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Late payments only make it onto your credit report if they’re late for more than 30 days. Once a payment is late for 30 days, the creditor will likely report it to the credit bureau, where it will stay for seven years from the date of the first delinquent payment. Because late payments can have a negative impact on your credit score, it’s best to avoid them when possible.

Here’s what you need to know about this important topic.

What Is Considered a Late Payment?

Most accounts have a grace period after the due date where the lender will accept payment without any penalty. The exact length of a grace period will depend on the terms of your credit card or other account, but 21 days is common.

After the grace period, your lender may charge a late fee or make other changes to your account. Once your account is 30 days or more past due, your lender will typically report it to the major credit bureaus.

When Do Late Payments Fall Off a Credit Report?

In most cases, it will take seven years for a late payment to fall off a credit report. Even if you bring your account current after the late payment has already been reported to the credit bureaus, it will still show up on your credit report for seven years after the first late payment. This is why one of the top credit card rules is to make payments on time whenever possible.

Recommended: When Are Credit Card Payments Due

How Late Payments Affect Your Credit Score

One of the consequences of a credit card late payment is that it will have a negative impact on your credit score.

Your past payment history is one of the biggest factors in what affects your credit score. As such, if you have a significant amount of late payments on your credit report, it will be tough to have an outstanding credit score.

How to Remove Late Payments From a Credit Report

It’s difficult if not impossible to remove a late payment from your credit report — unless it was reported in error.

However, the only way to find out if a late payment is reported in error is if you regularly review your credit report. If you have documentation that shows that you made the payment on time, you can contact the credit bureau and ask them to update your credit score and credit report.

What Can You Do to Minimize the Impact of a Late Payment?

If you’re willing to do the legwork, there are a couple steps you can take that could potentially minimize the impacts of a late payment.

Negotiate

One option you have for minimizing the impact of a late payment is to negotiate with your credit card issuer. This will generally be more effective if it’s only been a short time since your payment was due or if you have not had late payments previously. For example, your lender may be willing to waive any late fees or penalty interest if you enroll in autopay and/or pay any past-due balance.

Dispute Errors on Your Credit Reports

If it’s been more than 30 days and your lender has already reported the late fee to the credit bureaus, it can be difficult to remove it from your credit report. However, if you have documentation that you made the payment on time, you can contact the credit bureaus to have them update and correct your credit report.

This is why it is important to understand how checking your credit score affects your rating — generally when you are reviewing your own credit report, it does not impact your credit score. Regularly reviewing your credit report for errors and discrepancies is a great financial habit to have.

Guide to Avoiding Late Payments

Since it is difficult if not impossible to remove late payments from your credit report once they’re there, the best course of action is to avoid late payments in the first place. Here are a few tips on some of the best ways to avoid late payments.

Set Up Autopay

One great way to avoid late payments is to set up autopay from a checking or savings account. That way, you know that your payments will be made each and every month.

You can customize your autopay payments to cover the minimum amount, the full statement balance, or anywhere in between. You’ll just want to make sure you have enough funds in the attached account to cover the balance.

Set Payment Reminders

If you can’t or don’t want to set up autopay on your accounts, another option is to set up payment reminders. That way, you can get an email or text message a few days before your payment is due. Getting a reminder can help you remember to make the payment on or before its due date.

Change Your Payment Due Date

Sometimes the due date for a particular loan or credit card doesn’t line up conveniently with when you have the money to pay it. You might find that your credit card due date always seems to come a day or two before payday. If that’s the case, many lenders allow you to change your payment due date to one that’s more convenient for you.

Recommended: Can You Buy Crypto With a Credit Card

The Takeaway

Paying your credit card and other debts on time can be one of the best ways to positively impact your credit score. Late payments can be reported to the credit bureaus as soon as 30 days after the due date. Once they’re on your credit report, they will stay there for seven years from the date of the first late payment.

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 get late payments removed from my credit report?

Typically, once they’ve been reported to the credit bureaus, you can only get late payments removed if you didn’t actually pay late. If you have documentation that shows that you made the payment on time, you can submit that to each credit bureau and ask that they update your credit score.

