When checking out at a store, you might be prompted to select whether you want the purchase processed as a credit or debit card transaction. Some debit cards with a credit card network logo can be processed as a credit payment, but the reverse — processing a credit card as a debit transaction — isn’t possible.
Still, it can make sense to use credit cards like a debit card. Understanding the difference between a credit card and debit card can help you to make strategic purchasing decisions with your credit card.
In terms of being a convenient, cashless payment method, a credit card can be used in-person or online in a similar way as a debit card. Credit cards require you to insert, swipe, or tap the card on a payment processing device to initiate a transaction. If used online, you can enter your credit card information into the payment field at checkout in the same way you would with a debit card payment.
However, there are also significant differences between a credit card and debit card. The most notable distinction is where the funds come from. When you use a credit card, the money is drawn from your card’s available credit line, and you might get charged additional fees and interest on your purchase.
In contrast, a debit card draws the funds you already have in an associated checking or savings account. Also, in certain situations where the final total amount might vary, such as at the gas pump, the processor might request that your card issuer place a temporary hold on your debit card funds to ensure you have enough funds to cover the transaction.
Reasons You May Want to Use a Credit Card Like a Debit Card
Although credit cards offer numerous advantages when used responsibly, there are valid reasons to prefer using a credit card as a debit card. This may include:
• To avoid overspending. Debit cards, particularly when you’ve opted out of overdraft protection, help you to avoid spending more than you can afford to pay back. With a debit card, you can only use the funds already in your associated account, which is a tactic you could try with a credit card as well.
• To avoid finance charges or extra fees. Debit cards generally incur few charges. Additionally, they do not accrue interest since debit transactions are immediately pulled from your deposit account, in contrast to how credit cards work.
• To amass rewards without debt. The potential to earn credit card rewards is appealing, but “chasing points” can be a risky game if you overspend. The ability to use a credit card like a debit card can help keep your spending in check while earning rewards.
You can’t technically process a credit card payment as a debit card purchase. But if your purchasing strategy is to use a credit card as your go-to payment method instead of a debit card, remember the following tips and credit card rules:
• Don’t spend more than you can afford.
• Do pay your monthly credit card statement in full.
Alternatives to Using a Credit Card Like a Debit Card
If you’re averse to using a credit card in a traditional sense, there are a few alternatives payment options that are akin to a debit-style transaction:
• Prepaid credit card. A prepaid credit card gets loaded with funds which then become your card’s available credit line. It gives you the convenience of a credit card but taps into cash you already have, which is similar to a debit card. Note that prepaid cards often incur fees for various types of activity.
• Cash-back rewards debit cards. If you want the perks of a credit card, like cash-back incentives, but in the form of a debit card, a cash-back debit card might be an option. These limit you to spending the funds you already have on deposit, but let you earn cash back when you use the card.
The Takeaway
Using a credit card like a debit card ultimately boils down to only spending on your card with funds you already have. Since a credit card is essentially a loan, it’s easy to accumulate overwhelming debt, plus interest charges, if you’re overspending. If you can comfortably afford to repay your credit card transactions in full each month, using your credit card in lieu of a debit card can provide access to valuable benefits, like earning rewards, enhancing fraud protection, and possibly building your credit.
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 transfer money from my credit card to my bank account?
No, you can’t transfer money from your credit card to your bank account. A bank account is a deposit vehicle for your available cash; this cash can be accessed using a debit card. Conversely, a credit card is a financial tool that lets you access a credit line that you need to repay.
Can I use my credit card like a debit card at an ATM?
Yes, you can use your credit card like a debit card to get a cash advance at an ATM. Be warned that this is a costly option. Credit card cash advances typically have a different limit compared to your purchase limit, and they usually charge a higher APR with no grace period. Plus, you’ll owe a cash advance fee.
Can I use a credit card as a debit card with no interest?
Possibly. You might be able to use a credit card like a debit card for everyday transactions without incurring interest, if you pay every billing statement in full each month. Rolling over a balance month after month, however, will cause you to incur interest charges.
Is it better to use a debit or credit card?
