SoFi

Despite the saying, “cash is king,” there are pros and cons to using cash over credit cards in everyday transactions. Likewise, credit cards have their own share of advantages and disadvantages when it comes to making purchases.

Here’s what you need to consider when choosing cash vs. credit cards, and when you might opt for using one method of payment over the other.

Defining Cash and Credit Cards

Cash is the legal tender — whether coins, paper bills, or other notes — that you can exchange for goods and services. According to Merriam-Webster dictionary, cash is considered “ready money.” Translation: You actually own the value of the cash and can use it immediately during a transaction.

Credit cards, on the other hand, can also be used to purchase goods and services. However, you’re borrowing the funds from a third party (i.e. a bank) to make your purchase today with the promise that you’ll pay the credit card balance back later.

When to Consider Using Cash

Deciding whether to use cash vs. credit depends on your purchasing situation and preferences. Situations when paying with cash is preferred might include:

•  Buying goods or services from merchants who only accept cash

•  When your credit or income doesn’t qualify for a credit card

•  Limiting your spending to a specific amount

•  Keeping your personal information private during a transaction

•  Avoiding credit card-related fees

•  Avoiding credit card debt

You can also use cash to grow your money through an interest-bearing deposit account, instead of spending it. If you’d like to build your savings fund, you can only do so using cash.

Recommended: How to Avoid Interest on a Credit Card

Benefits of Using Cash

Here are some benefits of using a credit card:

•  Since cash represents the monetary value you actually have, it makes budgeting simple. If you have $100 in cash to spend for the weekend, for instance, you’re focused on making careful decisions about how you spend that finite cash amount. After you’ve depleted your cash, you can’t make additional purchases until you have more cash.

•  Cash provides some convenience despite its additional physical bulkiness in your wallet. 

•  For merchants, the benefit of cash vs. credit cards is that they save money on credit card processing fees. To avoid this, some merchants only accept cash payments, while others offer a small discount as an incentive for customers to pay using cash.

•  Cash can also be used widely by any consumer, regardless of their credit score. This makes cash a more accessible payment method for everyday purchases. 

•  Cash also doesn’t contain any of your personal data, so if a private purchase is important to you, cash is beneficial.

Recommended: When Are Credit Card Payments Due?

Drawbacks of Using Cash

Here, some downsides of using cash:

•  The biggest drawback to using cash vs. credit, however, is that it caps your buying power to only the amount of cash you have. Although this can be a benefit, as mentioned above, when you’re on a budget, it can restrict your ability to make larger purchases today.

For example, if your car unexpectedly needs a repair that costs $800 but you only have $500 in cash to pay upfront, you’ll have to make a tough decision. You might be forced to shop around for a cheaper car repair shop, spend time negotiating a lower price with the current mechanic, or possibly wait to complete the repair until you have the additional funds necessary. All of this can cost you extra time and can possibly impact your earnings if you rely on your car to drive to work.

•  Physical cash is harder to trace between transactions. Your personal information isn’t tied to cash bills in your pocket. This means that if you lose it or it gets stolen and it’s used by someone else, it’s harder to get back.

When You Might Consider Using a Credit Card

There are many use cases for credit cards, if you qualify for one. Some situations when a credit card might make sense include:

•  Making a larger purchase now and paying it off later

•  Breaking down a large purchase into smaller installment payments

•  Earning points, miles, or cash back on purchases using a rewards credit card

•  Unlocking additional purchase protections

•  Building your credit profile

Recommended: What Is a Credit Card Advance?

Benefits of Using a Credit Card

Using a credit card as a payment method for daily transactions offers various benefits when managed responsibly. 

•  If you don’t have enough cash for a purchase, a credit card lets you buy it now and pay it back the following month.

•  You can also choose to take out a credit card cash advance (though typically at a higher APR,or annual percentage rate, than your standard purchase APR), or even send money with a credit card.

•  With a credit card, you get to choose how you’ll repay your purchases, whether in full when your billing statement is due, or incrementally over multiple months. The caveat is that letting a balance roll over to the next month incurs interest charges.

•  Since all credit card activity is reported to the credit bureaus, on-time payments and other factors can be favorable to building your credit history and credit score. A high credit score can help you qualify for competitive interest rates and terms on other consumer credit products, like other credit cards and loans.

•  Credit cards also offer benefits and rewards that cash doesn’t provide. Rewards credit cards let you earn points or miles that you can then redeem for travel, cash back, gift cards, merchandise, special experiences, and more.

Different credit cards can also offer benefits like travel cancellation protection, warranty insurance, and more. For example, some cards feature purchase protection, which replaces an item that was lost, stolen, or damaged if it was purchased using the card.

•  Using a credit card limits your liability when unauthorized or fraudulent purchases or activity occurs on your account. Depending on when you report the unusual activity, you might only be liable for up to $50 of those charges. Some credit cards even have zero-liability policies.