Is it true that after 7 years your credit is clear?

Late payments and some other negative factors do remain on your credit report for seven years. That means that if you have not had any negative marks or late payments for seven years, you’ll be starting with a fresh slate.

Is payment history a big factor in your credit score?

Yes, payment history is a big factor in how your credit score is determined. While each credit bureau calculates your credit score differently, payment history is typically listed as one of the biggest factors in what affects your credit score.

Photo credit: iStock/tommaso79

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 card points are a common incentive for cardholders to actively make purchases on a rewards credit card. Once earned, cardholders can use credit card points toward a redemption option they find worthwhile. This can include travel or a purchase credit toward a good or service.

Read on to learn more about how credit card points work, including how to get and how to use credit card points.

What Are Credit Card Points?

Credit card points are one of many different credit card rewards that card issuers offer to consumers through a rewards program. For instance, a program might offer you two points for every dollar you spend on the card, which you could then redeem for use once you’ve accumulated a certain amount of points.

Points act as a form of currency within a credit card rewards program, designed to entice cardholders into maintaining spending activity on the card. Some reward programs for credit cards are also co-branded to encourage loyalty to a particular brand.

How Do Credit Card Points Work?

Understanding how credit card points work ultimately comes down to knowing how to earn points on credit cards — and then how to redeem them.

Earning Points on Credit Cards

There are a number of ways to earn points on your rewards credit card account:

•   Everyday purchases: Using a card as your primary payment method for your routine expenses is one way to earn points. Depending on your preferences and the features of other rewards cards in your wallet, you might choose to put purchases, like your morning coffee, groceries, rideshare expenses, and more on the card.

You might also choose to dedicate certain spending categories to a rewards card that offers bonus points toward that purchase. For example, if your rewards card offers 5X points when using your card at the supermarket, you might decide to use the card for grocery costs only.

•   Shopping with credit card partners: Part of finding the right card for you is researching whether the credit card partners with brands and services that you already shop with. For example, some cards partner with ride-sharing services, like Lyft, and offer bonus points for every Lyft purchase put on the card.

Note that some card issuers require you to pre-register for this type of bonus point incentive. You might have to link your rewards card to your Lyft account in order to receive bonus point credit for ride costs, for instance.

•   Sign-up bonuses: If you’re expecting a costly upcoming expense, like a medical bill or home repair, a common strategy to earn credit card points quickly is finding a competitive credit card bonus offer. Sign-up bonuses typically offer a promotional bulk quantity of points after you spend a minimum amount on the card within the first few months of opening the account.

Putting your large purchase on a new card accelerates your point earnings, but make sure you can pay your monthly statements in full to avoid interest charges — one of the important credit card rules to abide by in general. If you allow your balance to roll over into the next month, it can cut into the value of a sign-up points bonus.

•   Referral points: When you refer a friend to your rewards credit card program, some card issuers offer a referral bonus. Typically, you’ll receive a referral bonus reward, and your friend also receives bonus points if they meet certain spending requirements on their new card. Referral points vary by credit card, but it’s another option for cardholders who want to earn points on credit cards while giving friends a bonus perk, too.

Redeeming Points on Credit Cards

You can redeem credit card points in various ways. Common options to redeem credit card rewards points, depending on your card’s redemption choices, include:

•   Flights

•   Hotel stays

•   Car rentals

•   Statement credits

•   Cash back

•   Gift cards

•   Merchandise

•   Online retailers

•   Special experiences

•   Charitable donations

Redemption typically takes place through the card issuer’s app or website, or through the issuer’s dedicated rewards program website.

Types of Credit Card Rewards

Credit cards offer different types of rewards options. The common “currencies” are points, miles, and cash back.

Reward Points

You can earn credit card points by making purchases on your rewards card. Some credit card products offer a flat rate per dollar spent on your card, while others offer bonus points toward a spending category.

For example, a card might offer tiered bonus points at a rate of 5 points per dollar at restaurants, 3 points per dollar toward every gasoline purchase, and 1 point per dollar on everything else.

