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Despite the saying, “cash is king,” there are pros and cons to using cash over credit cards in everyday transactions. Likewise, credit cards have their own share of advantages and disadvantages when it comes to making purchases.

Here’s what you need to consider when choosing cash vs. credit cards, and when you might opt for using one method of payment over the other.

Defining Cash and Credit Cards

Cash is the legal tender — whether coins, paper bills, or other notes — that you can exchange for goods and services. According to Merriam-Webster dictionary, cash is considered “ready money.” Translation: You actually own the value of the cash and can use it immediately during a transaction.

Credit cards, on the other hand, can also be used to purchase goods and services. However, you’re borrowing the funds from a third party (i.e. a bank) to make your purchase today with the promise that you’ll pay the credit card balance back later.

When to Consider Using Cash

Deciding whether to use cash vs. credit depends on your purchasing situation and preferences. Situations when paying with cash is preferred might include:

•  Buying goods or services from merchants who only accept cash

•  When your credit or income doesn’t qualify for a credit card

•  Limiting your spending to a specific amount

•  Keeping your personal information private during a transaction

•  Avoiding credit card-related fees

•  Avoiding credit card debt

You can also use cash to grow your money through an interest-bearing deposit account, instead of spending it. If you’d like to build your savings fund, you can only do so using cash.

Recommended: How to Avoid Interest on a Credit Card

Benefits of Using Cash

Here are some benefits of using a credit card:

•  Since cash represents the monetary value you actually have, it makes budgeting simple. If you have $100 in cash to spend for the weekend, for instance, you’re focused on making careful decisions about how you spend that finite cash amount. After you’ve depleted your cash, you can’t make additional purchases until you have more cash.

•  Cash provides some convenience despite its additional physical bulkiness in your wallet. 

•  For merchants, the benefit of cash vs. credit cards is that they save money on credit card processing fees. To avoid this, some merchants only accept cash payments, while others offer a small discount as an incentive for customers to pay using cash.

•  Cash can also be used widely by any consumer, regardless of their credit score. This makes cash a more accessible payment method for everyday purchases. 

•  Cash also doesn’t contain any of your personal data, so if a private purchase is important to you, cash is beneficial.

Recommended: When Are Credit Card Payments Due?

Drawbacks of Using Cash

Here, some downsides of using cash:

•  The biggest drawback to using cash vs. credit, however, is that it caps your buying power to only the amount of cash you have. Although this can be a benefit, as mentioned above, when you’re on a budget, it can restrict your ability to make larger purchases today.

For example, if your car unexpectedly needs a repair that costs $800 but you only have $500 in cash to pay upfront, you’ll have to make a tough decision. You might be forced to shop around for a cheaper car repair shop, spend time negotiating a lower price with the current mechanic, or possibly wait to complete the repair until you have the additional funds necessary. All of this can cost you extra time and can possibly impact your earnings if you rely on your car to drive to work.

•  Physical cash is harder to trace between transactions. Your personal information isn’t tied to cash bills in your pocket. This means that if you lose it or it gets stolen and it’s used by someone else, it’s harder to get back.

When You Might Consider Using a Credit Card

There are many use cases for credit cards, if you qualify for one. Some situations when a credit card might make sense include:

•  Making a larger purchase now and paying it off later

•  Breaking down a large purchase into smaller installment payments

•  Earning points, miles, or cash back on purchases using a rewards credit card

•  Unlocking additional purchase protections

•  Building your credit profile

Recommended: What Is a Credit Card Advance?

Benefits of Using a Credit Card

Using a credit card as a payment method for daily transactions offers various benefits when managed responsibly. 

•  If you don’t have enough cash for a purchase, a credit card lets you buy it now and pay it back the following month.

•  You can also choose to take out a credit card cash advance (though typically at a higher APR,or annual percentage rate, than your standard purchase APR), or even send money with a credit card.

•  With a credit card, you get to choose how you’ll repay your purchases, whether in full when your billing statement is due, or incrementally over multiple months. The caveat is that letting a balance roll over to the next month incurs interest charges.

•  Since all credit card activity is reported to the credit bureaus, on-time payments and other factors can be favorable to building your credit history and credit score. A high credit score can help you qualify for competitive interest rates and terms on other consumer credit products, like other credit cards and loans.

•  Credit cards also offer benefits and rewards that cash doesn’t provide. Rewards credit cards let you earn points or miles that you can then redeem for travel, cash back, gift cards, merchandise, special experiences, and more.

Different credit cards can also offer benefits like travel cancellation protection, warranty insurance, and more. For example, some cards feature purchase protection, which replaces an item that was lost, stolen, or damaged if it was purchased using the card.

•  Using a credit card limits your liability when unauthorized or fraudulent purchases or activity occurs on your account. Depending on when you report the unusual activity, you might only be liable for up to $50 of those charges. Some credit cards even have zero-liability policies.

Recommended: What Is a Charge Card?

