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An employee savings plan (ESP) is a valuable financial tool designed to help workers set aside money for future goals, such as retirement or health care expenses. Offered as a workplace benefit, these plans provide structured and often tax-advantaged ways to save regularly through automatic payroll deductions. Some employers may also add to their employees’ savings with matching contributions. A popular ESP offered by U.S. employers is the 401(k) retirement plan.

Below, we take a closer look at how ESPs work, the types available, their benefits and potential drawbacks, and how to make the most of this valuable workplace perk.

What Is an Employee Savings Plan?

Some employers offer an employee savings plan to help employees invest for retirement and other long-term financial goals. Leveraging an employee savings plan is one of the first steps to building a simple savings plan you can stick to.

Typically, each employee chooses how much they want to contribute to the plan each pay period. That amount is then deducted from the employee’s paycheck. The automated process can help make it easier to save, and employees generally have the option to change their contribution amount based on their needs and goals.

Employee savings plan contributions are often made on a pre-tax basis. That means the funds are transferred to your savings plan before taxes are taken from your paycheck. This allows you to save money for future needs while paying taxes on a smaller portion of your salary.

In some cases, your employer may offer a matching contribution to any funds you contribute to your employee savings plan. Usually, there is a match limit equivalent to a certain percentage of your salary.

For instance, imagine your employer matches 100% of your contributions up to 3% of your salary and you earn $75,000 a year. That amounts to $2,250 of essentially “free money” each year. As long as you contribute at least $2,250 to your plan, your employer will give you the same amount, for a total of $4,500 — plus anything over that amount you decide to contribute.

Types of Employee Savings Plans

Employee savings plans most commonly help workers save for retirement and come in two main forms: defined-contribution plans offered by private employers (known as 401(k) plans), and defined-contribution plans offered by public or non-profit organizations (known as 403(b) or 457(b) plans).

Another type of employee savings plan you may see is a health savings account (HSA). Some companies will offer this kind of account to employees with high-deductible health plans (HDHPs ). An HSA lets you save money tax-free to pay for qualified medical costs that aren’t covered by insurance.

A profit-sharing plan is less common, but also helps you save for retirement. With this type of ESP, employees receive an amount from their employer based on company profits. Smaller companies may offer a stand-alone profit-sharing plan, where only employer contributions are permitted. Larger companies, on the other hand, may make contributions based on profits to an employee’s 401(k) plan; they may or may not offer employer-matching contributions as well.

A pension plan is another type of employer-sponsored retirement savings plan. With this plan, employers contribute to a pool of funds for a worker’s future benefit. In some cases, the employee can also contribute to the plan via paycheck deductions. When the employee retires, they receive their pension either as a lump-sum payment or a set monthly payment for life. These days, very few companies offer this type of benefit, instead opting to offer a 401(k) plan or other similar option.

Recommended: Savings Calculator

What Are the Benefits of an Employee Savings Plan?

There are a number of advantages to using an employee savings plan. The first is that contributions are typically made on a pre-tax basis. This gives you a tax break upfront, reducing the amount of taxes you pay on your overall salary. So even though your take-home pay is smaller because of those automatic contributions, your taxable income is also less. Plus you have a growing investment account to help you prepare for retirement or other goals.

Another advantage of participating in an employee savings plan is that your employer could offer a free contribution match as part of their benefits package to retain team members. According to 2024 research by Vanguard, 96% of 401(k) plans have some kind of an employer contribution.

Employer-sponsored retirement saving plans also come with larger annual contribution limits than individual retirement accounts (IRAs). In 2025, the 401(k) contribution limit is $23,500 for employee salary deferrals ($70,000 for combined employee and employer contributions). Those aged 50 to 59 or 64 or older are eligible for an additional $7,500 in catch-up contributions; those aged 60 to 63 can contribute up to $11,250 in catch-up contributions, if their plan allows. A traditional IRA, on the other hand, only allows you to contribute $7,000 ($8,000 for those age 50 or older) for tax year 2025.

In 2026, the 401(k) contribution limit is $24,500 for employee salary deferrals ($72,000 for combined employee and employer contributions). Those aged 50 to 59 or 64 or older are eligible for an additional $8,000 in catch-up contributions; those aged 60 to 63 can contribute up to $11,250 in catch-up contributions, if their plan allows. By comparison, a traditional IRA only allows you to contribute $7,500 ($8,600 for those age 50 or older) for tax year 2026.

Under a new law regarding catch-up contributions that went into effect on January 1, 2026 (as part of SECURE 2.0), individuals aged 50 and older whose FICA wages exceeded $150,000 in 2025 are required to put their catch-up contributions into a Roth 401(k) account. Because of the way Roth accounts work, these individuals will pay taxes on their 401(k) catch-up contributions upfront, and make eligible withdrawals tax-free in retirement. This means their taxable income will not be lowered; they could even potentially move into higher tax bracket. Those impacted by the new law should check with their employer or plan administrator to find out how to proceed.

What to Look Out For

While there are a number of advantages that come with an employee savings plan, there are also some pitfalls to beware of. Consider these points:

•   Some employers require you to work at the company for a certain number of years (often five) before you are fully vested, meaning you own 100% of your employer’s contributions to your 401(k). If you leave the company (either voluntarily or involuntarily) before that time has elapsed, you may forfeit some or all of the company match. Any contributions you make, however, are 100% owned by you and cannot be forfeited. It’s important to find out these details from the human resources department at your company, especially if you’re thinking about a job change.