Miles

Miles are a common reward unit that’s typically used among travel credit cards and airline-branded rewards cards. Depending on the mileage rewards program, you’ll typically earn bonus miles when charging travel-related expenses on your rewards credit card. Some credit cards also let you earn miles on non-travel purchases at a lower mile-per-dollar rate.

This type of credit card reward is ideal for regular travelers who often fly to their destination and are interested in using credit card rewards to travel for less. If you prefer flying on a specific airline, a branded rewards credit card can help you earn miles toward a future flight, in addition to other redemption options, like hotel stays or goods. General rewards mileage cards can be redeemed in a similar way, but it’s not restricted to a particular carrier.

Cash Back

Credit cards that offer cash back rewards let you earn a percentage of cash back based on the amount you spend. This can typically be redeemed as statement credit to reduce how much you owe on your monthly credit card bill, which can be part of using credit cards responsibly. Or it can be redeemed as cash sent directly to you. Some cash back credit cards let you redeem cash back rewards as credit toward a purchase through one of the issuer’s partners.

If you’re not an avid traveler, a cash back card can be a straightforward option to earn and redeem rewards. Many card issuers offer a flat-rate rewards model that offers an easy-to-remember cash-back percentage on all card purchases.

How Much Are Credit Card Points Worth?

The value of each credit card point is generally worth 1 cent. However, reward valuations vary between credit card reward programs and can also differ based on how you choose to redeem them.

For example, your credit card points could be worth 1 cent when you redeem them for cash or gift cards, but worth 1.25 cents when you redeem them for travel-related options, such as flights or dining. Keep in mind that these amounts can vary widely, so it’s important to understand the terms and conditions of your credit card.

Recommended: Tips for Using a Credit Card Responsibly

Getting the Most of Your Credit Card Points

Below are a few helpful ways to maximize your credit card points:

•   Stay on top of bonus categories. Some rewards credit cards offer rotating bonus spending categories that temporarily increase the points you can earn per dollar spent on the card. These types of cards often require you to “enroll” in the bonus category, so familiarize yourself with your card’s bonus calendar.

•   Be aware of bonus limits. Read the rules of your rewards program, including thresholds on the maximum dollar amount that’s eligible for bonus rewards.

•   Calculate if the annual fee is worth it. Before signing up for a rewards credit card, review your spending habits over the last year. Note the spending categories and amounts you’ve spent. Based on this information, calculate whether the card’s rewards program and benefits — like TSA PreCheck credit and other perks — exceed the annual fee you’d spend each year.

The Takeaway

Accruing credit card points, miles, or cash back can be worthwhile as long as you use your card responsibly and select a rewards card that fits your lifestyle. Before putting your earned rewards toward a high-dollar purchase, or applying earned cash rewards to your monthly statement, keep your objective in mind.

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

FAQ

Do credit card points expire?

Typically, credit card points don’t expire. However, your points might expire if your credit card account is closed, falls into bad standing, or after a period of inactivity. Different cards have varying rewards program terms and conditions, so check with your card issuer to see if your credit card points have an expiration timeline.

Do credit cards with rewards have higher interest rates?

Rewards credit cards tend to have higher interest rates compared to regular credit cards. Cardholders with a positive credit history and strong credit score generally qualify for lower interest rates compared to those with a low credit score.

What is the use of earning reward points on my credit card?

Earning rewards points on your credit card allows you to get something in exchange for the spending you do with your credit card. For example, depending on your rewards program, you can redeem credit card points as a cash back reward or put them toward future travel or other purchases.

Photo credit: iStock/stefanamer

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.

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A secured credit card can help you establish credit for the first time or build your credit if you’ve damaged yours with missed payments, defaults, or bankruptcy. While secured credit cards offer many of the same advantages as traditional credit cards, they do have some limitations.

Eventually, those who start out with a secured card may want to switch to a traditional credit card. Here’s a closer look at how to transition from a secured credit card to an unsecured card.

What Is A Secured Credit Card?

