Your credit card closing date marks the end of your billing cycle, which determines how much you’ll owe when your credit card payment comes due. Your credit card due date, on the other hand, is when you’ll need to make at least the minimum payment if you want to avoid a late fee.
By understanding the implications of both your credit card closing date and your credit card due date, you can better strategize to make purchases and also ensure you make on-time payments.
What Is a Credit Card Closing Date?
A credit card closing date determines your credit card “billing cycle,” which spans an interval of about 28 to 31 days. This day might vary each month, but according to the Consumer Financial Protection Bureau (CFPB), it can’t vary by more than four days.
The bank uses your credit card’s statement closing date to determine which purchases are calculated toward the current statement’s total balance and the minimum credit card payment that’s due. Any purchases made after your credit card closing date are applied to the next month’s billing statement.
The closing date for a credit card is also the date the bank uses to calculate your credit card’s finance charges, which are also called the interest charges. Typically, credit card issuers offer a grace period on new purchases starting on the date after the closing date until your credit card payment due date. During this time, interest charges aren’t incurred yet.
Although many credit card companies offer a grace period, it’s not a requirement, so check the terms of your credit card closely.
Another critical date to remember when it comes to your credit card account is your credit card due date. Payments received by the bank by 5 p.m. on the credit card payment deadline are considered on-time; after this period, your credit card payment is considered past due. (Keep in mind that the time zone in which your bank is located may vary from yours. You might want to check that when trying to pay right before the deadline.)
Your credit card due date is the same for each billing statement. For example, if this month’s credit card bill is due on June 15, your next billing statement will be due on July 15. This due date applies regardless of whether you’re making a full payment for your statement balance or the minimum amount due.
Although you should always aim to make your credit card payment on time, card issuers generally don’t report late payments to credit bureaus until 30 to 60 days after your credit card due date. Late fees might be applied to your credit card account if you don’t make a payment by the credit card payment due date, however, given how credit cards work.
Differences Between a Credit Card Closing Date vs Due Date
Here’s a look at some of the key distinctions between credit card payment due date vs. closing date to keep in mind:
Credit Card Closing Date
Credit Card Due Date
Last date of billing cycle
Last date to submit an on-time payment
Date before grace period begins
Date before the next billing cycle begins
Date might change slightly
Same date every statement period
Affects your credit utilization ratio
Can impact your credit score
How Your Credit Card Closing Date Affects Your Credit Score
On your credit card statement closing date, your card issuer typically reports your account activity, including your card’s outstanding balance, to the three credit bureaus — Experian®, Equifax®, and TransUnion®. This information impacts your credit utilization ratio, which is the ratio of credit in use compared to the amount of credit you can access.
As an example, say your closing date is May 20, and you made a $2,000 purchase on your credit card on May 15. That purchase will be reported and can increase your credit utilization ratio. A high credit utilization ratio can adversely affect your credit score.
If the purchase isn’t urgent, perhaps you might wait until May 21 to put the charge on your credit card. In this scenario, your $2,000 credit card purchase wouldn’t be reported to the credit bureaus until the end of your next billing cycle. And if you pay it off before then, it might not affect your credit utilization ratio.
Determining Your Next Credit Card Statement Closing Date
Knowing how to decipher your credit card bill each month can help you to uncover your statement closing date. Typically, you’ll find your billing cycle dates at the top of your credit card bill. This might be called your “opening/closing dates,” and it typically will be displayed as a date range.
When reading your credit card statement, you can find these dates and then count the number of days between the dates. Then, count forward from the credit card closing date to determine your next credit card statement closing date.
Guide to Changing Your Credit Card Due Date
You might find that changing your credit card due date can help you better manage your credit card payments. This might come up if you get paid on a certain date each month and want your due date to fall closer to payday.
Generally, card issuers are willing to work with you on a due date that will help you make regular, on-time payments. However, credit issuers have different restrictions, so talk to your credit card issuer to see whether it’s flexible.
To change your credit card due date, you can either:
1. Call the phone number at the back of your credit card to speak to a customer service associate who can help.
2. Log in to your credit card’s online account and make the change (if available) yourself.
Be aware that it can take one to two billing cycles to see the change on your account.
What You Should Know About Determining Your Time to Pay
Your credit card closing date and payment due date can help you strategically decide when it’s time to pay your credit card bill. For example, if you need to keep your credit utilization low to improve your credit to secure a mortgage loan approval, then paying your credit card bill before your closing date can help.
However, if you simply want to avoid interest charges and late fees on your purchases, making a payment by your credit card due date is sufficient. Still, make sure to stay mindful of the potential to fall into credit card debt, which can be hard to shake (here’s what happens to credit card debt when you die).
