As parents, we want the best for our children: health, happiness — and hardy credit. Having a strong credit profile can determine whether your kid gets approved for a loan or how much they’ll pay for car insurance when they’re grown. But establishing credit for someone with no credit history is challenging.
A common workaround is for parents to add their children as authorized users on their credit card accounts. Credit checks aren’t required, and the user can quickly piggyback on the primary cardholder’s credit history. But this arrangement isn’t always the right move. Here’s what to know about the potential limitations of adding your kid as an authorized user and alternative ways they can build credit.
They might be too young to reap the benefits
If you’re hoping to boost your child’s credit before they even learn to tell time, you could face roadblocks. For one, your kid may not qualify for authorized user status. While some card issuers don’t have age restrictions, others require a minimum age of 13 or older.
Even if you can add your child, the issuer may not report their account details to the credit bureaus. Some issuers allow kids as young as 13 to become authorized users but only report credit information for those age 18 and older. It’s wise to ask your credit card company how authorized user arrangements work.
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Misuse can lead to damaged credit
Being an authorized user doesn’t guarantee improved credit. “Same as the primary account holder, it can affect your credit positively or negatively, depending on how the card is used,” says Bruce McClary, senior vice president of membership and communications at the National Foundation for Credit Counseling.
If you have a record of on-time payments and don’t use too much available credit, that can generate or help your kid’s credit score. But your credit and your child’s can suffer if either person uses the account unfavorably.
Ultimately, it’s up to the parent to keep the account in good standing.
“When you add someone as an authorized user, that’s what they are. They’re authorized to use the card but they are not legally bound to pay the bill. You are legally bound to pay the bill,” says Julie Beckham, an accredited financial counselor and financial educator in the Boston area.
You don’t need to give your kid the credit card. As long as the primary cardholder keeps their account open and active, the authorized user’s credit will share the effects. If you give your child the card, set some ground rules. Talk about when it’s OK to use the card, how much they’re allowed to spend and who will make the payments. Some credit card companies let you place spending limits for authorized users.
Authorized user status might not be enough for future lenders
Some lenders don’t take authorized user accounts into consideration when reviewing credit applications or give them much weight. “If you’re a lender and you’re looking at someone and you see the designation that they’re an authorized user rather than the primary account holder, it’s just telling you that this person did not have to go through a credit approval process to have access to that account,” McClary says.
Having an account in their own name puts your kid in a stronger position because it shows they’re equipped to manage payments. You can guide them toward opportunities in adulthood.
“There are credit-builder loans that are available. There are starter credit cards for young adult consumers, where the threshold for approval is a little bit lower. You can also look at options for secured credit cards that require no credit check, but they require a good faith deposit in order to open the account,” McClary says.
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Explore other ways to get your child credit-ready
The best way to set your child up for success is to talk to them about money, Beckham says.
You could look over your credit reports together or explain how many hours you need to work to pay for things like dinners or fun outings.
Encouraging good routines, like doing chores and turning in homework on time, is also important. “They’re transferable habits that can help them in their life financially as they build credit,” Beckham says.
Give your child opportunities to practice managing money before they graduate to credit. Beckham suggests letting kids test the waters with a checking or savings account. “Starting with their own money is always better because there is a sense of ownership and accountability to that,” she says.
This article was written by NerdWallet and was originally published by The Associated Press.
Unsecured credit cards, which don’t require a form of collateral to use them, tend to be the most popular kind of credit card. In addition to helping you build credit, these cards often come with perks and benefits, like cash back rewards or free travel insurance.
To decide if an unsecured credit card is right for your financial situation, read on. You’ll learn what an unsecured credit card is, how it works, and the pros and cons of using one.
What Is an Unsecured Credit Card?
When you think of what a credit card is, you’re most likely thinking of an unsecured credit card. An unsecured credit card is a line of credit that gives cardholders the ability to use credit at their whim. In other words, as a cardholder, you can use your credit up to its limit and pay it off continuously, with no end date. Unsecured credit cards get their name since they don’t require a deposit or collateral, unlike secured credit cards.
Depending on the credit card you qualify for, you might be able to receive some additional benefits and perks with an unsecured credit card like cash back rewards.
