Financial Topics Archives | Page 42 of 778

Aug

2024

What to Do With an Old or Expired Credit Card

If you have an old or expired credit card, you might shred or otherwise dispose of it. Most credit cards come with an expiration date printed on the face of the card alongside the credit card account numbers. If you keep your account open, you’ll usually get a new card in the mail before your previous card expires.

When you get your new credit card or if you’ve decided to close your account, you’ll want to be careful about what to do with your expired credit card. There are a few things to keep in mind to make sure you keep your financial information safe.

Things to Do With an Old or Expired Credit Card

If you have a credit card that’s closed or has passed its credit card expiration date, here are some options to consider as you decide what to do with the card.

Shredding Your Credit Cards

The simplest thing you can do after closing a credit card is to shred it. Most modern shredders have the ability to shred plastic credit cards in addition to paper. If you don’t have a shredder, you can cut your card into multiple pieces with scissors.

You might consider putting each piece of your card in a different trash can or trash bag. This will minimize the chance that someone might be able to reconstruct your full account number.

Disposing of Metal Credit Cards

It gets a little more complicated if you’re disposing of a metal credit card. Most retail shredders will not be able to handle shredding a metal credit card. If you have an expired metal credit card, you can try the following:

• Cutting it up with metal snips

• Turning it in at a physical bank branch

• Sending it back via certified mail to your credit card issuer

Contacting Expired Credit Card Hobbyists

Believe it or not, there are people who collect old credit cards as a hobby. They may do so because they are fascinated by the history of credit cards. While you might not feel comfortable having your credit card and account information in the hands of someone else, if you are, there may be someone who would want to have it.

Just keep in mind that while there are some old or historical cards that have actual value as collectibles, most current credit cards won’t be worth anything to a collector.

Deactivating Magnetic Strips and Chips

As part of the process of destroying a credit card that’s past its credit card expiration date, it’s not just the account number that you’ll need to take care of. Most credit cards have either a magnetic strip or an EMV chip (or both) that contain account information that you’ll need to make sure is destroyed.

If you have a contactless credit card, remember that it also contains potentially sensitive information.

Keeping Your Card Out Of The Recycling Bin

Above all else, don’t just throw your card in the recycling bin. While most credit cards are plastic, that doesn’t mean they can be recycled as-is. Check with your local trash or recycling authority to see if credit cards can be recycled. Even if your card can be recycled, it’s not a great idea to toss it in the recycling bin whole due to security risks.

Things to Do Before You Close Your Credit Card Account

It can be difficult to know when to cancel a credit card due to the implications it can have for your credit score. Especially if the account you’re thinking about closing is one of your older ones, it can impact the length of your credit history. As this is a factor that goes into determining your credit score, canceling a long-standing card could cause your score to drop.

So before closing your credit card account, consider the following options first.

Downgrade Your Card

Instead of closing your credit card account, you might consider downgrading your account to a different type of credit card. Most credit card issuers have a variety of different cards, so you might find one that’s a better fit for you. Plus, keeping your account open can help maintain your average age of accounts.

Recommended: How to Avoid Interest On a Credit Card

Upgrade to an Unsecured Card

If you currently have a secured credit card, you can move from a secured card to an unsecured credit card rather than simply closing out your account.

A secured credit card can make sense if you have a limited credit history or are working on rebuilding your credit history. But once you have an established history of adhering to credit card rules like making on-time payments, you may be able to qualify for an unsecured card.

Recommended: When Are Credit Card Payments Due

Keep Your Card for Small Purchases

It may make sense for you to keep your credit card and use it to make small purchases here and there, especially if it doesn’t have an annual fee. Keeping a credit card open can help you maintain your average age of accounts, especially if the card is one of your older ones.

Just keep in mind that if you do decide to keep it open, you may want to make occasional small purchases on it. Otherwise, your credit card issuer may close it for inactivity.

The Takeaway

If you have an old or expired credit card, it’s important to take the necessary steps to keep your financial information safe. In most cases, it’s a good idea to shred your expired card so that nobody can access your information. You might also just keep your credit card account open to avoid lowering your average age of credit accounts.

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 an expired credit card be charged?

In most cases, if you try to make a purchase after your credit card’s expiration date, it will be declined. Keep in mind, though, that merchants may continue to attempt to charge a card after its expiration date if you have it set up for recurring charges. Check with any merchants where you have recurring charges to see how this might affect you.

Can I cancel a credit card online?

Yes, in most cases you do have the ability to cancel a credit card online. You could do so through your online account or possibly by using a chat feature on the card issuer’s website. If you’re not able to cancel your credit card online, you may have to call the customer service number on the back of your card to cancel your card.

What should I do before canceling a credit card?

Knowing when to cancel a credit card is a matter of balancing a variety of different factors. Before canceling a credit card, make sure that it won’t drastically affect your credit score. You’ll also want to contact any merchants where you have recurring charges to update your account information. That will ensure that you don’t have any interruption in service.