The Takeaway
Your payment due date vs. closing date are two very important dates that relate to your credit card account. The closing date indicates the end of the monthly billing cycle, and the payment due date tells you when at least the minimum payment must be paid to avoid a late fee. Being aware of both dates can help you make purchases strategically and ensure you make payments on time.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
Should I pay off my credit card before the closing date?
Paying off your credit card as early as possible is always ideal. Doing so can help you maintain a low credit utilization ratio, which is beneficial to your credit score.
Can I make more than one payment per statement period on my credit card?
Yes, you’re allowed to make more than one payment per statement period to pay off your statement balance. In fact, doing so can help you potentially avoid incurring interest charges and rolling a balance into your next billing cycle.
Can I use my credit card between the due date and the closing date?
Yes, you can use your credit card between the due date and the credit card statement closing date. Purchases made after your credit card due date are simply included in the next billing statement.
Is the credit card closing date the same every month?
Not always. Your credit card closing date might be the same date each month, but billing cycles can vary up to four days from the typical closing date.
Photo credit: iStock/Seiya Tabuchi
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
How old an authorized user has to be really depends on the credit card issuer. Some set the minimum age for an authorized user on a credit card at 13, while others require that an authorized user is 15 or even 16. Many issuers don’t specify a minimum age requirement at all.
In other words, it’s largely up to the adult’s discretion whether a minor seems old enough to become an authorized user. While it can serve as an educational tool and help build their credit, it also can lead to racking up debt and impacting both parties’ credit. You’ll want to make sure you know what you’re getting into in order to determine if it’s the right arrangement for you.
Key Points
• The minimum age for an authorized user on a credit card varies by issuer, typically ranging from 13 to 16, with some issuers having no minimum age requirement.
• Adding a minor as an authorized user can help them build credit early, but it also carries risks like increased debt and potential negative impacts on both parties’ credit scores.
• Educating minors on credit card basics, setting spending limits, and monitoring their usage is important to ensure responsible behavior.
• Some credit cards may charge a fee for adding authorized users, especially premium cards, so it’s crucial to check with the issuer.
• Removing a minor as an authorized user is straightforward, usually requiring a call to the credit card company to request the change.
That being said, the minimum age for an authorized user on a credit card ultimately depends on the credit card company, as each issuer has its own age requirements. Some set the minimum age to 13 years old, while others may make authorized users wait to get a credit card at 16 or 15 (SoFi requires an authorized user to be age 15 or older). Some credit card issuers don’t specify a minimum age for authorized users on credit cards.
Factors to Consider Before Adding a Minor as an Authorized User
Depending on the particular type of credit card and issuer, you might have to pay an additional annual fee to add an authorized user. For example, the Chase Sapphire Reserve card currently charges a $75 fee to add an authorized user.
Check with your card card issuer to see if you might get hit with a fee for adding authorized users to your account.
If They’re Old Enough to Handle the Responsibility
Even if you can add an authorized user as young as 13 to your card, doing so might not be in your best interest — or theirs. For instance, a child in their early teens might not have a basic grasp of managing finances, or they might not be mature enough to handle the financial responsibility and abide by basic credit card rules.
If you’re adding your minor as an authorized user to help them establish credit, a few years is enough time for them to be on their way. Plus, should you slip on your credit, it could also impact your child’s credit.
Most credit cards don’t issue unique card numbers to each authorized user. That means if you have multiple authorized users on an account, you won’t be able to easily figure out who made which purchases. Before you go ahead with adding an authorized user, make sure you have a system worked out so you’re not stuck covering their spending (unless you want to).
Whether You’ll Give Access to the Card
While you can give an authorized user their own card, you don’t have to, especially if you’re worried about how they’ll spend with it. If you’re strictly adding a child to your card to help them build credit, there’s no need to hand them a card. They don’t need to have access to your credit card number, either.
Steps to Add a Minor as an Authorized User
First and foremost, you’ll want to carefully weigh the pros and cons of adding someone under the age of 18 as an authorized user. If you have decided that you want to proceed, you’ll need to do the following.
1. Educate the Child About Credit Card Basics
Before adding a minor as an authorized user and giving them the privilege to spend on your card, sit them down and walk them through how credit cards work. For instance, you’ll want to explain what a credit limit is, how interest rates work, what one’s financial responsibility is when putting purchases on a card, and why it’s beneficial to build credit.
Next, you’ll need to contact the credit card company to let them know you’d like to add an authorized user to your card. You can do so by calling the number on the back of the card or by logging onto your account online.
