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A retail credit card is a type of credit card that is a partnership between a bank or major credit card issuer and a retailer. Also known as a store credit card, retail credit cards usually come with discounts, rewards, and other perks that are specific to that retailer.

You might have received an offer for a retail credit card when you’re at the checkout at a brick-and-mortar store. Or you may have gotten an offer in the mail or while shopping online. When it comes to determining whether store credit cards are worth it, you’ll want to weigh their pros and cons.

What Is a Store Credit Card?

As mentioned, a store credit card is the same as a retail credit card. A store card is a credit card from a retailer, franchise, or group of stores. It might come with a sign-up offer, such as a one-time discount on your purchase. Other perks include a credit card points rewards program, special promotions, offers, and discounts on your purchases. Some might offer 0% financing on big-ticket purchases.

Store credit cards are not to be confused with retailer loyalty cards. Loyalty cards are a way to gain access to deals and promotions, and to earn points to swap for a discount on future purchases. However, they do not allow you to buy with credit, which is essentially borrowing money.

Recommended: Understanding Purchase Interest Charges on Credit Cards

How Do Store Credit Cards Differ From Other Credit Cards?

There are two main types of store credit cards: private label store cards and cobranded store cards. Private label credit cards differ more from other credit cards, as they are closed-loop cards, meaning you can only use the card at a specific retailer or group of retailers.

Closed-loop cards are more common than cobranded store cards. Cobranded credit cards are open-loop cards that partner with a major credit card network — think Visa, Mastercard, American Express, or Discover. As such, you can use this type of store card at the featured store or group of stores, as well as anywhere that particular credit card issuer is accepted.

Unlike private label cards, open-loop cards also may give you a chance to rack up points or scoop up rewards beyond spending in that specific store. Private label cards generally reserve rewards earnings for that particular store.

Benefits and Drawbacks of Store Credit Cards

There are both pros and cons to retail credit cards. Advantages include:

•   Easier to obtain: Retail credit cards are usually easier to qualify for than other types of credit cards. They typically require just a fair credit score. And because they report to the major credit bureaus each month, they still can help you build your credit when you’re starting out.

•   Often no annual fee: Many store credit cards don’t have an annual fee, which can save you money. This can be especially motivating if you don’t anticipate using the card that often.

•   Instant discounts: When you first sign up for a retail credit card, you might get a one-time discount on your first purchase.

•   Discounts, promos, and offers: As a store cardholder, you might be privy to exclusive ongoing discounts or special promotions and offers. The types of discounts and offers vary widely depending on the retailer and time of year. For instance, a retailer might offer a flat 5% discount on every purchase. Cardholders also might have access to special coupons and offers.

•   Rewards and cash back programs: Similar to other types of credit cards, you can earn points to use for store purchases or cash back.

•   Other perks: If you’re a cardholder for a particular retailer, you might receive other benefits, such as free or expedited shipping, financing on certain types of products, or more time to return items.

Here are some potential downsides of a store credit card:

•   High interest rates: Whereas the average credit card annual percentage rate (APR) was 21.47% in late 2024, interest rates for store credit cards average exceeded 30% for the same period. If you carry a credit card balance, it could take you longer to pay off your debt. Plus, you’ll owe more in interest.

•   Inflexibility in use: If you have a private label store card, or a closed-loop card, then you can only use the card to make purchases at that particular store or group of stores. Unless you shop frequently at that particular retailer, it might prove difficult to use often enough to make sense.

•   Lower credit limits: Store credit cards usually have lower credit limits than other types of credit cards. In turn, it could be harder to keep your credit usage down. A high credit usage, or credit utilization ratio, could hurt your credit score.

•   Deferred interest: A retail card might offer 0% financing for a period of time. Here’s the potential catch: If you don’t pay off your purchase before the promotional period ends, you might be on the hook for all of the interest owed from the purchase date onward.

To recap, here are the major pros and cons to keep in mind when considering if you should get a store credit card:

Recommended: Difference Between Credit Card Issuer and Credit Card Network

Are Store and Retail Credit Cards Worth It?

A store credit card could be beneficial if you are building credit from scratch or are new to credit. As they typically are easier to qualify for and often don’t have an annual fee, you can use it at your leisure to build credit.