Photo credit: iStock/dzika_mrowka

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

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

SOCC-Q324-038

Aug

2024

Instant Approval Credit Cards: How They Work

Typically, when you apply for a credit card, you may be instantly denied, or you may receive a notice that the card issuer needs more time to evaluate your application. Another possibility is that you’re instantly approved for the credit card; there are cards that guarantee a decision in just minutes.

When you receive an instant approval for a credit card, you can rest easy knowing that you’ll get the credit card and any applicable welcome bonus. In some cases, credit card issuers will allow you to have instant access to your credit card number. That can be useful if you want to make an immediate and time-sensitive purchase.

What Is an Instant Approval Credit Card?

An instant approval credit card is a credit card that guarantees a decision about your application within a matter of minutes. Once you submit your application, the credit card issuer will instantly let you know if you’ve been approved or denied for the card.

Not all credit card issuers do instant approvals, and it’s possible to not receive an instant approval even if you have excellent credit and income. For some issuers and certain credit cards, when you’re instantly approved, you also receive your credit card number and everything else you need to make a purchase with the card right away.

How Instant Approval Credit Cards Work

When you apply for a new credit card, the card issuer will typically conduct a hard pull of your credit report and review your credit history, income, and other financial information. They will use this information to decide whether or not to approve you for a card.

If they have enough information on your credit report to approve you automatically, you may be instantly approved. In other cases, a credit analyst may need to review your application before making a decision. This will impact how long it takes to get a credit card.

Instant Approval vs Prequalified Offers

Many credit card issuers also allow you to prequalify for a credit card. When a lender prequalifies you for a credit card, they usually take your basic information and do a soft pull on your credit report, as opposed to the hard inquiry done for formal approval of your application. This soft pull allows them to see a limited amount of information about you, which may be enough for them to prequalify you.

Being prequalified does not mean that you’ll necessarily be approved when you fill out the complete application. In contrast, when you receive an instant approval, that means that you’ve actually been approved for the card.

Recommended: What is the Average Credit Card Limit

Pros and Cons of Instant Approval Credit Cards

Fast credit cards approval has some obvious upsides, but there are also some possible downsides to take into consideration as well:

Pros	Cons
You know right away when you are approved	You may not be instantly approved, even with good credit and income
You may be able to access your card information instantly	Instant access to your credit card number may tempt you to spend more

When to Consider an Instant Approval Credit Card

The only time it may be worth it to go out of your way to go for an instant approval card is if you have a large purchase that you need to make within the next day or two. In that case, being able to secure a big signup bonus on a new card or get a card with an introductory 0% APR offer may be worthwhile, given how credit cards work.

When possible, however, it’s better to manage your credit cards and credit card applications so that you don’t have to depend on instant credit card approval.

When to Skip an Instant Approval Credit Card

In most non-emergency cases, it doesn’t make sense to go out of your way to find an instant approval credit card. Instead, review the different credit cards that are out there and find the best card for you — regardless of whether you might be instantly approved.

Choosing a credit card that’s right for you might earn you hundreds of dollars or more in rewards. In the end, it may be worth more than getting the card information a few days earlier.

Choosing an Instant Approval Credit Card

It’s not always possible to determine whether any particular card will give you instant approval. Some card issuers (including American Express) publicly state that they offer instant credit card numbers to eligible cardholders.

That being said, receiving instant approval (and an instant credit card number) is contingent on the information on your credit report and the credit card requirements of the card issuer itself. In other words, instant credit card approval and use is not something that can be guaranteed.

Increasing Your Chances of Approval

While there isn’t always a guarantee of getting instant credit card approval, there are a few things you can do to help increase your chances of getting approved immediately.

Provide Information About Your Income

Most credit card applications ask about your total household income. Providing accurate income information can help the credit card issuer understand your financial situation and possibly approve you instantly.

Remember, one of the key credit card rules is that you should be truthful. If an issuer finds out that you were dishonest on your application, they may close your account.

Recommended: How to Avoid Interest On a Credit Card

Check Your Credit Reports

Another great idea if you’re hoping to secure instant approval on a credit card is to check your credit report. Keep your eye out for any incorrect or inconsistent information. If there’s incorrect negative information on your credit report, it may prevent you from being instantly approved for a credit card.

In general, it’s a wise financial move to regularly review the information on your credit report at least on a yearly basis.

Apply for the Right Instant Approval Credit Card

You’ll also want to be realistic about your approval odds for the credit card you’re looking at. If your credit isn’t that great, you might not want to try applying for an instant approval credit card that requires excellent credit (meaning a score of 800+). It’s more important to try to apply for a card that you’re likely to get approved for than one that might offer instant approval.

Alternatives to Instant Approval Credit Cards

One alternative to an instant approval credit card is to just apply for the best credit card for you, regardless of whether you might be instantly approved. You might also look at virtual credit cards, where you can get a temporary, randomly generated credit card number that’s linked back to your actual credit card account.

If you are in need of fast funding, there are other options to explore there, too. Some online lenders offer funding the same day you apply and get approved for a personal loan. You might also consider tapping into your emergency fund, which you then can replenish once you’ve addressed your need for fast cash.

