SoFi

A prepaid credit card is a type of credit card onto which you load money in advance. You can use the card to make purchases online or at brick-and-mortar stores or to withdraw money at ATMs.

While they have “credit card” in the name, prepaid credit cards are actually quite different from a standard credit card. Here’s a closer look at what a prepaid credit card is, the different types of prepaid cards, and the pros and cons of having one.

What Is a Prepaid Credit Card?

As mentioned before, a prepaid card is a card on which you load money ahead of time, similarly to how you would with a gift card. Some of the same credit card issuers that offer traditional credit cards may offer prepaid credit cards.
The amount you load onto the prepaid card is the maximum amount you can spend on the card, similar to a credit limit. For instance, if you load $200 onto the card, you can spend up to $200.

You can use the card to make purchases or withdrawals from an ATM. Prepaid cards might also be used for government benefits or for payroll.

Many prepaid credit cards are also called prepaid debit cards or stored-value cards. While they may look just like a credit card and bear the logo of a major credit card company like Visa or Mastercard, they’re not actually credit cards.

Because you’re not borrowing from a line of credit, you won’t have to worry about accruing debt, making a minimum payment by a due date, or owing interest. Your activity also will not be reported to the credit bureaus, meaning it won’t affect your credit score or history.

Recommended: What Is a Charge Card

Types of Prepaid Credit Cards

There are two main types of prepaid credit cards: open-loop and closed-loop. Here’s how they differ.

Open-Loop

An open-loop prepaid credit card can be used anywhere that accepts the credit card network that the card is within. For instance, if your open-loop prepaid credit card has a Visa logo, then your prepaid card will be accepted at any merchant, location, or ATM where Visa cards are accepted.

Closed-Loop

Also known as a single-purpose card, a closed-loop prepaid credit card can only be used to make purchases from a single retailer or a group of stores. For instance, you may only be able to use the card when you shop at a particular grocery store chain. Closed-loop prepaid credit cards usually don’t have a credit card network logo on them.

How Does a Prepaid Credit Card Work?

You can use a prepaid credit card to make purchases and take out money at ATMs, just as you can get cash from a credit card. Each transaction you make using the prepaid card will reduce the total balance you have available. So, for instance, let’s say you loaded a total of $500 onto your card. Then, you make a purchase for $150. You would have $350 remaining to spend with your card.

Though it depends on the prepaid credit card, you may be able to reload additional funds onto your card. You can do so by depositing money from a bank account or paycheck, reloading the card at a retail location using cash, or buying a reload pack to add a certain amount to your card.

Advantages of a Prepaid Credit Card

Let’s look at some of the benefits and risks of prepaid debit cards, another common name for prepaid credit cards. Here are some of the upsides to weigh if you’re considering getting one.

Doesn’t Require a Credit Check

A credit check isn’t required to open a prepaid card. As such, it may be an option available to those with lower credit scores or a thin credit history. Further, getting a prepaid credit card won’t require a hard credit inquiry, which can ding your credit.

Provides a Safe Alternative to Cash

A prepaid credit card is a safe, easy alternative to using cash. Depending on the network, a prepaid card might come with liability protections similar to those offered by debit cards.

Doesn’t Necessitate a Bank Account

You won’t need a bank account in order to get or use a prepaid debit card. Unlike debit cards, prepaid credit cards don’t require you to draw funds from a bank account, though if you do have one, you have the option to deposit money from your checking or savings account.

Won’t Cause You To Go Into Debt

Since you’re using money that’s already been uploaded to the card, you won’t have to worry about running a balance on your credit card. Further, you won’t have to worry about making payment due dates, one of the cardinal credit card rules, or the possibility of incurring interest if you can’t pay off your balance in full.

Recommended: When Are Credit Card Payments Due

Disadvantages of a Prepaid Credit Card

While there are a number of positives to prepaid debit cards, there are disadvantages worth considering as well.