Whether using a debit or credit card is a better option depends on the types of purchases you’re making and your borrowing habits. For example, credit cards are generally safer when shopping online, but buying on credit can get out of control quickly if you’re not careful.
Photo credit: iStock/filadendron
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 .
Closing a credit card with a balance remaining is possible to do. However, keep in mind that even if your credit card account is closed, you’ll still have to pay off the remaining balance. Additionally, you’ll need to cover interest that’s accrued as well as any fees, and you could face other consequences, including losing out on rewards and seeing potential impacts to your credit score.
Still, there are instances when closing a credit card can be the right move. If you’re thinking about closing a credit card account with an outstanding balance, you’ll want to weigh these considerations — and also ensure you have a plan for paying off your remaining balance.
What Happens If You Close a Credit Card Account With a Balance?
Once you’ve closed a credit card account with a balance, you’ll no longer be able to use that card to make purchases. Beyond that, here’s what else you can expect after your account closure.
Payment of Balance and Interest
Perhaps the most important thing to keep in mind when a credit card is closed with balance is that you’re still liable for the credit card balance you’ve racked up. You’ll also owe any interest charges that have accrued on your outstanding balance.
As such, expect to continue receiving monthly statements from your credit card issuer detailing your balance, accrued interest, and minimum payment due. And until you’re absolutely positive your debt is paid off, keep on checking your credit card balance regularly.
If the card you closed offered a promotional interest rate, this offer will likely come to an end. If you’ve been carrying a balance on a credit card, your balance could start to accrue interest. Plus, you may have to pay the standard APR (annual percentage rate) on the remaining balance rather than the lower promotional rate.
Before you move forward with canceling a credit card that offers rewards like points or airline miles, make sure you’ve redeemed any rewards you’ve earned. That’s because you may forfeit those rewards if you close your account.
Policies on this can vary from issuer to issuer though, so just make sure to check with your credit card company to be safe rather than sorry.
How Closing Credit Cards With Balances Can Impact Your Credit
There are a number of ways that closing credit card accounts with a balance can adversely affect your credit score given how credit cards work. Closed accounts in good standing will remain on your credit report for 10 years, whereas those with derogatory marks may fall off after seven years.
For starters, closing your account could drive up your credit utilization ratio, one of the factors that goes into calculating your score. This ratio is determined by dividing your total credit balances by the total of all of your credit limits. Financial experts recommend keeping your ratio below 30% and preferably closer to 10%. Losing the available credit on your closed account can drive up this ratio.
Closing your account can impact your credit mix, as you’ll have one fewer line of credit in the mix.
Closing a credit card could decrease your length of credit history if the card you closed was an old one. This too could potentially decrease your credit score.
That being said, the impacts can vary depending on your credit profile and the credit scoring model that’s being used. If, after closing your account, you pay off your account balance in a timely manner and uphold good credit behavior across other accounts, your score can likely bounce back.
Is Keeping the Credit Card Account Open a Better Option?
In some scenarios, it may make sense to keep your credit card active, even if you don’t plan on spending on the card. Here’s when opting against closing your credit card account might be the right move:
• When you can switch credit cards: If your card carrier allows it, you might be able to switch to a different credit card it offers rather than closing out your account entirely. This might make sense if you’re worried about your card’s annual fee, for instance. You’ll still owe any outstanding debt on the old credit card, which will get moved over to the new card (the same goes if you happen to have a negative balance on a credit card).
• When you have unused credit card rewards: With a rewards credit card, closing the account may jeopardize the use of earned rewards. Avoid that scenario by keeping the credit card active until you’ve used up all the rewards earned on your current credit card or at least until you’ve transferred them to a new credit card, if that’s an option.
• When you don’t use the credit card: Even if you don’t use your credit card or use it sparingly, keeping the card open could build your credit score. This is because creditors and lenders usually look more favorably on credit card users who don’t rack up significant credit card debt, which is why maintaining a low credit utilization ratio is one of the key credit card rules to follow.
Nevertheless, there are certainly some scenarios when it can make sense to say goodbye to your credit card account. Here’s when to cancel your credit card, or at least consider it:
• You want to avoid the temptation to spend.