Drawbacks of Using a Credit Card

Here are some downsides to using a credit card:

•  Interest charges, expressed as an APR, are one of the biggest disadvantages to using credit vs. cash. With how credit card payments work, unless you make full, on-time credit card payments each month, interest charges will likely apply to balances that roll over from one month to the next.

If you roll over a balance, you’ll not only pay more money toward your purchases, but your outstanding debt can snowball quickly. This can prove financially damaging to your everyday finances and to your credit if you fall behind on payments while amassing growing debt.

•  Certain credit cards also incur annual fees for the privilege of using them. This is money that you’ll pay out-of-pocket upfront. You can also incur other fees, such as foreign transaction fees, late payment fees, balance transfer fees, and more.

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

Is Using a Debit Card the Same Thing as Using Cash?

Using a debit card is similar to using cash. In fact, one of the biggest differences between a credit card and debit card is that debit cards draw funds from the cash that you already have in your personal checking or savings account. Still, a debit card provides the convenience of swiping or tapping a card on a payment processing machine, like a credit card, to process a digital transaction between your bank and the merchant’s bank.

However, debit cards carry many of the same disadvantages as cash. For one, a debit card limits your purchasing power to the amount that’s in your checking or savings account. Additionally, debit cards don’t offer the same level of protection against unauthorized or fraudulent activity as credit cards do.

Recommended: What Is the Average Credit Card Limit?

Understanding Your Spending Habits Is Key to Picking Which to Use

Taking stock of your buying habits can help you decide whether cash vs. credit is a better option for you. When considering these two payment options, think about the following:

•  How much do you spend each month?

•  How much discretionary income do you have?

•  Where do you typically make purchases — online or in a brick-and-mortar store?

•  Do you tend to overspend or stay within a budget that you can afford?

•  If you’re thinking about a credit card, what’s your goal?

By answering these questions, you will likely be able to tell which payment method will be more convenient for you. For instance, if you’re trying to curb your spending, then cash might be the better bet, given how credit cards work. On the other hand, if you’re primarily an online shopper or you’re trying to build your credit history, a credit card could be worth exploring.

The Takeaway

Cash can help you contain your spending to the money you actually own. This can potentially limit the amount of debt you’d take on through credit. It can also offer convenience when it comes to shopping through cash-only merchants. The caveat is the risk you’re taking on if the cash is lost or stolen since it can be difficult to get back.

Credit cards can offer greater protection against unauthorized activity, and they can enhance your spending power. However, access to borrowed funds could get you deeper into debt if you’re unable to repay your balance on time each month. With responsible borrowing habits, however, credit cards can be a handy way to make purchases and may offer rewards, like cash back.

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

Which is better when traveling, cash or credit?

When traveling, credit cards are typically a safer option to carry than cash. It can be difficult and near impossible to trace and verify whether lost or stolen cash belongs to you. If a credit card is lost or stolen, the card issuer can freeze new transactions on the account, and your maximum liability for fraudulent charges can be $50 or nothing at all.

Are credit cards safer than cash?

Yes, credit cards can be safer than cash. Credit cards typically reduce your liability in the event of unauthorized or fraudulent activity.

What is the difference between cash and credit cards?

Cash is a physical currency and liquid asset that provides you with purchasing power. When you use cash toward a purchase, you don’t owe that amount to another entity. Conversely, a credit card is a physical tool that lets you increase your purchasing power using borrowed money. You’ll need to repay purchases made to your credit card, possibly plus interest charges.

Cash or credit, which is more convenient?

Whether cash or credit is more convenient is subjective. For example, while many merchants accept credit cards, some only accept cash payments. However, as more businesses accept digital payments and transition to cashless transactions, a credit card might be more convenient.

Photo credit: iStock/Ridofranz

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

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 .

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Even if you’ve never been a victim of credit card fraud yourself, you probably know someone who has — and you may have wondered how credit card frauds are caught. Credit card companies and merchants frequently update the security measures they use to prevent credit card fraud, and their investigators will check into issues as they occur. Law enforcement also may get involved, depending on the type of fraud and the amount.

That being said, it’s still important for you to protect yourself against credit card fraud. Read on to learn about the different types of credit card fraud you might encounter, what to do if you suspect your account has been compromised, and steps to take to safeguard your account going forward.

What Is Credit Card Fraud?

Credit card fraud is the unauthorized use of a person’s credit card information to purchase goods and services or get cash from an account. According to data the Federal Trade Commission (FTC) has collected over the past four years, credit card fraud is the most reported form of identity theft.

Luckily, federal law can limit your responsibility if you move quickly to report a lost or stolen card or dispute unauthorized charges. Still, it can be a real hassle to clear up the mess and keep inaccurate information caused by identity theft off your credit reports.

Recommended: Tips for Using a Credit Card Responsibly

What Types of Credit Card Fraud Are There?

