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Understanding exactly what it means to be an authorized user on a credit card account is important for both the cardholder and the credit card authorized user. There are some rules and restrictions involved, but in general, becoming an authorized user on a solid cardholder account can help build an authorized user’s credit history and potentially boost their score. However, it is the primary cardholder who is responsible for the debt.

Here’s what you need to know on this topic, including the process of adding an authorized user to a credit card.

What Is an Authorized User?

An authorized user is someone that the primary cardholder — the individual who owns the credit card account and is responsible for charges to the card — has authorized to use their card. Some points to know:

•   Unlike a primary cardholder, an authorized user on a credit card is not subject to credit checks and other credit card issuer requirements in order to use the card. However, the individual — who is often a spouse, child, or other family member — must meet the card issuer’s age requirements.

•   The primary cardholder may have to pay a fee to add the authorized user. The number of authorized users allowed on each card varies depending on the credit card issuer.

•   An authorized user may get a card with their name and the primary cardholder’s account number on it that they can then use. Or, they can simply use the primary cardholder’s card to make purchases.

•   Authorized users may have access to the cardholder’s account information, such as their credit limit, available balance, and fees. They can make payments, report lost or stolen cards, and initiate billing disputes.

•   However, and this is important, any charges made by an authorized user are ultimately the responsibility of the primary cardholder. Authorized users also generally can’t close an account, add another authorized user, or change the card’s PIN, credit limit, or interest rate.

Recommended: Tips for Using a Credit Card Responsibly

Responsibilities of an Authorized User

Even though authorized users are allowed to make monthly payments, they’re not responsible for payments — no matter how much they may have spent on the card. Rather, the responsibility of making on-time monthly minimum payments always falls to the primary cardholder.

In many cases, primary cardholders will work out some type of payment system under which an authorized user can reimburse the primary cardholder for their share of the bill. With this system, the primary cardholder can keep track of credit card charges and more easily spot unusual or potentially fraudulent activity on the card as well as credit card chargebacks.

Additionally, a system can ensure payments are made on time and that any spending on the credit card is done responsibly.

In other cases, authorized users may make their payments directly to the credit card issuer. With this arrangement, however, the primary card holder still holds the ultimate responsibility of making the minimum monthly payment on time.

Recommended: When Are Credit Card Payments Due

Authorized User vs. Joint Credit Card

It’s easy to confuse authorized users with joint credit card holders. But there are some key differences between the two.

•   With a joint account, both cardholders are legally responsible for making payments. With an authorized user, only the primary cardholder is responsible for the debt.

•   Joint cardholders also must meet credit card issuer requirements, such as a minimum credit score, and go through the application process in order to get the card. This is not true for joint holders of a credit card.

•   Joint accounts are commonly used by partners who share their finances. Not all credit card issuers allow joint accounts though, and they are becoming less common. Authorized users, however, are more widely accepted.

Benefits of Having an Authorized User on Your Credit Card

There are compelling reasons why you may want to either become an authorized user or add an authorized user to your credit card account. Here are the benefits for both parties involved.

Benefits for the Authorized User

Becoming an authorized user can help someone to establish their credit and build their credit scores if the primary cardholder has a history of on-time payments and low credit utilization (in other words, not charging cards to the max). This can be especially helpful for teenagers and young adults who may not yet have had the opportunity to establish a credit record.

Most credit card issuers will report authorized user credit activity to the credit bureaus, thus building a credit history for the authorized user. The primary cardholder can check with their credit card issuer to see if authorized user’s activity is being reported and if the card issuer has all of the relevant information necessary to do the reporting.

If the issuer does report, all of the details of the card will be included in the authorized user’s credit history, including the credit limit, the amount of credit being used, and payment history.

By the same token, if the primary cardholder misses payments or makes late payments, this could negatively impact the authorized user’s credit score.

Benefits for the Primary Cardholder

Building credit for the authorized user can also benefit the primary cardholder who’s looking to help a child or other family member establish themselves financially. By helping the authorized user establish a good credit record, the authorized user will be more likely to qualify for their own credit card sooner and potentially secure lower interest rates and access to better rewards.

Plus, cardholders have the benefit of knowing that a child or other user has access to a credit card in an emergency or other situation where funds are immediately necessary.

Adding or Becoming an Authorized User on a Credit Card

Only a primary cardholder can add an authorized user to their card. To do so, you’ll generally go through the following steps:

1.    Notify your credit card issuer. Let your card issuer know that you would like to add an authorized user to your card. In most cases, you can do this over the phone or by filling out a form online.

2.    Have the necessary information on hand. You may need the name, Social Security number, date of birth, and contact information for the authorized user you intend to add to the card.

3.    Check what will get reported to the credit bureaus. It’s important to find out if the card company will report credit information about the authorized user to the credit reporting bureaus. This will help the authorized user to establish a credit history.