• You want to stop paying your card’s annual fee.
• The card’s interest rate is rising.
• You’d like to have fewer credit card accounts to manage.
Guide to Paying Off a Credit Card Balance
No matter what you do with your credit card account, you’re going to have to pay down your credit card debt. Here are some options you can explore to pay off your closed credit account with a balance as soon as possible.
To avoid making that mistake, here are some options you can explore to pay off your closed credit account with a balance as soon as possible.
A personal loan at a decent interest rate can make it easier to curb and eliminate your card debt. Once the funds from the loan hit your bank account, you can use the cash to pay off all your credit card debts. Then, you’ll only have to keep track of paying off that one loan with fixed monthly payments, making it easier to manage.
Keep in mind that you’ll generally need good credit to secure a personal loan with competitive terms, though.
A balance transfer card with a 0% introductory interest rate can buy you some time when paying down debt. You can transfer your existing debt to the new card, allowing you to pay down credit card debt at a lower interest rate, without racking up any additional interest payments during the promotional period.
Just make sure to pay off the entire balance before the card’s introductory interest rate period ends and the interest rate rises significantly. Otherwise, you may be right back where you started — with high credit card debt and a high interest rate. That’s not likely to be a good way to use credit responsibly. Also note that a balance transfer fee will likely apply.
Debt Avalanche or Snowball
For credit card debt repayment, consider the debt avalanche or snowball approach.
With the avalanche debt repayment method, you prioritize paying off your credit card with the highest interest rate first. Meanwhile, you’ll maintain minimum payments on all of your other debts. Once your highest-rate debt is paid off, you’ll roll those funds over to tackle your balance with the next highest interest rate.
The snowball method, on the other hand, is all about building up momentum toward debt payoff. Here, you pay as much as possible each month toward your credit card with the lowest outstanding balance, while making minimum payments on all of your other outstanding debts. When the smallest debt is paid off completely, repeat the process with the next smallest balance.
Debt Management Plan
If you’re still having trouble paying down your credit card either before or after you close the account, that could be a red flag signaling that you need help. In this case, consider reaching out to an accredited debt management counselor who can set you on the right path to credit debt insolvency.
In addition to helping you create a debt management plan, a credit counselor can help by negotiating a better deal on interest rates and lower monthly payments. That could result in paying down your credit card debt more quickly, which not only saves you money, but also helps protect your credit score.
If you decide to close your credit card account with a balance, it’s critical to do so in a way where your debt obligations are covered and your credit score is protected. The key to doing the job right is to work with your card company, keep a close eye on outstanding balances and payment deadlines, and work aggressively to pay your card debt down as quickly as possible.
Since closing a credit card can have consequences, it’s especially important to consider a credit card ‘s pros and cons carefully before you apply.
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 close a credit card with a balance?
Closing a credit card with a balance is possible. However, you’ll still be responsible for the outstanding balance on the card, as well as any interest charges and fees.
Does it hurt your credit to close a credit card with a balance?
Closing your credit card with a balance remaining has the potential to impact your credit score. However, the exact implications for your score can vary depending on your overall credit profile and which credit scoring model is being used.
Is it better to close a credit card or leave it open with a zero balance?
That depends on your personal situation. Closing a card for good may impact your credit score, but you also won’t be able to use the card again and risk racking up unwanted debt in the process.
What happens if you close a credit card with a negative balance?
If you close a credit card with a negative balance, that means the card issuer owes you money instead of vice versa. In this situation, the card issuer will typically refund you that money before closing out the account.
How do I close a credit card without hurting my credit score?
You can mitigate the impacts of closing your account by paying off the balance on that account and all other credit card accounts you have. If you have $0 balances, then closing your account and losing that available credit won’t affect your credit utilization rate.
Photo credit: iStock/staticnak1983
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 .
By Jackie Lam |
Credit |
Comments Off on Everything You Need to Know About Credit Card Holds
If you’re someone who swipes your credit card for pretty much anything and everything, you know just how disruptive a hold placed on your card can be. This could happen at any time — when you fill up your tank at the gas station or when you pay for a hotel room during a weekend getaway. It can feel like the cash flow equivalent of the power getting shut off in your home.