You usually need to provide the following information about the individual you’re adding as an authorized user:
• Name
• Date of birth
• Social Security number
• Address (for them to receive the card)
• Additionally, you may be able to set spending limits or restrictions for the authorized user at this point in the process.
3. Check Your Account
To make sure the authorized user was correctly added, log on to your account on the issuer’s website or through the app. Double-check to make sure the minor’s name and details are all correct. You might also receive an email notification informing you of this change.
The Cost of Adding an Authorized User
Many credit card issuers do not charge a fee to add an authorized user to an account. However, premium credit cards or cards that already charge annual fees, may charge an annual fee for adding authorized users. This fee may apply per authorized user, or you may pay a flat cost for up to a certain number of users.
Beyond this potential fee, there are other costs you could incur by adding an authorized user. For instance, additional purchases made by the authorized user could cause you to rack up a balance. Plus, their activity can impact your credit utilization, which could hurt your credit score.
Pros and Cons of Adding a Minor as an Authorized User
Here’s an overview of the advantages and downsides of adding a minor as an authorized user to your credit card:
thumb_up
Pros:
• Can help build credit
• May allow you to earn more rewards
• Serves as an educational tool
thumb_down
Cons:
• May cause you to rack up debt
• Can’t easily track who’s making purchases
• Can impact credit of both primary cardholder and authorized user
Pros
Adding an authorized user can have the following benefits:
• Can help build credit: A major upside of adding a minor as an authorized user is that it can help them establish credit at a young age. They’ll have a more firm financial footing as a result.
• May allow you to earn more rewards: Another person making purchases on your card means there’s greater potential to earn more rewards. You can gain rewards more quickly than if you would if you were the sole user.
• Serves as an educational tool: You may find that adding a minor as an authorized user to your card can help them learn credit basics and how to manage credit card debt, especially if you coach them through the process.
Beware of the potential downsides of having an authorized as well:
• May cause you to rack up debt: It can be easy to rack up debt and overspend on the credit card with an authorized user. This is especially possible if you’re giving a child access to your card who is still wrapping their head around financial basics.
• Can’t easily track who is making the purchases: Because purchases aren’t tracked by the authorized user, it might be tough to figure out which person was responsible for which transaction with your card. This is particularly tricky when you have, say, a joint account user and several authorized users.
• Can impact credit of both primary cardholder and authorized user: If having additional users on your card equates to carrying a higher balance, that can up your credit utilization ratio. As credit usage makes up 30% of your credit score, you’ll want to keep that ratio under 30%, preferably closer to 10%. Beyond potentially hurting your credit, also know that any irresponsible credit behavior on your card can hurt your authorized user’s credit. For instance, if you are late on a credit card payment, both your credit and the credit of the minor you added to your card can suffer.
If those possible downsides are making you nervous, here are a few things you can do to ensure your minor uses their privileges responsibly:
• Set limits. Talk to your child and give them an amount they can spend on the card each billing cycle. Also, determine if they’ll be responsible for helping you pay off their share. Or perhaps you might consider an alternative arrangement, such as doing chores around the house to cover purchases they made on their credit card. Hash this out beforehand.
• Treat the card as a teaching tool. Sit down with your child and go over basics of a credit card, such as how interest fees work, how to read a billing statement, and what can happen if you’re late or miss a payment. You’ll also want to teach them how repayment works.
• Set alerts. To keep an eye on your child’s spending, consider setting alerts on your credit card. You can set it up so you get notifications for transactions over a certain amount, or any transactions made online, in person, or over the phone.
Removing a minor as an authorized user from a credit card is a relatively simple and painless process. To do so, you call the number on the back of the card and let them know the name of the person you’d like taken off. If you have several authorized users on a card, be sure to specify which card user you’re removing.
It’s not a bad idea to leave a paper trail and send a letter to the credit card company reiterating that you’ve requested the change over the phone.
The Takeaway
The minimum age for an authorized user on a credit card varies depending on the credit card issuer. Some require an authorized user to be 13, while others set the age limit at 15 or 16 or even have no formal limit at all. Before adding a minor as an authorized user on a credit card, you’ll want to carefully weigh the pros and cons before doing so. If you decide to add a child as a user, set some ground rules and teach them credit and financial basics beforehand.
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
Do some issuers allow authorized users with no minimum age?
Usually the minimum age requirement to add an authorized user to a credit card is at least 13. However, there are several credit card issuers that don’t note a specific minimum age.
How many authorized users can I add to my account?