4.    Determine if you’ll get a card for the authorized user in their name. If so, this second credit card will get sent to you. From there, you can decide if you want to give the card to the authorized user or only have them use your card.

Recommended: What is the Average Credit Card Limit?

Removing an Authorized User on a Credit Card

A primary cardholder can remove an authorized user from their card at any time. Simply call or go online to request a change.

Keep in mind that the authorized user may see a change in their credit score if they are removed. This is because credit score calculations take into account both the age of credit accounts and the number of open accounts, both of which may decrease when an authorized user drops off the card of someone with a more established credit history.

What Are the Next Steps After Becoming an Authorized User?

As mentioned above, authorized users and primary cardholders will want to come up with a solid plan. Specifically, they’ll want to discuss how the card can be used, how much the authorized user can spend, and when and how the authorized user will make payments (either to the cardholder or directly to the card issuer).

Making payments on time is extremely important to help avoid late fees and credit score dings for both the primary cardholder and the authorized user.

How to Monitor Your Credit as an Authorized User

If you’re an authorized user eager to build credit, it can be helpful to monitor your credit report to make sure your activity is being accurately reported. You can retrieve a free copy of your credit report each year from all three credit bureaus — Experian®, TransUnion®, and Equifax® — through AnnualCreditReport.com.

It’s also important for both the authorized user and the primary cardholder to be cautious and mindful about how their activity can affect one another’s credit, which is something credit monitoring can help keep in check. Irresponsible credit usage by either party can have implications for the credit of both the primary cardholder and the authorized user.

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

The Takeaway

Authorized users are typically added to an account held by a family member or other responsible adult. They have access to the card’s buying potential, it’s the primary cardholder who is responsible for the debt. It’s important for both parties to keep in mind that while their credit usage has the potential to build their credit, it can also cause damage if payments are late or credit is maxed out.

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

FAQ

How many authorized users can I add to a single card account?

Each credit card issuer has different rules concerning the number of authorized users permitted. You’ll find this information in the terms and conditions for your credit card. Some credit card issuers charge a fee for each authorized user added on your account.

Is credit activity reported to the credit bureau for an authorized user?

In most cases, credit card issuers report activity to the credit bureaus for an authorized user as well as the primary card holder. Building credit in this way can be a benefit of becoming an authorized user. Check with your credit card issuer to find out if authorized user credit activity is reported.

Does adding someone as an authorized user help their credit?

Building your credit record can be a big benefit of becoming an authorized user, especially if the primary cardholder has a good credit rating and continues to make on-time payments. In order to build your credit record, however, the credit card issuer needs to report your activity to the credit bureaus.

Photo credit: iStock/cokada

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

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

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

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.

SOCC-Q224-1905324-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

A deposit and a withdrawal are both common banking transactions, but the way they function is completely different. A deposit is money put into a bank account and held there until you need it. A withdrawal is money taken out of your account.

But that’s not the full story about deposits vs. withdrawals. You have many choices when it comes to getting money into your account and taking it out. Knowing the different methods is important and could even help you manage your finances.

What Is a Deposit?

In banking, a deposit generally means you put your money into a bank account. Deposits add to your funds in the account, and you can use that money to pay your bills, put it toward something like a vacation, or you can keep it there where it may grow over time.

How a Deposit Works

A deposit involves adding cash or check(s) to your bank account. You can do this in person at a bricks-and-mortar branch of your bank, at an ATM in your bank’s network or, in the case of checks, by using a bank’s mobile app.

You can also receive a deposit by electronic transfer from one bank account to another account. For example, if you are paid by direct deposit, the money moves from your employer directly into your account. Or you could receive a government benefit such as Social Security this way. In addition, you might receive funds from someone else, like a friend, via a mobile payment service like Venmo, and you could then move the money into your checking or savings account.

Both bricks-and-mortar and online banks typically offer different kinds of deposit accounts. You could consider a high-yield checking or savings account at a traditional or online bank, or, if you don’t need to access the money often, you may want to look into a money market account or a certificate of deposit (CD).

Types of Deposits

There are a number of methods you can use to put money into your bank account. Here are some of the ways to make a deposit:

•   Cash deposit at one of your bank’s ATMs or branches

•   Check deposit at one of your bank’s ATMs or branches

•   Check deposit electronically via your bank’s mobile phone app

•   Payroll direct deposit

•   Electronic funds transfer from a linked savings or checking account or via mobile payment services.

What Is a Withdrawal?

A withdrawal is when you take money out of your account. You can do that several ways, including using your debit card at an ATM, requesting the money in person from a bank teller, writing a check, scheduling an electronic bill payment, having the money transferred via a payment app, or wiring the money to someone.