Recommended: What Is a Charge Card?

Drawbacks of Using a Credit Card

Here are some downsides to using a credit card:

•  Interest charges, expressed as an APR, are one of the biggest disadvantages to using credit vs. cash. With how credit card payments work, unless you make full, on-time credit card payments each month, interest charges will likely apply to balances that roll over from one month to the next.

If you roll over a balance, you’ll not only pay more money toward your purchases, but your outstanding debt can snowball quickly. This can prove financially damaging to your everyday finances and to your credit if you fall behind on payments while amassing growing debt.

•  Certain credit cards also incur annual fees for the privilege of using them. This is money that you’ll pay out-of-pocket upfront. You can also incur other fees, such as foreign transaction fees, late payment fees, balance transfer fees, and more.

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

Is Using a Debit Card the Same Thing as Using Cash?

Using a debit card is similar to using cash. In fact, one of the biggest differences between a credit card and debit card is that debit cards draw funds from the cash that you already have in your personal checking or savings account. Still, a debit card provides the convenience of swiping or tapping a card on a payment processing machine, like a credit card, to process a digital transaction between your bank and the merchant’s bank.

However, debit cards carry many of the same disadvantages as cash. For one, a debit card limits your purchasing power to the amount that’s in your checking or savings account. Additionally, debit cards don’t offer the same level of protection against unauthorized or fraudulent activity as credit cards do.

Recommended: What Is the Average Credit Card Limit?

Understanding Your Spending Habits Is Key to Picking Which to Use

Taking stock of your buying habits can help you decide whether cash vs. credit is a better option for you. When considering these two payment options, think about the following:

•  How much do you spend each month?

•  How much discretionary income do you have?

•  Where do you typically make purchases — online or in a brick-and-mortar store?

•  Do you tend to overspend or stay within a budget that you can afford?

•  If you’re thinking about a credit card, what’s your goal?

By answering these questions, you will likely be able to tell which payment method will be more convenient for you. For instance, if you’re trying to curb your spending, then cash might be the better bet, given how credit cards work. On the other hand, if you’re primarily an online shopper or you’re trying to build your credit history, a credit card could be worth exploring.

The Takeaway

Cash can help you contain your spending to the money you actually own. This can potentially limit the amount of debt you’d take on through credit. It can also offer convenience when it comes to shopping through cash-only merchants. The caveat is the risk you’re taking on if the cash is lost or stolen since it can be difficult to get back.

Credit cards can offer greater protection against unauthorized activity, and they can enhance your spending power. However, access to borrowed funds could get you deeper into debt if you’re unable to repay your balance on time each month. With responsible borrowing habits, however, credit cards can be a handy way to make purchases and may offer rewards, like cash back.

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

Which is better when traveling, cash or credit?

When traveling, credit cards are typically a safer option to carry than cash. It can be difficult and near impossible to trace and verify whether lost or stolen cash belongs to you. If a credit card is lost or stolen, the card issuer can freeze new transactions on the account, and your maximum liability for fraudulent charges can be $50 or nothing at all.

Are credit cards safer than cash?

Yes, credit cards can be safer than cash. Credit cards typically reduce your liability in the event of unauthorized or fraudulent activity.

What is the difference between cash and credit cards?

Cash is a physical currency and liquid asset that provides you with purchasing power. When you use cash toward a purchase, you don’t owe that amount to another entity. Conversely, a credit card is a physical tool that lets you increase your purchasing power using borrowed money. You’ll need to repay purchases made to your credit card, possibly plus interest charges.

Cash or credit, which is more convenient?

Whether cash or credit is more convenient is subjective. For example, while many merchants accept credit cards, some only accept cash payments. However, as more businesses accept digital payments and transition to cashless transactions, a credit card might be more convenient.

Photo credit: iStock/Ridofranz

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-Q324-005

Even if you’ve never been a victim of credit card fraud yourself, you probably know someone who has — and you may have wondered how credit card frauds are caught. Credit card companies and merchants frequently update the security measures they use to prevent credit card fraud, and their investigators will check into issues as they occur. Law enforcement also may get involved, depending on the type of fraud and the amount.

That being said, it’s still important for you to protect yourself against credit card fraud. Read on to learn about the different types of credit card fraud you might encounter, what to do if you suspect your account has been compromised, and steps to take to safeguard your account going forward.

What Is Credit Card Fraud?

Credit card fraud is the unauthorized use of a person’s credit card information to purchase goods and services or get cash from an account. According to data the Federal Trade Commission (FTC) has collected over the past four years, credit card fraud is the most reported form of identity theft.

Luckily, federal law can limit your responsibility if you move quickly to report a lost or stolen card or dispute unauthorized charges. Still, it can be a real hassle to clear up the mess and keep inaccurate information caused by identity theft off your credit reports.