It can also be worth it if you are a loyal devotee and shop frequently at a particular retailer. That way, you’ll make the most of ongoing discounts, exclusive sales, promotions, offers, and additional perks.

When to Consider Getting a Store Credit Card

As mentioned, if you’re building credit from scratch and don’t want to worry about annual fees, a store credit card could be a good choice for you. It could also be a solid option if you shop at that retailer enough to make use of the card’s perks.

A store credit card can also be a good idea if you don’t need a card with a high credit limit. Ideally, you’ll be able to pay off the balance in full each month.

When Not to Consider a Store Credit Card

If you don’t anticipate using a card very often or prefer a card that you can use more widely, then it might be best to forgo opening a store credit card.

A store credit card also is probably not the best choice for you if you tend to carry a balance. That’s because the higher-than-average interest rates can gobble up any savings you’ve earned on rewards and discounts.

Alternatives to a Store Credit Card

Not sure a store credit card is worth it for you? Here are some of the different types of credit cards to look into:

•   Cash back credit card: A cash-back card is a type of rewards credit card that offers rewards in the form of cash back, which can offset your spending on the card. For instance, with a card that offers 1% cash back, you’d get $1 back for every $100 you spend. The SoFi credit card is an example of a cash-back card, offering unlimited cash-back rewards on all eligible purchases.

•   Airline credit card: Airline credit cards are a kind of travel credit card cobranded with major credit card networks. Similar to a store or retail credit card, you’ll receive perks with a specific airline company if you make purchases on the card. Airline credit cards typically are open-loop cards, which means you can use the card anywhere that type of card is accepted.

•   Hotel credit card: Hotel credit cards are offered through partnerships between a hotel and a credit card network. With a hotel credit card, you get points toward that particular hotel’s rewards program. The card might also come with other benefits.

Recommended: Instant-Use Credit Cards

The Takeaway

A store credit card could be a good idea if you are building credit from scratch or if there’s a card offered by a retailer you love and shop at often (you could access valuable perks). Otherwise, it might make more sense to look at other options with greater flexibility in use and lower interest rates.

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

Are store credit cards good for credit?

Store credit cards can help you build credit from scratch. They tend to be easier to qualify for than other types of credit cards. And if you practice good credit card habits, such as keeping a low credit usage and paying on-time, they can positively impact your score.

Will a store credit card build my credit limit?

Adding another credit card, no matter the type of credit card, can help build your credit limit. When you open a credit card, you receive a credit limit on top of those of your existing cards. For instance, let’s say you open a store credit card with a $2,000 limit, and your credit is capped at $10,000 among your other cards. By opening a store card, your credit limit will have increased to $12,000.

Should I cancel an unused store credit card?

You might consider closing an unused store credit card, but doing so could negatively impact your credit. That’s because it will lower your credit limit, which in turn increases your credit usage. Plus, it can impact your length of credit, which also plays into your score.

Will closing a store credit card hurt my credit?

Closing a store credit card could negatively impact your credit in two ways. First, it can lower your credit utilization ratio because your overall credit limit will decrease. Second, it could shorten the length of your credit history, which also impacts your credit score.

Photo credit: iStock/Prostock-Studio

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

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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 Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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When you check into a hotel, the hotel is very likely to ask you to put a credit card on file. This is true even if you are using points for a free night or if you have already prepaid for your stay. When you give the hotel your credit card, they will usually place a small hold on your credit card. This is typically a relatively small amount, but it can range from $20 to $200 above the price of your room.

Hotels use these credit card holds because the exact amount of your final bill is not known at the moment of check in. You may charge items to your room, grab some drinks from the minibar, extend your stay, or even cause damage to the property. Once you checkout and your final bill is settled, the hotel credit card hold will usually drop off of your credit card account.

What Is a Hotel Credit Card Hold?

A hotel credit card hold is a type of credit card hold that happens when you stay as a guest at a property. When you check in to a hotel, they typically will ask for a credit card to put on file. The hotel will then put a hold on your card to account for any incidentals or other charges during your stay, such as room service or perhaps wifi fees (yes, some places still charge for that).

You are not responsible for paying the amount of the hold unless and until it becomes an actual posted charge. It may, however, decrease your total available credit in terms of your credit card limit, and can impact your credit utilization ratio.