The Takeaway

When you apply for a credit card, it’s possible the credit card issuer may instantly approve you. In other cases, they may need more time to decide whether or not to approve your application. If you are instantly approved, you may also be able to have immediate access to your card number and other credit card details. Instant approval credit cards with instant use can be useful if you have an immediate need to make a large purchase and want to do it on a new credit card.

FAQ

What credit score do I need for an instant approval credit card?

There isn’t a single credit score you’ll need to be approved for an instant approval credit card. Instead, each credit card has its own criteria for approval. When choosing a credit card, it’s important to select a credit card that matches your credit profile. If you have fair or worse credit, you shouldn’t apply for a credit card that requires excellent credit — you’ll likely be denied.

What is the difference between instant approval and instant use of credit cards?

When you apply for a credit card, you may be instantly approved if the card issuer has enough information to make an automatic decision. If you’re instantly approved, some issuers allow you to have instant access to your credit card number and account. That immediate access is what’s known as instant use.

Does an instant approval credit card guarantee you’ll be approved?

There’s no guarantee you’ll get approved when you apply for a credit card, and the same goes for instant approval credit cards. Whether you’re approved will depend on your financial specifics and the credit card’s requirements. Even if you’re prequalified or preapproved, that does not guarantee that you’ll be approved when you go through the formal application process.

What if my application for an instant approval credit card gets declined?

If your instant approval credit card application is denied, you may still eventually be approved for the card. It may just mean that the issuer needs additional information or more time to determine if they can extend credit to you. If you receive a firm denial, then it’s time to move on and find a credit card which will approve you.

Photo credit: iStock/PeopleImages

SOCC-Q324-040

Aug

2024

What Is Credit Card Arbitrage and Is It Worth It?

By Kim Franke-Folstad | Credit, credit card, Growing Wealth | Comments Off

Credit card arbitrage is a strategy in which you borrow money with a 0% or low-interest credit card and then put that money into an investment that earns a higher rate of return. It can sound like a way to make easy money, but it does carry some risks. And it isn’t necessarily a good fit for average investors.

If you’ve heard of credit card arbitrage and wondered if it’s something you should try, read on for a rundown of the risks and rewards.

Recommended: Can You Buy Crypto With a Credit Card

What Is Credit Card Arbitrage?

With credit card arbitrage, or balance transfer arbitrage, you sign up for a credit card with a low or 0% annual percentage rate (APR). Then, you use that credit card account to put money into an investment that will earn more than the interest rate you’re paying on the credit card balance you’re carrying.

You follow one of the basic credit card rules of making at least the minimum credit card payment on time each month. When the card’s introductory rate expires, you take the money you need out of the investment, pay off the remaining balance on the card, and keep the difference as your profit.

Recommended: When Are Credit Card Payments Due

Credit Card Arbitrage Strategies

What you decide to invest in using a credit card may depend on a few different factors. This includes how much you can borrow, the length of your introductory rate (which is often between 12 and 21 months), and your tolerance for risk.

Some possible investments for your credit card arbitrage strategy include a high-yield savings account, a certificate of deposit, and short-term bond ETFs.

High-Yield Savings Account

A high-yield savings account may be a good option for risk-averse investors attempting credit card arbitrage. You can’t lose the money because it’s protected at banks by the Federal Deposit Insurance Corporation (FDIC) and at credit unions by the National Credit Union Administration (NCUA). However, you may have to keep a minimum balance to avoid a monthly service fee.

An alternative to attempting credit arbitrage using a high-yield savings account might be to save using an online-only financial institution. Online banks tend to offer more competitive rates than brick-and-mortar banks.

Certificate of Deposit

Another investment with limited risk is a short-term (six months to a year) or no-penalty certificate of deposit, or CD. A CD may offer a higher interest rate than a savings account, and it also will be insured by the FDIC.

The benefit of a no-penalty CD over a short-term CD is that if you find a higher return elsewhere, you can withdraw your money and move it without paying a fee. Otherwise, you’ll face an early withdrawal penalty if you try to take your money out of a CD before the term is over.

Recommended: How to Avoid Interest on a Credit Card

Short-Term Bond ETFs

A bond exchange-traded fund (ETF) that holds short-term bonds may be another low-risk option to consider. Bond ETFs are traded on the stock market, so they’re more liquid than other types of bonds and bond funds. And funds that have a shorter term are less exposed to changing interest rates.

Still, if you’re unfamiliar with bond ETFs, you may want to take some time to research the pros and cons of this investment — including the risk and potential for loss and how to reduce trading costs.

Pros and Cons of Credit Card Arbitrage

As mentioned, there are definite downsides to credit card arbitrage. However, there’s the potential for gains, too. Here’s a quick rundown of the pros and cons of credit arbitrage:

Pros	Cons
May be an easy way to make money if you can find the right investment	Difficult to find a safe investment that makes the strategy worth the effort and risk
A low-interest card with cash-back rewards or points could add to the strategy’s benefits	Consequences for late payment could eat into expected profit
Making timely payments could help build your credit score	Taking out a card and using up your available credit could negatively affect your credit score

The upside to using credit card arbitrage is the potential to make some extra money with very little effort. If you’ve worked hard to earn and maintain a credit score that qualifies you for a credit card with a 0% or low-interest rate, you can use that card to fund an investment and, if all goes well, quickly pocket a profit.