•   Another downside to an employer savings plan for retirement is that although your contributions may be tax-free, you typically have to pay federal and state income taxes when you make withdrawals.

•   Another factor to consider is your tax bracket. Some people may expect to be in a higher tax bracket during their prime working years, so the immediate tax deduction may be helpful. Others may end up being in a higher tax bracket after they’ve accumulated wealth over decades and reach retirement age.

•   In addition to paying income taxes on your withdrawals, employee savings plans for retirement also typically come with a 10% early withdrawal penalty if you take out cash before reaching 59 ½ years old. There are some exceptions to this penalty, but be aware of it should you be considering making an early withdrawal.

•   Also remember that your plan contributions are investments that are subject to risk. It’s not like a savings account through a financial institution that offers a yield based on your deposits. You will typically be responsible for crafting your portfolio and managing your investments. The options available to you may vary based on the specific plan offered by your employer.

•   No matter how much you contribute, the value of your plan is impacted by the performance of your investment choices, regardless of how much money you contributed over the years. It is also helpful to review your goals regularly and gauge your risk based on your time horizons.

For instance, investors may opt to invest in riskier investment vehicles when they’re younger because the potential for gains may outweigh the risk. As they get older and approach retirement, they may begin to allocate less money to those higher-risk investments.

•   Finally, be aware of any administrative fees that come with your plan. Fees for 401(k) plans typically range from 0.5% to 2%, but can vary widely depending on the size of the plan, number of participants, and the plan’s provider. You can find the fees in the prospectus you receive when you enroll in the plan

Recommended: Money Management Guide

Borrowing from Your Employee Savings Plan

Many employee savings plans designed to save for retirement allow you to borrow funds from your account if you choose to. Typically, you can borrow up to 50% of your 401(k) account balance for up to five years, up to a maximum of $50,000.

You’ll pay interest just as you would with any other loan, but that money gets paid back into your account. This may be one option to consider if you find yourself in need of cash, but there are several drawbacks to be aware of.

The loan terms only apply while you remain at the job providing the employee savings plan. If you leave your job with a loan balance, you must repay the full amount by the due date of your next federal tax return.

Another consideration is that if you don’t pay the loan back by its due date, it counts as a distribution and you will likely have to pay income taxes and a penalty on the money.

You’ll also miss out on the growth those borrowed funds may have experienced, which could set back your retirement goals. To avoid this scenario, it’s a good idea to build an emergency fund and keep it in an account that pays a competitive rate but allows you to easily access your funds when you need them, such as a high-yield savings account.

The Takeaway

An employee savings plan can be an advantageous way to save towards retirement and other goals. It can be especially beneficial if your employer offers matching contributions, which can help boost your savings.

By starting early and automating the process, you can build an investment account with robust contributions throughout your career.

An employee savings plan can be one part of a well-rounded financial portfolio, but there are other types of savings accounts that can be useful as well. For shorter-term goals, like building an emergency fund or saving for a large purchase or upcoming vacation, it may be worth opening a high-yield savings account.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible 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 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

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SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. 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.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details 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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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A negative account balance can happen all too easily: An automatic bill payment might hit when your account doesn’t have enough to cover it. Or maybe you lost track of purchases made with your debit card and overextended yourself.

The resulting negative bank balance can have a serious impact, leading to overdraft fees, declined transactions, and even account closure. Read on to learn more about a negative bank account balance, including ways to avoid the problem, and what to do if you wind up with a negative balance.

What Does a Negative Balance Mean?

A negative account balance, also known as an overdraft, occurs when you spend more money than you have in your bank account, causing the account to dip below zero. This happens when a bank allows a transaction to go through even though there are insufficient funds. The bank is effectively lending you money to cover the difference, often at the cost of an overdraft fee. The bank may also charge other fees until the balance is restored to zero or positive.

To help you visualize this, here’s an example:

•   Imagine you have $500 in your account, and you write a check for $515, because you thought you had a balance of $600.

•   If the bank pays the $515, you end up with an account balance of minus $15. That’s the difference between how much money you had in the account and how much the bank paid the person that cashed your check. The bank made up the difference.

Common Causes of Negative Balances

Your balance goes negative when you have withdrawn more than you have in your account. This can happen if you make a transaction — such as ATM withdrawal, or debit card purchase — for an amount that exceeds the balance in your checking account.

This is when overdraft protection, if you have it, kicks in. Instead of rejecting the transaction, the bank will cover the overage, allowing your account to go negative. Typically, you repay a negative balance with the next deposit of funds.

Here’s a closer look at how a negative bank balance can occur.

Miscalculation/Mistakes

Overdrafts can happen with miscalculations and mistakes. For instance, you might overestimate how much is in your account and spend more than you actually have. Or you may forget to record a bill you paid, which could take your balance down into negative territory.

Pending Transactions and Auto-Pay Delays

It’s possible you’re not exactly sure what checks you’ve written have been cashed and what incoming checks are still pending and haven’t yet cleared. You may unwittingly make a payment or ATM withdrawal thinking you’re good, but discover you’re not.