It depends on the credit card issuer. Some allow, say, between four and seven, while others have no limit as to how many authorized users you can add to a credit card. The number of authorized users might also depend on what type of card it is, such as a rewards or travel credit card.
Is an authorized user relationship or a joint account holder better?
It depends on what kind of privileges you want the additional card user to have and the reason you’d like to add them. If you want to help build someone’s credit and not have them responsible for making payments, then an authorized user could be the better route. If you’d like the user to be equally responsible for making payments and have access to make changes on the account, a joint account holder might make sense.
Photo credit: iStock/Manuel Tauber-Romieri
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.
This content is provided for informational and educational purposes only and should not be construed as financial advice.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
Financial stability can mean different things to different people, and there’s no single way to measure whether someone is financially secure. There are, however, certain money behaviors that can indicate when you’re on the right track. These can include following a budget, growing your savings account, and living within your means vs. accruing high-interest debt.
Knowing how to recognize the signs of being financially stable can help you fine-tune your money plan.
Key Points
• Financial stability can be defined differently for each person, but there are some common indicators of being financially secure.
• Signs of financial stability include following a budget, living below your means, saving money consistently, prioritizing debt repayment, and paying bills on time.
• Financially stable individuals typically have clearly defined financial goals, regularly invest, have the right insurance coverage, make decisions based on their own needs vs. FOMO, and stress less about their finances.
• Achieving financial stability can take time and effort. In addition to making smart money decisions, you may find advice from a financial professional helpful as well.
What Is Financial Stability?
If you search online for a definition of financial stability, the results are usually geared toward organizations or governments, not individual people. For example, the Federal Reserve defines financial stability as “building a financial system that can function in good times and bad, and can absorb all the good and bad things that happen in the U.S. economy at any moment.”
That’s an institutional way to define financial stability, but it’s possible to adapt that to fit personal finance. For instance, creating a budget and adding money to an emergency fund can help you manage money wisely during the good times. It can also allow you to be prepared for the unexpected, such as a job layoff or an emergency expense.
The best way to define financial stability is in a way that has meaning for you. For instance, you might create a personal financial mission statement that outlines your ideal money vision for yourself. For some people, that vision might involve having six months’ worth of expenses in an emergency fund. For another, it might involve putting enough money in their savings account to take a two-week vacation or meeting goals for funding their retirement.
Why Does Financial Stability Matter?
Being financially stable is important because it can influence your overall financial health. When you feel financially secure, it may be easier to pay bills without stress. Or you might have developed the discipline to save money and be excited about it, versus spending everything that you make.
In a nutshell, being financially stable can help you to:
• Have the money that you need to cover day-to-day expenses while working toward financial goals
• Avoid costly debt
• Manage your money without it feeling like a chore or a cause for anxiety
Chances are, you might be doing some of the things on this list already. And if you’re not, then these moves could help you to overcome your personal financial challenges.
1. Following a Budget
A budget is the foundation for your financial plan. When you make a budget, you’re dictating where your money goes instead of simply spending without a plan. If you don’t have a budget yet, then making one should be a top priority.
There are a number of budgeting methods you can use, including:
Experimenting with different budget systems can help you find one that works for you.
2. Living Below Your Means
Here’s one of the secrets to how to have financial freedom: Live below your means. This simply means spending less than you earn. Making a budget is central to living below your means because without one, you may not have a clue how much you’re spending each month.
Tracking expenses can be a great way to determine if you’re living below your means. You can write each expense down in a notebook, use a spreadsheet, or link your bank account to a budgeting app. It’s a good idea to track expenses for at least one month to get a realistic idea of what you spend, which can help you to better define your budget.
3. Saving Money Is a Consistent Habit
You may have heard the expression “pay yourself first,” and it’s a wise move. This simply means that before you spend any money on payday, you first deposit some of your earnings into savings. Paying yourself first is a sign of financial stability as it suggests that you have money reserved for emergencies and are also saving for longer-term financial goals.
Setting up direct deposit into savings or scheduling automatic transfers from your checking account each payday are easy ways to automatic savings. When the money is directed to savings automatically, there’s no opportunity for you to spend it.
4. Paying Down Debt Is a Priority
Debt can be a roadblock to reaching your financial goals and too much debt could make you financially unstable. Making an effort to pay down debt (or avoid it altogether) is a sign that you’re committed to living within your means instead of spending money unnecessarily.
If you have debt, consider the best ways to pay it off. For example, the debt snowball method involves paying off debts from smallest balance to highest. The debt avalanche, on the other hand, advocates paying off debts from highest APR to lowest in order to maximize interest savings.