You can become a victim of credit card fraud whether someone physically takes your card, virtually hacks into your account, or uses your information to create a new account. Here’s how fraudsters can obtain and use your account information through various credit card scams.

Card-Present Fraud

Card-present fraud is when a person uses a physical card to make an unauthorized purchase. EMV chips, PINs, and other security measures have made “card-present” fraud less of a factor than it used to be. But there are still some criminals who are willing to risk using a lost, stolen, or counterfeit card to make an in-person purchase — and they’ll likely move quickly to do so.

Even if you think you’ve simply misplaced a card, you may want to use your card’s “on/off” feature, if there’s one available, to temporarily suspend the card until you can locate it or report that it’s missing.

Card-Not-Present Fraud

Even if your cards are safely tucked away in your wallet, you may find unauthorized charges on your statement. These days, it’s far more common for a thief to work behind the scenes to get your account information and use it to commit fraud online or over the phone.

Card Skimming

You’ve probably seen warnings in the news about thieves placing skimming devices on gas pumps, but credit card skimmers can be used to steal information just about anywhere there’s a card-reading device. This can include on ATMs and at stores and restaurants.

When you swipe a card, the skimmer reads the magnetic strip and stores the credit card number, expiration date, and cardholder’s name. There are also devices (cameras or false keypads) that can record a PIN number.

The captured information can then be used to make fraudulent charges online or over the phone. The hacker could also sell the collected data or use it to create counterfeit cards.

Recommended: What Is a Charge Card?

False Application Fraud

If identity thieves can get access to your personal information (through a data breach or some other method), they might be able to use it to apply for a new credit card, loan, or line of credit in your name. Or, they might blend information from several victims to create a false identity.

“Card Never Arrived” Fraud

This type of fraud can happen when someone intercepts a new or replacement card before you receive it in the mail. If a new card doesn’t come when you think it should have arrived, you may want to check with your credit card issuer to make sure it hasn’t been taken.

Phishing

Sometimes identity thieves will try to get the personal information they need using a phishing email, text, or phone call that appears like it’s from a bank or some other familiar contact or business. The message might ask you to click on a link or go to a website where you’ll be asked for your password, the CVV number on your credit card, or other details that may be used to access your accounts.

Hacking

Your personal details also could be at risk if your bank, credit card company, or some other business that stores your info is involved in a data breach. If this were to happen, a hacker could get hold of your credit card information.

Account Takeover

Once a person’s identifying information is stolen (through a data breach, phishing, or another method), a thief may contact credit card companies directly. They could impersonate the cardholder and change their PINs and passwords to take over the account.

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

How Are Credit Card Frauds Typically Caught?

Early detection is critical when it comes to catching credit card fraud and minimizing the damage thieves can do. Unfortunately, unless you notice your card is lost or stolen, or you see unusual activity on your account statement, you and your credit card company might not know someone is making unauthorized charges for days or even weeks.

How Often Do Credit Card Frauds Get Caught?

It’s difficult to say how often credit card frauds get caught. A savvy clerk might notice someone using a stolen credit card and call it in to the police. Or an investigator might be able to trace a criminal who uses a stolen credit card number online. But unless you know the person involved in committing the fraud, you may not find out if there’s actually been an arrest.

The good news for credit card fraud victims is that if you quickly report the fraudulent use of your account, you won’t be held responsible for the charges. The Fair Credit Billing Act protects credit card users from being held liable for more than $50 in the event of fraud. Even better, major card networks have their own “zero liability” policies to ensure you won’t pay for unauthorized charges made with your credit card or account information.

Recommended: Complete Guide to How Credit Cards Work

How Do Credit Card Companies Investigate Fraud?

The best way to start an investigation into fraudulent transactions on your credit card is to notify the credit card issuer, either by phone or online chat. The card issuer will likely deactivate your card and send you a replacement. It also may refund your money at this point, or it may want to wait until the case is investigated.

The issuer then has 30 days to respond to your report and begin its investigation. The investigation can take up to 90 days to be completed.

As for how credit card companies investigate fraud, the issuer’s internal investigation team will begin by gathering evidence about any disputed transactions. It may check for things like transaction timestamps, the IP address of the person who made the disputed purchase, and the purchaser’s geographic location. If the crime appears to be part of a larger pattern or organization, the card issuer might alert the FBI or other law enforcement officials.

You may be able to help the investigation if you also report the crime to local law enforcement — especially if you believe the theft was committed by someone you know, or by someone local who stole personal information from your computer or mailbox. The FTC’s identity theft website can take you through the steps of filing an identity theft report.

What Should You Do If You Suspect Credit Card Fraud?

Besides reporting credit card fraud as soon as you suspect there’s an issue, there are other steps you can take to further safeguard your finances. This applies whether you notice small unauthorized transactions or charges that go up to your credit limit.