Recommended: Tips for Using a Credit Card Responsibly

What Types of Credit Card Fraud Are There?

You can become a victim of credit card fraud whether someone physically takes your card, virtually hacks into your account, or uses your information to create a new account. Here’s how fraudsters can obtain and use your account information through various credit card scams.

Card-Present Fraud

Card-present fraud is when a person uses a physical card to make an unauthorized purchase. EMV chips, PINs, and other security measures have made “card-present” fraud less of a factor than it used to be. But there are still some criminals who are willing to risk using a lost, stolen, or counterfeit card to make an in-person purchase — and they’ll likely move quickly to do so.

Even if you think you’ve simply misplaced a card, you may want to use your card’s “on/off” feature, if there’s one available, to temporarily suspend the card until you can locate it or report that it’s missing.

Card-Not-Present Fraud

Even if your cards are safely tucked away in your wallet, you may find unauthorized charges on your statement. These days, it’s far more common for a thief to work behind the scenes to get your account information and use it to commit fraud online or over the phone.

Card Skimming

You’ve probably seen warnings in the news about thieves placing skimming devices on gas pumps, but credit card skimmers can be used to steal information just about anywhere there’s a card-reading device. This can include on ATMs and at stores and restaurants.

When you swipe a card, the skimmer reads the magnetic strip and stores the credit card number, expiration date, and cardholder’s name. There are also devices (cameras or false keypads) that can record a PIN number.

The captured information can then be used to make fraudulent charges online or over the phone. The hacker could also sell the collected data or use it to create counterfeit cards.

Recommended: What Is a Charge Card?

False Application Fraud

If identity thieves can get access to your personal information (through a data breach or some other method), they might be able to use it to apply for a new credit card, loan, or line of credit in your name. Or, they might blend information from several victims to create a false identity.

“Card Never Arrived” Fraud

This type of fraud can happen when someone intercepts a new or replacement card before you receive it in the mail. If a new card doesn’t come when you think it should have arrived, you may want to check with your credit card issuer to make sure it hasn’t been taken.

Phishing

Sometimes identity thieves will try to get the personal information they need using a phishing email, text, or phone call that appears like it’s from a bank or some other familiar contact or business. The message might ask you to click on a link or go to a website where you’ll be asked for your password, the CVV number on your credit card, or other details that may be used to access your accounts.

Hacking

Your personal details also could be at risk if your bank, credit card company, or some other business that stores your info is involved in a data breach. If this were to happen, a hacker could get hold of your credit card information.

Account Takeover

Once a person’s identifying information is stolen (through a data breach, phishing, or another method), a thief may contact credit card companies directly. They could impersonate the cardholder and change their PINs and passwords to take over the account.

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

How Are Credit Card Frauds Typically Caught?

Early detection is critical when it comes to catching credit card fraud and minimizing the damage thieves can do. Unfortunately, unless you notice your card is lost or stolen, or you see unusual activity on your account statement, you and your credit card company might not know someone is making unauthorized charges for days or even weeks.

How Often Do Credit Card Frauds Get Caught?

It’s difficult to say how often credit card frauds get caught. A savvy clerk might notice someone using a stolen credit card and call it in to the police. Or an investigator might be able to trace a criminal who uses a stolen credit card number online. But unless you know the person involved in committing the fraud, you may not find out if there’s actually been an arrest.

The good news for credit card fraud victims is that if you quickly report the fraudulent use of your account, you won’t be held responsible for the charges. The Fair Credit Billing Act protects credit card users from being held liable for more than $50 in the event of fraud. Even better, major card networks have their own “zero liability” policies to ensure you won’t pay for unauthorized charges made with your credit card or account information.

Recommended: Complete Guide to How Credit Cards Work

How Do Credit Card Companies Investigate Fraud?

The best way to start an investigation into fraudulent transactions on your credit card is to notify the credit card issuer, either by phone or online chat. The card issuer will likely deactivate your card and send you a replacement. It also may refund your money at this point, or it may want to wait until the case is investigated.

The issuer then has 30 days to respond to your report and begin its investigation. The investigation can take up to 90 days to be completed.

As for how credit card companies investigate fraud, the issuer’s internal investigation team will begin by gathering evidence about any disputed transactions. It may check for things like transaction timestamps, the IP address of the person who made the disputed purchase, and the purchaser’s geographic location. If the crime appears to be part of a larger pattern or organization, the card issuer might alert the FBI or other law enforcement officials.

You may be able to help the investigation if you also report the crime to local law enforcement — especially if you believe the theft was committed by someone you know, or by someone local who stole personal information from your computer or mailbox. The FTC’s identity theft website can take you through the steps of filing an identity theft report.

What Should You Do If You Suspect Credit Card Fraud?

Besides reporting credit card fraud as soon as you suspect there’s an issue, there are other steps you can take to further safeguard your finances. This applies whether you notice small unauthorized transactions or charges that go up to your credit limit.