How Hotel Credit Card Holds Work

Hotel stays are one of a few types of expenses where you may not know the exact final amount of the charge initially. When you go to the supermarket and buy a week’s worth of groceries, you will be immediately charged for the cost of that food — no credit card hold required. But when you check into a hotel, the management will put a hold on your card to account for any extra charges or damages that could occur in the future. Even if you’ve found a great travel deal or used points for your stay, this kind of hold is typical.

What Can You Be Charged For?

Most hotels will put a hold on your credit card to account for any extra or additional charges that might come from your stay. Here are a few things you might be charged for:

•   The cost of your room (if not prepaid)

•   Additional nights if you extend your stay

•   Room service

•   Other items charged to your room (such as minibar snacks or an on-demand movie)

•   Damages to the property

Recommended: Breaking Down the Different Types of Credit Cards

How Long Does a Hotel Hold Your Credit Card?

Generally a credit card hold is processed by the card network itself (e.g. Visa or Mastercard) and not by the merchant. So the hotel itself likely does not have any control over how long the hotel credit card hold amount stays on your account. Generally, most hotel credit card holds will drop off within one to a few days after you check out.

If you’re still seeing the hold on your account after that, reach out to your credit card issuer to see if you can get it removed.

What Are the Benefits of a Hotel Credit Card Hold?

A hotel credit card hold doesn’t offer very many benefits to the consumer — it’s more just an artifact of how credit cards work. A hotel credit card hold may provide some semblance of protection for the hotel itself in the case of needing to get payment for additional charges or damages.

But from the consumer side of things, a hotel hold on your credit card is just something to be aware of and account for, since it will generally lower your amount of available credit.

Other Methods of Reservation

You have a variety of different methods of payment that you might use to pay for your hotel stay. You might use your credit card points, cash, or a debit card, or otherwise prepay for your stay.

But it’s important to know this: No matter how you reserve and pay for your hotel room, the hotel is likely going to ask you for a credit card to put on file and put a hold on your card when you check in. It’s quite typical throughout the industry.

Recommended: What Is the Average Credit Card Limit and How Can You Increase It?

Booking a Hotel Using a Credit Card Hold

One of the most popular ways to book a hotel is with a credit card. Using a credit card to book and pay for your hotel allows you to not have to give a cash deposit or another form of payment when you check in and check out.

If you pay for your hotel room with a debit card, credit card rewards, or cash, you’ll likely also have to show a credit card when you check in. The hotel will generally put a small temporary hold on your credit card account at that time.

Best Practices for Managing Credit Card Holds

It’s unlikely that you have any control over a hotel putting a temporary hold on your credit card. That said, it’s still important to understand what that means and how you can manage it.

Most hotel holds on credit cards are relatively small amounts, even as little as $20. However, if you have a credit card with a lower overall credit ceiling or if you are close to maxing out your credit, this practice may end up limiting your total available credit. You’ll want to be aware of that to minimize the chances of your credit card being declined.

How Do Hotel Credit Card Holds Help Hotels?

Hotel credit card holds help hotels by making sure that they have access to your card in case there are additional charges or damages by guests. In many cases, there are no additional charges. You can make a credit card payment for the total amount of your bill and settle your account.

But if there are any additional charges, a credit card hold helps the hotel to know that your card has at least a certain amount available to pay.

Credit Card Hold vs Debit Card Hold

Holds can be issued on both credit cards as well as debit cards. In both cases, a hold is temporary and for a specific amount. Once the charge is finalized, the hold will usually be automatically removed.

One important difference to note: Because a debit card is tied directly to your bank account, you may be charged additional fees if the hold triggers an overdraft on your account.

In either scenario, it can be wise to understand your total available balance and how any temporary holds affect it.

Recommended: Understanding Purchase Interest Charges on Credit Cards

The Takeaway

It is common practice in the hotel industry to request a credit card at check-in and place a temporary hotel credit card hold on the card. This temporary hold is generally around $20 to $200 higher than the outstanding balance on your hotel room. This hold helps to protect the hotel if you have any additional charges or damages to the room. The temporary hold will usually be cleared within a few days of checking out.

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

What happens to your card limit when you use it to hold a room?