Send a Follow-Up Letter

The FTC recommends following up immediately with a letter to the card issuer that confirms you reported unauthorized activity on your account. You should note the date and time you reported the loss, and include any relevant documents (such as your police report and/or your report to the FTC).

Send the letter to the credit card company’s address for billing inquiries (not the address where you make payments). Consider sending it by certified mail so you have a receipt.

Change Your Passwords

It’s a good idea to change your password occasionally anyway. But if you suspect you’ve been the victim of identity theft, you may want to review all of your accounts and change your passwords and PINs.

Contact the Credit Bureaus

You also should contact the three major credit bureaus to report your problem, and you may want to request a credit freeze, credit lock, and/or fraud alert. What’s the difference?

•   A credit freeze, also known as a security freeze, limits access to your credit report without your permission. This can make it harder for an identity thief to open a new credit account or loan in your name. A credit freeze is free, but you must request a separate freeze from each credit bureau. And when you want to unfreeze your file, you must do that separately as well, usually by using a PIN or password provided by each credit bureau.

•   A credit lock is pretty much the same thing as a credit freeze, but it may be more convenient. Once you set it up, you can lock and unlock your credit reports using an app or secure website. Plus, you don’t have to keep track of a PIN or password to change your status.

•   A fraud alert doesn’t put an all-out block on your credit report the way a freeze or lock can, but it still can be a useful tool. It puts a notice on your credit reports that cautions creditors that you may be a fraud victim. Additionally, it encourages them to take extra steps to verify your identity before opening a new account or changing something on a current account. Fraud alerts are free, and once you place a fraud alert with one of the credit bureaus, it will send a request to the other two bureaus to set up alerts on their reports.

Watch Your Credit Card and Banking Statements

Don’t assume you’re out of the woods because you haven’t seen any unauthorized charges for a while. It may take weeks or even months before charges show up on your accounts if you’re the victim of identity theft. Checking your bank account, credit card, and other statements regularly for unusual charges (and to track your own spending) is a healthy financial habit to develop.

Track Your Credit Reports and Credit Score

It also can be helpful to track your credit reports to make sure the unauthorized charges you reported were blocked or removed, and that nothing new has turned up. Lenders, credit card issuers, and others use these reports to determine your creditworthiness, so you’ll want them to accurately reflect your finances.

You also can check your credit score to be sure it’s where it should be. Consumers can get a free credit report once a year from each of the three credit bureaus, and many financial institutions and credit card companies provide free credit scores to their customers. 

Even if you’re not a victim of identity theft, this can be a good credit card rule to follow.

Protecting Yourself From Credit Card Fraud

Unfortunately, identity theft and fraud can happen to even the most vigilant credit cardholders. To improve your chances of spotting and tracking unusual transactions, you may want to:

•   Set up transaction alerts: If your credit card issuer offers fraud notifications, it could help you react more quickly to unauthorized charges on your account. You may be able to set up alerts for specific transaction types, amounts, or locations. If an alert is triggered, you’ll be notified (usually by text, push notification, or email), so you can let the card issuer know as soon as possible if there’s a problem.

•   Track charges online or with an app: The days of waiting for your monthly credit card statement to arrive in the mail are long gone. You can check your current credit card balance and other details any time you like, by logging into your account regularly (at least once a week) or using a mobile app.

•   Sign up for credit monitoring: A credit monitoring program is another way to find out quickly (generally within 24 hours or less) if there’s been some type of unusual activity on an account. The service can notify you of major changes to your credit report, including large purchases or inquiries from lenders or credit card companies. If you didn’t make any big purchases or apply for a new credit card or loan, you can quickly take steps to inform your card issuer and the credit bureaus.

The Takeaway

Detecting and reporting credit card fraud as soon as possible is critical if you hope to limit the stress and cost of clearing it up. Even though issuers are on top of credit card fraud investigation, it’s also important to take steps to proactively protect your accounts. It’s all part of using a credit card wisely.

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

FAQ

Can you trace credit card fraud?

Yes. If you notice suspicious activity on your credit card account, you can notify your credit card issuer immediately. The card issuer will then take steps to investigate any fraudulent transactions. You also should contact the three major credit card bureaus, and you may want to make a police report.

How long does it take to investigate a credit card fraud?

The card issuer must send a letter confirming it received your fraud report within 30 days. It then has 90 days to complete its investigation.

What evidence can a card issuer use to investigate a credit card fraud?

The card issuer will use any information you provide in the course of its investigation. It also may gather further evidence by talking to the merchant who was involved, looking at transaction timestamps, or checking the IP address of the device used to make an online transaction.

What fraud protection measures do credit card issuers provide?

Credit card issuers have developed several features to stop criminals from committing fraud. Those measures range from chip technology and PIN and password protections, to real-time risk assessments that allow merchants to decide whether to approve or deny a transaction.

Photo credit: iStock/Galetos

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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The average credit card annual percentage rates (APR) topped 21% as of the middle of 2024, according to the Federal Reserve. It’s no wonder that savvy cardholders are looking for ways to reduce the cost of using a card. Some ways consumers achieve this is through a cash-back rewards credit card or a low-interest credit card.