Send a Follow-Up Letter

The FTC recommends following up immediately with a letter to the card issuer that confirms you reported unauthorized activity on your account. You should note the date and time you reported the loss, and include any relevant documents (such as your police report and/or your report to the FTC).

Send the letter to the credit card company’s address for billing inquiries (not the address where you make payments). Consider sending it by certified mail so you have a receipt.

Change Your Passwords

It’s a good idea to change your password occasionally anyway. But if you suspect you’ve been the victim of identity theft, you may want to review all of your accounts and change your passwords and PINs.

Contact the Credit Bureaus

You also should contact the three major credit bureaus to report your problem, and you may want to request a credit freeze, credit lock, and/or fraud alert. What’s the difference?

•   A credit freeze, also known as a security freeze, limits access to your credit report without your permission. This can make it harder for an identity thief to open a new credit account or loan in your name. A credit freeze is free, but you must request a separate freeze from each credit bureau. And when you want to unfreeze your file, you must do that separately as well, usually by using a PIN or password provided by each credit bureau.

•   A credit lock is pretty much the same thing as a credit freeze, but it may be more convenient. Once you set it up, you can lock and unlock your credit reports using an app or secure website. Plus, you don’t have to keep track of a PIN or password to change your status.

•   A fraud alert doesn’t put an all-out block on your credit report the way a freeze or lock can, but it still can be a useful tool. It puts a notice on your credit reports that cautions creditors that you may be a fraud victim. Additionally, it encourages them to take extra steps to verify your identity before opening a new account or changing something on a current account. Fraud alerts are free, and once you place a fraud alert with one of the credit bureaus, it will send a request to the other two bureaus to set up alerts on their reports.

Watch Your Credit Card and Banking Statements

Don’t assume you’re out of the woods because you haven’t seen any unauthorized charges for a while. It may take weeks or even months before charges show up on your accounts if you’re the victim of identity theft. Checking your bank account, credit card, and other statements regularly for unusual charges (and to track your own spending) is a healthy financial habit to develop.

Track Your Credit Reports and Credit Score

It also can be helpful to track your credit reports to make sure the unauthorized charges you reported were blocked or removed, and that nothing new has turned up. Lenders, credit card issuers, and others use these reports to determine your creditworthiness, so you’ll want them to accurately reflect your finances.

You also can check your credit score to be sure it’s where it should be. Consumers can get a free credit report once a year from each of the three credit bureaus, and many financial institutions and credit card companies provide free credit scores to their customers. 

Even if you’re not a victim of identity theft, this can be a good credit card rule to follow.

Protecting Yourself From Credit Card Fraud

Unfortunately, identity theft and fraud can happen to even the most vigilant credit cardholders. To improve your chances of spotting and tracking unusual transactions, you may want to:

•   Set up transaction alerts: If your credit card issuer offers fraud notifications, it could help you react more quickly to unauthorized charges on your account. You may be able to set up alerts for specific transaction types, amounts, or locations. If an alert is triggered, you’ll be notified (usually by text, push notification, or email), so you can let the card issuer know as soon as possible if there’s a problem.

•   Track charges online or with an app: The days of waiting for your monthly credit card statement to arrive in the mail are long gone. You can check your current credit card balance and other details any time you like, by logging into your account regularly (at least once a week) or using a mobile app.

•   Sign up for credit monitoring: A credit monitoring program is another way to find out quickly (generally within 24 hours or less) if there’s been some type of unusual activity on an account. The service can notify you of major changes to your credit report, including large purchases or inquiries from lenders or credit card companies. If you didn’t make any big purchases or apply for a new credit card or loan, you can quickly take steps to inform your card issuer and the credit bureaus.

The Takeaway

Detecting and reporting credit card fraud as soon as possible is critical if you hope to limit the stress and cost of clearing it up. Even though issuers are on top of credit card fraud investigation, it’s also important to take steps to proactively protect your accounts. It’s all part of using a credit card wisely.

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

FAQ

Can you trace credit card fraud?

Yes. If you notice suspicious activity on your credit card account, you can notify your credit card issuer immediately. The card issuer will then take steps to investigate any fraudulent transactions. You also should contact the three major credit card bureaus, and you may want to make a police report.

How long does it take to investigate a credit card fraud?

The card issuer must send a letter confirming it received your fraud report within 30 days. It then has 90 days to complete its investigation.

What evidence can a card issuer use to investigate a credit card fraud?

The card issuer will use any information you provide in the course of its investigation. It also may gather further evidence by talking to the merchant who was involved, looking at transaction timestamps, or checking the IP address of the device used to make an online transaction.

What fraud protection measures do credit card issuers provide?

Credit card issuers have developed several features to stop criminals from committing fraud. Those measures range from chip technology and PIN and password protections, to real-time risk assessments that allow merchants to decide whether to approve or deny a transaction.