Some of these methods of withdrawing funds can involve fees. If you use an out-of-network ATM, for instance, you can get hit with a charge. And wiring money may come with a fee. Check with your bank to find out.

How a Withdrawal Works

The difference between a withdrawal and deposit is that withdrawals take money out of your bank account. You might withdraw cash from your bank account to put in your niece’s birthday card, write a check (or authorize an electronic payment) to pay the electric bill, or use a mobile payment service to pay a friend back.

Any funds removed count as a withdrawal. Depending on your bank’s checking account terms, you may have limited or unlimited withdrawals. Often, there are savings account withdrawal limits. In the past, the number was typically six per month, though these restrictions have typically been eased in recent years.

Types of Withdrawals

Just like there are different types of deposits there are also different methods of withdrawing funds. Here’s how to withdraw funds from your bank account when you need them.

•   Cash withdrawal at ATM with a bank or prepaid debit card (though there will likely be ATM limits to the amount you may withdraw)

•   Cash withdrawal in person at one of your bank’s branches

•   Checks written from your account

•   Cardless withdrawals of cash using phone app at ATMs in your bank network

•   Bank-issued cashier’s check in person or online

•   Cashing a certificate of deposit (CD) at bank (if this is done before the maturity date, you may owe an early withdrawal fee)

•   Funds transfer from a brokerage account

•   Electronic funds transfer from a linked savings or checking account or via mobile payment P2P services

•   Electronic bill pay (recurring or not)

Similarities and Differences Between Deposits and Withdrawals

Deposits and withdrawals are two of the most common banking terms and transactions. Here are the differences and similarities you should know.

How Deposits and Withdrawals Are Similar

Here’s what these two kinds of banking transactions have in common.

•   Both can be done in person at ATMs or branches in your bank’s network (except for check withdrawals, which can only be completed in person or online).

•   Both can involve electronic funds transfer from a linked bricks-and-mortar, an online savings or checking account, or via mobile payment services.

How Deposits and Withdrawals Are Different

These are some of the key ways in which deposits and withdrawals are different.

•   A withdrawal leaves you with less money in the bank while a deposit puts more money in your bank account.

•   A withdrawal will immediately be reflected in your account balance, while a deposit may take longer to show up, until the funds clear.

•   Cash deposits generally have to be made at your bank or bank’s branded ATM network locations, while cash withdrawals can be made at any ATM. (But beware, if the ATM is out of your bank’s network, you could be charged an ATM fee by both the ATM owner as well as your bank.)

•   Check deposits often have to be made at your bank or bank’s branded ATM network locations, or via a bank’s mobile phone app. (Banks that allow you to make deposits at out-of-network ATMs may charge you a fee, plus there may be an ATM fee as well.)

•   Check withdrawals via cashier’s checks, on the other hand, are likely only available in person at one of the branches of your bank. Alternatively, you could request such a withdrawal online from your brick-and-mortar or online bank or credit union.

The Takeaway

While a deposit adds funds to your bank account and boosts your balance, a withdrawal takes money away, subtracting an amount from the funds you have on balance. There are many ways to conduct each of these transactions. You can do your banking in person or use an array of digital tools to send or receive money. And if you’re looking to set up a bank account, there are many different kinds of accounts to choose from.

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

FAQ

What is a cash withdrawal?

A cash withdrawal involves taking money out of a bank account in the form of cash. This can be done at an ATM or a physical location of your bank.

What is a cash deposit?

A cash deposit is money that you add to your bank account. It could come via an electronic transfer, an ATM deposit, or currency that you hand off to a bank teller.

What is the difference between a deposit and a withdrawal?

The difference between a deposit and a withdrawal is that a deposit adds funds to your bank account while a deposit removes money from the account.

Photo credit: iStock/Eva-Katalin

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.

3.30% APY
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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

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

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

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

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The annual percentage rate (APR) of your credit card has a big impact on how much it costs you to carry a credit card balance. In some cases — if you have a variable interest rate or are late making payments, for example — your APR can change, causing your credit card interest rate to increase or decrease.

Understanding when and how these changes might occur can help you choose the right credit card and control how much you spend on interest. Here’s a look at what can impact your credit card’s APR.

What Is Credit Card APR?

A credit card’s APR, or annual percentage rate, is the interest rate you’ll pay on the money you borrow, stated as an annual rate. Your credit card APR will tell you how much a credit card costs you in terms of interest on the balance you carry. However, it won’t tell you anything about other fees and other credit card charges you may incur.

Credit cards will typically have a separate APR for credit card purchase interest charges, balance transfers, and cash advances. The APR you receive when you open a credit card will depend on a benchmark interest rate as well as factors like your creditworthiness, as determined by your credit score.