Or perhaps you experience an auto-pay delay, when your automatic bill payment doesn’t process on the exact date it should because the due date is on a weekend or a holiday, or the transaction is taking longer than usual. If sufficient funds aren’t sitting in your account the date the payment finally processes, that could result in a negative bank account balance.

Overdraft Fees Compounding the Balance

Your bank can charge you an overdraft fee whenever you don’t have enough in your account to cover a transaction. The amount varies by bank, but the fee may be as much as $35 per transaction. Since overdraft fees may be charged per transaction, they can multiply quickly, adding even more charges to the negative balance in your account.

The Risks of Ignoring a Negative Balance

Ignoring a negative bank account balance could lead to serious consequences that could cost you money and potentially damage your financial profile. Here are some of the issues ignoring a negative bank account can trigger.

Accumulating Daily Fees

If your bank covers a transaction that puts your account in negative territory, as noted above, it will typically charge an overdraft fee — and it might continue to do so daily or every time you make a transaction. If you make multiple transactions, and/or a number of days go by before you realize you have a negative balance, these fees can add up to a significant sum.

Involuntary Account Closure

If you don’t fix your negative balance by depositing money into your account, or if you overdraw your account too often, your days as a bank customer may come to a close. The bank can opt to shutter the account, and it can be difficult to reopen a closed bank account.

ChexSystems and Credit Score Impact

If the bank closes your account due to an ongoing negative bank account balance, it will likely report the closure to ChexSystems, a consumer reporting company banks use to screen customer accounts. A negative report by this agency will stay on your record for up to five years, which could make it difficult for you to open a new bank account.

Also, a bank that closed your account due to unpaid overdrafts might sell your debt to a collection company. That, in turn, could negatively impact your credit profile and your credit score.

How Long Can a Bank Account Stay Negative? (The Timeline)

How long a bank account can stay negative depends on the specific bank and its policies. Some banks offer a 24-hour grace period for you to bring your balance back up before they charge an overdraft fee; other banks may allow you to be overdrawn for one or two days up to a certain amount (like $50.)

The 30 to 60-Day Risk Window

If you have a negative bank balance for five to seven days, some banks charge extended overdraft fees, which add even more to what you owe. After about 30 to 60 days, many banks will close down the account. At this point, they may send your account to a debt collection agency.

When Does it Get Reported to ChexSystems?

When a bank closes an overdrawn account for a negative unpaid balance, they also typically report the closed account, and the reason it was closed down, to ChexSystems. A negative report by this company can stay on your record for up to five years making it difficult to open a new bank account. In that case, your only option might be a second chance checking account.

Overdraft vs NSF: What’s the Difference?

An overdraft fee is not the same thing as a non-sufficient funds (NSF) fee. Here’s a look at the difference when it comes to overdraft vs NSF fees:

•   An overdraft fee is what a bank or credit union charges you when they have to cover your transaction when you don’t have enough funds available in your account. This fee is around $35.

•   When a financial institution returns a check or electronic transaction without paying it, they may charge a non-sufficient funds fee. It’s usually about $18. The difference is, with a non-sufficient funds fee, the bank is not covering the shortfall; they are essentially rejecting the transaction and charging you for doing so.

How to Clear a Negative Bank Balance

If you have a negative bank balance, it’s important to take action as soon as you can. The following steps can help you get back on track.

Step 1. Audit Your Transaction History

Determine what went wrong and triggered the overdraft. Check your bank account online or via your bank’s app and also see what charges haven’t been paid or received. Then, do the math. This will give you an idea of where you stand and how soon you may be back in the positive zone for your balance.

Step 2. Stop All Automatic Payments Immediately

Automating your finances can be a convenient tool, but if you are in overdraft, automatic payments could keep popping up and derailing your efforts. Stop these payments right away for all your bills so they don’t keep adding to your negative balance.

Bring the Balance to Zero

Once you understand your situation, take action. Deposit enough money to bring your account balance to zero — and even better, deposit funds to put your balance firmly in the positive zone again. Ideally, put in enough to give yourself some cushion to help protect from future overdrafts.

Recommended: Savings Goal Calculator

Ask for Fee Forgiveness

Make a request to your bank to have your fees waived. They may be feeling generous, particularly if this is your first offense.

If your bank won’t waive the fees, go ahead and pay what you owe. If you don’t, you’ll just make your situation worse, meaning the bank could close your account and turn the matter over to debt collection. Taking action sooner rather than later to protect your bank account is usually best.

How to Prevent Future Negative Balances

There are ways to avoid a negative bank account balance. Try these strategies:

Set Up Low-Balance Alerts

Set up account alerts to let you know when your account balance reaches a certain number. If you know your account is getting low, you can take steps to avoid going into the negative balance zone. In addition, consider setting alerts to notify you before automatic deductions are made (many banks offer this option). That way, you can monitor your bank account and its balance to make sure you can cover the debit.

And be sure to check your balance regularly. “Waiting until the end of the month to check in on accounts leaves you at risk of excess spending and potentially overdrawing your checking account, “ says Brian Walsh, CFP® and Head of Advice & Planning at SoFi. “Checking in once a week leaves time to self correct and adjust your budget to help balance the numbers.”