Photo credit: iStock/Galetos

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.

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

SOCC-Q324-034

Whether you’ve noticed a potentially fraudulent charge or you simply changed your mind on a purchase, there are a number of reasons why you might want to cancel a credit card payment. Luckily, there are actions you can take to do so, assuming the payment falls within certain parameters.

Read on to learn how to cancel a credit card payment, whether the charge is still pending or if it’s already posted. You’ll also learn how to stop payments on credit cards if you don’t want your scheduled payment to go through.

Can You Cancel a Credit Card Payment?

Per the Fair Credit Billing Act (FCBA), a law that all credit card issuers must follow, there are times when you can withhold a payment. So if you define “cancel” as disputing a charge instead of making the payment, there are instances when it’s acceptable under the law to cancel credit card payment.

You can also request to cancel a credit card payment if you believe it’s the result of fraudulent activity.

Related: How to Cancel a Credit Card

Things to Consider Before You Cancel a Credit Card Payment

Before you cancel credit card payments, it’s important to note that the previously mentioned FCBA guidance only applies when you believe a billing error was made. Per the Federal Trade Commission (FTC), examples of billing errors include:

•   Unauthorized charges

•   Charges with the wrong date or amount listed

•   Charges for items or services you didn’t accept or that weren’t delivered as agreed

•   Mathematical errors

•   When the credit card issuer didn’t post your payments or your returns/credits

•   When the credit card issuer didn’t send the bill to the appropriate address, assuming they were provided adequate notice of any change in address

•   Charges where you’ve asked for written proof of a purchase or an explanation of it, along with a claim of an error and a clarification request

Further, for disputes about goods and services, you generally must have made the purchase on your credit card in your home state or within 100 miles from your home for the laws on credit card disputes to apply. The charge in question must be for more than $50. Credit card rules stipulate that it’s also necessary to have made an attempt to resolve the issue with the merchant first.

Recommended: What Is a Charge Card?

Reversing a Credit Card Payment After It Has Been Made

If you’ve already paid the merchant but are unsatisfied with how they’ve responded to your complaint, contact your credit card company to see if you can get the charge reversed. They may call this a chargeback.

Parties that will get involved in the process, besides you, can include your credit card issuer, the merchant from whom you purchased goods or services, the merchant bank, and the credit card network. This is due to how credit card payments work.

Typically, you’ll receive credit on the disputed amount while an investigation takes place. If you win the billing error dispute, this credit card refund will remain permanent. If the case isn’t decided in your favor, then the amount would get added back to your credit card balance.

Recommended: When Are Credit Card Payments Due?

How to Cancel a Credit Card Payment After It’s Made

If you’re hoping to cancel credit card payment, here are the general steps you should go through to do so.

Attempt to Resolve the Dispute With the Seller

As an initial step, contact the seller of the item you’re unhappy with and explain the situation. It’s possible, for example, that you received the wrong item or a part may have been defective in what you received. Perhaps they can send you a replacement. Or you can ask the seller to reverse the charges on your credit card, resulting in a credit card refund.

Avoid Paying the Disputed Amount

If you don’t get satisfaction by working with the merchant, you can decide to not pay the disputed amount and have the situation investigated. To make that happen, though, you need to follow specific steps, starting with reaching out to your credit card issuer.

Contact Your Credit Card Issuer

Write and send a letter to your credit card issuer that outlines the billing error and disputes the charge. Your credit card company should have a billing inquiry address listed on its website.

Make sure to send this letter within 60 days of receiving the billing statement with the disputed charge. Keep copies of the letter, and consider sending it via certified mail with a return receipt.

Await Your Credit Card Company’s Decision

Then, you wait. The creditor has up to two billing cycles — a maximum of 90 days — to resolve the dispute. The result may be that you don’t have to pay the disputed amount, or that you do. Or, you may end up needing to pay part of it.

If you have reason to believe that the creditor isn’t following the rules set out by the FCBA, you have the right to sue them. If you were to win, the court may award you damages and order the credit card company to pay your attorney fees.

Understand the Limitations

After you’ve filed a dispute, you aren’t required to pay the charge in question until after the investigation ends and a decision is made. That said, you are required to pay whatever else is owed on this bill — such as a credit card minimum payment or finance charges on the undisputed portion of the bill. And, of course, remember there’s no guarantee that you would win a lawsuit.

Recommended: What Is the Average Credit Card Limit

How to Stop Payments on Credit Cards

Perhaps you want to know how to stop a scheduled payment on a credit card that hasn’t already been made. In this case, you’d need to contact your bank at least three business days before the payment is set to come out. Do so in person, in writing, or over the phone. The financial institution may require a follow-up of this request in writing within 14 days.