However, the definition of APR will vary depending on what type of loan product you’re talking about. In contrast to credit cards, the APR on other types of loans is determined by interest rates, the length of the loan, and lender fees.

Recommended: What Is a Charge Card

What Can Cause Your Credit Card’s APR to Increase?

There are a number of reasons that credit card APR can increase. Your credit card company can increase your APR on new transactions as long as they give you 45 days’ notice. The company is not allowed to increase your APR during the first year after your account is opened.

Further, there are only certain cases in which your card company can raise rate on existing balances, including when:

•   An introductory rate expires

•   You have a variable rate card (most credit cards have a variable rate) and the benchmark interest rate rises

•   You’re 60 days late making your minimum payment

•   You have completed or don’t comply with the terms of a workout agreement, which has renegotiated the terms of your agreement for a period of time

No matter how the increase occurs, it’s important to realize that your credit card payments increase when your interest rate increases.

Prime Rate Rises

Your credit card will have either a fixed or variable credit card interest rate. If you have a credit card with a variable rate, that rate is largely based on a benchmark interest rate. The benchmark that many credit card companies use is what’s known as the prime rate. And when the prime rate rises, your APR will rise, too.

The prime rate could rise due to a change in the federal funds rate, which is the Federal Reserve’s recommendation for what banks should be charging when they make overnight loans to help each other meet federal reserve requirements.

One rule of thumb states that the prime rate is equal to the federal funds rate plus three.

Late Payments

Your credit card interest rate may also increase if you’re 60 or more days behind on paying your credit card minimum. This is what’s known as a penalty APR. Not only may this rate apply to your overdue balance, it may also raise interest payments on future purchases.

End of Introductory APR Offer

Some cards offer 0% APR on purchases or balance transfers for an introductory period. During that time, you won’t pay any interest on balances that you carry from month to month. However, once the introductory period is over, your APR will jump to the regular purchase interest rate, which will apply to any remaining balance on your account.

High Credit Card Balance

If you carry a growing credit card balance from month to month, or you’ve hit your credit limit and are unable to make payments, your card company may decide to raise your APR on new transactions.

Failure to Meet the Terms of a Workout Agreement

If you had trouble paying off your credit card debt in the past, you may have renegotiated the terms of your agreement, which is known as a workout agreement. When you successfully complete it, your card company may return your APR to what it was prior to the arrangement, which may have temporarily reduced your interest rate. On the other hand, if you fail to comply with the agreement, your card company may also decide to raise rates.

Recent Cash Advance

As mentioned above, credit card companies often typically set different APRs for purchases, balance transfers, and cash advances. If you’ve recently taken out a cash advance, you may have triggered the cash advance APR. This APR might be higher than the APR offered to you for regular credit card charges.

Recommended: What Is the Average Credit Card Limit?

What Can Cause Your APR to Decrease?

There aren’t as many triggers that will send your credit card APR lower, but here’s a couple to be aware of.

Prime Rate Falls

Once again, changes in the prime rate have a big impact on your APR. If the prime rate falls, your rate may also go down if you have a variable rate (as most credit cards do).

Negotiating for a Lower Rate

If you’d rather not sit around waiting for the prime rate to go down (or if it’s on an upward trajectory), one of the best ways to lower your credit card APR is by simply asking. Negotiating for lower rates and fees is one of the important credit card rules to know. (You can also negotiate on other things, such as credit card spending limits.)

You can improve your odds in this negotiation by arming yourself with some key information. First, get familiar with your credit score and make sure that it’s as high as possible. You may build your score by paying down debts and making sure to correct any errors on your credit report.

Also make sure to highlight your history with the company. Credit cards want to hold on to long-standing customers with a good history of paying their bills on time.

If your credit card company rejects your first attempt at negotiation, don’t be afraid to ask again or to speak to a manager who may have more power to make decisions about your account.

The Takeaway

Your APR can have a huge impact on how much it will cost you to carry credit card debt. As you choose a credit card, it’s important to shop around for the card that offers as low as possible an interest rate.

Still, your APR may rise at some point — especially if the prime rate increases or a low introductory offer expires. However, that doesn’t mean you’re stuck with the new rate. You can always try to negotiate with your card company to see if they can lower your rate.

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 lower my APR on my credit card?

You can try to lower the APR on your credit card by negotiating with your lender. Increase your odds of success by ensuring you have a history of paying your bills on time and a strong credit score.

How does the prime rate affect my credit card APR?

If you have a variable APR, when the prime rate rises, so too will your APR. When the prime rate falls, your APR falls as well.

Can the APR on a credit card change?

Yes, the APR on a credit card can change for a variety of reasons. This can include a shift in the prime rate, the expiration of a low introductory offer, or being 60 days late on paying your credit card minimum.

Photo credit: iStock/tolgart

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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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 eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

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 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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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.

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