If you choose a credit card that offers credit card rewards, such as cash back or points, that could be an added benefit. Further, by always making at least the minimum payments on the credit card and repaying the balance on time, you might help build your credit score. (Although if you qualify for a low-interest card, you probably already have good credit.)

Unfortunately, there are also plenty of downsides to credit card arbitrage — starting with finding an investment that works well with the strategy. Though in recent months the Federal Reserve has been bumping up its benchmark interest rate, it may take a while before those increases lead to noticeably higher yields on savings accounts and CDs.

Depending on how much you decide to borrow and how long your introductory period lasts, the small amount you might earn from your investment may not be worth the effort or risk of using your credit card.

And there are risks involved with credit arbitrage. For starters, you can expect to feel some effects if you make a late payment on your card. You might have to pay a late fee or, worse, the credit card company could cancel your promotional interest rate and immediately begin charging a substantially higher interest rate on the account. That could take a significant bite from your profits.

Your credit score also could suffer — even if you make timely payments. Just opening a new line of credit may temporarily lower your score. And if you borrow all or a large portion of your available credit, it could affect your credit card utilization ratio, which also can negatively affect your credit score.

You also can expect your credit score to go down if you do end up making a late payment (or payments). Payment history is the No. 1 factor in determining your FICO Score®.

Considering Credit Card Arbitrage? What to Know

There’s an old saying in investing: Don’t risk more than you can afford to lose. Or, as your mom might put it: Just because you can doesn’t mean you should.

Credit arbitrage may look like an easy and “free” way to make some extra money, but it’s a strategy that’s probably best left to investment professionals. If you do decide to attempt it, here are a few things you can do in advance to protect yourself:

• Have a backup plan. What would happen if you suddenly lost your job or had unexpected expenses from an illness or accident? Unless you have a healthy emergency fund or your investment can be easily liquidated, you could quickly run into financial trouble.

• Make sure you understand the terms of your credit card agreement. How long does the introductory period last? (The longer the better.) What happens if you miss a payment? What’s the rate when the promotional period expires?

• Know yourself. This strategy requires using a credit card responsibly. If you aren’t clear on how credit cards work or think you’ll be tempted to use your card for a spending spree instead of investing, you may want to think twice before moving forward.

• Don’t forget about fees. Run the numbers to be sure your investment will still pay off after you cover fees and other costs.

Recommended: 10 Credit Card Rules You Should Know

Other Ways to Save and Make Money Using Your Credit Card

If the concept of credit card arbitrage is new to you, it may be because there are other popular ways to use a credit card to save and make money. Here are some other options to consider.

Earning Cash Back

With a cash-back rewards card, cardholders can get back a percentage of the money they spent on purchases during a billing cycle. That percentage varies from one card to the next — and there also may be different ways you can receive your cash rewards. You may be able to apply the cash directly to your balance, put it toward gift cards or charitable giving, or have the money deposited directly into your checking account.

Getting cash-back rewards can be an especially effective strategy if you use your card for frequent and/or major purchases and pay down your balance every month.

Earning Rewards Points

Some card issuers offer a rewards program based on credit card points. Cardholders may be able to put their points toward multiple purposes, including travel (flights, hotels, car rentals), statement credits, cash back, and more. The value of points may vary depending on the specific credit card as well as how you opt to redeem earned points.

Investing Your Rewards

You also may be able to invest with credit card rewards. For instance, if you earned cash-back rewards from your credit card spending, you could redeem your rewards as a direct deposit or check. Then, you could use that money to invest with credit card rewards basically — either in a literal investment, such as stocks or index funds, or even in yourself, through additional job training or classes.

Shopping Online to Earn Bonus Rewards

Some credit cards offer bonus rewards for shopping online or through an app. Card issuers may have different rules for their rewards (think goods instead of services or certain brands only,) so it’s a good idea to check out a rewards program’s requirements before signing up.

Using a Balance Transfer Card to Pay Down Debt

Another possibility is to use a no-interest balance transfer credit card to pay down debt. Once you move your balance from a high-interest card to the new card, you’ll have several months to pay down your debt without accruing any additional interest.

Just as with credit card arbitrage, it’s important to be sure you make your monthly payments on time, though, or you could see a big jump in your card’s interest rate. Also keep in mind that a balance transfer fee will apply, so be sure to factor that into the equation.

Using a 0% APR Card

Planning to take a dream trip or make a major purchase? A no-interest credit card could allow you to finance your big spend without accruing interest. You’ll just want to make sure you can pay off the balance within the promotional period, and make your payments on time.

The Takeaway

You may have heard credit card arbitrage, or balance transfer arbitrage, touted as an easy way to make some extra cash. But the process, which involves using a no- or low-interest credit card to finance an investment that earns a higher rate of return, isn’t as simple as it may seem. It can require careful planning, financial savvy, and some research to find the right investment for this strategy. And even if all goes well, the payoff may not be worth the time and effort to use credit cards in this way.