Can Carry High Fees

Fees are probably the biggest drawback of a prepaid credit card. Many prepaid credit cards come loaded with fees, which can include the following:

•   Activation fees

•   Monthly maintenance fees, often around $10

•   Reloading or card replacement fees

•   Purchase fees

•   ATM fees for transactions or balance inquiries

•   Check deposit fees

•   Declined transaction fees

•   Inactivity fees

•   Foreign transactions fees

•   Customer service inquiry fees

Just as you would consider how much a credit card costs before applying for you, do the same due diligence on prepaid card fees before getting one.

Does Not Boost Your Credit Score

Prepaid credit cards aren’t actually credit cards, which offer a revolving line of credit. Because they aren’t a form of credit, your activity is not reported to the credit bureaus. In turn, they aren’t a way to build your credit.

Offers Fewer Fraud and Liability Protections

While prepaid credit cards might come with some fraud and liability protections, they typically don’t have the full suite of protections that standard credit cards offer. Instead, their protections, if offered, may be more akin to those offered by debit cards, which are generally weaker than those of credit cards.

Recommended: How to Avoid Interest On a Credit Card

Alternatives to Prepaid Credit Cards

Besides prepaid credit cards, here are a few other options you might consider:

•   Gift cards: A gift card can be used at particular merchants or retailers. There are also gift cards offered by credit card networks, such as Visa or Mastercard, that you can use anywhere these networks are accepted. Like a prepaid credit card, you don’t need a bank account to get a gift card, though using one won’t help you boost your credit. Unlike prepaid credit cards, gift cards don’t typically carry any fees aside from potentially a one-time activation fee.

•   Debit cards: Another option you might consider is a debit card. These do typically require a bank account, however. Like a prepaid card, you’re only using the funds available in the account connected to the card. As such, getting a debit card does not involve a credit check nor will you have to pay interest since you’re not borrowing funds. There may be fees involved though.

•   Secured credit cards: If you have a low credit score or a thin credit profile, a secured credit card — one of the different types of credit cards available — can help boost your credit if you’re using the credit card responsibly. Secured credit cards require a deposit, and the deposit amount is usually the same as the card’s credit limit. Secured credit cards usually have lower fees than prepaid cards, but they do have interest fees. Plus, a credit check is required.

The Takeaway

Contrary to its name, a prepaid credit card isn’t actually a credit card. You aren’t accessing a line of credit with a prepaid card, and you can’t build credit. Instead, you load cash onto the prepaid card, which effectively acts as your credit limit. You can then use the funds to make purchases or withdraw money from an ATM.

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 prepaid cards require monthly payments?

Prepaid cards can have a monthly maintenance fee. The amount of this fee varies, typically ranging from $10 to $15 a month. The money is drawn from the existing balance on your card.

Do prepaid cards cost money?

Prepaid cards usually do have fees. This may include an activation fee, ATM fees, reload fees, and foreign transaction fees, among others. Before getting a prepaid credit card, make sure to check what fees are involved.

Is an account needed for a prepaid credit card?

A bank account is not required for a prepaid credit card.

Do prepaid cards help build your credit?

Prepaid credit cards do not help you to build credit. That’s because they’re not actually credit cards and don’t offer a revolving credit line. In turn, your payment history isn’t reported to the three credit bureaus.

Photo credit: iStock/towfiqu ahamed

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

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

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

SOCC-Q224-1909454-V1

In most cases, it isn’t possible to overdraft a credit card, or spend above your credit limit. If you opt in to over-the-limit charges, it may be possible to exceed your limit. However, “overdraft” usually refers to overdrawing a bank account, not a credit card.

It’s more likely that your purchase will be denied rather than your account “overdrawn.” If the charge does go over the limit, you might get hit with additional fees, and your credit could suffer as a result.

What Does It Mean to Overdraft a Credit Card?

Each time you use your credit card, your balance increases, which is part of how credit cards work. If you aren’t making payments against that balance, it will move closer and closer to your credit limit. Eventually, your balance could get high enough that you run up against that limit.

Usually, though, you won’t be able to go beyond your credit card spending limit. Instead, your card will be declined if you attempt to make a purchase that would put you over the limit. This is the result of the CARD Act of 2009.