A secured credit card requires that you put down a cash deposit, which serves as collateral for the charges you make with the card. Usually, the amount of the deposit is the same as your credit limit. So if you deposit $1,000, you’ll be able to borrow up to that amount.

If you miss payments, the bank can cover their losses by drawing on money from the deposit. That said, making on-time payments is just as important with secured credit cards as it is with traditional cards, especially if you are using the secured card to build credit.

As with traditional credit cards, secured cards require that you make a minimum monthly payment. Beyond that, you can carry a balance from month to month, but you will be charged interest on that balance. Pay your balance off in full each month to avoid interest payments.

Recommended: Differences Between a Secured and Unsecured Credit Card

Benefits of Secured Credit Cards

Secured credit cards offer users and banks a number of advantages.

Easier to Qualify

Because secured cards require users to put down a deposit, banks are taking on relatively little risk. As a result, it can be much easier to qualify for a secured card than it would be a traditional credit card.

Can Help Build Credit

If you have no credit or poor credit, it can be difficult to get approved for credit cards or loans. Making small purchases regularly with a secured card and paying off your bill in full and on time can help you establish credit or rebuild your credit.

If you’re looking to build credit, you may also consider becoming an authorized user on a credit card.

Convenience

You can use secured credit cards anywhere traditional cards are accepted. Secured credit cards allow you to shop in person or online without carrying cash around with you. It’s also difficult to accrue too much debt because you’re limited by the amount of your deposit.

Drawbacks of Secured Credit Cards

Alongside the benefits offered by secured cards, there are limitations to be aware of.

Coming Up With the Deposit

In order to get a secured card, you will have to come up with the cash that will serve as your deposit. That may require you to save for a period of time before you apply.

Once you deposit that cash, you can’t access it while your secured card is in use. That said, your deposit is refundable when you close the account or convert your secured credit card to an unsecured card.

Higher APR

The annual percentage rate (APR) is the interest rate you’re charged when you carry a balance on your card. Secured credit cards may offer higher interest rates than traditional cards, which can end up costing you more money if you carry a balance.

Spending Is Limited

Most credit cards, whether they’re secured or unsecured, have spending limits. For a secured credit card, your limit will depend on the size of the deposit you make, which will typically range from $200 to $2,000. If you’ve only deposited $1,000 and need to replace your transmission for $1,800, you won’t be able to put the repair on your card.

In comparison, the average credit limit across all cards is upwards of $30,000, according to a recent report from the credit reporting bureau Experian®.

What Is an Unsecured Credit Card?

An unsecured credit card is a traditional credit card that does not require a deposit as collateral. Instead, your credit limit is determined based on your creditworthiness. If you fail to pay off your credit card, your card company can send your bill to a collections agency, and your credit score will take a hit.

There are a variety of types of credit cards to choose from when it comes to unsecured cards, including rewards cards and balance transfer cards.

When You Might Keep Your Secured Credit Card Open

The biggest reasons to keep your secured credit card open have to do with the potential implications closing the account can have for your credit score.

For one, closing an account may result in a dip in your credit score. Additionally, closing the account may decrease the age of your credit history, another factor that goes into determining your credit score.

When You Might Upgrade to an Unsecured Credit Card

You may consider upgrading to a traditional, unsecured card if you’re able to manage a secured card responsibly and are looking for a lower APR or a higher credit limit. Ultimately, making the move requires that your credit is in decent shape.

To do so, it’s important that you stick to credit card rules. That includes being sure that you’re not in the habit of overspending, you’re able to pay your bills on time and in full, and you can keep your total purchases lower than your available credit. Experts suggest keeping your total balance at 30% or less of your available credit.

However, whether you can change a secured credit card to unsecured will also depend on your credit card issuer. Not all card companies offer unsecured options that you can upgrade to. In those cases, you’ll need to apply for a new card.

Guide to Upgrading from a Secured Card to Unsecured Credit Card

If you’re looking to upgrade to an unsecured card, make sure you’re following these steps.

Monitor Your Credit Score

Many credit cards require that you have at least a good credit score to qualify. That means, you’ll need a FICO® score of 670 or higher. Not only are you more likely to qualify for a card with a higher score, you’ll also be more likely to secure more favorable terms and lower interest rates.