The good news is that credit card holds are only temporary. And chances are, you’ll be able to tap into your credit card in no time. Learn what a credit card hold is, how long a credit card company can hold your payment, and more.
A credit card hold is a two-part process in which the merchant and credit card issuer communicate with one another electronically. On one side, a merchant checks with your card issuer ahead of time if you’re good for a specific, preset amount. On the other side, the card issuer locks in that amount on your credit card balance. That way, the merchant ensures it is paid for the purchase.
In turn, due to how credit cards work, you won’t have access to that amount that’s set aside until either the transaction or the issue gets resolved and the hold is released.
Here’s a closer look at the two main types of credit card holds: authorization holds and administrative holds.
Credit Card Authorization Hold
A credit card authorization hold is usually the more complex of the two types of holds. They’re also known as “pre-authorizations,” and you can think of them as a security deposit.
A credit card authorization usually happens when you’re using a credit card to make a larger purchase or when the final amount of the transaction is unknown. Merchants in industries such as car rental companies, gas stations, and hotels commonly use these authorization holds. Other industries where a card isn’t present may also make a request.
How Does An Authorization Credit Card Hold Work?
Here’s how it works: When an authorization hold on a credit card is requested, the card issuer makes a portion of your credit card balance unavailable until the transaction is finalized.
For example: Say you book a hotel room, and the grand total is $1,000. The hotel asks the card issuer for a hold. In that case, the issuer will make that $1,000 of your credit limit unavailable. Once the transaction goes through, the authorization hold will be lifted.
Depending on the situation, there might be two authorization holds placed on your credit card. For instance, if you used your credit card to pay for a hotel stay, the first hold would be for accommodations. The second might be for the tab at the mini-bar in your room or for the restaurant bill.
How Long Does an Authorization Credit Card Hold Last?
An authorization credit card hold can typically last anywhere from one to 30 days. Some holds might be released the same day, while others last for a few days after the transaction is settled. For instance, a hotel hold is usually released a few days after you checkout, while a hold placed by a gas station might be lifted the day you spend money at the pump.
If the transaction doesn’t settle before a hold reaches its expiration, the hold will fall off, and the amount that was held will become available again.
Credit Card Administrative Hold
The other main type of credit card holds are administrative holds. Administrative holds can be broken down into two types:
• Over-the-credit-limit administrative hold: As the name implies, if you go over your credit card limit, an administrative hold will be placed. And yes, you’ll be barred from using your card until you pay down your card so it falls below the credit limit. This is why it’s important to follow the credit card rule of spending within your limit.
• Late-payment administrative hold: If you’re behind on your credit card payment, your credit card issuer may place a late-payment administrative hold on your card. In this case, one of two things can happen. If you have a solid credit history, the card issuer might only report the late payment to the credit bureaus, and allow you to continue using your card. But if you keep making late payments or your credit is less-than-stellar, a late-payment hold might be placed until you make several months of on-time credit card payments.
When to Use an Authorization Hold
As a cardholder, an authorization hold isn’t really something you have control over. That’s because the merchant is the party that reaches out to the credit card issuer and requests a hold. This is done as a form of security to ensure the merchant gets paid for a purchase.
That being said, there are things you can do to prevent an authorization hold from happening in the first place. (More on that in a moment.)
When Not to Use an Authorization Hold
It’s up to the merchant whether or not to use an authorization hold. This might be requested if there’s a big question mark hovering over the final amount of the transaction.
Such holds are also requested when it’s worthwhile for a merchant to request a hold, given what a credit card is and how they work. This could include if the purchase is for a larger amount, or if the merchant works in an industry where there’s a high rate of non-payment for purchases.
Tips to Avoid Credit Card Holds
You can avoid credit card holds by doing the following:
• Use a card in-store. To avoid authorization holds, go inside the store and pay at the counter instead of paying online or at the pump.
• Check the policy beforehand. If you’re concerned about a hold being placed on your account, reach out to the hotel or car rental company ahead of time. See what their authorization hold policy is and what the typical amount and length of the hold is.