When choosing a debt repayment method, consider how much of your budget you can commit to it. If you’re only able to pay the minimums to your debts, you may need to review your expenses to see where you can cut back or look into debt consolidation.
5. Bills Get Paid On Time
Paying bills late can trigger nasty late fees. What’s more, late payments can lower your credit scores.
A good credit score is a sign of financial stability because it means that you’re responsible with how you use credit. On-time payments can work in your favor while late payments can hurt your score.
If you’ve fallen behind, getting caught up on late payments as soon as possible can help you turn things around. From there, you can commit to paying on time each month. Scheduling automatic payments or setting up payment reminders is an easy way to keep track of due dates.
6. Financial Goals Are Clearly Defined
Setting financial goals can help you to make the most of your money. Financial goals can be short-term, like saving $10,000 for an emergency fund. Or they might be long-term, like saving $1 million for retirement.
Someone who’s financially stable understands the value and importance of setting goals and how to set them effectively. For example, they may follow the SMART rule for goal setting and create money goals which means they are:
• Specific
• Measurable
• Actionable or achievable
• Realistic
• Time-bound
If you’re not setting financial goals yet, consider what you want to do with your money or what kind of lifestyle you’d like to have. If you created a personal financial mission statement that can be a good guide to deciding what kind of goals to set.
7. Regular Investing Is Part of Your Financial Routine
Investing money and saving it are two different things. When you invest money, you’re putting it into the stock market. Investing can help you grow your money faster and build a higher net worth thanks to the power of compounding interest.
There are different ways to invest. If you have a 401(k) or similar retirement plan at work, for example, you may defer 10%, 15%, or more of your income into it each year. At a minimum, it’s a good idea to contribute at least enough to get the full company match (which is akin to free money) if one is offered.
You might also open an Individual Retirement Account and a taxable investment account. With an IRA, you can save for retirement on a tax-advantaged basis. A taxable investment account, on the other hand, is useful for trading stocks, mutual funds, exchange-traded funds (ETFs), and other securities without restrictions on how much you can invest.
Having the right coverage in place can help to minimize financial losses in a worst-case scenario. If your home or apartment is damaged because of a fire, for instance, then your insurance policy could help you to rebuild or replace your belongings.
Life insurance is also important to have, especially if you have a family. Life insurance can pay out a death benefit to your loved ones if something should happen to you. That means they’re not in danger of becoming financially unstable after you’re gone.
9. FOMO Doesn’t Drive Decision-Making
FOMO, or fear of missing out, can be a threat to financial stability. It’s the modern-day equivalent of keeping up with the Joneses: What it means is that you make financial decisions out of peer pressure or societal pressure. Trying to mimic the lifestyle of social media influencers, for example, can wreck your finances if you’re going into debt with FOMO spending on things that you can’t afford.
Someone who’s financially stable, on the other hand, is relatively immune to FOMO. They don’t buy things on impulse (or at least not often). And they don’t make financial decisions without considering the short- and long-term impacts.
10. There’s No Worrying About Money
Worries about money can keep you up at night if you’re fretting over the bills or debt. Financially stable people don’t have stress over money because they know that they’re in control of their situation. They approach money with a calm, confident attitude.
So how do you reach that zen state with your finances? Again, it can all come down to making smart money decisions like sticking to a budget, saving, and avoiding debt. The more proactive you are about making your money work for you (and finding the right banking partner and financial advisors, if you like), the faster money worries may fade away.
If You’re Struggling to Become Financially Stable
If you recognize that your financial situation isn’t as stable as you’d like it to be, it’s important to consider how you can improve it. Working your way through this list of action items is a good starting point but what if you’re overwhelmed by debt or struggle to make a budget?
In that case, you may benefit from talking to a nonprofit credit counselor or a financial advisor. A credit counselor can help you come up with a plan for budgeting, paying down debt, and getting into a savings routine. And once you begin to gain some stability, you can think about things like investing or insurance.
In addition, you can consult these government sources for more insight:
Achieving financial stability can take time, but it’s typically possible if you’re using the right approach to managing money. Taking small steps, such as setting one or two money goals or changing bank accounts, can add up to a big difference in your situation over time.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
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FAQ
How much money is considered financially stable?
The amount of money needed to be considered financially stable is subjective and depends on a person’s individual situation. But generally, having a net worth of $1 million or more can indicate that someone is financially stable or secure and has a good grasp of money management.
What are the signs of a financially stable person?
The most common signs of a financially stable person include having little to no debt (or at least avoiding high-interest debt), being able to make and stick to a budget, having a healthy amount of money in savings, and having a good credit score. Financially stable people tend to see their net worth increase year over year. What’s more, money generally isn’t a source of stress or worry.