Since the CARD Act, you can’t go over your card’s limit unless you specifically opt in to allow overages. In that case, it may be possible to go beyond your credit card’s limit.

The average credit card limit is the U.S. is currently approximately $29,855.

Recommended: When Are Credit Card Payments Due?

What Happens If You Overdraft Your Credit Card

What happens when you try to overdraft your credit card depends on whether you have opted in to over-limit charges. If you haven’t, your card will likely be declined; otherwise, you could incur fees and a hit to your credit.

Declined Transactions

By default, most credit cards today should not allow you to go over your credit limit. Instead, your card will probably be declined.

For example, imagine you have a credit limit of $5,000 with a current balance of $4,800. If you try to spend $250, in most cases it will not result in a $5,050 balance on your card. Because your limit is $5,000, your card will probably be declined when you attempt to complete the transaction for the $250 purchase.

Over-Limit Fees

Since the CARD Act of 2009, you can’t be charged over-limit fees unless you opt in to them. In that case, you will be charged an over-the-limit fee that is usually up to $35. However, the fee is limited to the amount you exceed your limit. For example, if you go $15 over your credit limit, the over-limit fee can’t be more than $15.

The CARD Act also says that banks must disclose over-limit fees in your credit card contract. If for some reason you have opted into over-limit fees, you should be able to opt out of these fees at any time.

Impact on Credit Score

If you go over the limit for your credit card, your credit score might take a hit. While there’s no magic number for credit utilization, the rule of thumb is usually that you should limit your utilization to 30%. Many financial experts suggest keeping it closer to 10%.

Your utilization is your outstanding balances divided by your credit limit. Because your balance for the credit card in question is greater than the limit, your ratio would exceed 100%. That might negatively impact your credit score until you lower the ratio.

One thing to keep in mind is that credit utilization is calculated using all of your outstanding credit. In other words, if you have five different credit cards, your utilization takes all of their balances and credit limits into account. If you have many credit cards and most of them have no balances, going over the limit on one credit card won’t necessarily hurt your credit score significantly.

Either way, it’s best to avoid this situation due to the over-limit fees. This is also why it’s important to discuss spending habits with any authorized users on a credit card to avoid hitting your limit.

Recommended: Pros & Cons of Charge Cards

How to Avoid Overdrafting Your Credit Card

If you go over the limit on your credit card, there are several steps you can take to rectify the situation.

Make Additional Repayments

One of the most important credit card rules is that you should pay more than the minimum amount due each month. Indeed, paying more than you normally pay might be a good idea, especially if the credit card that’s over its limit is a significant part of your total credit picture.

Perhaps you have a minimum payment of $40, and you might normally pay that amount each month. In that case, consider upping your payment to $50 instead. Anything you can pay above the minimum will help you reduce your credit utilization; the more you can pay, the better.

This can also help you from falling into credit card debt, which can be a hard situation to get out of.

Request a Credit Limit Increase

Another way to reduce your credit utilization is to request a credit limit increase. For instance, if you have a total credit balance of $5,000 and a total credit limit of $10,000, your utilization is 50%. If you currently have a credit card you don’t use often with a limit of $3,000 and no balance, your utilization there is 0%. Your total credit utilization is therefore $5,000 out of $13,000, or 38.5%.

You could request an increase to that unused card’s limit to $5,000. In this case, your total credit limit becomes $15,000, and $5,000 out of the new combined $15,000 limit brings your utilization down to 30%. Hence, even if your balances stay the same, your credit utilization ratio will drop.

Contact Your Provider

Sometimes, credit card issuers will increase your credit limit automatically, such as you if you’ve used your credit card responsibly over time. If not, you can call your card issuer and ask them to increase your credit limit. Usually, it’s best to do this after you’ve had the card for at least a few months.

When you make the request, the credit card issuer may review one or more of your credit reports. Keep in mind that this could result in a hard inquiry into your credit history; these checks cause a temporary dip in your credit score. The card issuer may also request proof of income, employment status, or monthly rent or mortgage payments.