• Check your credit card balance. If you plan on booking a hotel room or car rental, do a quick check of your credit card balance and your card limit. If you’ve already used a lot of your current balance and might go past your limit, consider using another card, or looking for less-expensive options so you can stay within your limit.
• Pay your card balance. To keep your credit card limits low, aim to pay off your credit card balance. To stay out of late-payment territory and avoid late-payment holds, always make the credit card minimum payment.
Steps for Removing an Authorization Hold
While the merchant can release an authorization hold at any time, as the card holder you’ll need to jump through a few additional hoops to do so. Here’s what you need to do to lift an authorization hold:
• Request that the hold get lifted right away. As some holds linger a few days after the bill is paid, ask the merchant if the hold can get released as soon as the bill is paid and the transaction settled.
• Ask the credit card issuer if the hold can be removed. You can also reach out directly to the card issuer to see if a hold can be lifted. In this case, the issuer would contact the merchant and make the ask on your behalf.
The Takeaway
A credit card hold can be a nuisance, but you can also avoid one by taking a few steps. This includes checking your available balance before making a charge and always making sure to make the minimum payments. And if a hold is lingering for longer than you’d like, you can always request that the hold is removed.
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
How do I remove a credit card hold?
You can remove a credit card hold by reaching out directly to the credit card company or to the merchant.
How long does a pending authorization hold take?
It depends. If it’s an authorization hold from a gas station, the hold can get lifted the same day. If it’s a hold from a hotel or car rental, where the amount you’ll be putting on the card is unknown, it can often take several days after you’ve settled the final bill for the hold to be lifted.
What can go wrong with an authorization hold?
There’s a chance that a hold can remain on your card after it’s been canceled or settled. In that case, the funds you have available through your line of credit will be limited. If this happens, you should reach out to the credit card issuer to have the hold released.
Can authorization holds prevent chargebacks?
A benefit of authorization holds is that they can prevent chargebacks for the merchant. (A chargeback is when the consumer disputes a charge and requests a refund, in which case the credit card company would withhold the funds from the merchant until the dispute is resolved.) Placing a hold would allow the merchant to avoid this scenario because they can delay processing the transaction.
Photo credit: iStock/Alesmunt
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.
Here’s some nice news: It may be possible to change the due dates of some of your monthly bills.
This might come as a relief if you find that the bulk of your bills are due around the same time, such as early or late in the month, making cash flow a challenge. Or, perhaps you have some bills that are maddeningly due a couple of days before you get paid, which can also cause money management issues. Being able to spread out your bills, or push one or two due dates a few days further out, could give you some helpful breathing room.
These adjustments may be possible. Though not every company will allow you to change your billing due date, it doesn’t hurt to ask. Here’s a closer look at why you might want to change some of your bill due dates and how to do it.
Can You Change the Due Dates on Your Bills?
You may be able to change the due dates on some — or, if you’re lucky, all — of your bills. Each company will have its own policy. To find out what’s possible, simply reach to customer service via phone, email, online chat, or even old-fashioned letter. If the service provider is local, you may also be able to make the request in person. Your request may well be honored, down to exactly which day of the month your bill is due.
However, setting your own bill due dates is never guaranteed. Many companies offer this service as a courtesy to loyal customers, but they have the right to reject your request.
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Why Might Someone Change the Due Dates of Their Bills?
Here are some reasons why you might benefit from changing the due dates of some or your bills.
Aligning Better with Paydays
If your bill dates are not aligned well with your paydays, you may find that you don’t always have enough money in your checking account to cover your bills when they are due. If you struggle with spending and budgeting, it could be helpful to schedule bills shortly after a payday. That way you won’t accidentally spend money that was earmarked for bills later that month. Scheduling your bill paying like this might help you better manage your money and make your bill payment on time.
While some people like to stagger their bill-paying throughout the month, others find it more convenient to pay all of their bills at the same time each month. A single due date each month for all of life’s bills could certainly make them easier to track and remember.
While paying bills all at once — like right after payday — might make it easier for some people to stay on top of bill payments, others may prefer not to have their bank account significantly drained on a single day.