FAQ

Are there risks involved in credit card arbitrage?

Yes. Even if your investment seems super safe and like it won’t lose money, if you don’t make your monthly payments on time or if you can’t pay off the balance before the promotional period is up, you could find yourself in a financial bind.

Is credit card arbitrage legal?

Yes. But just because you can do it doesn’t mean you should. There are other more proven ways to save and invest using a credit card.

How much can you make with credit card arbitrage?

The amount you can make using credit card arbitrage depends on several factors. This includes how much you choose to borrow and invest, your card’s interest rate, how much your investment pays, the length of your card’s promotional period, and the fees you might incur when investing.

Photo credit: iStock/Prostock-Studio

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.

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 .

SOCC-Q324-035

Aug

2024

24-Hour Roadside Assistance for Cars and Trucks

By Kim Franke-Folstad | Insurance, servicing | Comments Off

Think of 24-hour roadside assistance coverage for your truck or car like having another tool in your emergency kit. Roadside assistance can provide the services you need to get you back behind the wheel ASAP. Services include changing flat tires, fuel delivery, jump-starts, and lockout assistance. The cost for roadside assistance when added on to an auto insurance policy is around $10 to $20 a year.

Before you sign up for roadside assistance, it can be useful to know some basics. In this guide, we’ll look at what you can expect when you enroll in a roadside assistance program.

What Is 24-Hour Roadside Assistance?

Roadside assistance plans cover a range of problems that commonly affect motorists. Whether you’re stuck on a busy highway or a lonely roadside, in a mall parking lot or your own driveway, you can ask for help with a dead battery, flat tire, being locked out, and more. These programs not only cover cars and trucks but also motorcycles, RVs, and boat trailers.

Since problems can happen at any time, roadside assistance programs make their services available around the clock. There is no deductible for service calls. Depending on your plan, any costs you incur in an emergency may even be reimbursed.

Recommended: Ways to Save on Car Maintenance

What Are Some Benefits of 24-Hour Roadside Assistance?

Roadside assistance is designed to cover all drivers, but it can be especially useful for parents of young children, first-time drivers, and people with physical limitations. Probably the top benefit of having 24-hour roadside assistance coverage is that there’s a number to call any time you’re in need. You can keep that number programmed in your phone or put it in your wallet or glove compartment — or your provider may offer an app.

You can call for advice or hands-on assistance, and someone will help you get what you need. Some plans may even post bond if you’re charged with a traffic violation, or reimburse you if you need to stay in a hotel overnight because your car broke down. Some plans include other benefits, such as travel discounts and rewards points.

Recommended: How to Get Car Insurance

What Does 24-Hour Roadside Assistance Cover?

Assistance programs vary significantly depending on the service provider, the coverage level, and what you’re willing to pay. So when you’re comparing roadside assistance for cars and trucks, it’s important to understand the details of what each plan covers. Roadside assistance is not intended for use after an accident. In that case, 911 will arrange for help to arrive.

Most companies that offer roadside assistance programs set limits on what they will and won’t pay for. A provider may offer to deliver fuel to your vehicle for free, for example, but you can expect to be charged for the gas you receive. Similarly, roadside assistance may offer free lockout assistance, but there may be a charge if you need to have a new key made. If your car needs a tow, there may be a limit on how many miles you can go for free. There may also be a limit on how many service calls you can make in a year.

Plans have different rules on whether a particular driver or vehicle qualifies for a service call. With some plans, you must be driving your own car when you call for assistance. Other plans will cover you even if you’re the passenger or driver in someone else’s car.

Programs generally include some type of coverage for:

Vehicle Towing

If your vehicle can’t be safely repaired or restarted onsite, roadside assistance can tow it to a nearby repair shop.

Battery Jump-Start or Replacement

Roadside assistance can give your dead battery a jump and, if that doesn’t work, install a new battery onsite or give you a tow.

Changing a Flat Tire

If you have a usable spare tire, your service provider likely can change a flat or blown-out tire onsite. If not, they can tow you somewhere for help.

Lockout Assistance

If you’ve locked your keys in your car, roadside assistance can get a locksmith to help. Even if you’ve lost your keys, the service may be able to get you back in your vehicle and back on the road.

Winching Service

Stuck in snow, mud, sand, or water? Your service provider may bring in a winch to extricate your car or truck.

Fuel Delivery

If you run out of gas, your provider can deliver fuel to your location. And if the battery in your electric car needs a charge, you can ask for a tow to the nearest charging station.

Quick Fix First-Aid

If you have a minor mechanical problem that can be fixed quickly, it may be possible to do so onsite. If not, the service can tow your car to a nearby repair shop.

What Are Some Ways Drivers Can Get 24-Hour Roadside Protection?

There are few different ways you can get roadside assistance coverage for yourself and your family members. For individuals who set aside time for personal insurance planning, consider adding roadside assistance to your list.