Note that, even after the bank stops a payment, you may still be responsible for making the payments to the credit card company; that’s part of using a credit card responsibly. Here are some other general tips to keep in mind for the process of stopping payment on a credit card.

Identify the Credit Card Payment You Want to Cancel

When you contact your bank, make sure you’re clear about which payment you want to cancel. If you only have one automatic payment taken out, this wouldn’t apply.

Check the Restrictions That May Apply

Be clear about whether your stopped payment falls within your FCBA rights. Remember that you’re still liable to pay your credit card bill outside of any disputed charges.

Contact the Credit Card Provider to Stop the Pending Payment

If you want to contact your credit card company to stop a pending payment, use the phone number on the back of your card. You can then talk to someone about stopping the payment.

Verify That the Payment Has Been Canceled

Whether you talk to your financial institution or the credit card company, ask for the name of the person you spoke to and a confirmation number. Take good notes and keep them. Later, you’ll want to check back to make sure that the payment was indeed canceled.

What to Do in the Case of the Non-Reversal of Funds

If you aren’t satisfied with how your credit card company is handling a situation, you can submit an online complaint online to the Consumer Financial Protection Bureau (CFPB) or call them at (855) 411-2372.

Also keep in mind that if your dispute was denied, you can request an explanation from your credit card company. You also have the option to appeal the decision.

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

The Takeaway

It is possible to cancel a credit card payment if it falls within your FCBA rights or it’s due to fraudulent activity. There are protections built into the law for when you receive erroneous billing, as well as an established process to follow to address this issue. In the meantime, you’re still liable to make minimum payments outside of the disputed amount.

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 I cancel a pending transaction on my credit card?

Possibly. Contact the merchant and ask them to cancel the transaction. Aim to do so in the day or two before the pending charge is added to your balance. Once it’s posted, then you would need to pursue another route, like filing a dispute or asking for a chargeback.

Does canceling a credit card payment affect your credit score?

If you dispute a charge, it may show up on a credit report, but it shouldn’t directly affect your scores. The FCBA notes that it’s not legal for someone to be denied credit because they disputed a bill. That said, to avoid your credit score getting dinged, you must keep up credit card payments outside of the disputed amount.

How long does it take to cancel a credit card payment?

You should provide at least three days’ notice before a bill is set to be taken out of a bank account. That should provide adequate time for the cancellation of the credit card payment.

Photo credit: iStock/solidcolours??

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.

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

SOCC-Q324-037

The average credit card annual percentage rates (APR) topped 21% as of the middle of 2024, according to the Federal Reserve. It’s no wonder that savvy cardholders are looking for ways to reduce the cost of using a card. Some ways consumers achieve this is through a cash-back rewards credit card or a low-interest credit card.

The distinction between a cash-back vs. low-interest credit card is that cash-back cards help you earn a small percentage of your spending back. Conversely, a low-interest credit card tends to charge less interest each month than a high-interest card, which is helpful for cardholders who roll a balance into the next month.

What Are Cash-Back Credit Cards?

Credit cards that offer cash-back rewards are designed as an incentive to encourage spending on the card. For every eligible purchase you charge to your card, you’ll receive a small percentage of cash back. Some cards offer 1% cash back, while others offer as much as 6% or more, depending on the program’s rules. You might earn a flat rate across all purchases, or you might earn more in certain spending categories, such as groceries or gas.

You then can redeem your earned cash-back rewards. Redemption options may include a cash payment or a statement credit toward your next bill, or you may be able to redeem the rewards for travel, merchandise, gift cards, and more.

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

What Are Low-Interest Credit Cards?

Low-interest credit cards incur a lower borrowing cost compared to a high-interest credit card. A credit card that charges low interest allows you to pay less for using the card if you carry a balance. This card feature is beneficial for cardholders who repay their monthly balance in increments over time, instead of in full.

The interest rate you qualify for highly depends on your creditworthiness, including your past borrowing habits and credit score. Consumers with strong credit might qualify for promotional no-interest credit cards that charge 0% APR for a limited period. After this period is over, the card’s interest rate increases, based on the cardholder’s credit and qualifications. As such, there are both advantages and disadvantages of no-interest credit cards.

Recommended: How to Avoid Interest On a Credit Card

Differences Between Cash-Back and Low-Interest Credit Cards

Below are the key differences between low-interest vs. cash-back credit cards to keep in mind when choosing a card:

Factors to Consider When Choosing Between Rates and Rewards

Your unique financial situation, borrowing habits, and the features and benefits of a particular card are what you should consider when comparing your options.

Average Balance You’ll Be Carrying Monthly

How credit cards work is that they give you purchasing power up to a limited amount, even when you don’t have the cash upfront. You can choose to repay the debt in one lump payment by your statement due date, which allows you to avoid paying interest charges. Alternatively, you can make installment payments over multiple months, in which case you’ll accrue interest charges.