If you’d prefer to have your due dates spread out throughout the month, it may be worth trying to change some of your due dates. This could be especially helpful if your paychecks are irregular — say, if you are a freelancer who depends on clients paying their invoices before you have cash in the bank.
Remembering Pay Dates May Be Easier
Regardless of when you arrange your bill due dates to be, it will likely be easier for you to remember them if you get to pick the dates. By picking an important date, like the first or last day of each month or the day after payday, it may be easier for you to stay on top of your bills, even without reminders in your phone or on your calendar. And if you sign up for automatic bill payment, it might be a totally seamless process.
Benefits of a Bill Date Change
So what are the pros of changing a bill due date?
• It puts you in control of your budget.
• It can make remembering due dates easier.
• It might help you avoid missed payments and late fees.
Drawbacks of a Bill Date Change
So are there cons to changing a payment date? If you are making the conscious decision to change your billing schedule, you likely have a good reason for it — meaning you probably won’t encounter any drawbacks with the bill date change itself.
However, you might find that you spend a lot of time trying to get a company to change a bill due date, only for them to say no. This could lead to wasted time and effort.
When you should schedule new bill pay dates will depend on your own paycheck schedule and personal preferences. The Consumer Finance Protection Bureau (CFPB) offers a helpful worksheet for organizing all your current bills and due dates. Seeing them on paper may help you determine the best date(s) in your calendar month for bills to process.
Tips for Changing Pay Dates
Changing payment dates require a little bit of effort but can pay off by helping you gain better control of monthly bills like rent, utilities, subscription services, and even credit card payments. Here are a few tips for changing your bill due dates:
1. Get organized. A good first step is to make a list of all your recurring payments. When organizing your bills, you might want to create a master calendar that includes when each bill is due every month, as well as when your paycheck(s) are deposited. This can help you determine the ideal dates for bills to process.
2. Decide which bill dates should change. Once you have a list of all your recurring bills and paydays, you can more easily identify which bills need to change. From there, you’ll want to investigate whether the company will even allow you to change due dates. You may be able to find this information on their websites.
3. Make the necessary requests. To get your due dates changed, you’ll need to contact the company by phone, email, online chat, or letter. If you aren’t sure what to say, the CFPB offers a useful script: “I am requesting a change in my bill payment due date for my [company] bill. I would prefer to have my bill payment due date be on the __th of each month. Thank you for your assistance.”
4. Set up autopay. If a service provider has an automatic bill pay option, it might be a good idea to schedule this. How bill pay works is that you schedule electronic payments in advance so you don’t have to manually transfer funds or write a check as your due date approaches. It can be an especially good option if you have a bank account with no-fee overdraft coverage. Because of the risk of overdrafting when you set up autopay, however, it might only make sense if you regularly keep more than enough funds in your checking account to cover monthly bills.
5. Schedule reminders. Once you’ve changed your due dates, it’s a good idea to schedule reminders in your phone or on your calendar ahead of the payment date. This allows you to make sure you have the funds in your account ahead of an automatic payment or reminds you to manually complete the payment (online, by mail, or in person) if you don’t have autopay set up.
Can You Always Change Bill Dates?
Many companies will allow you to change bill dates to a schedule that makes sense for your finances. However, no company is required to do this. You may encounter some service providers that do not allow you to change bill dates.
What if You Can’t Change Your Due Date?
If you cannot change your due dates, you can still take some actions to ensure you pay all your bills on time, such as:
• Setting reminders: If you often forget to pay your bills on time but have the funds available, you may just need to schedule reminders for yourself ahead of the due date. Putting a recurring reminder in your calendar (perhaps the one on your phone) can be a wise move.
• Setting money aside until you need it: If you can’t resist the temptation to spend the money available in your checking account and often struggle with a low current or available account balance on the day that bills are due, it might be wise to move money to a separate account for paying bills. And of course, don’t touch those funds for any other sort of spending.
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FAQ
How easy is it to change the due date for your bills?
Changing the due dates for your bills can be as easy as making a phone call or sending an email to the service provider. However, not every company allows you to change your bill due dates. It is solely done at the company’s discretion.
Can I pay my bill before the due date?