Auto Club Membership

Probably the best-known way to get 24-hour roadside assistance is through an auto club like AAA (pronounced “triple A”). The company will issue you a membership card with numbers to call for service. You may also be able to download an app or send a text to get service.

Plans range from $60 to $150 or more per year. Your price will depend on how many family members are covered, your location, and the services you’ve selected.

Credit Card Company Benefits

You may be able to access roadside assistance through one of your credit cards. Again, the cost for your overall coverage or a specific service will vary depending on the plan. For example, one credit card provides the service for free to its members but charges $69.95 for a standard service call, including 5 miles of towing.

Vehicle Manufacturer

Some car and truck manufacturers also offer roadside assistance as a perk for new car buyers. Your vehicle may come with protection that lasts for a few years or the length of your limited warranty, or it may be available for only a few months as a free trial for a service you can later purchase. Your sales agreement should provide the details on what your plan covers, or you can ask the dealership.

Car Insurance Company

Many car insurance companies make some type of roadside assistance coverage available to their customers. Some plans provide only the basics, while others may offer two or three different levels of coverage. Costs range from $10 to $60 or more a year.

When you’re considering cost, keep in mind that you may be able to lower your car insurance cost by bundling it with other types of insurance coverage.

Which Insurance Companies Offer 24-Hour Roadside Assistance?

Insurance companies that provide 24-hour roadside assistance typically offer the service as an add-on to an auto policy. However, in some instances you may be able to access a roadside protection membership without being a policyholder.

If you aren’t sure if you already have roadside protection, contact your agent or log in to your account on your insurer’s website to get information about your coverage. You may also view benefits via online insurance comparison sites. The information also may appear on your insurance card.

Here are a few companies that offer roadside assistance:

Allstate

Allstate offers its 24-hour roadside assistance programs to both policyholders and members of their household. Costs and limitations will vary based on the plan you choose.

Geico

Geico’s roadside assistance program is available to policyholders as an add-on, and it covers most of the basics other plans offer. The cost is determined by the number of vehicles you want to cover.

Liberty Mutual

To access Liberty Mutual’s 24-hour assistance program, which offers basic roadside services, you must purchase optional towing and labor coverage as an add-on to your policy.

Nationwide

Nationwide offers 24-hour roadside assistance as an optional add-on for policyholders. The plan covers the same basic services offered by other insurers, but optional features and program details vary by state.

Progressive

Emergency roadside assistance is available as an optional add-on for Progressive auto insurance policyholders. Progressive’s program covers service basics such as towing, jump-starts, lockout assistance, etc.

State Farm

State Farm’s roadside assistance program is an add-on for policyholders. If you have this coverage and need assistance, State Farm will be billed directly for any basic services you receive, so you won’t have to worry about waiting to be reimbursed.

(The above coverages are accurate as of the writing of this article but may differ in the future.)

What Is the Average Cost of 24-Hour Roadside Assistance for Cars?

When added to your car insurance policy, roadside assistance coverage costs an average of $20 per year. The price of a roadside assistance plan can vary based on how many vehicles you want to cover, where you live, whether your coverage is through your auto insurance or some other source, and the level of coverage you choose.

Some plans charge less for coverage and more for services, and vice-versa. It’s a good idea to compare several different plans and choose the one that works best for your individual needs and budget — particularly if you’re looking to lower your car insurance.

What Is the Average Cost of 24-Hour Roadside Assistance for Trucks?

The cost of roadside assistance for a pickup truck is similar to the cost for a car. If you have an RV or another large vehicle, however, you’ll need to check out a plan tailored for the problems you might encounter.

How Much Does 24-Hour Roadside Assistance Cost Without Insurance?

The national average cost of a tow without roadside assistance coverage is $109, or between $2.50 and $7 per mile.

What Makes 24-Hour Roadside Assistance Different from Other Coverage?

Standard car insurance is designed to protect car owners against financial losses when they’re in an accident, or if their car is damaged, stolen, or vandalized. But a standard auto policy doesn’t typically include roadside assistance for something like a flat tire or running out of gas. That’s a different kind of coverage, and it usually costs extra to add it to a car insurance policy.

Another difference: In most states, you are required to carry minimum required car insurance. You aren’t required to carry roadside assistance coverage. It’s your choice.

How Do You Choose a 24-Hour Roadside Assistance Program?

There are a few points you should consider when you’re shopping for a roadside assistance program:

Do You Already Have Protection?

If you aren’t sure, check your car warranty, credit cards, and your car insurance policy. Even if you are covered, it can be a good idea to compare your coverage to what’s available to make sure you have everything you need.

What Are the Coverage Limits?

Read the fine print for details and coverage limits before you sign up for a plan. Be sure you’re getting the services you expect and want most.

What Will It Cost?

Plans are generally low cost, ranging from $20 to $150 or more per year. Compare the costs of different plans and determine which works best with your budget.

Does the Provider Get Good Reviews?

Don’t forget to check the provider’s reputation. Reliability is important when you’re stuck on the side of the road waiting for a tow or jump-start. An important part of researching different plans includes reading customer reviews.