The amount of credit that you have available to use on your credit card account is reduced by any pending credit card charges like hotel room holds. Your available balance will be at this lowered level until the charge is finalized, which may take a few days after you check out. Make sure that you understand your available balance to limit the chances that your card is declined.

How long does a hotel hold your deposit?

Generally, most hotels will put a temporary hold on your credit card when you check in. This hold usually lasts for a few days after you check out, when it will usually disappear. If you see a hotel credit card hold on your statement longer than that, contact your credit card issuer to see if they can remove the hold.

How much do hotels hold on credit cards?

The amount that hotels hold on credit cards will vary by hotel. Usually the hold will be anywhere from $20 to $200, plus any outstanding balance owed on the room. This helps to protect the hotel over any extra charges or damages that might occur. If you’re not sure how much the hold will be for, you can ask the desk clerk when you check in for the policy at that specific hotel.

Photo credit: iStock/ferrantraite

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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 Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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Credit reports serve as a record of how you have handled the repayment of any loan or debt that you’ve taken out. The items that are contained in your credit report primarily come from information collected by the three major credit bureaus. If you’ve ever had a credit card, student loans, or other type of debt, you likely have a credit report.

Many lenders might look at your credit report when they are considering whether or not to extend you additional credit. Your credit score is also calculated in part from information that’s included on your credit report. These are two good reasons to regularly look at your credit report and make sure the information in it is accurate.

What Is a Credit Report?

At its simplest, a credit report is a compilation of information regarding past debts, loans, or credit card accounts that you’ve managed. Your credit report will contain basic information about you, as well as information on the various accounts you’ve had in the past. This might include the name of the creditor, the dates the account was open, the monthly payment amount, if applicable, and any current or outstanding balance.

Recommended: When Are Credit Card Payments Due?

How Does a Credit Report Work?

The issuers of most credit cards, loans, or other forms of debt report information about that debt to the most popular credit bureaus — Equifax®, Experian®, and TransUnion®. Each credit bureau compiles its own information, though there is usually a lot of overlap between the information that appears on credit reports from different credit bureaus. Lenders typically send updated information to the credit bureaus each month, or if any information about your debt changes.

Recommended: Tips for Using a Credit Card Responsibly

Credit Report Information and Your Credit Score

It’s important to understand the relationship between the information on your credit report and your credit score. While these two things are related, they are not the same thing. As information on your credit report changes, your credit score updates as well. This means that it’s possible for your credit score to change every month (or even more often).

Further, while the information on your credit report influences your credit score, you won’t find your credit score listed on your credit report. Rather, you’ll have to go to lenders or credit monitoring websites for that information, both of which can allow you to check your credit score without paying.

Information Provided By a Credit Report

In addition to information about your accounts, your credit report may include other information about you. As one example, a credit report from Experian consists of four sections:

•   Personal information: This includes details such as your name, address, employment information, and any past names you’ve used.

•   Accounts: You’ll see both open and recently closed accounts listed.

•   Inquiries: Both hard and soft credit checks will appear, though only hard pulls affect your credit score.

•   Public records: This is information about you gathered from public records, including bankruptcies.

How Is a Credit Report Made?

Each of the major credit bureaus has its own process for how it generates a credit report. It’s typical that the credit bureau will have an informational section with details about you, sourced from loan applications and/or public records.

Another section of most credit reports is a listing of your open and recently closed accounts. Lenders will often report to the credit bureaus information about the amount, payment history, and status of accounts you have with them.

Why Is a Credit Report Important?

Your credit report is important because it is one of the sources of information that’s used to calculate your credit score. And your credit score can help determine whether you are approved for other financial products, like a credit card. If your credit score is too low, you may not be able to be approved for a new credit card or loan, and if you are approved, you may have to pay a higher interest rate.

Additionally, your credit report matters because many lenders will often refer to it when determining whether to approve you and under what terms. Sometimes, they may look at what’s known as a tri-merge credit report, which combines the three credit reports from each of the major credit bureaus.

Recommended: How to Avoid Interest On a Credit Card

How to Get a Credit Report

One good way to get your credit report is through AnnualCreditReport.com . This is a website authorized by federal law and brought to you by the three major credit bureaus.

You are typically able to get a copy of your credit report from each of the credit bureaus every year and may be able to do so every week as well. Note that you can only get your own credit report to review — checking someone else’s credit report isn’t an option.

