investments with lower returns compared to stocks but provide portfolio stability. That also generally means that younger investors in a target-date fund will typically have higher 401(k) returns than older investors.

Types of Glide Paths for Retirement Investing

There are different glide path strategies depending on an investor’s risk tolerance and when they plan to retire. Typically, target-date funds have a declining glide path, although the rate at which it declines (and the investments within its allocation vary depending on the fund).

Declining Glide Path

A declining glide path reduces the amount of risk that a target-date fund takes over time. In general, it makes sense for retirees or those approaching retirement to reduce their investment risk with a more conservative portfolio as they age. A decreasing glide path is the more common approach used. It involves a higher equity risk allocation that steadily declines as retirement approaches.

Static Glide Path

Some target-date funds may have a static glide path during some years. During this time, the investment mix would remain at a set allocation, such as 60% stocks and 40% bonds. Managers maintaining portfolios that have a static glide path rebalance them regularly to maintain this allocation.

Rising Glide Path

Some specialists believe that the glide path should begin to rise again once an investor reaches retirement age, taking on more risk over time. This argument takes the position that increasing risk in a retiree’s portfolio could reduce volatility in the early stages of retirement when the portfolio is at risk of losing the most wealth in the event of a stock market decline.

An increasing glide path may be an option to consider for retirees with pension benefits or higher withdrawal rates or those who are working in retirement. If a retiree understands the risk involved and is comfortable taking it on, this strategy might make sense, however, generally speaking, the rising glide path is the least utilized method for retirement planning.

💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.

Choosing the Right Glide Path

If you’re saving for retirement in a 401(k), there may only be one target-date option available to you based on your target-retirement age. However, if you have choices within your 401(k) or you’re choosing a target-date fund within an individual retirement account or another investment vehicle, you’ll want to look for a target-date fund with a strategy that aligns with your investment view.

One rule of thumb uses the “rule of 100,” which subtracts the investor’s age from 100 to determine the percentage of your portfolio that should be in stocks. However, some managers use glide paths that decline more or less quickly than that.

Some target-date funds also incorporate alternative assets, such as private equity or real estate, in addition to traditional stocks and bonds.

”To” or “Through” Retirement

When glide paths reach retirement date, they can take one of two approaches, either a “To” or “Through” approach. A “To” retirement glide path is a target-date fund strategy that reaches its most conservative asset allocation when retirement starts. This strategy generally holds lower exposure to risk assets during the working phase and at the target retirement date. This means, at retirement, it reduces exposure to riskier assets, like equities, and moves into more conservative assets, like bonds.

“Through” glide paths tend to maintain a higher allocation toward riskier assets as investors accumulate savings at their target retirement date and years into retirement. This means exposure to equities in retirement tends to be higher, at least in the first few years of retirement.

In choosing which path is best suited to you, you must determine your risk tolerance and how aggressive or conservative you are able to be. This includes deciding how much exposure to equities you can afford to have. Decreasing exposure to stocks means investors may not have to worry as much about a portfolio that fluctuates in value, whereas an increased exposure to equities may mean a portfolio with more volatility that could have potential for greater gains over time.

The Takeaway

Glide paths are formulas that investment managers create to determine the level of risk in a target-date fund. The idea is that a portfolio automatically adjusts itself based on risk tolerance that changes as the investor ages, allowing for a more hands-off approach.

Glide paths are common investment choices in retirement accounts such as 401(k)s and IRAs. As you’re determining your retirement savings strategy, carefully consider whether they may make sense for you.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

What does glide path approach mean?

A glide path refers to a formula that asset managers use to determine the allocation mix of assets in a target-date retirement portfolio and how it changes over time. A target-date retirement portfolio tends to become more conservative as the investor ages, but there are multiple glide paths to take account to a retiree’s risk tolerance.

What is a retirement glide path?

A retirement glide path is the approach within a target-date fund that includes a diversified portfolio of stocks and bonds. Retirement glide paths typically start out with a more aggressive mix of investments and get more conservative over time.

Which type of mutual fund follows a glide path?

Target-date retirement funds are the most common type of mutual fund that follows a glide path. However managers may also use glide paths for other time-focused, long-term investments, such as 529 retirement accounts.

What is an example of a glide path?

Here is one example of a glide path: Say an investor plans to retire in 2050 and buys a target-date 2050 fund. If the investor is using a declining glide path strategy, it will automatically reduce the amount of risk that the target-date fund takes over time. So, for instance, the target-date fund might have 70% stocks and 30% bonds at the beginning, but over time, the amount allocated to stocks will steadily decline, and the amount allocated to bonds will steadily increase —making the portfolio more conservative as the investor approaches retirement.

What are the benefits of a glide path?

Benefits of a glide path may include making investing easier because the process of changing asset allocation is automatic, and allowing for an essentially hands-off approach since glide paths are professionally managed. However, there are drawbacks to consider as well, including possibly higher management fees for some target-date funds.

Photo credit: iStock/akinbostanci

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.

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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