The distinction between a cash-back vs. low-interest credit card is that cash-back cards help you earn a small percentage of your spending back. Conversely, a low-interest credit card tends to charge less interest each month than a high-interest card, which is helpful for cardholders who roll a balance into the next month.

What Are Cash-Back Credit Cards?

Credit cards that offer cash-back rewards are designed as an incentive to encourage spending on the card. For every eligible purchase you charge to your card, you’ll receive a small percentage of cash back. Some cards offer 1% cash back, while others offer as much as 6% or more, depending on the program’s rules. You might earn a flat rate across all purchases, or you might earn more in certain spending categories, such as groceries or gas.

You then can redeem your earned cash-back rewards. Redemption options may include a cash payment or a statement credit toward your next bill, or you may be able to redeem the rewards for travel, merchandise, gift cards, and more.

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

What Are Low-Interest Credit Cards?

Low-interest credit cards incur a lower borrowing cost compared to a high-interest credit card. A credit card that charges low interest allows you to pay less for using the card if you carry a balance. This card feature is beneficial for cardholders who repay their monthly balance in increments over time, instead of in full.

The interest rate you qualify for highly depends on your creditworthiness, including your past borrowing habits and credit score. Consumers with strong credit might qualify for promotional no-interest credit cards that charge 0% APR for a limited period. After this period is over, the card’s interest rate increases, based on the cardholder’s credit and qualifications. As such, there are both advantages and disadvantages of no-interest credit cards.

Recommended: How to Avoid Interest On a Credit Card

Differences Between Cash-Back and Low-Interest Credit Cards

Below are the key differences between low-interest vs. cash-back credit cards to keep in mind when choosing a card:

Factors to Consider When Choosing Between Rates and Rewards

Your unique financial situation, borrowing habits, and the features and benefits of a particular card are what you should consider when comparing your options.

Average Balance You’ll Be Carrying Monthly

How credit cards work is that they give you purchasing power up to a limited amount, even when you don’t have the cash upfront. You can choose to repay the debt in one lump payment by your statement due date, which allows you to avoid paying interest charges. Alternatively, you can make installment payments over multiple months, in which case you’ll accrue interest charges.

Not carrying a monthly balance is one of the common credit card rules to try to stick to, but it’s not always possible. For example, you might have had an unexpected injury that resulted in a medical bill that exceeded your cash savings. In this scenario, putting some of that cost on your credit card and making small, monthly payments to repay it might be necessary.

If you don’t have sufficient cash savings or income to confidently repay your monthly balance in full each month, a low-interest card might offer an advantage over a cash-back card.

Recommended: When Are Credit Card Payments Due?

Your Average Monthly Spending

Look back at your monthly expenses and think about the total amount you’ll likely put on your credit card each month. For example, you might choose use a credit card to cover everyday expenses, like dining, groceries, and gas. Cardholders who rack up high monthly balances can benefit from a cash-back credit card that offers money back from purchases you’re already making.

The caveat, however, is if you charge more expenses to your card than you can realistically pay back in full by the statement due date. If you roll over any portion of your outstanding balance into the next month, you’ll get charged interest on that amount, which cancels out any cash-back rewards you may have earned.

Recommended: Tips for Using a Credit Card Responsibly

Annual Fees

Some cards — particularly rewards cards that extend high-value benefits and incentives — might charge an annual fee. For example, a cash-back card might offer an annual $300 travel credit and 5% cash back on flight purchases, but charge an annual fee of $550.

If you don’t travel enough to use up the credits and earn more cash back than the annual fee costs, that card might not be the best fit for your lifestyle. You’ll need to assess the total potential dollar value that a card’s benefits, credits, and other incentives offer in comparison to the upfront cost of the card’s annual fee.

Interest Rate Difference Between Cards

Although all credit card issuers check your credit to determine your interest rate, each card company has its own underwriting criteria. You might receive an interest rate offer for 19.99% APR for one card, and an offer from another card issuer at 22.99% APR, for example. To gauge interest rates, it can be helpful to look at the current average credit card interest rates for a point of comparison.

Regardless of whether you end up with a cash-back credit card vs. low-interest credit card, it’s always a good idea to shop around for the lowest interest rate you can get. That way, if you ever need to carry a balance, you can minimize the amount of interest you end up paying.

Guide to Lowering Your Credit Card Interest Rate

Whether you’re shopping around for a new credit card or have an existing card with a high APR, here are some ways to lower your interest rate:

•   Contact your card issuer. If you’ve been a loyal customer and have kept your account in good standing, or if you have built your credit score since you opened the account, your credit card issuer may be willing to reduce your rate.

•   Build your credit score. Even if you already have good credit, building your credit score can help you secure the most competitive interest rate in the future. Good borrowing habits — like making on-time payments and keeping your credit utilization low (below 30% or ideally below 10%) — are just some ways that may help your score.