When to Get a Credit Report

It is a good financial habit to regularly review your credit report. As mentioned, you can get a free copy of your credit report from each of the major credit bureaus.

By reading a credit report regularly, you can make sure that there’s no inaccurate information on your credit report. If you have incorrect information, it could have a negative impact on your credit score.

What to Look For in a Credit Report

As you regularly review your credit report, there are a few common credit report errors you’ll want to look out for. These include:

•   Typos or incorrect information

•   Information belonging to someone with a similar name

•   Closed accounts that are still marked as open

•   False late payment

•   Duplicate debts or accounts

Monitoring Your Credit Report

If there is any incorrect or erroneous information on your credit report, you’ll want to dispute that with the credit bureau. Disputing a credit report is a relatively straightforward process, and it’s an important one.

Generally, most credit report disputes must be submitted with documentation. Look for instructions on AnnualCreditReport.com or at each of the credit bureau’s websites.

The Takeaway

If you’ve been using credit cards, loans, or other financial products, it’s likely that you have a credit report with each of the three major credit bureaus. Your credit report contains identifying information about you as well as information about your open and recently closed credit accounts. Regularly monitoring your credit report and correcting any incorrect information is a good financial habit to have.

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 negative information remain on my credit report for long?

Yes, negative information can remain on your credit report, even after you have closed your account. Most negative information will stay on your credit report for seven years, though some information (like bankruptcies) can stay on your credit report even longer.

How do I get my credit report?

You can get your credit report through AnnualCreditReport.com. You’re able to get a free copy of your credit report from each of the credit bureaus, often on a weekly basis.

Who is eligible to view my credit report?

You can view your own credit report, but in most cases, you will not be able to check someone else’s credit report. The only time someone else can view your credit report is if they have a legitimate reason, and they usually require permission to do so. This might include a potential lender that’s viewing your credit report to determine whether they want to extend you additional credit.

What errors might be present in my credit report?

While the major credit bureaus make every attempt to ensure that all credit reports are completely accurate, errors have been known to happen. Possible errors might include typos, accounts from someone with a similar name, duplicate accounts, or false late payments, among other errors. This is why it’s a good idea to regularly review your credit report and dispute any incorrect information.

What is the most important thing on a credit report?

Arguably all of the information contained in your credit report is important and worth taking the time to review. Perhaps most important is information on your accounts, as the details reported there have the potential to impact your credit score and thus your borrowing opportunities.

Photo credit: iStock/Deepak Sethi

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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 Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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.

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An airline credit card is a category of credit card that allows you to rack up airline miles, among other cardholder benefits. These cards are usually cobranded with a particular airline. You can reap the perks of an airline credit card through purchases made on your card.

Airline credit cards are designed with the frequent flyer in mind. However, no two cards are alike. They can vary widely in terms of perks and restrictions, which you’ll need to consider when deciding if an airline credit card is worth it.

What Is an Airline Credit Card?

As mentioned, an airline credit card is a type of credit card designed for those who hop on planes frequently, such as avid travelers and those who fly a lot for work. Major network credit card networks and banks partner with airlines to offer cobranded airline credit cards.

They usually feature a rewards program, where you can earn points or credit card miles to redeem for flights, luggage fees, in-flight wifi, food and beverages, or upgrades to business or first class. Other perks might include reimbursement for canceled flights, insurance for lost baggage, and hotel room upgrades.

Recommended: How Do Credit Cards Work?

How Does an Airline Credit Card Work?

When you put purchases on your airline credit card, you’ll earn points or possibly miles. You can later use these points for travel-related perks, such as flights, hotel stays, and free upgrades. Beyond a rewards program, an airline credit card might also feature benefits like free upgrades to first class, invitations to airport lounges, and an annual travel credit.

To redeem your points, you usually can book directly through the card issuer’s portal. Sometimes, you can transfer your points to one of the card network’s hotel or airline partners.

Unlike private label credit cards, where you can only use the card at one specific store or group of stores, airline credit cards can be used anywhere the credit card network (such as Mastercard or Visa) is accepted.