Yes, if you are worried about missing a payment or spending too much money before a bill is due, you can make an early bill payment. This can help you avoid late fees and develop good financial habits.
Is it better to have your bill dates close together or spread out?
It depends on your financial situation, including your pay schedule and spending habits. Some people may prefer their bill dates to be close together (even on a single day per month) while others might benefit from having them spread out throughout the month.
*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.
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.
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.
Bank accounts generally aren’t included in credit reports, which means that your banking activity (including opening and closing accounts) won’t have any direct impact on your credit scores.
That said, having a negative balance when a bank account is closed could hurt your credit scores if the bank sends that balance to collections. Here are key things to consider before closing your bank account to make sure it doesn’t end up causing any credit-related issues.
How Bank Accounts Relate to Credit
The three major credit bureaus (Equifax®, Experian®, and TransUnion®) maintain reports on how consumers manage borrowed money. As a result, your credit report will contain information on your credit accounts, such as mortgages, personal loans and credit cards, including balances and payment history.
What’s not typically included in a credit report is information about your bank accounts, such as your checking account. As a result, closing an account in good standing won’t hurt (or build) your credit. If, on the other hand, you close a bank account that has a negative balance or unpaid fees, the bank may send those debts to a collection agency, which can report the delinquency to the credit bureaus.
An overdrafted account can also get reported to ChexSystems, a reporting agency for the banking industry. ChexSystem collects information about your previous problems with deposit accounts. This information stays on your ChexSystems report for five years, and can be used by banks and credit unions when deciding whether to approve bank account applications. Closing a bank account in good standing, however, won’t put a negative mark on your ChexSystem report.
Get up to $300 when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 4.20% APY on savings balances.
Up to 2-day-early paycheck.
Up to $2M of additional FDIC insurance.
Reasons a Closed Account Could Impact Credit
While the act of closing a bank account doesn’t directly affect your credit scores, there are some situations when closing a bank account could have a negative impact on your credit.
Charged-Off Debt Sold to Collections
If you close a bank account with an outstanding negative balance (which could happen if you overdrafted the account or got hit with unexpected bank fees), the bank may charge off the debt after a period of non-payment.
A charge-off means the bank has written off a debt because it does not believe it will receive the money that it’s owed. Charged-off debts are often sold to collection agencies, which can then report the unpaid debt to the credit bureaus. If an account in collections is added to your credit report, it can drag down your score and stay on your report for up to seven years.
Closing an Account Used to Pay a Credit Card or Loan
If you close a checking account that was set up to automatically pay your credit card bill or make a monthly loan payment — without making another arrangement to pay your bills — you could end up missing a payment, which could impact your credit. Since payment history is the biggest element in what makes up your credit scores, going 30 days or more past due can do significant harm to your scores. On top of that, your creditor may slap you with a hefty late fee.
You Want to Apply for A Credit Card or Loan With the Same Bank
For some institutions, having a checking or savings account in good standing could help you get approved for a credit card, mortgage, car loan, or other type of credit, since they already know you and may feel more confident extending you a line of credit. If you close your account, you could potentially lose this advantage.
To ensure that closing a bank account does not hurt your credit, you’ll want to follow these simple steps when shuttering your account.
1. Open Your New Account
It’s important to have a new checking account in place before you close your old one. This will give you a place to transfer direct deposits and payments or debits. Be sure to take your time and do your research, though. There are a number of factors that go into choosing a new bank, including rates, fees, account offerings, and whether you prefer a traditional brick-and-mortar bank or an online-only bank.
2. Switch Your Recurring Payments and Direct Deposits
Next, you’ll want to make a list of all of the recurring payments and direct deposits you have set up, then move everything to the new account. You can typically change banking information with service providers and creditors online. To avoid having your direct deposit go to a closed bank account, check with your employer to see if there are any forms you need to fill out for direct deposit so your paycheck can be rerouted to your new account.
3. Pay Off Any Outstanding Balances
Don’t close that old account just yet — you’ll want to first pay off any outstanding balances, including any overdrafts or fees you owe the bank. Clearing a negative balance will prevent the bank from taking further action to recover the funds, which could negatively impact your credit. You’ll also want to leave some cash in your old account to cover any pending transactions you might have overlooked.