If you’re considering trying to convert a secured credit card to an unsecured card, monitor your credit score regularly. You might check with your card issuer to see if they offer you free access to your credit score.

Making the Minimum Monthly Payment

Getting approved for a change from a secured credit card to an unsecured credit card requires displaying responsible credit card behavior. Ideally, you’d avoid interest payments by paying off your credit card in full every month. But if that’s not possible, be sure you are making at least your minimum monthly payment, as payment history is one of the biggest determinants of your credit score. On-time payments are a big part of using a credit card responsibly.

Managing All Your Accounts Responsibly

Before opening an unsecured credit card, make sure you’re able to make other debt payments on time as well. This includes student loans, car payments, or a mortgage. If you’re not displaying good credit behavior elsewhere, that will show up on your credit report and potentially hurt your chances of qualifying for an unsecured credit card.

Limiting the Number of Credit Accounts You Open

Opening new accounts requires a hard inquiry, which will result in a temporary dip in your credit score. Additionally, if you open too many new accounts in a short period of time, it can lower the average age of your credit accounts, which is another factor that influences your credit score.

Ideally, you’ll avoid activities that will cause your credit score to drop as you’re trying to work toward being able to qualify for a secured credit card. A better score will improve your chances of getting approved.

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

The Takeaway

A secured card is an important tool for building or rebuilding credit. However, once you’ve established healthy credit card habits and good credit score, it may serve you to switch from a secured to unsecured credit card.

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 upgrade my secured credit card to unsecured?

Some lenders will allow you to change a secured credit card to an unsecured card. However, others will require that you apply for a new card.

How long does it take to convert a secured credit card to an unsecured one?

To move from a secured credit card to an unsecured one can take anywhere from several months to a couple of years. How long it takes will depend on the credit card issuer’s policies as well as what your credit score was when you opened the account.

Does converting a secured credit card to an unsecured card hurt your credit score?

Closing your secured card to open a traditional credit card may cause your credit score to take a temporary dip. However, you shouldn’t notice a huge impact.

Do all credit card issuers allow the conversion from a secured to unsecured card?

Not all credit card issuers will convert a secured card to an unsecured card. More often than not, you’ll have to close your secured account and open a brand new card.

Photo credit: iStock/Ridofranz

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

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.

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The annual percentage rate (APR) of a credit card represents how much someone pays in interest on an annual basis if they carry a balance on their credit card. The lower someone’s APR is, the less they would pay in interest. Because of this, it makes sense to try to secure the lowest APR possible.

Keep reading to learn how to lower the APR on a credit card.

What Is Credit Card APR?

A credit card’s APR represents the total cost of borrowing money using a credit card. The APR on a credit card is the interest rate charged to carry a balance, plus any fees. A credit card can have a fixed or variable interest rate, meaning the rate can either stay the same or change over time based on index rates.

Understanding what APR is can help credit card users know how much they’d need to pay in interest if they don’t pay off their credit card balance in full each month. If they don’t carry a balance, they can avoid paying credit card interest.

Recommended: What Is a Charge Card?

Ways a Lower Interest Rate Can Help

Having a good APR for credit cards is important for a number of reasons. A lower interest rate can save you money. In turn, this can make it easier and faster to pay off debt. Doing so is one way you can help build your credit score.

The higher your interest rate is, the harder it can be to chip away at your credit card balance, as the bulk of credit card payments will go toward interest. This is why achieving a lower credit card APR can make escaping high-interest credit card debt easier.

Recommended: How to Avoid Interest On a Credit Card

How to Lower APR on a Credit Card

If you are interested in lowering your credit card APR, there are steps you can take to try to do so.

Apply for a Balance Transfer Card

If your card has a high APR, one option for how to get a better rate can be a balance transfer card with a lower interest rate. You can then transfer your balance from the high-interest credit card to the balance transfer card.

Usually, this new balance transfer credit card can’t be issued by the same company or any affiliates of the original card. Balance transfer cards may offer a 0% APR promotional period. During that period, you won’t pay any interest, which means all of your payments will go toward paying down the principal.