At what point are you financially stable?
Someone could be considered financially stable when money is no longer a cause for anxiety or frustration. A financially stable person isn’t necessarily measured by how much money they have. Instead, their stability is based on their overall financial situation and their approach to managing money. They are likely to have savings for emergencies, as well as short- and long-term goals.
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The January Effect is a term that some financial market analysts use to classify the first month as one of the best-performing months, stock-wise, during the year. Analysts and investors who believe in this phenomenon claim that stocks have large price increases in the first month of the year, primarily due to a decline in share prices in December. Theoretically, following the dip in December, investors pour into stocks, which may boost prices in January.
However, many analysts claim that the January Effect and other seasonal anomalies are nothing more than market myths, with little evidence to prove the phenomenon definitively. Nonetheless, it may be helpful for investors to understand the history and possible causes behind the January Effect.
Key Points
• January Effect suggests stocks rise in January due to December price dips, which creates buying opportunities.
• Small-cap stocks benefit most from the January Effect due to liquidity.
• Tax-loss harvesting during the month of December may lower stock prices.
• Investors then buy in January, boosting stock prices.
• January Effect’s impact is debated; It’s either attributed to market myths or real behavior.
What Is the January Effect?
As noted above, the January Effect is a phenomenon in which stocks supposedly see rising valuations during the first month of the year. The theory is that many investors sell holdings and take gains from the previous year in December, which can push prices down. This dip supposedly creates buying opportunities in the first month of the new year as investors return from the holidays. This buying can drive prices up, creating a “January Effect.”
Believers of the January Effect say it typically occurs in the first week of trading after the New Year and can last for a few weeks. Additionally, the January Effect primarily affects small-cap stocks more than larger stocks because they are less liquid.
To take advantage of the January Effect, investors who are online investing or otherwise can either buy stocks in December that are expected to benefit from the January Effect or buy stocks in January when prices are expected to be higher due to the effect. Investors can also look for stocks with low prices in December, but have historically experienced a surge in January, and buy those stocks before the increase.
Here are a few reasons why stocks may rise in the first month of the year.
Tax-Loss Harvesting
Stock prices supposedly decline in December, when many investors sell certain holdings to lock in gains or losses to take advantage of year-end tax strategies, like tax-loss harvesting.
With tax-loss harvesting, investors can lower their taxable income by writing off their annual losses, with the tax timetable ending on December 31. According to U.S. tax law, an investor only needs to pay capital gains taxes on their investments’ total realized gains (or losses).
For example, suppose an investor owned shares in three companies for the year and sold the stocks in December. The total value of the profit and loss winds up being taxed.
Company A: $20,000 profit
Company B: $10,000 profit
Company C: $15,000 loss
For tax purposes, the investor can tally up the total investment value of all three stocks in a portfolio — in this case, that figure is $15,000 ($20,000 + $10,000 – $15,000). Consequently, the investor would only have to pay capital gains taxes on $15,000 for the year rather than the $30,000 in profits.
If the investor still believes in Company C and only sold the stock to benefit from tax-loss harvesting, they can repurchase the stock 30 days after the sale to avoid the wash-sale rule. The wash-sale rule prevents investors from benefiting from selling a security at a loss and then buying a substantially identical security within the next 30 days.
U.S. consumers, who play a critical role in the U.S. economy, traditionally view January as a fresh start. Adding stocks to their portfolios or existing equity positions is a way consumers hit the New Year’s Day “reset” button. If retail investors buy stocks in the new year, it can result in a rally for stocks to start the year.
Moreover, many workers may receive bonus pay in December or January may use this windfall to buy stocks in the first month of the year, adding to the January Effect.
Portfolio Managers May Buy In January
Like consumers, January may give mutual fund portfolio managers a chance to start the year fresh and buy new stocks, bonds, and commodities. That puts managers in a position to get a head start on building a portfolio with a good yearly-performance figure, thus adding more investors to their funds.
Additionally, portfolio managers may have sold losing stocks in December as a way to clean up their end-of-year reports, a practice known as “window dressing.” With portfolio managers selling in December and buying in January, it could boost stock prices at the beginning of the year.
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Is the January Effect Real?
The January Effect has been studied extensively, and there is evidence to suggest that it is somewhat real. Studies have found that small- and mid-cap stocks tend to outperform the market during January because they are less liquid.
But some analysts note that the effect has become less pronounced in recent years due to the rise of tax-advantaged investing accounts, like 401(k)s and individual retirement accounts (IRAs). Investors who use these accounts may not have a reason to sell in December to benefit from tax-loss harvesting. Therefore, while the January Effect may be somewhat real, its impact may be more muted than in the past.