Not carrying a monthly balance is one of the common credit card rules to try to stick to, but it’s not always possible. For example, you might have had an unexpected injury that resulted in a medical bill that exceeded your cash savings. In this scenario, putting some of that cost on your credit card and making small, monthly payments to repay it might be necessary.

If you don’t have sufficient cash savings or income to confidently repay your monthly balance in full each month, a low-interest card might offer an advantage over a cash-back card.

Recommended: When Are Credit Card Payments Due?

Your Average Monthly Spending

Look back at your monthly expenses and think about the total amount you’ll likely put on your credit card each month. For example, you might choose use a credit card to cover everyday expenses, like dining, groceries, and gas. Cardholders who rack up high monthly balances can benefit from a cash-back credit card that offers money back from purchases you’re already making.

The caveat, however, is if you charge more expenses to your card than you can realistically pay back in full by the statement due date. If you roll over any portion of your outstanding balance into the next month, you’ll get charged interest on that amount, which cancels out any cash-back rewards you may have earned.

Recommended: Tips for Using a Credit Card Responsibly

Annual Fees

Some cards — particularly rewards cards that extend high-value benefits and incentives — might charge an annual fee. For example, a cash-back card might offer an annual $300 travel credit and 5% cash back on flight purchases, but charge an annual fee of $550.

If you don’t travel enough to use up the credits and earn more cash back than the annual fee costs, that card might not be the best fit for your lifestyle. You’ll need to assess the total potential dollar value that a card’s benefits, credits, and other incentives offer in comparison to the upfront cost of the card’s annual fee.

Interest Rate Difference Between Cards

Although all credit card issuers check your credit to determine your interest rate, each card company has its own underwriting criteria. You might receive an interest rate offer for 19.99% APR for one card, and an offer from another card issuer at 22.99% APR, for example. To gauge interest rates, it can be helpful to look at the current average credit card interest rates for a point of comparison.

Regardless of whether you end up with a cash-back credit card vs. low-interest credit card, it’s always a good idea to shop around for the lowest interest rate you can get. That way, if you ever need to carry a balance, you can minimize the amount of interest you end up paying.

Guide to Lowering Your Credit Card Interest Rate

Whether you’re shopping around for a new credit card or have an existing card with a high APR, here are some ways to lower your interest rate:

•   Contact your card issuer. If you’ve been a loyal customer and have kept your account in good standing, or if you have built your credit score since you opened the account, your credit card issuer may be willing to reduce your rate.

•   Build your credit score. Even if you already have good credit, building your credit score can help you secure the most competitive interest rate in the future. Good borrowing habits — like making on-time payments and keeping your credit utilization low (below 30% or ideally below 10%) — are just some ways that may help your score.

•   Consider a low-interest balance transfer card. If you have a high-interest card with a balance on it, and you have strong credit, a balance transfer card can allow you to move your original balance onto a low-interest card. Before proceeding, always compare the balance transfer fee against your potential savings to confirm that it’s worth it.

Remember, what’s considered a good APR for a credit card is subjective, based on your creditworthiness and other factors. Securing the lowest APR that you qualify for can help you avoid heavy interest charges if you roll over a monthly balance.

The Takeaway

Ultimately, whether you opt for a cash-back credit card or a low-interest card depends on how you plan to use the card and manage debt, as well as what kinds of perks and features matter most to you. If you often carry a balance, for instance, a low-interest card could be valuable. If you tend to follow the important rule of paying off your card balance in full every month, then interest rate may not matter as much but cash back could be a benefit you appreciate.

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

When is a lower annual interest rate better than a low annual fee?

A lower APR is better if you typically carry a balance from one billing cycle to the next. When you roll over a balance, old and new balances accrue daily interest charges that can cost you more money out of pocket. A low annual fee is something to look for when you’re using a card to earn incentives, like credit card rewards.

Are there credit cards with low interest and cash back?

Yes, there are credit card options that offer a low interest rate to qualified applicants, as well as cash-back rewards. However, you’ll generally need to have good credit in order to qualify for the most competitive rates offered by low-interest rewards credit cards.

How can I choose between low APR and rewards?

Consider your credit history and score to determine whether you meet the minimum qualifications for a credit card’s lowest APR. Also, examine your general credit card habits, like whether you often roll over a balance and what your monthly spending habits are like. Compare those details against the costs of carrying a card, like annual fees and the APR you’re offered.

Is it better to find a credit card with low or high interest?

Finding a credit card that offers a low interest rate is usually the better move. The lower your APR, the less you’ll pay for borrowing on credit if you decide to carry a balance month to month.

Photo credit: iStock/AsiaVision

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-Q324-026

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) provides a secure communication network to financial institutions in order to communicate and facilitate cross-border transactions and payments.