Recommended: Tips for Using a Credit Card Responsibly

The Takeaway

It usually isn’t possible to overdraft a credit card. Your card is typically declined if you try to charge above your credit limit. You may be able to go over the credit limit, but only if you opt in to over-limit fees. If you do opt in, your credit could take a hit, and you might have to pay additional fees if you exceed your credit card’s limit.

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 cards allow overdrafts?

Credit cards usually do not allow overdrafts. In fact, “overdraft” is usually a banking term that refers to your checking or savings account balance dropping below $0. With credit cards, it may be possible to go over the limit if you opt in to over-limit fees.

Can you overdraft with no money on your card?

With credit cards, your balance increases as you make purchases. Hence, in this scenario, it would only be possible to overdraft a credit card if a single purchase would put you over the limit. And even then, you must have opted in to over-limit charges; otherwise, the transaction will simply be declined.

Can you overdraft a credit card at an ATM?

In most cases, you won’t overdraft a credit card at an ATM. You might be able to overdraft when requesting a cash advance, but even then, it may not be possible unless you have opted in to overdraft protection.

How can you ask for a credit limit increase?

Sometimes, credit card companies will increase your limit automatically. If that doesn’t happen and you want an increase, you can call your credit card issuer directly and ask for an increase.

Photo credit: iStock/AsiaVision

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

SOCC-Q224-1905540-V1

A lifeline checking account is a basic bank account that features minimal fees and other cost-cutting elements, making it more accessible to first-time bank-account holders and those at lower income levels. These accounts can be, as the name indicates, a lifeline for those who are seeking firmer financial footing.

For example, a lifeline checking account may have no monthly maintenance fees, minimum balance requirements, or minimum opening-deposit requirements. Or they may have very low fees and requirements However, there are sometimes trade-offs to these sorts of accounts.

What Is a Lifeline Account?

A lifeline checking account is a bank account designed specifically for underbanked and low-income customers that often features no account fees. These accounts typically also offer additional consumer protections such as free overdraft coverage.

Having access to a bank account is an important step toward financial wellness. Without one, safely saving significant amounts of money and paying bills can become much more difficult. Recognizing this, some jurisdictions have laws in place requiring banks to offer low-cost accounts to consumers. For example, New York passed a law in 1994 requiring banks in the state to offer lifeline checking accounts to any customers who might want them.

Furthermore, the increase in digital-first and online banks has increased the public’s access to low-cost banking products. Online banks don’t have the same kind of costly overhead as banks that operate brick-and-mortar branches. For that reason, they’re typically more easily able to offer accounts with minimal fees, which may result in more affordable, accessible banking for more customers.

Recommended: How to Avoid Monthly Account Fees

How Do Lifeline Accounts Work?

Lifeline checking accounts work a lot like any checking account does. You open the account, deposit money into it, and then use those funds to pay bills and make day-to-day purchases. You can do so by using bank transfers, a debit card, or cash you withdraw from the bank or an ATM.

There is a main difference between lifeline and other accounts. Many typical checking accounts assess monthly maintenance fees or require a certain minimum balance to be maintained. These requirements may be waived in a lifeline account (or, if they’re still in place, the dollar amounts will be low).

Of course, bank accounts with higher fee structures do sometimes come with additional benefits that may make the fees worthwhile to certain customers. For example, with a lifeline checking account, you may not be able to use paper checks — or head into a physical bank to interact with a live teller. Still, for those whose choices are limited by financial circumstances, lifeline checking accounts can be… well, a lifeline. They’re also useful for anybody who’s hoping to minimize the amount they spend on banking.

Examples of Lifeline Checking Accounts

Lifeline checking accounts, or low-cost accounts that serve as lifeline checking accounts, are offered by many different financial institutions, including big box banks, regional credit unions, and online banks.