Link a Backup Savings Account

Explore what overdraft protection your bank offers. And then carefully consider: Do you need overdraft protection? It can keep a transaction from being declined if you don’t have enough money in your account, but the overdraft fees —as much as $35 per transaction — can add up.

Instead, you may be able to link a savings account to your checking which can be tapped to cover overdrafts. It may cost you a fee for that transfer, but it’s likely not as steep as an overdraft fee. While you don’t want overdrafts to be a regular occurrence, you do want to be protected in case they crop up.

Switch to a No-Fee Bank

Another option is to look for a no-fee bank, which may not charge overdraft fees, and set up a no-fee checking and savings accounts. A growing number of banks are offering no-fee accounts, especially no-fee checking accounts, so shop around and see which one offers the best option for your needs.

The Takeaway

Having a negative bank balance means you overdrafted your account. This often triggers pricey overdraft fees, and it can lead to other financial issues such as having your account closed down if the situation isn’t remedied. To help prevent a negative balance, keep tabs on your bank account balance, set up low-balance alerts, link a savings account to your checking account for extra coverage, or consider switching to a no-fee bank.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible 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 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

Does a negative bank balance affect my credit score?

A negative bank balance could potentially affect your credit score if the negative balance isn’t resolved. For example, your bank might close your account due to an unpaid negative bank account balance and sell your debt to a collection company which could negatively impact your credit score.

Can a bank take my whole paycheck to fix a negative balance?

If you don’t remedy an overdrawn account, it’s possible that a bank could eventually choose to sue you and take legal action to garnish your wages. They would typically need a court order to do this, and it’s probable that they could only take a portion of your wages rather than your entire paycheck. But it’s wise to consult a legal professional about your specific situation.

How much does it cost to have a negative balance?

Having a negative balance typically costs about $35 per transaction in overdraft fees, though the exact amount can vary by bank. The costs can add up quickly, especially if you have a negative balance for several days.

Can I open a new bank account if I have a negative balance?

You may be able to open a new bank account if you have a negative balance, but it might be challenging, depending how long you’ve had the negative balance. If it’s been more than 30 to 60 days, your current bank may close your account and report it to ChexSystems, a banking reporting agency. A negative report can stay on your record for up to five years, making it difficult to open a new account. An option to consider in this case is a second chance bank account, a type of checking account for people with a negative banking history.

What is a “forced closure” of a bank account?

A forced closure means a bank shuts down a bank account without the account owner’s consent, usually for a policy violation such as repeated overdrafts, unpaid fees, or suspicious activity. If this happens to you, contact the bank to find out the reason for the closure. Ask what can be done to remedy the situation. For example, in the case of repeated overdrafts, find out how much you owe and how to go about repaying it to avoid having the account sent to collections, which could impact your credit.

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Photo credit: iStock/kupicoo

^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
*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.

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

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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When you’re shopping for car insurance in Arizona, knowing the average cost of coverage can be helpful. That way, you can compare it to the quotes you’re receiving.

A number of factors can influence how much you pay for car insurance. Besides geography, insurers may consider your driving record, age, gender, credit score, car type, and level of coverage. Rates can also vary by insurance company, which is why it may make sense to shop around.

Here’s a look at the average cost of car insurance in Arizona and how different factors may impact what drivers there pay for protection.

How Much Does Car Insurance Cost in Arizona?

Drivers in Arizona pay an average of $2,429 per year for car insurance coverage, according to a 2025 U.S. News & World Report analysis of cheap car insurance companies. This is higher than the national average of $2,012 per year.

Average Car Insurance Cost in Arizona per Month

The average monthly cost of car insurance in Arizona is $202.42, which is higher than the national monthly average of $167.67. As the chart below shows, the amount you pay can vary by insurer.

Company	Average Cost per Month	Average Annual Cost
Allstate	$247.33	$2,968
Farmers	$239.42	$2,873
Root	$116.17	$1,394
Geico	$137.50	$1,650
Mercury	$175.50	$2,106
Nationwide	$209	$2,508
Progressive	$133.83	$1,606
State Farm	$171.17	$2,054
The Hartford	$167.92	$2,015
Travelers	$120.42	$1,445
USAA	$143.92	$1,727

Source: U.S. News & World Report

Average Car Insurance Cost in Arizona by City

Where you live can impact how much you’ll pay for car insurance. That’s because when determining how much to charge for coverage, insurers often take into account factors such as the local rates of traffic, accidents, and crime.

As a general rule, people living in cities tend to pay more for car insurance than those residing in small towns or rural areas. And as the chart below shows, the amount can also vary depending on which city you call home.

Here are estimates for the seven biggest cities in Arizona, in order of population:

City	Average Cost per Month	Average Annual Cost
Phoenix	$256	$3,071
Tucson	$210	$2,518
Mesa	$220	$2,646
Gilbert	$217	$2,601
Chandler	$214	$2,569
Glendale	$249	$2,989
Scottsdale	$224	$2,686

Source: Bankrate.com

Recommended: How to Get Car Insurance

Average Car Insurance Cost in Arizona by the Age and Gender of the Driver

Your age can affect premium prices. In general, younger, newer drivers tend to pay higher premiums because they often have more accidents than older, more experienced drivers.

Gender can also play a role in costs. Women often pay lower premiums than men because they tend to get into fewer severe accidents.