The SWIFT system is a critical piece of infrastructure for the international banking system because it allows financial institutions to talk to one another securely. Without access to the SWIFT messaging network, banks are essentially shut out of the global financial system because they cannot speak to banks in other countries to agree to transaction and payment terms.

What Is SWIFT?

SWIFT doesn’t hold assets or move money around. Instead, it is a messaging system for banks and other financial institutions. When banks need to conduct business across borders with other financial companies, the SWIFT system allows them to communicate to one another in a secure and standardized manner to ensure reliable transaction terms.

The SWIFT messaging system relies on a standardized system of codes to transmit information and payment instructions. These codes are interchangeably called Bank Identifier Codes (BIC), SWIFT codes, SWIFT IDs, or ISO 9362 codes. Each member of the SWIFT network is assigned a BIC/SWIFT code, providing an efficient transfer of information during transactions.

The SWIFT codes are used so banks and financial institutions can communicate reliably. For example, a bank in the United States wants to make sure it is messaging the right bank in France to set up payment instructions before sending money.

Since SWIFT doesn’t send money, it requires banks to take additional steps to send money globally after communicating with their counterparty. This makes the whole process relatively slow and adds costs to the transfers. The advent of blockchain technology may alleviate these time lags and additional costs as the technology is adopted more broadly.

Format of BIC/SWIFT Code

These codes are unique and have 8 or 11 characters, identifying the bank, country, city, and branch.

•   Bank code (0-9 or A-Z): 4 characters representing the bank.

•   Country code (A-Z): 2 letters representing the country of the bank.

•   Location code (0-9 or A-Z): 2 characters of letters or numbers for the location of the bank.

•   Branch Code (0-9 or A-Z): 3 digits specifying a particular branch. This branch code is optional.

For example, Wells Fargo, with a branch in Philadelphia, has the 11-character SWIFT code PNBPUS33PHL. The first four characters reflect the institute code (PNBP for Wells Fargo), the next two are the country code (US), the following two characters specify the location/city code (33), and the last three characters indicate the individual branch (PHL). The last three characters are optional; if the bank is the head office, the code ends with XXX.

History of SWIFT

Telex was an early electronic communications system used in the post-World War II period, allowing businesses to send written messages across the globe. Before SWIFT, financial institutions used Telex to communicate with one another to ensure the successful transfer of international payments. However, Telex was slow, lacked security, and was prone to human error because it didn’t run on a standardized system.

To alleviate the problems of Telex, 239 banks from 15 countries joined forces in 1973 to develop a communications network that would provide safe, secure, and standardized messaging for cross-border payments. These banks formed the Society for Worldwide Interbank Financial Telecommunication and went live with the SWIFT messaging service in 1977. Soon, SWIFT was widely adopted and became the gold standard for cross-border messaging in the global financial system.

More than 11,000 financial institutions in over 200 countries use the SWIFT system to communicate. It processes tens of millions of messages per day, too. 

Who Controls SWIFT?

Based in Belgium, SWIFT is a member-owned cooperative, meaning that member institutions have stakes in SWIFT and the right to nominate directors to its governing board. This governing board is made up of 25 people from across the globe and overseen by the G-10 country central banks (Bank of Canada, Deutsche Bundesbank, European Central Bank, Banque de France, Banca d’Italia, Bank of Japan, De Nederlandsche Bank, Sveriges Riksbank, Swiss National Bank, Bank of England, USA Federal Reserve System), the European Central Bank, and the National Bank of Belgium.

Traditionally, SWIFT acts as a neutral party, so it doesn’t make any decisions on sanctions. However, because it operates under Belgian law and European Union regulations, SWIFT will adhere to sanctions imposed by the EU if necessary. This resulted in banks from Iran being kicked off the SWIFT system in 2012 because of the country’s nuclear weapon program. Additionally, in early 2022, several Russian institutions were kicked off of SWIFT after the country invaded Ukraine.

The Future of SWIFT

Because of SWIFT’s significant role in the global financial system, some believe that blockchain technology could circumvent the need to use the SWIFT network. Proponents of decentralized finance believe that these new technologies could increase global payments’ speed, security, and transparency. Just as SWIFT replaced Telex as the standard for messaging in the global financial system, some think that blockchain technology could do the same.

The Takeaway

SWIFT is a critical part of the global financial system. Without the secure messaging services of SWIFT, banks and other financial institutions would struggle to complete transactions and make payments in overseas business. However, the SWIFT system is relatively slow and costly for financial institutions. Even with the safe and secure messaging of SWIFT, cross-border payments and transfers between financial institutions can still take several days to complete. 

In a world that desires high-speed money transfers, this lag in transaction time can be burdensome to banks and other financial institutions. As new challengers in the global financial system, like blockchain technology, breakthrough and become a more mainstream part of the financial payments system, they could put pressure on the ubiquity of the SWIFT system and the overall global payments system.

Photo credit: iStock/Evgeniy Skripnichenko

SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.