January Effect and Efficient Markets
However, many investors claim that the January Effect is not real because it is at odds with the efficient markets hypothesis. An efficient market is where the market price of securities represents an unbiased estimate of the investment’s actual value.
Efficient market backers say that external factors — like the January Effect or any non-disciplined investment strategy — aren’t effective in portfolio management. Since all investors have access to the same information that a calendar-based anomaly may occur, it’s impossible for investors to time the stock market to take advantage of the effect. Efficient market theorists don’t believe that calendar-based market movements affect market outcomes.
The best strategy, according to efficient market backers, is to buy stocks based on the stock’s underlying value — and not based upon dates in the yearly calendar.
History of the January Effect
The phrase “January Effect” is primarily credited to Sydney Wachtel, an investment banker who coined the term in 1942. Wachtel observed that many small-cap stocks had significantly higher returns in January than the rest of the year, a trend he first noticed in 1925.
He attributed this to the “year-end tax-loss selling” that occurred in December, which caused small-cap stocks to become undervalued. Wachtel argued that investors had an opportunity to capitalize on this by buying small-cap stocks during the month of January.
However, it wasn’t until the 1970s that the notion of a stock rally in January earned mainstream acceptance, as analysts and academics began rolling out research papers on the topic.
The January Effect has been studied extensively since then, and many theories have been proposed as to why the phenomenon may occur. These include ideas discussed above, like tax-loss harvesting, investor psychology, window-dressing by portfolio managers, and liquidity effects in stocks. Despite these theories, the January Effect remains an unexplained phenomenon, and there is a debate about whether following the strategy is beneficial.
The Takeaway
Like other market anomalies and calendar effects, the January Effect is considered by some to be evidence against the efficient markets hypothesis. Nevertheless, there is evidence that the stock market does perform better in January, especially with small-cap stocks. Whether one believes in the January Effect or not, it’s always a good idea for investors to use strategies that can best help them meet their long-term goals.
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If someone has opened a credit card in your name, it’s important to act fast. There are clear steps you can take to stop the fraudster in their tracks and avoid any harm to your credit score and bank account.
Read on to learn what is likely happening and how to protect yourself.
Key Points
• Act quickly by filing reports with the credit card issuer, FTC, police, and credit bureaus if someone opens a credit card in your name.
• Consider placing fraud alerts or freezing your credit to prevent further unauthorized activity.
• Regularly monitor your credit report and bank activity to detect any signs of identity theft early.
• Family members can also commit identity theft; it can be important to address the issue even if it involves a relative.
• Taking swift action can help avoid long-term financial damage and protect your credit score.
Finding Out That Someone Opened a Credit Card in Your Name
You won’t always immediately know that someone has stolen your identity. However, there are several ways to stay on top of potential identity theft and keep it from getting out of control.
Watch out for some of these common signs of credit card fraud:
• Bills in the mail for an unfamiliar account in your name
• Email or text notifications for a new account opening that you did not initiate
• Notification that an account in your name has gone to a debt collections agency
• Notification from an identity monitoring service or free credit monitoring service that a new account has been opened
7 Steps to Take When Someone Opens a Credit Card in Your Name
If someone opens a credit card in your name, know that it can happen to anyone. In 2023, the Federal Trade Commission (FTC) received 2.6 million fraud reports from consumers, though it’s likely that many more cases of fraud went unreported.
If your identity has been stolen, it’s important to take a breath but remain focused. Knowing what to do if someone applies for a credit card in your name allows you to act quickly. That’s why we’ve put together seven steps to take as soon as you realize someone has opened a credit card in your name.
1. Contact the Bank or Card Issuer
You may not be a customer of the specific financial institution where the credit card was opened, but that doesn’t mean you can’t call them. In fact, the first thing you should do is contact the credit card issuer’s fraud department and file a report. You can usually find the bank’s customer service information online.
The credit card issuer should be able to close the account during the fraud investigation. But if they won’t, you can ask them to freeze the account until the investigation is complete.
Just in case, it’s a good idea to change the username and password of major online accounts, including your email and online bank logins.
2. Report the Identity Theft to the FTC
The report you file with the credit card issuer is the first of many. Next, file an identity theft report with the FTC at IdentityTheft.gov . The FTC will create a recovery plan and issue you an Identity Theft Report, which you may need when working with the credit card issuer and credit bureaus. When you file the report online, you’ll even be able to access form letters to send to creditors about the fraud.