Age of Driver	Average Annual Cost for Male Drivers	Average Annual Cost for Female Drivers
17	$8,691	$7,605
25	$3,048	$2,879
60	$2,165	$2,001

Source: U.S. News and World Report

Average Car Insurance Rates After an At-Fault Accident

Your driving record matters, and car insurance rates can go up after an accident or traffic violation. For example, drivers in Arizona with one accident on their record pay an average rate of $3,571 per year for coverage, or $1,142 more than the state average of $2,429. One speeding ticket can boost a driver’s average annual rate to $3,036, or $607 higher than the state average. And a conviction for driving under the influence can raise a motorist’s annual rate to, on average, $3,694, which is $1,265 higher than the state average.

Average Car Insurance Costs for Good and Bad Credit

Some states prohibit insurance companies from pulling your credit report, but it’s allowed in Arizona — and the results could impact how much your coverage costs. Drivers with bad credit could end up paying hundreds more per year for car insurance. An analysis from U.S. News and World Report found that drivers with poor credit pay an average of $4,549 per year for auto insurance, while those with good credit pay around $2,429.

What Else Affects Your Car Insurance Cost?

Let’s look at other factors that can influence how much you might pay for car insurance.

Insurance History

Drivers who have allowed their coverage to lapse might be more likely to cancel their policy or present other risks for insurers, so having a continuous insurance history may qualify you for a lower rate. This will likely hold true whether you’re switching car insurance carriers or seeking to have a policy reinstated after going a few years without one.

Make and Model of the Car

When setting a rate, insurance companies often consider how expensive it would be to repair or replace the driver’s car. The higher these costs are, the more the driver will likely pay for coverage. However, if you have a newer car that’s equipped with more safety features, you may be eligible for a lower rate.

Marital Status

Married drivers may qualify for more discounts than single drivers, since insurers often place them in a different risk category.

Amount of Coverage

How much car insurance do you need? The answer depends on a number of factors, including the state’s minimum car insurance requirements, your budget, and your lifestyle. As a rule of thumb, the more coverage you have, the more expensive your policy will probably be.

Recommended: Does Auto Insurance Roadside Assistance Cover Keys Locked in a Car?

How to Get Affordable Car Insurance

The cost of coverage varies by insurer. To find affordable coverage, it can be a good idea to shop around and compare quotes from various online insurance companies.

First, however, you’ll want to figure out how much car insurance you need. Keep in mind your state’s minimum car insurance requirements as well as any additional coverage you may need.

If you’re looking to lower your car insurance, there are several strategies to consider. You may want to explore different policy options; look for bundling opportunities if you can get your home and auto insurance from the same company; ask about possible discounts; and consider whether a policy with a higher deductible makes sense for you.

Recommended: Cheapest Car Insurance Companies: Find the Cheapest Car Insurance for You

The Takeaway

Drivers in Arizona pay an average of $2,429 per year for car insurance, which is higher than the national average of $2,012 per year. But as in most states, the amount you’ll pay in Arizona can depend on a wide range of factors, such as your age, gender, driving record, credit score, and even where you live. Shopping around and considering exactly what kind of coverage you need may help you find a policy that works for you.

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

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

FAQ

How much is full coverage car insurance in Arizona?

The average cost of car insurance in Arizona is $2,429 annually, which breaks down to $202.42 monthly. Your costs may be different, depending on your age, gender, driving record, credit scores, the area you live in, and other factors.

Is $300 per month a lot for car insurance in Arizona?

In many cases, the average monthly cost for coverage is below $300. But premium amounts vary based on a number of factors. A 17-year-old male driver, for example, could very well pay more than $300 per month because of his age and lack of driving experience.

How much car insurance should I have in Arizona?

Arizona requires the following minimum coverage limits: $25,000 for one person (not yourself) who sustains injury or death in an accident; $50,000 for two or more people (not including you) sustaining injury or death; and $15,000 for another party’s property damage. You can have additional coverage that covers other situations, such as your medical bills and theft.

Photo credit: iStock/twildlife

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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Anyone who’s ever had a credit card knows they have an interest rate, which represents the cost consumers pay for borrowing money. What you may not know is that interest rates come in two forms: fixed and variable interest rates.

Fixed interest rates stay the same over time and are generally tied to your creditworthiness. Variable interest rates, on the other hand, may change over time and are connected to economic indexes. Read on to learn how to determine if the interest rate of a credit card is fixed or variable, as well as why it’s important to know.

What Is Credit Card APR?

A credit card’s annual percentage rate, or APR, represents the cost a consumer pays to borrow money from credit card issuers, represented as a yearly cost.

When a cardholder doesn’t pay off their credit card balance in full each month, they’ll owe credit card interest charges on the remaining balance, with the rate based on their APR.

Credit card APRs vary among credit card issuers, individual cardholders, and credit card categories. Currently, the average credit card interest rate stands at 22.8% APR.

Recommended: Pros and Cons of Charge Cards?

Types of Credit Card APRs

Your credit card payment is impacted by what type of APR your credit card has. Let’s have a look at how a fixed rate credit card and a variable rate credit card may affect your credit experience.