Examples of Airline Credit Cards

Airline credit cards are a type of loyalty program for a particular type of airline, where you earn miles for making purchases with the card. However, there are several different kinds of airline credit cards:

•   General airline credit card: With a general airline credit card, you earn credit card points or miles for purchases, and you can redeem them for flights, upgrades, free wifi or in-flight food or beverage, and priority boarding or free checked bags. Some cards feature a sign-up promotion where you automatically get a certain number of miles or built-in travel perks.

•   Premium airline credit card: These have the upgraded version of airline card perks — think more points earned for each purchase, annual bonuses and travel credits, and access to exclusive airport lounges. As it goes, the greater the perks, the higher the annual fee. Premium airline credit cards tend to have higher annual fees than other types of airline credit cards. However, they generally aren’t quite as exclusive as, say, a black credit card.

•   Business airline credit card: This type of airline credit card is designed with the frequent business traveler in mind. Perks might include additional ways to earn higher points on business-related expenses, free upgrades to business class, a companion pass, and cards for you and your employees, which can help you earn miles more quickly.

Recommended: What Is an International Credit Card?

What to Consider Before Choosing an Airline Credit Card

The perks of an airline credit card are alluring. You’ll want to mull over these factors when shopping around for an airline credit card:

•   Fees: The more robust and attractive the perks, the higher the annual fee for a card likely is. That being said, there are a number of no annual fee credit cards in the airline credit card category that still offer perks.

•   Sign-up bonuses: Some cards will offer a sign-up bonus, such as a number of points for simply opening an account, or for spending a certain amount within a specified time frame.

•   Rewards: As you research cards, look at how you earn rewards as well as how many points you can earn for certain types of purchases. Also consider what types of rewards you’ll earn and if that’s a good fit for your spending. For instance, some people may prefer credit card miles vs. cash back.

Airline Credit Cards vs Travel Rewards Credit Cards

They might sound strikingly similar, and while airline and travel rewards credit cards both allow you to rack up credit card miles or points in return for rewards, an airline credit card is specific to an airline. In turn, you can only enjoy, say, free checked bags or flights with that specific airline.

Travel rewards cards, on the other hand, are broader in how you can redeem benefits earned. You typically use these more general rewards credit cards for any airline, hotels, and rental cars.

Both airline credit cards and travel rewards cards can come with added perks, such as credit card travel insurance. Additionally, both allow you to use them for any type of purchase. They also might feature no foreign transaction fees.

When to Consider a General Purpose Travel Credit Card

A general travel credit card could be a good idea if you travel enough to make the most of the offered travel-related perks and rewards. It can also be a stronger choice than an airline credit card if you aren’t loyal to any particular airline carrier or you don’t have a preference.

As usual, you’ll want to review the rewards program in addition to the perks, fees, rates, and restrictions on a card before making a decision.

Benefits of Airline Credit Cards

Unsure what the upsides are of an airline credit card? Here’s a look at the main benefits of having one:

•   Travel perks: If you hop on planes quite often, you can take advantage of an airline credit card’s rewards program. In turn, you might scoop up free flights, priority boarding, free checked bags, access to airport lounges, travel protection, and upgrades.

•   Discounts on the flight: Common in-flight discounts include money saved on wifi, meals and drinks, and on entertainment.

•   Sign-up bonuses: Some airline credit cards offer a generous sign-up bonus where you can snag points if you spend a certain amount within the first several months after opening an account. The exact terms will vary by card.

Airline Credit Card Cost

The cost of an airline credit card varies. Some have zero annual fees, while others can have an annual fee of several hundred dollars and upwards.

The annual percentage rate (APR) of an airline card also can vary. A particular credit card may advertise an APR range, though your rate will depend on your credit and financial situation.

Is an Airline Credit Card Right for You?

An airline credit card could be a good fit for you if you are a frequent flyer and love traveling on a particular airline. It’s important to carefully look over the perks, sign-up bonuses, and fees before moving forward with any particular airline credit card.

The Takeaway

An airline credit card could be a solid choice if you travel frequently and prefer to fly on one airline. Benefits can include travel perks, discounts, and sign-up bonuses, with rewards earned in the form of credit card points or miles. Before deciding if an airline credit card is a good idea, carefully research the perks and rewards and compare those against the fees, interest rates, and benefits of other credit cards, whether a travel card or a traditional 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

Is an airline credit card worth it?

An airline credit card could be worth it if you are a frequent flyer and like to travel on a particular airline. However, it might not be worth it if you won’t end up using the rewards often enough to justify any annual fees on the card.