The Takeaway

A 24-hour roadside assistance plan provides drivers with whatever help they need to get back on the road as soon as possible. Drivers typically get roadside assistance through their auto insurance, but you can also find it via credit card benefits, car manufacturers, and auto clubs like AAA. Prices vary from around $10 to $20/year as an auto insurance add-on, to $60 to $150 or more/year through an auto club. Considering that the cost of a single tow without coverage can be over $100, many people say the cost of roadside assistance is well worth it.

If you’d like to check out roadside assistance options, you can start by going online to compare your current auto insurance plan and benefits with other major companies.

When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

SoFi brings you real rates, with no bait and switch.

FAQ

Does using roadside assistance increase your premium?

If you make only one or two claims a year, utilizing roadside assistance is unlikely to affect your insurance premium. But if you make more than four or five roadside assistance claims in a year, your insurance company may want an explanation.

What does roadside assistance cover?

Every plan is different, but most include basic coverage for lockout assistance, changing a flat tire, jump-starting a battery, fuel delivery, using a winch to extract a stuck vehicle, minor engine fixes, and towing.

Photo credit: iStock/nopponpat

Insurance not available in all states.
Experian is a registered service mark of Experian Personal Insurance Agency, Inc.
Social Finance, LLC ("SoFi") is compensated by Experian for each customer who purchases a policy through Experian from the site.

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.

SOPRO-Q324-005

Aug

2024

Does Closing a Credit Card Hurt Your Credit Score?

By Dan Miller | Credit, credit card, Family Finances | Comments Off

Closing a credit card can hurt your credit in some situations. If you already have good to excellent credit, closing one credit card generally won’t have a huge impact on your credit score. However, there are a few scenarios where closing a credit card can hurt your credit score; say, doing so might shorten the length of your credit history or might send your credit utilization rate soaring.

Learn more about the potential consequences of closing a credit card, as well as alternatives to explore to avoid possible impacts to your credit score.

Ways Closing Your Credit Card Can Affect Your Credit Score

If you’re worried about whether it hurts your credit to close a credit card, you should know that there are two main ways that canceling a credit card can indeed affect your credit score.

Through Credit Card Utilization Ratio

The first way that canceling a credit card affects your credit score is by raising your credit card utilization ratio. Your utilization ratio (sometimes called your utilization percentage) is the total amount of available credit that you’re actually using. If you have a credit card with a $10,000 limit and you regularly spend $5,000 on that card each month, you’d have a utilization ratio of 50% ($5,000 divided by $10,000).

Having a low utilization ratio is generally considered a positive factor in determining your credit score. Lenders prefer when you’re not using all of your available credit, since doing so can be an indicator of financial distress. Typically, you should be using no more than 30% of your credit limit across all your lines of credit and ideally no more than 10%.

When you cancel a credit card, you lower the total amount of your available credit line, which will generally raise your credit card utilization ratio.

Example: Say you have two credit cards.

• On credit card A, you have a balance of $5,000 and a credit limit of $10,000.

• On credit card B, you have no balance and a credit limit of $10,000 too.

• So, on these two cards, your combined limit is $20,000. The fact that you have a $5,000 balance means your credit utilization is $5,000 out of $20,000 or 25%.

• If you close credit card B, you now have a balance of $5,000 with a $10,000 limit. Your utilization ratio rises to 50%.

If you close credit card B, your credit utilization could rise and your credit score could be lowered.

Recommended: What Is the Average Credit Card Limit

Impact on the Length of Credit History

Another way that canceling a credit card can affect your credit score is by impacting the average length of your credit history. Your average age of credit accounts is another factor in determining your credit score, with an older average being better. You’ll especially see an impact on your score if you close a card that you’ve had for a very long time — and the impacts of a bad credit score are myriad. Credit can be harder to secure and more expensive.

When Canceling a Credit Card Might Make Sense

There are several scenarios when canceling a credit card might be the right financial move, such as when:

• Your card has a steep annual fee that isn’t worth it. One of the most common reasons for when to cancel your credit card is if you have a card with an annual fee and you’re no longer getting enough in benefits to justify paying that cost. It doesn’t make sense to pay an annual fee of $100 or more a year if you’re not getting much benefit from having the card — and there are plenty of credit cards that come with no annual fee.

• You have multiple credit cards and want to streamline your finances. Another scenario is if you have multiple credit cards and want to simplify your finances. With how credit cards work, missing a payment can have a big negative impact on your credit score. So if you’re in a situation where you have too many credit cards and are having trouble keeping payments straight, it may be a good idea to simplify your life and cancel some of your credit cards.

• You have a high interest rate on a card. Particularly if you need to carry a balance for whatever reason, ditching a card with a high interest rate might be in your best interest. That will save you from paying more than necessary in interest charges.

• You want to replace a basic or secured credit card. Another reason you might consider canceling your card is if you have a very basic starter credit card. Or perhaps you have a secured credit card and want to upgrade to an unsecured card. Especially if you have built your credit score considerably since you opened that card, you could secure better terms and potentially the opportunity to earn rewards as well.