•   Consider a low-interest balance transfer card. If you have a high-interest card with a balance on it, and you have strong credit, a balance transfer card can allow you to move your original balance onto a low-interest card. Before proceeding, always compare the balance transfer fee against your potential savings to confirm that it’s worth it.

Remember, what’s considered a good APR for a credit card is subjective, based on your creditworthiness and other factors. Securing the lowest APR that you qualify for can help you avoid heavy interest charges if you roll over a monthly balance.

The Takeaway

Ultimately, whether you opt for a cash-back credit card or a low-interest card depends on how you plan to use the card and manage debt, as well as what kinds of perks and features matter most to you. If you often carry a balance, for instance, a low-interest card could be valuable. If you tend to follow the important rule of paying off your card balance in full every month, then interest rate may not matter as much but cash back could be a benefit you appreciate.

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

When is a lower annual interest rate better than a low annual fee?

A lower APR is better if you typically carry a balance from one billing cycle to the next. When you roll over a balance, old and new balances accrue daily interest charges that can cost you more money out of pocket. A low annual fee is something to look for when you’re using a card to earn incentives, like credit card rewards.

Are there credit cards with low interest and cash back?

Yes, there are credit card options that offer a low interest rate to qualified applicants, as well as cash-back rewards. However, you’ll generally need to have good credit in order to qualify for the most competitive rates offered by low-interest rewards credit cards.

How can I choose between low APR and rewards?

Consider your credit history and score to determine whether you meet the minimum qualifications for a credit card’s lowest APR. Also, examine your general credit card habits, like whether you often roll over a balance and what your monthly spending habits are like. Compare those details against the costs of carrying a card, like annual fees and the APR you’re offered.

Is it better to find a credit card with low or high interest?

Finding a credit card that offers a low interest rate is usually the better move. The lower your APR, the less you’ll pay for borrowing on credit if you decide to carry a balance month to month.

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.

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

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Typically taking between five and 14 days, credit card refund timing can vary based on a number of factors. This includes the speed at which the merchant processes the refund, how soon you requested the refund, and the length of time it takes for your credit card issuer to credit the amount to your account.

If you’re feeling antsy about how long it takes for a refund to appear on your credit card, however, there are ways that you can speed up the process.

How Do Credit Card Refunds Work?

When you make a purchase on a credit card, your credit card issuer pays the merchant and the amount will go onto your account for repayment. Since the issuer technically paid for the purchase, any requests for a refund will go back to the credit card account. In other words, you won’t receive other forms of payment like cash for refunds when you use a credit card since you didn’t directly pay for the purchase.

There are two types of refunds — one for purchases and ones due to fraud.

•   In the case of purchases, you’ll deal with the merchant with whom you made the purchase. Once the merchant approves the refund, the credit card company will process it. Then, the amount refunded will show up on your credit card statement. The credited amount may not appear in the current billing cycle if you made a return in between billing cycles (the end of a billing cycle also tends to be when credit card companies report to credit bureaus).

•   As for fraud, these are charges to your account that you didn’t authorize. Most credit card companies will offer some form of fraud protection as long as you notify them within a certain period of time, usually 60 days. Once the issuer is notified of the fraudulent transaction, it will reverse the charges. You’ll then receive a credit for the amount charged, or the charge will get taken off your account completely, assuming you’re not falsely disputing a credit card charge.

Do All Credit Card Refunds Take the Same Amount of Time?

Not all credit card refunds will take the same amount of time. To get an idea of how a particular merchant accepts and processes returns, you can look at the merchant’s refund policy. Some items to note in this statement include:

•   Types of refunds offered: Some merchants may be lenient on their return policies, while others may only offer store credit for returns, for instance.

•   Refund times: Merchants typically state when they’ll issue a refund, such as within a few business days or weeks.

•   How to make a return: Check to see whether you can make a return in person or if you can ship back the item. If you’re shipping, make sure to see if you or the merchant pays for shipping.

After the refund is processed, you’ll need to wait for your credit card company to post the refund or credit to your account. How long this takes will also vary depending on the issuer.

How Long Does a Credit Card Refund Take?

A credit card refund usually takes between five and 14 days after the customer makes the request.

Keep in mind that the rules for refunds can vary depending on your credit card issuer and how long it takes the merchant to process the refund. The faster the merchant processes the refund, the faster it will hit your account.

However, the above timeframe assumes that the merchant agrees to process the refund. If you were to dispute a credit charge, the process of getting a refund could take much longer. Notifying your credit card company as soon as you can is helpful because it could take some time for them to complete their investigation — they have up to 90 days to do so.

Recommended: What is a Charge Card

Factors That Determine How Long a Credit Card Refund Takes

The two main factors that determine how long a credit card refund takes is the type of refund you’re requesting and where you made the purchase.