However, once the promotional period ends, a higher APR will kick in (this is one example of what can increase your credit card’s APR). Additionally, a balance transfer fee may apply to move over the existing credit card balance to the new card. It might make sense to calculate your credit card interest rate on your old card to ensure you’ll save money.

Negotiate With Your Credit Card Issuer

When it comes to figuring out how to get lower APR on a credit card, it’s possible to simply ask for an APR reduction with a credit card issuer. This strategy may be particularly effective if the cardholder has used their credit card responsibly and consistently paid their credit card bill on time — one of the cardinal credit card rules.

You can also provide a reason why you’re requesting a reduction. You may have experienced a job loss or have unexpected medical bills to pay. Maybe you got a raise and are really motivated to pay off your debt, and having a lower interest rate would help you do that. It’s also possible to leverage new credit card offers with lower interest rates to try to negotiate a current APR down.

Consumers can also ask for a temporary reprieve if the credit card issuer won’t offer a lower rate indefinitely. For example, it may be possible to request a one-year rate reduction of one to three percentage points.

Low-Interest Credit Cards

If you can’t quite figure out how to get a lower interest rate on a credit card with your current issuer, you could also step away from using that specific credit card. Instead, you might apply for a low-interest credit card to use in lieu of the card with the higher APR.

Cardholders who have consistently made on-time payments and taken other steps to build their credit score may be able to secure a new card with a lower interest rate. As an added bonus, doing so can make it easier to negotiate a lower APR with a current credit card.

Some different types of credit cards even reward cardholders for their good behavior by lowering their APR.

The Takeaway

If you pay off your credit card balance in full each month, you won’t have to worry about your APR too much. That being said, it’s always smart to try to secure the lowest APR possible in case it’s necessary to carry a balance from time to time.

Having a lower APR on a credit card means the cost of borrowing money is lower. More of your monthly payments can go toward paying down the principal balance instead of interest. In turn, this can help you pay off your debt faster, save money, and even build your credit score.

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 can I reduce my credit card interest rate?

You have a few options for lowering the interest rate on a credit card. You can try to negotiate a lower interest rate on any current credit cards by calling your issuer and trying to come to an agreement. If that doesn’t work, you can apply for a new credit card or a balance transfer card. If you can secure a lower interest rate on a new credit card, you can choose to use that credit card or take that offer back to your current lender to try to negotiate a lower APR.

Why do credit card issuers charge varying APRs?

Credit card issuers use a consumer’s credit score to help determine what the APR on a credit card should be for a specific consumer. The reason that APRs vary is because credit card issuers give a custom APR to each applicant based on their financial history. Generally, the lower someone’s credit score is, the higher their APR will be.

Photo credit: iStock/Charday Penn

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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A credit card annual fee is the price that some cardholders pay to use a certain credit card. While there are plenty of credit cards on the market that don’t come with an annual fee, the credit cards that charge an annual fee tend to have better cardholder perks that can outweigh the cost of the annual fee if the card is used optimally.

Keep reading for more insight into annual fee credit cards.

What Is a Credit Card Annual Fee?

Annual fees are costs charged by many (but not all) credit card issuers to help finance their service, including cardholder perks, such as travel credits and free checked luggage on flights.

The amount of an annual fee factors into how much a credit card costs overall, and it varies from card to card. Credit card annual fees can start as low as around $39 and go as high as thousands of dollars for luxury credit cards.

Usually how credit cards work is that cards with sky-high annual fees also offer a lot of extra perks to make the credit card worth the money. For instance, the cardholder may gain exclusive access to airport lounges, credits towards rideshares, or be able to tap into competitive introductory reward bonuses.

However, there are cases where an annual fee is charged for credit cards designed for consumers with low credit scores. These credit cards don’t offer great rewards, and instead give consumers with poor credit a chance to build their credit by using credit cards responsibly. Eventually, the goal is for the cardholder to positively impact their credit so they can qualify for credit cards with lower interest rates and better perks.

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

How Do Credit Card Annual Fees Work?