Recommended: When Are Credit Card Payments Due

When It Might Make Sense to Keep the Credit Card Account Open

On the other hand, there can be good reasons to keep your credit card accounts open as well. This includes if:

• Your card doesn’t have an annual fee. If the card has no annual fee, you could always keep the card open and not use it rather than closing the account. When you close an account, the next time the credit bureaus are updating your credit score, your score may decrease. Keeping your credit card open instead could prevent that.

• You don’t have many accounts open. One of the factors that’s used to determine your credit score is your mix of accounts. If you don’t have many accounts open, closing one of your few accounts could ding you in this area, possibly dragging down your credit score. Plus, it could cause your available credit to take a big hit, which would increase your credit utilization.

• Your only reason for canceling is not using your card very often. Given the potential impacts to your credit, if you don’t have much reason to cancel a credit card, you’re likely better off keeping it open due to the importance of good credit. That way, you won’t risk driving up your credit utilization or lowering the average age of your accounts, both of which can cause your score to drop. Plus, there aren’t any penalties for not using a credit card frequently.

Recommended: What Is a Charge Card

Guide to Closing a Credit Card Safely

To close a credit card safely, there are a few things that you’ll want to keep in mind before canceling your card.

Automatic Payments

If you have any automatic payments being charged to the card, you’ll want to contact the vendors and change them to another card if you own multiple credit cards. Once you close your credit card account, if a vendor attempts to charge your account, the charge will likely be denied. This could lead to interruptions in other areas of your life, especially if it’s for something crucial like rent or utilities.

Paying Your Balances in Full

Simply closing your credit card account does not eliminate your responsibility for any charges already on the account. You’re still just as responsible and liable for the total balance on your account, so you should pay off your balance in full. If you don’t pay the full balance when you close the account, your card issuer will still issue you monthly statements, and interest will continue to accrue.

Redeeming Your Rewards

If you have a credit card that allows you to earn cash back, travel, or other rewards, you’ll want to redeem those rewards before you close your account. Once you close your account, you may not be able to access them, and it’s possible that you will lose some of your hard-earned rewards. To avoid that possibility, you should redeem your rewards before canceling your credit card account.

Alternatives to Canceling a Credit Card

If you’re worried about how closing a credit card can hurt your credit, there are alternatives to explore.

Downgrade to a No-Fee Card

If one of the reasons you’re considering canceling your credit card is to avoid paying an annual fee, you may be able to downgrade the card instead. Many credit card issuers offer a variety of different cards, and only some of them come with annual fees. Downgrading to a no-fee card will keep your account open without having to pay the annual fee.

Negotiate With Your Credit Card Company

Another option is to negotiate with your credit card company. Most credit card issuers do not want you to cancel your card, so you may be willing to negotiate for better terms. This might include waiving the annual fee, lowering the interest rate, or getting additional rewards — it never hurts to call your credit card company to ask what they might be willing to do.

Put Your Card Away

If you’re considering canceling your credit card because you’re worried about overspending on the card, you also have the option to just take it out of your wallet. Depending on your situation, simply placing the card in your sock drawer, for instance, might prevent you from overspending without having to actually close the account.

Recommended: How to Avoid Interest on a Credit Card

Check Your Credit Report Before Closing an Account

If you’ve decided to close your credit card account, it can be a wise move to check your credit report both before and after canceling your card. If you’re concerned about how checking your credit score affects your rating, remember that it won’t impact it.

Also keep in mind that you have different credit scores, so take some time to check each one before and after closing your account. That way, you’ll have an accurate idea of how closing your credit card impacted your credit score.

The Takeaway

While closing a credit card likely won’t have a huge impact on your credit score, it can lower it, especially in certain situations. Unless you have a good reason for closing your account, you may want to consider keeping your credit card open. Instead, you could consider downgrading to a no-fee card, negotiating with your credit card company, or just taking your card out of your wallet.

FAQ

Is closing a credit card bad?

Closing a credit card isn’t usually bad, but it may lower your score in some situations. Instead, consider alternatives to closing your credit card like downgrading your card or negotiating with your card issuer.

Is it better to cancel unused credit cards or keep them?

In many scenarios, it’s preferable to just keep your credit card accounts open, even if you don’t regularly use them. This allows your average age of accounts to increase and also lowers your utilization ratio by having access to a higher total of available credit. Both of these factors can help build your credit score.

Does closing a credit card with a zero balance affect your credit score?

If you close a credit card, even if you have a $0 balance, your credit score might drop. This is because closing your card could lower your average age of accounts and/or increase your credit utilization ratio. Instead of canceling your credit card, consider negotiating with your card issuer for a lower interest rate or lower fees.

How much does your credit score drop if you close a credit card?

If you already have good or excellent credit, closing a credit card generally won’t have a huge impact. If you have a low credit score, however,it’s possible that closing a credit card can hurt your score even more. This is especially true if the card you close is one you’ve had for a long time or one with a high credit limit.

Photo credit: iStock/wichayada suwanachun

SOCC-Q324-004