For example, as of early June 2024, BankFinancial offered a Lifeline Checking account that features overdraft protection services, free in-network ATM transactions, and a $0 minimum daily balance requirement. It charged a $5 monthly service charge — which is still pretty minimal in the world of brick-and-mortar banks. Wells Fargo’s lowest-cost checking account also assessed a $5 monthly service fee, though this cost is waived for account-holders between ages 13 and 24. The minimum opening deposit was $25, and there was no required minimum balance.

Pros and Cons of a Lifeline Checking Account

Like any other financial product there are both pros and cons to keep in mind when you’re considering a lifeline checking account.

Pros:

•   Low costs make these accounts more accessible to a wide range of consumers

•   Lifeline checking accounts can help any money-savvy account holder save more of their money

Cons:

•   Lifeline checking accounts may come without features considered “basic” by many, such as paper checks

•   Many lifeline accounts are offered by online banks, which don’t give account holders the option to bank in person

Being able to pay lower fees and keep more of your cash is a tremendous help to those who are just starting their banking lives and trying to manage their money or individuals who are earning a lower income. Lifeline accounts can play an important role when a person has limited cash.

But only you can determine what kind of banking products are right for you. To help you decide, here’s how the benefits and downsides of lifeline accounts stack up side by side.

How Can I Qualify for a Lifeline Checking Account?

If you’re ready to open a low or no fee bank account, here’s some good news: In general, qualifying for a lifeline checking account is pretty easy. You’ll just need to provide your proof of residence and other identifying and demographic information, and provide whatever minimum opening deposit is required, if there is one.

That said, some banks will look into your banking background before allowing you to open an account. For instance, they may use ChexSystems, which is a reporting agency that consolidates information about consumers’ banking behaviors. It’s kind of like a credit report, but for your interactions with banks. A poor ChexSystems record can make it impossible to qualify even for some low-cost accounts. However, there are still second-chance checking accounts out there that can provide the banking products you need while your ChexSystem record improves.

What Can I Do If I Cannot Find a Lifeline Account?

Fortunately, with the proliferation of online banking, lifeline-like checking accounts are pretty much everywhere — it’s simple to search for them online. It’s always a good idea to verify the validity of any online bank accounts you find, however, and to ensure that the accounts are FDIC-insured. That means you don’t have to worry about losing your hard-earned money if the bank goes out of business or loses revenue.

The Takeaway

Lifeline checking accounts are low-cost accounts that make it possible for people with lower incomes or those who are new account seekers to get the checking capabilities they need. These accounts often feature no or low fees and minimal beginning balances. The downside is that they may skip some banking basics, like paper checks. Fortunately, in our increasingly online world, this isn’t a deal-breaker. It may well be a trade-off that’s worthwhile to secure the convenience of a checking account.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Are there benefits for lifeline checking accounts?

Along with their low fees, some lifeline checking accounts do come with extra benefits such as free overdraft protection or ATM fee waivers.

Can I open a checking account with no money?

Yes! Although it’s not true of all lifeline checking accounts, some come with a $0 opening deposit minimum, which means you can start the account even if you don’t have any cash on hand right now.

Which banks are best for low income?

Whether your income is low or high, looking for a minimal fee structure is the best way to save money — in banking and beyond. Typically, online banks may offer lower fees and higher interest rates than bricks-and-mortar financial institutions.

Photo credit: iStock/gorodenkoff

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

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

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

3.60% APY
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

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

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SOBK-Q224-1902600-V1

Getting a credit card refund is usually a straightforward process, whether you’re asking for one because a product is defective or you’ve simply changed your mind. When you get a refund on a credit card, you’ll receive a credit on your account for the amount you paid for returned goods that you’d charged to your card.

Although credit card refunds are routine, there are some important things to know about the process. Read on to learn more about how credit card refunds work.

What Is a Credit Card Refund?

A credit card refund is the money you get back when you return something that you’d paid for with your credit card. Rather than getting cash back for the full amount of the returned item, you’ll receive a credit to your credit card account for that amount. The process of a credit card refund is started when you go to return the item, and it can take a few days or longer to see the money credited to your account.

How Do Refunds on Credit Cards Work?