Fixed Interest Rate

Fixed rate credit cards have an interest rate that generally doesn’t vary over the course of your credit card contract. Rather than being tied to economic indexes, fixed interest rates are generally determined based on payment history and creditworthiness, as well as any ongoing promotions.

However, just because the term “fixed” is used, doesn’t mean a fixed interest rate can never change. While a fixed rate credit card’s interest rate won’t change based on factors like the prime index, increasing credit card APR can occur if payments are late or missed or if your credit score dips. If that occurs, the credit card company must notify the cardholder at least 45 days before the adjusted rate takes effect.

While fixed rate credit cards offer the benefit of predictability, one downside is that their rates are, on average, higher than variable credit card rates.

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

Variable Interest Rate

A variable rate credit card offers interest rates that can shift over time. There’s a reason for that, as variable card rates are tied to major benchmark interest rates, like the U.S. prime rate.

Since major benchmark rates change, so will variable interest rates. That’s why banks and other major financial institutions often shift rates for things like credit cards, home mortgages, auto loans, and student loans. When major interest indexes change, the rates for loans change with them.

What does that mean for a cardholder? For starters, there’s more risk with variable interest rates. Rates can go up, and credit card payments increase when interest rates rise. Conversely, variable rates may go down, which works in favor of the credit cardholder, who will then pay less in interest.

Credit card consumers should check their credit card contracts for the specific conditions that can trigger a variable rate change. Credit card issuers don’t have to notify you of interest rate changes with variable rate cards, so it’s up to the consumer to keep a sharp eye out for changing interest rates.

Recommended: When Are Credit Card Payments Due

When Do Variable APRs Change?

As mentioned, the interest rate on a variable rate credit card changes with the index interest rate, such as the prime rate. If the prime rate goes up, so will your credit card’s APR. Similarly, if the prime rate goes down, your APR will drop.

How often your interest rate changes will depend on which index rate your lender uses as a benchmark as well as the terms of your contract. As such, the number of rate changes you may experience can vary widely, often multiple times a year.

Details on how a card’s APR may fluctuate over time will appear in a cardholder’s agreement, which you can generally find on the card issuer’s website. If you’re unable to locate it, you can request a copy from your card issuer.

Differences Between Fixed and Variable Credit Card Rates

Both fixed and variable credit card rates have pros and cons. Here’s a look at the major differences with a credit card with a variable or fixed interest rate.

Fixed Interest Rate	Variable Interest Rates
The interest rate usually remains the same	Variable rates change on an ongoing basis
Fixed rates are calculated with payment histories in mind	Rates are based on a benchmark index, like the U.S. primate rate
The card provider is required to let you know when the rate does change (usually for late or missed payments)	The credit card issuer is not required to let you know when rates shift

How Credit Card Interest Rates Are Determined

Credit card interest rates are generally determined based on your creditworthiness — meaning, your payment history and credit score — as well as prevailing interest rates and the card issuer and card type.

For instance, a basic card may have a lower rate than a premium rewards card. Additionally, credit cards can have different types of APRs, such as an APR that applies for credit card charges and another rate for cash advances or balance transfers.

Another factor that can impact credit card rates is promotional offers. Sometimes, credit card issuers may offer low or no interest periods. After that period ends, the card’s standard APR will kick in, and the card’s rate will go up.

Once determined, how and why a credit card’s interest rate changes over time depends on whether the interest rate is fixed or variable. A fixed rate will generally stay the same, though it may increase if payments are late or missed, or if the cardholder’s credit score takes a dive. Meanwhile, variable rates fluctuate depending on current index rates.

Recommended: Tips for Using a Credit Card Responsibly

Reducing Interest Charges on Credit Cards

Perhaps the easiest way to reduce interest charges on credit cards is to pay your statement balance in full each billing cycle. By doing so, you’ll avoid incurring interest charges entirely.

Of course, this isn’t always feasible. If you may end up carrying a balance and want to decrease how much a credit card costs, there are ways to do so. For one, you can call your credit card issuer and request a lower rate. Of course, for this to be successful, you’ll likely have needed to stay on top of payments and have a history of responsible credit card usage.

Perhaps the surest way to secure a better interest rate on your credit card is to build your credit score. In general, lower interest rates are awarded to those who have higher credit scores and follow the credit card rules, so to speak.

You can build your credit score by making your payments on time, every time, and by keeping your credit utilization ratio (how much of your available credit limit you’re using) well below 30%. You might also avoid applying for new credit accounts, which results in hard inquiries and temporarily lowers your score.

And if you simply feel in over your head with credit card debt and a skyrocketing APR, you may choose between credit card refinancing or consolidation as potential solutions.

💡 Quick Tip: Credit card interest rate caps have recently been proposed in response to rising interest rates. However, one option already available to borrowers is securing a fixed, lower-interest rate loan. A SoFi credit card consolidation loan may offer a lower interest rate, set terms, and a transparent pay-off plan.

Fixed vs Variable Interest Rate Cards: Which Is Right for You?

In a word, choosing between a fixed rate or variable rate credit card comes down to whether you prefer stability or risk versus reward.

A fixed rate credit card offers a known quantity — a rate that stays the same over time, as long as you pay your credit card bill on time. On the other hand, a variable rate credit card offers an element of risk and reward. If the rate goes up, the cardholder usually spends more money using the card. If card rates go down, however, the cost of using the card usually goes down, too, as interest rates are lower.