The Type of Refund It Is

As mentioned before, credit card disputes — whether for fraud or a credit card chargeback request for a product you never received — may take longer compared to refunds for purchases. Plus, you’ll need to make sure you contact the credit card company within 60 days of the billing or fraud dispute. From there, the issuer should have the dispute resolved within two billing cycles, or up to 90 days.

Where You Made Your Purchase

Different merchants have varying refund policies — the longer it takes the merchant, the longer it will take for the refund request to reach your credit card issuer. Here’s a sampling of some of the refund policies at popular retailers:

•   Amazon: It can take up to 30 days to process a refund. After an item arrives at the fulfillment center, credit card refunds are typically processed within three to five days. Once a return is processed, the funds will appear in your account, usually within three to five business days.

•   Square: Any merchant that uses Square to accept purchases will take two to seven business days to process a refund. It can then take an additional two to seven business days for the refunded amount to appear in your account, resulting in a total credit card refund time of nine to 14 business days.

•   Walmart: Refunds tend to take up to 10 business days to process.

How to Speed up the Refund Process

The good news is that there are some ways you can help to speed up the refund process.

Get It There Faster

Some retailers have multiple ways to return items, and certain methods have faster processing times than others. For instance, many major retailers process refunds faster (in some cases, immediately) if you make a return in-person at one of their store locations instead of mailing back the item.

Make Use of Loyalty Benefits and Store Credit

You may be able to receive expedited shipping for returns or faster refund processing times if you belong to a merchant’s loyalty program. Often, you also may be able to get a refund faster if you opt to receive a store credit instead of getting a refund issued to your credit card.

How Does a Refund Affect Your Credit Card Account?

Refunds are typically treated as an account credit. There’s no credit card refund issued in the form of cash since you borrowed the money from the credit card issuer to make the purchase in the first place.

While the purchase is still billed to your account, you’re technically responsible for payment. If you made the purchase, paid it off once the billing cycle ended, and then requested a refund, you’d get a credit to your account. Due to credit card rules, the refund does not count as a partial payment.

No matter how long you wait for a refund, it’s important to manage your account wisely and make sure you’re using a credit card responsibly so you don’t end up overextending yourself. As long as you pay your bill by the due date, you won’t risk hurting your credit score while you’re waiting for your refund.

Recommended: When Are Credit Card Payments Due

Refunds on Rewards and Fees

Credit card companies usually won’t refund any interest or fees you may have paid because you carried a balance for a purchase that you’re now trying to get a refund for. Similarly, if you made a purchase while you were overseas and were charged a foreign transaction fee, you most likely won’t get a refund for that either.

When it comes to rewards, whatever you earned for the purchase will get deducted from your earnings after the refund is processed and posted to your account. You end up with a negative rewards balance if you redeemed all of your points before requesting a refund.

The Takeaway

Credit card refunds typically take between five and 14 days. Being aware of how credit refunds work helps you to understand how to keep better track of your credit card statements and rewards earnings. It can also help you to determine which credit cards are better used for certain situations.

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 my rewards if I request a refund?

Your rewards will be deducted from your current balance after your request for a refund is processed.

How long does it take for a refund to appear on a credit card?

A refund may take up to seven or even 14 days to appear on your credit card statement. This timeframe can vary depending on your card issuer, the merchant, and what type of refund request it is.

Are credit card refunds instant?

Credit card refunds typically aren’t instant. This is because it takes time for the merchant and credit card company to process it.

Will a delayed refund hurt your credit?

A delayed refund typically won’t hurt your credit as long as you continue to make on-time payments and are generally responsible with your credit card usage.

Photo credit: iStock/MBezvodinskikh

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

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

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Your credit utilization is the percentage of your overall credit limit that you’re using, and it can have a major effect on your credit score. As your credit usage decreases, it can positively affect your score since it shows you’re responsible with credit. On the flipside, high credit utilization can ding your score as it suggests you’re overspending

If you’re wondering how to lower credit card utilization, there are some steps you can take to do so and help build your credit score.

What Is Credit Card Utilization?

Credit card utilization, or simply credit utilization, is how much of your credit limit you’re using on your revolving credit accounts. You can calculate this percentage by taking the total of your credit card balances and dividing it by your total credit limit.

For instance:

•  Say you have two credit cards with limits of $3,000 and $5,000 respectively.

•  You have a balance of $600 on the first card and $1,000 on the second card.

•  By taking the total of your balances — $1,600 — and dividing it by your overall credit limit — $8,000 — and then multiplying by 100 to get a percentage, you’d end up with a credit utilization rate of 20%.

Why Does Your Credit Utilization Matter?

When it comes to your credit score, scoring models look at various factors, including your credit utilization on both individual accounts and overall. In other words, if your overall credit utilization is high, or one of your revolving accounts has a high balance, your score could be negatively affected.

Considering that credit utilization determines 30% of your FICO® score, which is the scoring model used by most lenders, it’s a major factor that affects your credit score.