When using a credit card to make a purchase, there’s a third party involved in your transaction. The store or other merchant at which you swipe or tap your card to buy something requests their payment from the credit card issuer. When your credit card issuer pays the charge, it adds the amount of the purchase to your account balance. Then, you pay your credit card bill to pay back the credit card issuer for the purchase you made.

When you return a purchase, the merchant issues a refund to the credit card issuer, not directly to you. In turn, your credit card company posts the credit to your account. This process is why credit card refunds aren’t immediate like cash refunds.

Recommended: When Are Credit Card Payments Due

Types of Credit Card Refunds

There are two basic types of credit card refunds. It can be helpful to know the difference between the two and how a refund to a credit card works in each instance. It may not be something that you took note of when applying for a credit card.

Refund at the Point of Sale

This is when you return an item, either by going to the store in person or sending back an online purchase. The retailer then credits you for the return when the item is received.

Disputed Transaction

Disputed transactions are different from straightforward returns. With a disputed transaction, you’re making a complaint about the purchase as opposed to just making a return. For instance, you might dispute a credit card charge for an online purchase that never arrived. Or you might dispute a charge for a canceled event.

In most cases, you must file a dispute within 60 days of the transaction, providing details and perhaps documentation of the problem. From there, your credit card company has 90 days to investigate the issue and resolve the issue.

While it’s best to start with the merchant when you have an issue with the goods or services provided, you do have options if the merchant will not grant you a credit card refund. In this instance, you can request a credit card chargeback, which reverses your original charge after you have filed a claim with your credit card company.

With a chargeback, the refund process is initiated by the credit card company (often automatically once you dispute a charge), whereas with a credit card refund, the merchant initiates the process.

Recommended: What is a Charge Card

How Long Does a Credit Card Refund Typically Take?

The amount of time it takes to receive a credit card refund depends on the retailer and the type of refund you’re requesting. It typically takes about three to seven business days to see your refund from a routine return you make in person, and sometimes it’s even faster than that.

Online merchants may take a bit longer to issue a credit card refund because you need to allot time for shipping and processing the returned merchandise. As mentioned above, chargeback or disputed charge refunds can take much longer — sometimes as long as 90 days due to the time allowed to file and investigate a disputed charge.

Do Credit Card Refunds Count Toward Payments?

No, credit card refunds are not considered a payment or partial payment, and they do not automatically go toward that month’s minimum payment on your card.

Instead, you’ll see a credit in the amount of the refund in your account statement and, depending on where you are in the billing cycle, this could reduce the total amount you owe by the amount of the refund. You will still need to make your monthly minimum payment while you’re waiting for a refund credit to appear on your account. In fact, one of the cardinal credit card rules is to always make your minimum payment on time.

Keep in mind that interest will continue to accrue on your charge until the refund credit appears. Depending on how much the purchase is for and where you are in the billing cycle, this can affect your overall balance.

How Credit Card Refunds May Affect Your Credit Score

To understand how credit card refunds work when it comes to your credit score, it’s important to understand something called credit utilization ratio. This term refers to the percentage of your total credit limit that you are currently using. Credit utilization can be an important factor in calculating your credit score — the lower your credit utilization ratio, the better. Most financial experts suggest a credit utilization ratio of no more than 30%, with 10% being a good figure to aim for.

In some situations, a refund may build your credit score if the refund reduces your balance and lowers your credit utilization ratio. On the other hand, a delayed refund could lower your credit score if the amount of the purchase pushes your credit utilization higher during a certain billing period.

What to Do With a Negative Account Balance

Sometimes a refund will give you a negative balance on your credit card, meaning your available credit is more than the amount you owe on the card. This can often happen with cardholders who pay their balance in full each month.

If you have a negative balance, it’s usually not a problem. The negative balance will be applied to the next purchase you make on that card, eventually bringing your balance back to $0 or above. A negative balance will likely not affect your credit score because that’s something that credit card companies report to credit bureaus.