When you pay the annual fee on a credit card varies depending on your card issuer. Credit card issuers either charge annual fees on either a yearly basis, or they may divide the fee up into smaller monthly installments.

If your fee is charged once a year, then it usually will appear on your first statement after you open your account. You’ll then get charged every 12 months thereafter. In the instance an annual fee is divided into smaller monthly payments, these will get included on the monthly statement the cardholder receives.

You pay your credit card annual fee just like you’d pay any other credit card charges listed on your monthly statement.

Which Credit Cards Typically Have an Annual Fee?

There are three main types of annual fee credit cards you might consider.

Reward Cards

Credit cards that can offer a high-value rewards structure or that have a strong introductory bonus often come with an annual fee. If the card is used strategically, it’s possible to earn enough credit card rewards to cancel out the cost of the annual fee and other cardholder fees. You may earn rewards like cash back, travel points, or discounts on specialty purchases.

Premium Credit Cards

A premium credit card that offers luxe perks like private airport lounge access or a travel concierge is likely to charge an annual fee to use the card. If you’re considering one of these cards, make sure to crunch the numbers to make sure you’ll use enough of the perks to offset the cost of the annual fee.

Secured Credit Cards

A secured credit card is designed to help consumers with bad credit scores build their credit. These cards require a deposit to “secure” the card, and that amount also usually serves as the card’s credit limit. On top of the deposit, secured credit cards often carry an annual fee.

For some, the cost of a secured card may be worth it for the opportunity to build their credit score, which can make it easier to qualify for lending opportunities in the future. Still, make sure it’s within your budget.

Recommended: What Is the Average Credit Card Limit?

How Are Credit Card Annual Fees Charged?

As briefly mentioned above, some credit card issuers charge the annual fee once a year, while others split up the annual fee into smaller monthly installments.

The annual fee shows up on the credit card statement alongside normal credit card charges, and the cardholder pays the annual fee as part of that month’s credit card bill. Remember that even if you have an authorized user on a credit card, it’s still the primary cardholder’s responsibility to make payments, which includes any fees.

Avoiding Credit Card Annual Fees

If you’re trying to avoid credit card fees, it’s entirely possible to avoid paying annual fees. There are plenty of credit cards on the market that don’t charge an annual fee at all.

If someone is interested in a credit card with an annual fee, such as a premium rewards card, they can try to get the first year’s annual fee waived. Some credit card issuers offer to do this from the get-go. However, if someone is an existing cardmember with the issuer and their introductory offer doesn’t include waiving the first year’s fee, they can request a one-time waiver.

Before signing up for a credit card with an annual fee, it’s important to evaluate your spending habits. You want to ensure that you can comfortably afford to cover the annual fee for the credit card. Also investigate whether you’ll earn enough benefits from the card to justify the cost of the annual fee.

The Takeaway

Annual fees are often charged by credit card issuers to cover the cost of their services and perks. Fees can range from around $39 to thousands of dollars for ultra-premium cards, and it can be wise to review them carefully and make sure you are comfortable paying them. It may be possible to avoid these fees by negotiating with your card issuer or qualifying for this reward.

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 you pay the annual fee on your credit card?

If someone has an annual fee credit card, the annual fee will appear on their credit card statement. The fee may appear every 12 months or in smaller increments on a monthly basis. The cardholder then pays this fee as a part of their monthly bill in addition to any other purchases they made with the credit card during that billing cycle.

How can I avoid paying annual fees on my credit card?

Alongside choosing a credit card that doesn’t charge an annual fee (there are plenty of options on the market), a consumer may be able to get the first year of an annual fee waived as a new cardholder incentive. It only makes sense to open a credit card with an annual fee if the account holder’s spending habits line up with the rewards structure of the credit card. That way, they can earn enough cash back, miles, or other perks to outweigh the cost of the annual fee.

Do all credit cards have annual fees?

There are tons of great credit cards on the market that don’t come with annual fees. There’s never a reason to pay an annual fee if someone decides that’s not a good use of their money.

Photo credit: iStock/Rudzhan Nagiev

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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