Of course, cardholders can largely negate the impact of credit card interest rates by paying their bills in full every month. Of, for those who don’t quite feel ready to tackle the responsibility, there’s always the option of becoming an authorized user on a credit card of a parent or another responsible adult.

The Takeaway

As you can see, it’s important for a number of reasons to know whether a credit card is fixed or variable. Fixed interest rates offer more predictability (though there’s no guarantee they’ll never change), but rates also tend to be higher compared to variable rates. With variable rates, your interest rate will fluctuate over time based on market indexes.

As you shop around for credit cards, interest rate is critical to pay attention to. It can have an impact on your ability to pay your credit card bill and use credit responsibly.

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

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

Enjoy unlimited cash back rewards with fewer restrictions.

FAQ

Do all credit cards have fixed interest rates?

No, actually most credit cards come with variable interest rates tied to major interest rate indexes. That connection to interest rate changes enables card companies to keep rates competitive on a regular basis.

How do I get notified of an interest rate increase?

By law, credit card companies must notify cardholders in writing at least 45 days ahead of an interest rate change taking effect. Card companies are not allowed to change interest rates during the first year an account is open.

Can I control whether I have a fixed or variable interest rate?

Yes, you can opt for a fixed or variable rate credit card, but know that most credit cards come with variable rates. It’s tougher to find a fixed rate card, but banks and credit unions, which are more likely to offer both, are a good place to start your search.

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Photo credit: iStock/AlekseiAntropov

SoFi Credit Cards are 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.

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 .

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Credit cards, when used responsibly, can enhance your financial life, allowing you to build your credit score, earn rewards, and more. Unfortunately, if you’re not careful and make credit card mistakes, using a credit card can have the opposite effect on your financial life.

Here are some of the most common credit card mistakes to avoid, including some specific travel credit card mistakes to watch out for.

Credit Card Mistakes to Avoid

When using your credit card, here are some credit mistakes you could be making — and how you can avoid them by following some basic credit card rules.

1. Making Late Payments

Payment history is one of the most significant factors in determining your credit score. The more payments you miss, the more your credit score could go down, and it could take a fair amount of time to repair your credit.

A late or missed payment can stay on your credit report for up to seven years (unless you can prove it was a credit report mistake).

How to avoid it: Set up automatic payments, or set reminders to help yourself remember when your credit card payment is due.

2. Making Only Minimum Payments Monthly

While making minimum payments is important to avoid incurring late fees, it won’t allow you to avoid interest charges. In fact, by only making the minimum payment, you’ll end up paying a high amount of interest (assuming you’re not using a card in its 0% introductory period). You also risk getting further into debt if you keep using your credit card, and it could take years to pay off your balance in full.

How to avoid it: Budget carefully so you can pay off more than the minimum amount due or ideally, the entire balance off each month.

💡 Quick Tip: Credit card interest caps have become a hot topic, as the total U.S. credit card balance continues to rise. Balances on high-interest credit cards can be carried for years with no principal reduction. A SoFi personal loan for credit card debt may significantly reduce your timeline, however, and could save you money in interest payments.

3. Misunderstanding Credit Card Interest

Interest is a key part of what a credit card is, but the way credit card interest is charged can be confusing. A credit card can have a few different annual percentage rates (APR) depending on the type of transaction, including on purchases, cash advances, and balance transfers.

The bottom line: To avoid interest on new credit card purchases, make sure to pay off your balance in full each month. You’ll owe interest on any amount you carry over.

How to avoid it: Check your credit card agreement to understand how interest is charged, and aim to pay off your balance in full to avoid incurring interest.

4. Ignoring Your Credit Card Agreement

Credit card agreements contain important details like fees, your credit limit, and other important terms you’ll benefit from knowing. Ignoring credit card terms could lead to nasty surprises, like fees you didn’t anticipate paying.

How to avoid it: Set aside time to read your credit card agreement, and contact your credit card issuer if you have any questions about how credit cards work.

5. Neglecting Your Monthly Statement

It might seem like a slog, but reading your monthly statement is important to staying on top of your credit card account. For starters, it includes a plethora of important information, such as your statement balance, the amount of your minimum payment owed, and your payment due date. Plus, regularly reviewing your credit card statement can ensure you quickly spot any signs of fraud.

How to avoid it: Set reminders to look at your monthly statement to see how much you owe, and make sure to dispute credit card transactions you didn’t approve.

6. Getting Close to Your Credit Limit

Your credit card limit is the amount that you can charge your card. If you get close to hitting your limit, it could hurt your credit score because you’ll have a higher credit utilization ratio. This ratio compares your balance to your available credit, and the higher it is, the more adversely it could affect your score.

How to avoid it: Monitor your balance to ensure you’re not close to your limit — ideally, you’re only using up to 30% of what’s available to you or less. Some financial experts suggest using no more than 10% of your limit.

7. Applying for Multiple Credit Cards at Once

Each time you apply for a new credit card, lenders will conduct a hard inquiry, which tends to temporarily lower your credit score. While this dip might not make a huge difference, applying for multiple accounts could cause lenders to take pause. It can possibly give them the wrong impression as to why you want so many new cards.