What are the benefits of booking a flight with an airline credit card?

Perks of booking a flight with an airline credit card might include free checked bags, bonus offers on miles, priority boarding, and lounge access, among others. The perks vary depending on the card.

Do you lose airline miles if you cancel a credit card?

Typically not. Points or miles earned on an airline credit card usually will be transferred to the specific airline’s loyalty program account shortly after you cancel and close out your account.

Must airline credit card rewards be used all at once?

Usually, you can use your rewards points or miles at your leisure and discretion. You do not have to use them in one fell swoop. However, points on an airline credit card might expire after a period of inactivity.

Photo credit: iStock/Choreograph

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.

This content is provided for informational and educational purposes only and should not be construed as financial 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.

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An amortizing loan requires monthly payments that go toward the principal and interest for a set period of time. In the early years, payments go mostly toward the loan interest.

Amortizing loans are common in personal finance. If you have a home loan, auto loan, personal loan, or student loan, you likely have an amortizing loan.

Understanding how your amortizing loan works could be helpful if you’re thinking of refinancing, selling a car or house early, or getting rid of mortgage insurance. In this article, we’ll cover what is an amortizing loan, how does a fully amortizing loan work, and types of amortizing loans. We’ll also explain amortization schedules and calculators.

What Is an Amortizing Loan?

An amortizing loan is one in which the borrower makes monthly payments, usually equal, toward the loan principal (amount borrowed) and interest (the financing charge).

An amortization schedule shows borrowers how their payments are spread out over the full term of the loan. This mortgage calculator shows amortization over time for any given home mortgage loan value. (Move your cursor over it to see the breakdown of principal, interest, and remaining loan balance over time.)

Typically, early payments are largely directed at the interest, and later payments go toward the principal. Borrowers who make additional payments on the principal, especially early in the loan, can shave time off their repayment schedule and save on total interest paid.

Recommended: How to Pay Off a 30-Year Mortgage in 15 Years

How Does a Fully Amortizing Loan Work?

Borrowers who make payments on a fully amortizing loan consistently and on time can expect their loan to be paid off in the number of months or years originally discussed when taking out the loan.

Mortgage servicers use a complicated calculation to determine how much interest and principal you will pay at each stage of the loan in order to fully pay it off as scheduled.

While it’s not important for borrowers to understand the intricacies of the math, it is important to know that early payments largely cover the calculated interest and that payments closer to the end of the loan term will go more toward the principal.

Most lenders will provide an amortization schedule so you can track how the ratio of interest to principal changes over time.

Types of Amortizing Loans

Installment loans are typically considered amortizing loans. If you make a monthly installment payment to pay down a fixed amount of debt by a certain time period, you likely have an amortizing loan.

Mortgages

Most home loans — fixed-rate or adjustable-rate mortgages — are fully amortizing loans.

If you have a fixed-rate mortgage, you will make fixed monthly payments, whose principal and interest composition will change over the life of the loan. (Note that payments can fluctuate slightly based on homeowners insurance, changing property taxes, and the presence of mortgage insurance.)

With an adjustable-rate mortgage (ARM), you don’t have a complete amortization schedule to review upfront. Principal and interest amounts change at the end of the loan’s fixed-rate introductory period and every time the rate adjusts — once a year in the case of a 5/1 ARM. But the monthly payments are calculated to pay off the loan at the end of the term, which is usually 30 years.

Non-amortizing mortgages include interest-only loans and balloon mortgages: The principal does not get paid until the loan is due. Most lenders don’t offer non-amortizing mortgages.

Recommended: Guide to the Mortgage Loan Process

Auto Loans

A car loan is another type of amortizing loan. Terms are shorter than those of mortgages (which are commonly 30-year loans). With a mortgage, the loan is backed by the house; with an auto loan, the car that you are financing acts as the collateral.

Personal Loans

Borrowers take out personal loans for a variety of reasons: debt consolidation, emergency payments, or home improvements.

And for some, a dream wedding or vacation.

Because these are installment loans, they are considered amortizing loans.

Student Loans

Because student loans are not revolving — you borrowed a lump sum that you’re now making regular payments on — student loans are installment loans, and amortizing loans.