However, a negative balance can be problematic if you’re receiving a large refund and don’t often use that credit card. In these instances, you can ask your credit card company to issue a refund via check, money order, or direct deposit. Your credit card issuer may require this request in writing in order to issue the refund.

How Credit Card Refunds Affect Your Rewards

Any credit card rewards you earned on a purchase that was returned, such as cash back rewards or miles, will not be awarded after your refund is processed.

If you decide that it makes more sense to keep the rewards, you can ask the merchant or service to refund you in the form of a merchant credit or store credit. However, that means you will still have to pay for the purchase on your credit card.

The Takeaway

Knowing how credit card refunds work will help you manage both your budget and your credit score. Credit card refunds are usually straightforward transactions. But they can take longer than a purchase made with cash, and they can affect your credit score. Additionally, you usually won’t be able to hang onto the rewards you’d earned from the purchase you returned.

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 refunds affect your credit

Yes, refunds can affect your credit score. A refund can lower your credit utilization — or the total amount of credit you’ve used compared to your overall credit limit. Credit utilization is something credit rating agencies look at closely when determining your credit score. A delayed refund could hurt your credit score because if the charge stays on your account for a while, it may increase your credit utilization ratio, thus negatively impacting your store. On the other hand, when you receive a refund, that may lower your credit utilization, helping to build your credit score.

Do credit card refunds affect the rewards earned from a refunded purchase?

In most cases, you will not receive the rewards that you may have earned from a purchase you’ve returned. You may want to consider getting a store credit for your refund if you want to keep your rewards, but you will then have to pay for the full amount of the purchase on your credit card.

What happens if I have a negative balance after a credit card refund?

Sometimes you’ll get a refund credit, and it will exceed the balance you have on your card. This is usually not an issue, as the amount of the credit will be applied to the next purchase you make on the card. If the refund is quite large and you don’t use the card often, you may want to ask your credit card issuer for a refund via check or direct deposit.

Photo credit: iStock/Amax Photo

SOCC-Q224-1905518-V1

The rule of thumb has been that your rent should account for no more than 30% of your gross income, but that percentage isn’t right for everyone. Figuring out your “magic number” can require a little thought.

Individual circumstances matter: Maybe you have a heavy monthly student loan payment while your best friend has none. That means they can likely afford a higher rent than you can at the moment. Also, economic and social forces are shaping how big a bite rent takes out of a paycheck. According to the most recent U.S. Census Bureau data, almost one-third of Americans are spending more than 30% of their income on housing costs, an increase of almost 5 million households vs. three years earlier. That 30% just may not be realistic anymore.

Keep reading for detailed information on how much to spend on rent and how to budget for it.

How Much You Should Spend Depends on Your Situation

Whether you rent or own, housing is typically the largest expense the average U.S. consumer must pay for every month.

Determining how much you can afford is really a matter of monthly budgeting and striking a balance. You can look at your take-home pay and then consider how much you are spending on all of your monthly expenses.

You’ll want to account for the necessities, like housing, utilities, health care, debt payments, food, and clothing, as well as some discretionary expenses, such as entertainment and travel. Ideally, you will also be saving and have some wiggle room when paying your bills to cover unexpected expenses that can crop up.

As noted above, each person’s situation will be unique. One person might have a high salary but steep debt payments (student and car loans and a credit card balance to contend with). Another might earn less but be debt-free and therefore able to allocate more toward rent.

Where and how you live also makes a difference. In America’s biggest cities, it’s common for renters to pay a larger share of their income for housing. For example, one recent Moody’s Analytics report found that 57% of those in the New York metro area pay more than 30% of their income toward rent and 36.6% of those in Miami are in the same (very pricey) boat. When compared to the person who lives in, say, a small city in the Midwest or South, there’s likely a major price gap.

💡 Quick Tip: Did you know online banking can help you get paid sooner? Feel the magic of payday up to two days earlier when you set up direct deposit with SoFi.

Figuring Out How Much You Should Spend on Rent

There are several ways to come up with solid guidelines for how much to pay in rent based on your particular situation.