What Is a Good Credit Card Utilization Rate?

As a credit card rule, you should aim to keep credit utilization under 30%. While this is the baseline, the lower your credit utilization is, the better. Many financial experts recommend keeping that figure closer to 10%.

A lower credit utilization rate demonstrates to lenders that you are responsible with your credit and don’t appear to rely on credit too heavily.

Tips for Lowering Your Credit Card Utilization

The good news is that you can raise your credit score relatively quickly just by lowering your credit utilization. Here’s how to lower credit utilization.

Paying Down Your Balance

Making payments before the due date arrives or the billing cycle ends could mean your balance goes down before your credit card issuer reports the amount to the credit bureaus. You could even make a payment right after your purchase goes through.

Having a lower credit card balance lowers your credit utilization, even if your credit limit remains the same.

Cutting Down on Spending

Budgeting carefully and reducing your spending could prevent you from racking up excessive credit card debt and getting stretched too thin financially.

However, that’s not to say you can’t use your credit card. Rather, limit your spending to what you can afford to pay off in full that billing cycle. Additionally, if you find your debt starting to balloon, consider pausing your credit card usage until you’ve gotten your balance under control so your credit utilization isn’t pushed higher.

Paying off Credit Card Balances With Personal Loans

If you’re carrying a balance on a credit card, one option to pay it off is taking out a personal loan. You could qualify for a lower interest rate, which can make the debt easier to get a handle on paying off. Plus, a personal loan is an installment loan, which means it won’t count toward your credit utilization.

However, you need to make sure you can still afford the payments and can qualify for competitive rates and terms. Some lenders may charge an application or origination fee — take this amount into consideration when deciding whether it’s worth going this route.

Requesting a Credit Limit Increase

Increasing your credit card limit can lower your credit utilization even if your outstanding balance remains the same. To get a credit limit increase, contact your credit card issuer to request one, either by calling the number listed on the back of your card or logging onto your online account.

Keep in mind that your credit card issuer may not approve your request. You may have to meet certain criteria to qualify, such as having a history of on-time payments and responsible credit usage.

Opening a New Credit Card

Opening a new credit card can increase your overall credit limit and therefore potentially lower your credit utilization. Keep in mind that you most likely won’t know what your credit limit will be until you’ve been approved for the card. 

Plus, submitting an application generally triggers a hard credit inquiry, which could have an effect on your credit score.

Avoiding Closing Unused Cards

It might sound logical to close credit cards that you haven’t been using, but doing so could have negative consequences. More specifically, closing a credit card lowers your overall credit limit, which could increase your credit card utilization even if your credit card balance remains the same.

Recommended: What is the Average Credit Card Limit?

Becoming an Authorized User

You could ask your spouse, family member, or close friend to add you on their credit card as an authorized user. If the primary cardholder maintains a low balance and has a high credit limit, it could lower your overall credit utilization.

Before going this route, however, speak with the primary cardholder to determine whether becoming an authorized user will help your credit score. You’ll also want to be clear on how you plan on using the card, or if you’d rather be a cardholder in name only.

Finding Out Whether Your Issuer Reports to Credit Bureaus

Most credit card issuers will report your payment activity and account balance every 30 days to the credit bureaus, though the reporting date might not coincide with your payment due date. If your card issuer reports your payment activity before you make a payment, it could look like you have a high balance, which could increase your credit utilization rate.

To remedy this, contact your card issuer to determine when it reports to the credit bureaus. Aim to pay off as much of your balance as you can before that, or request a new due date that’s ahead of when your issuer reports to the bureaus.

How Will Lowering Credit Utilization Affect Your Credit Score?

If you lower your credit utilization, you could build your credit score. Remember, your credit utilization is one of the major factors that affects your credit score. Aim to keep your credit utilization well below 30% — try using any of the methods mentioned above to do so — in order to help maintain your score.

The Takeaway

Credit utilization — the percentage of your overall credit limit you use — can have a major effect on your credit score. It’s best to keep your utilization as low as possible, but the benchmark generally recommended is that it should reach no higher than 30%. If your credit utilization rate has crept up, there are some tactics you can try to lower it, from paying down your balance to getting a new 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

How can I fix high credit utilization?

You can decrease your credit utilization by paying off your balances early, asking for a credit limit increase, applying for a new credit card, and cutting down on spending.

How can I keep my credit utilization below 30%?

You can keep your credit utilization below 30% by watching your spending and balances across all your credit cards.

How low should I keep my credit utilization?

It’s best to keep your credit utilization below 30%. That being said, the lower your credit utilization rate, the better.

Does zero utilization hurt your credit score?

Zero utilization doesn’t hurt your credit score. However, 0% utilization doesn’t necessarily help your credit score either, as you can’t demonstrate on-time payments and other positive credit behavior.

Photo credit: iStock/Farknot_Architect

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

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

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