3. File a Police Report
The FTC also recommends filing a police report any time your identity is stolen. The police can provide you with a copy of the report, which may be helpful in closing new accounts, disputing fraudulent charges, and working with credit bureaus to repair your credit report.
To further protect your identity, the FTC recommends that you place a free, one-year fraud alert on your credit report or a credit freeze. You should only have to contact one of the three credit bureaus — Equifax®, Experian®, and TransUnion® — and that bureau must coordinate with the other two. Such alerts ensure that lenders are more thorough in verifying your identity before awarding a line of credit in your name.
Victims of identity fraud can choose between two fraud alerts: initial and extended.
• Initial fraud alerts last one year but don’t require evidence of identity theft; these alert periods are renewable.
• Extended fraud alerts require the FTC Identity Theft Report and last for seven years. They also remove you from any credit card and insurance offers for the next five years.
You may also want to freeze your credit report with each of the three credit bureaus. To do so, you’ll need to contact each bureau independently. When you freeze your credit report, creditors won’t be able to access it unless you temporarily unfreeze it. This prevents fraudsters from opening credit in your name.
5. Check Your Credit Reports in Detail
As a consumer, you have access to a free credit report every year from AnnualCreditReport.com , and that increases to two a year if you have an extended fraud alert. Creating accounts with individual credit bureaus may also get you access to free credit reports.
It’s important to comb through your credit report upon becoming a victim of credit card fraud. Doing so allows you to identify any other fraudulent accounts or activity you may not yet be aware of.
6. Dispute Fraud with Credit Bureaus
To protect your credit score and remove fraudulent activity found in your report, you’ll need to contact the credit bureaus. You can dispute the fraud online with all three bureaus:
You’ll need a valid copy of your FTC Identity Theft Report for this process, as well as proof of identity and a letter that details which information on the report is fraudulent. Credit bureaus can then work with creditors on any fraudulent account and block them from sending your information to debt collectors.
Some credit card issuers and banks will immediately remove false charges and close the fraudulent account when you contact them in step one. However, if they could not do that when you first filed, it’s a good idea to get back in touch with them now that you have reports from the FTC and local police.
At this point, you should be able to close the fraudulent account and remove any fraudulent charges.
Because of their close proximity to personal information, family members can more easily commit identity fraud. While it may be hard to believe, family members do occasionally steal relatives’ identity, especially those of children and seniors.
In fact, around 75% of child identity fraud is committed by a friend or family member with access to the child’s information. Identity theft is also a form of elder abuse. Overall, about 72% of the funds lost by those over age 60 involves a person known to the elder, whether a family member, friend, or caregiver.
You now know what to do when someone opens a credit card in your name. But what about when it’s a family member you care about? While it’s ultimately your decision, you risk significant damage to your financial future by not taking action.
Not only will you be on the hook for any expenses in your name and damage done to your credit score, but you’ll also face other future barriers:
• Your lower credit score may make it more difficult to rent an apartment, get utilities turned on, or find discounts on auto insurance.
• You may have issues with government support, student loans, and even tax returns if the family member is using your identity in more than one way.
• You could obtain a criminal record if the family member uses your identity when/if arrested. You also risk being complicit in a crime if you do not report the family member who is committing identity theft.
Ultimately, the steps are the same when reporting a friend or family member, whether it’s a spouse (or an ex), sibling, parent, child, or another relative. You may face one additional task — and that’s confronting the family member before filing your reports.
The Takeaway
When someone opens a credit card in your name, that can indicate identity theft. It’s crucial that you stay calm and act quickly by filing reports with the credit card issuer, FTC, police, and credit bureaus. You may also want to add alerts to or freeze your credit. By taking swift action, you may be able to avoid long-term damage to your finances.
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 happens if someone applies for a credit card in your name?
If someone applies for a credit card in your name, it’s important to remain calm and act fast. You’ll need to file reports with the credit card issuer, FTC, local police, and credit bureaus. You may want to put fraud alerts and/or freezes on your credit report and work closely with the credit card issuer to remove any fraudulent charges and close the account.
How do I stop someone from opening a credit card in my name?
While identity theft can happen to anyone, you can make it more difficult for fraudsters to open a credit card in your name by freezing your credit report. You can also put a fraud alert on your account and use credit and identity monitoring services to get notifications about any suspicious activity. Reviewing your bills, bank activity, credit score, and credit report regularly are all helpful ways to detect fraud.
Can someone open a credit card with my Social Security number?
It is possible for a person to use your Social Security number to open a credit card in your name. Thus, keeping your Social Security number private and secure is important for protecting your identity.
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