Use a Budgeting Rule

You’ve already learned about the rule of thumb — one that’s been around for decades — which puts the ideal housing costs at 30% of your after-tax income, no matter how much you earn.

That rather broad guideline dates back to the Brooke Amendment, which capped public housing rents at 25% of an individual’s income in 1969. Congress raised the cap to 30% in 1981, and eventually it became the go-to guide for determining “cost burden” — the amount of income a family could spend and still have enough left for other expenses — even those who aren’t in low-income households.

Another perhaps more useful approach is the 50/30/20 budget method, which was made popular by Sen. Elizabeth Warren’s book All Your Worth: The Ultimate Lifetime Money Plan.

The 50/30/20 budgeting method suggests dividing your after-tax income into three main categories, putting 50% toward needs (essential costs like housing, transportation, groceries, utilities, etc.), 30% toward wants, and 20% toward savings.

Following those guidelines, your rent would qualify as a need. But it remains up to you to decide how much of that 50% you want to — or feel you have to — spend on housing. If you live in a major city or tech hub, your rent may be high enough that you have to make adjustments to other essentials in your budget and/or borrow from other categories (say, cutting back on those wants, such as dinners out).

Factor in Costs

Another way to look at your rent budget is to remember that your housing costs are more than just your monthly payment to the landlord. If you only do your financial projections using that single expense, you could wind up with a too tight budget.

It can be valuable to consider all the facets of your rent: There may be a security deposit, moving costs if you are heading to a new place, utilities like electricity and wifi, as well as the cost of furniture if you are a first-time renter. Remember to add in any parking costs related to a rental, as well as renter’s insurance.

Develop a budget that acknowledges these expenses. Will you have to dip into savings for that security deposit? Will some expenses have to go on your credit card? Making these calculations can give you a better bead on your housing costs and may lead you to a new and improved budget.

Look at Other Ways to Save

There are other moves you can make to free up funds for rent if your monthly costs are running high. A few ideas:

•   Consider getting a roommate. That can cut your housing costs dramatically and can be a good option if you feel you are living paycheck to paycheck.

•   Look for less expensive locations. These may just be a few blocks or a zip code away from your ideal area, but they can make a major difference in your cost of living. For instance, if you can live 20 minutes further away from your workplace, you might reap significant savings on your rent.

•   Check with providers about monthly charges and interest rates. Sometimes, you may get lucky and find that your wireless provider can lower your bill or your credit card can take your annual percentage rate, or APR, down a notch.

•   Look for other ways to economize on non-rent expenses. Join a warehouse club and split the bounty with a friend or two to save on food costs. Minimize the number of streaming services you have. Cut back on rideshares and take public transportation; check out free music and other cultural offerings in your town.

💡 Quick Tip: When you feel the urge to buy something that isn’t in your budget, try the 30-day rule. Make a note of the item in your calendar for 30 days into the future. When the date rolls around, there’s a good chance the “gotta have it” feeling will have subsided.

The Takeaway

One common guideline says that 30% of your income (before taxes) can be allotted to rent. But everyone’s financial situation is different. Some people live in cities that are pricey; other people have student and car loans that must be paid. By using budget guidelines, you can determine the right figure for your circumstances.

Having the right banking partner may also help you budget better.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Is 30% on rent unrealistic? Is it too much?

Spending 30% of your gross income is a popular guideline, but only you can determine if it works for you. For some people, 30% will be too much, given their other expenses. For others, such as those in major cities, 30% may be a desirably low number.

How much of my salary should I spend on rent?

The usual guideline is to spend no more than 30% of your pretax salary on rent, but some people may find that they must spend more than that. Currently, about one third of all renters spend more than that figure.

Am I overspending on rent?

Some ways to tell that you are overspending on rent would be if you are living paycheck to paycheck, if you are not able to pay down your debts, and if you are not able to save money. If you are in this situation, it can be wise to take a holistic look at your budget, including rent, and see where you can find a better balance, which might include lowering your rent.

Photo credit: iStock/Jacob Wackerhausen

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

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

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

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
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.

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

SOBK-Q224-1890311-V1