How Does an Unsecured Credit Card Work?
You’ll receive a credit limit when you open an unsecured credit card. Your credit limit is the maximum credit you can use on this account. You must pay at least the credit card minimum payment each billing cycle if you’ve used the card. Here are some points to know:
• Your monthly payment will vary depending on how much credit you used during that billing cycle (in fact, some months, you may even have a negative balance on your credit card).
• If you miss a monthly payment, you’ll likely have to pay a penalty or fee for the infraction.
• If you make only the minimum monthly payment, your remaining balance (plus accrued interest based on the APR on a credit card) will carry over until the next month.
So, to avoid penalties, fees, and accrued interest, it’s best to pay your balance in full every month.
But, if this isn’t feasible with your budget, aim to pay more than the minimum every month so you can quickly chip away at your total outstanding balance. Just be sure to keep in mind how credit cards work when deciding how much to pay in a given month.
Pros and Cons of Unsecured Credit Cards
Some of the benefits and drawbacks of unsecured credit cards may be obvious. But, to help you determine the risks and rewards of using this type of credit card, here are some pros and cons to get familiar with.
Pros
Upsides of unsecured credit cards include:
• Higher credit limits: Applicants usually must have a competitive credit score to qualify for an unsecured credit card. For this reason, credit card companies may apply a higher credit card limit since you’ve proved your creditworthiness.
Also, having a higher credit limit can impact your credit utilization ratio, the amount of credit you use compared to the amount of credit you have available. Your credit utilization ratio is used to assess your credit score, and a higher ratio may negatively impact your score. With a higher amount of credit available, it’s easier to maintain a lower ratio.
• Potential to earn rewards: Many unsecured credit cards offer incentives like cash back or airline miles to encourage cardholders to use their credit. They may also offer additional benefits, such as complimentary airport lounge access or hotel credits. So, when comparing your unsecured credit card options, be sure to look at all perks and rewards that may be offered.
• Frequently reports credit history to credit bureaus. Since card issuers take on more risk by lending credit to cardholders, they usually report your credit activity to the credit bureaus on a monthly basis.
Your credit usage is another factor used to determine your credit score, so these regular reports can help you assess how well you’re managing your credit. If you’re managing it well, these frequent reports can help your score.
• An abundance of options: Unsecured credit cards are the most popular type of credit card. Therefore, there’s a vast array of credit card options at your disposal. Because there are so many options, you’ll likely be able to find one suitable to fit your needs.
Cons
While there are many advantages of using an unsecured card, some may come with some downsides, including:
• Varying approval requirements: Every credit card company usually has different credit card approval requirements, and you’ll generally need a higher score to qualify for an unsecured versus a secured credit card.
For example, some secured credit card requirements are a credit score of at least 580; others may require a score of at least 680. Researching requirements beforehand can help you identify the best cards available that you can qualify for with your credit score.
• Extra fees: Some unsecured cards may come with extra fees, such as convenience fees, cash advance fees, or foreign transaction fees. Keep in mind that not all cards charge these fees, though, so it’s worth it to compare your options based on your needs. For example, if you travel abroad often, you may want to choose a card that doesn’t have foreign transaction fees.
Pros
Cons
Higher credit limits
May charge additional fees such as convenience fees, balance transfer fees, or cash advance fees
Wide range of credit card options available
Different credit requirements for approval
Rewards such as cash back or miles
Usually report to credit bureaus
Unsecured vs Secured Credit Cards: What Are the Differences?
The most significant difference between unsecured versus secured credit cards is that secured cards require a deposit while unsecured cards don’t. Your deposit on a secured credit card usually dictates your credit limit. Depending on the credit card company and your credit score, your deposit may vary between $200 and $3,000, which is far lower than the average credit card limit.
Requiring a security deposit eliminates some of the creditors’ risks; thus, it can be easier to qualify for a secured credit card than an unsecured credit card. Keep in mind, no matter what type of card you have, you’ll find the most favorable terms if you have good credit, such as a good APR for a credit card. Also, you may have to forgo any rewards while you build your credit with a secured card, as they don’t often offer them.