How does student loan amortization work? As with mortgages and auto loans, student borrowers pay more in interest at the start of the loan repayment term; in fact, some borrowers are only paying interest when they start repayment. Over the life of the loan, the balance will shift, and borrowers’ payments will largely be directed to the outstanding principal balance.

What Is an Amortization Schedule?

Lenders may provide borrowers with an amortization schedule, often in the closing paperwork for a house or car but also usually online in the loan account platform. The schedule, displayed as a table, demonstrates how your monthly payments are split between interest and principal over the life of your loan.

An amortization schedule typically shows you:

•   Month: Each month over the life of a loan appears as a table row. A 30-year mortgage will have 360 rows. These tables can get long!

•   Payment details: You’ll typically see how much your monthly payment is, but more specifically, the interest payment and the principal payment. This helps you to track how each changes over time.

•   Balance: This column shows what your remaining balance will look like after each monthly payment.

Your amortization schedule will include information about the amount borrowed, the terms of the loan, and the interest rate.

Your lender may also provide a helpful column that demonstrates how additional payments on your principal balance can affect your remaining payments.

Recommended: Historical 30-Year Fixed-Rate Mortgage Trends

How to Use an Amortization Calculator

Because amortization calculations can be difficult to understand, you may find it helpful to use an online amortization calculator, especially for a home or auto loan. Such calculators can help you visualize:

•   How much money you’ll spend in interest over the life of a loan

•   When you’ll hit important milestones, like 20% paid off for a home loan (that’s when you can typically ask to drop private mortgage insurance)

•   How different interest rates and loan terms can affect your payments (important if considering a refinance or a cash-out refinance)

•   How additional principal-only payments can affect your loan

What You Need to Know About Your Amortizing Loan

Since amortizing loans usually require fixed monthly payments over the life of the loan, you may feel like it’s something you don’t need to think about. You can simply put the loan on autopay for years and never give it a second thought. But there are several reasons you might want to think twice about your amortizing loan:

Refinancing

If you’re looking for a faster payoff or better interest rate, you may want to refinance your mortgage, auto loan, or student loans. Comparing your current amortization schedule with a proposed schedule with your new rate and terms can help you see if refinancing will actually save you money in the long run.

Short-Term Purchases

If you’re planning to buy a home but know you won’t live in it for long, it’s a good idea to review an amortization schedule (even if it’s an online estimate!) before making an offer.

Since you pay significantly more toward interest than principal at the beginning of most long-term loans, you won’t immediately build significant equity — and if you sell just a couple of years later, you may owe more than you make from the sale.

Recommended: How Rising Inflation Affects Mortgage Interest Rates

Mortgage Insurance

Borrowers usually must purchase private mortgage insurance (PMI) if they do not put 20% down on a conventional loan. Once you have reached 20% equity, you can ask to have the mortgage insurance removed, reducing your monthly payment. (PMI is typically terminated automatically when a borrower has gained 22% equity — when they reach a 78% loan-to-value ratio — and payments are current, or when the loan term has hit its midpoint.)

By using an amortization schedule, you can track when you’ll hit 20%. You may even want to make additional principal payments to reach that date earlier, thus saving you money over the life of the loan.

The Takeaway

With an amortizing loan, borrowers make regular payments consisting of principal and interest over a set number of years. In the early years, borrowers pay more toward the interest, but the balance shifts toward the principal over time. Home loans are amortizing, so it’s important to understand the payments and secure the best possible rate before signing on to your mortgage.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

What is amortization in a loan?

Amortization refers to a loan with regular monthly payments over the duration of that loan. Typically, the vast majority of initial payments goes toward the interest of the loan, with a small amount (if any) going toward the principal balance. Over time, payments are more significantly directed toward the principal balance.

What are amortized loan examples?

Amortized loans are common in everyday life. Examples of fully amortizing loans are mortgages, auto loans, personal loans, and student loans.

Can you pay off an amortized loan early?

You can pay off an amortized loan early. For a mortgage, it may be possible to schedule automatic principal-only payments in your lender’s platform; you may also be able to make manual one-time principal-only payments or request a full payoff quote. With shorter-term loans, like personal loans and auto loans, it is possible to pay off the loan early to save money on interest — but it might be better for your credit score to keep the loans open.

Photo credit: iStock/nd3000

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