How to avoid it: Get preapproved for a credit card before applying to see your chances of getting approved before submitting a full application.

8. Applying Without Comparing Credit Cards

There are many benefits and features that come with credit cards, and without comparing them, you may not end up opening a card that’s not the right fit. By shopping around and exploring different credit card rewards, you’ll ensure you understand your options and get the most competitive choice available to you.

How to avoid it: Take the time to think about the features you want the most from a credit card and do some research to narrow down your choices before applying.

9. Canceling Your Card on a Whim

Canceling a credit card could mean the issuer will require you to pay off your entire balance with interest. Plus, it could affect your credit utilization ratio since it will lower your overall credit limit. It also could shorten the length of your credit history, which is another factor used when calculating credit scores.

How to avoid it: Consider the consequences of canceling your credit card, and make sure to pay off the entire balance before you do so.

10. Not Reporting Lost or Stolen Credit Cards Instantly

The longer you go without reporting a lost or stolen credit card, the more likely you’ll be responsible for fraudulent changes that show up. Some credit card companies waive all fraudulent charges (or up to $50) as long as you’re quick to report.

How to avoid it: As soon as you notice your card missing, report it to your credit card company, and then continue to monitor your statements for any fraudulent charges.

11. Loaning Your Credit Card

When you give your credit card to someone else to use, you’re still responsible for the charges made on it. If the person you lent your credit card to doesn’t pay you back, then you’re stuck with the bill. The same applies with an authorized user on a credit card — you’re the one ultimately responsible for paying even if you didn’t make the charges yourself.

How to avoid it: Don’t let anyone borrow your card, and if you do, ask them to pay you upfront for the changes they intend to make.

Travel Credit Card Mistakes to Avoid

In addition to the mistakes above, take care to avoid these particular mistakes if you have a travel rewards credit card.

12. Overspending

To earn welcome or bonus offers, credit card companies typically require you to spend a minimum amount within a certain period of time. If you don’t plan ahead properly, you could end up making unnecessary purchases and racking up charges you can’t afford to pay off.

How to avoid it: Have a plan for how you’ll meet the minimum spending requirements, such as by timing a necessary big purchase with opening a new card.

13. Underspending

On the opposite spectrum, opening a new credit card and not meeting the minimum spend requirements could mean you’re disqualified from earning the welcome bonus. This would mean passing up a big benefit of getting the card.

How to avoid it: Review your spending habits before opening a credit card to ensure you can meet the card’s minimum spending requirements.

14. Spending Points vs Paying a Low Cash Price

Redeeming your credit card points is fine (it’s free!), but spending them on low-value rewards may be a waste. For example, you might be able to nab a flight or hotel at a much lower price in cash than you’d get if you used points for the purchase.

How to avoid it: Research reward redemption options to ensure you maximize the value from the points you’ve earned.

15. Not Using Your Benefits

Travel credit cards can offer other perks, such as annual credits toward travel and free stays at hotels. However, you’ll typically need to take advantage of them within a year, and they won’t roll over. In other words, if you don’t use these benefits in time, they’ll go to waste.

How to avoid it: Read your credit card agreement to see what additional benefits you can take advantage of.

16. Losing Your Points

Some points earned through rewards programs expire. In other cases, you’ll automatically lose your points when you decide to cancel your credit card.

How to avoid it: Use up your points before canceling your card, or check if they expire and make sure to use them up in time.

Recommended: What Is a Charge Card?

17. Failing to Transfer Points

Most card issuers allow you to transfer points to travel partners like airlines and hotels. This can offer a greater value for your points compared to what you’d get through the card issuer’s travel portal.

How to avoid it: Before booking travel, check whether it’s more valuable to book through the card issuer’s travel portal or by transferring points instead.

18. Not Understanding Credit Card Bonus Categories

Many travel credit cards offer bonus points if you spend in certain categories. These bonus rewards tend to vary for different cards. Not understanding what each card offers could result in losing out on earning extra points.

How to avoid it: Read through the terms and conditions of each travel credit card you own to ensure you’re maximizing your earnings.

19. Redeeming Points at Low Value

Not all points are created equal. You might not get the same value from your travel points if you redeem them for a gift card as opposed to with partner hotels or airlines, for instance.

How to avoid it: Do your research on how best to redeem your rewards for your credit card to get the most value.

Recommended: When Are Credit Card Payments Due?

The Takeaway

Knowing and avoiding common credit card mistakes can be a good way to avoid excessive credit card debt and keep your finances in good order. Responsible use of credit can be a foundation of financial fitness. What’s more, avoiding credit card mistakes can also help you enjoy perks, like rewards, that come with your account.

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.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

Enjoy unlimited cash back rewards with fewer restrictions.

FAQ

What are some of the most common credit card mistakes?

Some of the most common credit card mistakes include not paying on time, only making the minimum payment, and not understanding the terms of your credit card agreement.

What credit card mistakes can damage my credit?

Major factors that can damage your credit include late or missed payments, having a high credit utilization ratio, and having too many new credit inquiries. Making all of these mistakes can lead to damage to your credit.

Can problems arise from not using my credit history?

Having a lack of credit history could make it harder to qualify for loans. Or you may only qualify for ones with higher interest rates.

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Photo credit: iStock/Mikolette

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 .

SoFi Credit Cards are 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.

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