4. Close Your Old Account
Once you’re sure that any automatic bill payments are now coming from your new account, all direct deposits are going in, and there are no outstanding checks, you can transfer any leftover money to your new account and close your old account. Depending on the bank, you might be able to do an account closure online, or you may need to mail in a form, visit a branch, or call to close your account.
There are a number of valid reasons to close a bank account. Here are a few scenarios where closing an account might be the right decision.
Moving
If you are moving to a new location, especially if it’s far from your current bank, closing your account and opening a new one that has more conveniently located branches could make sense. Some brick-and-mortar banks operate regionally and once you move out of the area, you may not have access to branches or in-network ATMs.
High Fees
Banks often charge various fees, including monthly maintenance fees, ATM fees, and overdraft fees. If your current bank charges high fees and you can find a bank with lower or no fees, closing your account and switching to the new bank can save you money in the long run.
Low Interest Rates
If your savings account is earning the average rate, which is 0.45% APY as of October 21, 2024, it can be well worth making the switch to a high-yield savings account, which can pay 3.00% APY or more. Competitive yields on savings accounts are often found at online banks, which don’t incur the cost of maintaining physical branches and can pass along the savings to customers in the form of higher rates.
Poor Service
If you are dissatisfied with the service provided by your bank, such as limited or lackluster customer service, switching to a bank that better meets your needs can improve your banking experience.
Alternative Options Besides Closing
If you are hesitant to close your bank account due to potential complications, here are some alternatives to consider.
Switch to a No-Fee Account
Many banks offer no-fee or low-fee account options. Switching to one of these accounts can help you avoid high fees without the need to close your current account. This can be particularly useful if you want to maintain a long-term banking relationship.
Negotiate Fees
Sometimes, banks are willing to waive certain fees or offer fee reductions if you ask. Contact your bank’s customer service department to discuss your concerns and see if you can negotiate better terms. Banks typically value customer loyalty, and they may accommodate your request to retain your business.
Keep It Open but Don’t Let It Go Dormant
If you want to keep the account open but rarely use it, you’ll want to be sure to maintain some activity to avoid letting it go dormant. When an account has been inactive for an extended period, it can become the unclaimed property of the state. You can avoid this problem by occasionally withdrawing or depositing cash into the account, periodically using your debit card to make small purchases, or signing up for one auto payment (just make sure to keep a high enough balance to cover it).
The Takeaway
Closing a bank account does not directly affect your credit score, as checking and savings accounts are not reported to credit bureaus. However, if you close an account with unresolved issues, such as outstanding balances, overdraft fees, or unpaid checks, it can lead to negative marks on your credit report if the debt is sent to collections.
By understanding the potential impacts of closing a bank account and taking proactive steps, you can close a bank account and seamlessly begin using your new account without any negative impact on your credit.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.
FAQ
Can I reopen a closed bank account?
It depends on the bank’s policies and the reason for closure. If the account was closed recently and in good standing, you may be able to reopen the account by contacting customer service. However, if the account was closed by the bank due to issues like overdrafts or fraud, reopening might not be possible.
How long does a closed account stay on my record?
While a closed loan or credit card account can stay on your credit reports for up to 10 years, a closed bank account won’t show up on your credit report. However, If you close a bank account with a negative balance and don’t pay the debt in a timely fashion, the bank may send your debt to a collections agency. The agency can then report the collections account to the consumer credit bureaus. A collection account can stay on your credit reports for up to seven years.
Will my credit score increase when I close unused accounts?
Closing unused credit accounts doesn’t necessarily build your credit score and can sometimes lower it. This is because closing accounts reduces your overall available credit, which can increase your credit utilization ratio, a key factor in credit scoring. Additionally, it might shorten your credit history, another important scoring factor.
Instead of closing unused credit accounts, consider keeping them open with minimal or no activity. This maintains your available credit and supports a lower credit utilization ratio, which can build your credit score.
Photo credit: iStock/Drazen Zigic
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.
*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.
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 .