If you fall behind on your payments, your creditor could cancel your card and send your remaining outstanding balance to a third-party collector with either an unsecured or a secured credit card. However, if you have a secured credit card and your payment is past due, your creditor may keep your security deposit to pay off some of the remaining balance.
Beyond these few items, there is no other real difference between the inner workings of a secured credit card and an unsecured credit card.
• Each card allows you to make purchases at locations that accept credit card payments.
• During the billing cycle, you must make at least a credit card minimum payment.
• Otherwise, you may have to pay fees or penalties with your secured or unsecured credit card.
Secured Credit Card
Unsecured Credit Card
Requires a refundable deposit
✓
X
Can qualify with poor credit
✓
✓
Can come with rewards
✓
✓
Requires at least a minimum payment every month
✓
✓
Used to make purchases
✓
✓
Who Should Consider an Unsecured Credit Card?
Since there are plenty of unsecured credit card options available, they can suit the needs of many different types of consumers. If you’re in the market for a new credit card, here’s how to decide if an unsecured card is right for you.
The Budgeter
If you’re big on budgeting, you can use an unsecured credit card as a tool to help you as you make a budget and stick to it. Many credit issuers offer online statements or apps that can make it easy to track all of your spending right on your phone.
But, if you’re going to use your credit card for all of your spending, make sure to keep the interest in mind. While unsecured credit cards can help you budget, they can also hinder you if you get into the habit of overspending.
The Frequent Flyer
Do you love spending your time on the move? Many unsecured credit cards provide travel rewards that help you earn free travel experiences. For example, some cards can come with reward points or miles that you can use toward booking airfare or accommodations.
You may also receive additional perks like annual hotel credits, access to airport lounges, or discounts on flights when using miles.
The Business Owner
Unsecured credit cards are also useful for business owners. Business owners can capitalize on the perks of unsecured credit cards like rewards, sign-up bonuses, and other benefits. Also, an unsecured card can provide short-term funding for business growth. Plus, it can help businesses build credit for future financing endeavors.
Of course, benefits and terms will vary depending on the type of card you choose.
Typical Requirements to Apply for an Unsecured Credit Card
When you apply for an unsecured credit card, you must meet certain criteria to qualify. Some common requirements when applying for a credit card include:
• Be at least 21 years of age. While this is generally the age required to get a credit card, if you’re over 18 and can prove you have an income, you may qualify.
• Provide proof of income to demonstrate you can make the minimum payments.
• Be a U.S. citizen or have the authority to work in the U.S.
• Have an acceptable credit score range per the lender’s requirements.
• Provide personal information such as your name, age, address, Social Security number, and more.
Keep in mind that all credit issuers have different criteria for approval. Some credit issuers may give you the option to pre-qualify. This way, you can see if you may qualify without submitting a hard inquiry on your credit, which can impact your credit score.
The Takeaway
Unsecured credit cards can come with many perks, such as earning cash back rewards and helping you build credit. But, before you apply for just any old card, make sure to compare your options, keeping the average credit card interest rate in mind, and understand the criteria for approval. Identifying an unsecured credit card that’s suitable for your needs might take a little time, but it’s worth it.
Whether you’re looking to build credit, apply for a new credit card, or save money with the cards you have, it’s important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
Is it good to have an unsecured credit card?
If you can handle an unsecured credit card responsibly, it can help you build credit. Also, it can be a good way to receive additional benefits, such as cash back or other rewards, for completing your daily transactions.
What credit score do I need for an unsecured credit card?
Typically, if you have a credit score of 579 or less, credit issuers may be reluctant to approve your application. To qualify for the most competitive rates and offers, you typically want to have a credit score of 670 or higher.
How long before I can get an unsecured credit card?
If you’re working on building credit and don’t qualify for an unsecured credit card, you may have to start with a secured card. But, the amount of time you must use your secured credit card before you graduate to an unsecured time can vary from a few months to several years. Ultimately, it will depend on factors like your current credit score and the criteria of the unsecured credit card you’re applying for.
Photo credit: iStock/Zhonghui Bao
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.
When it comes to picking a new credit card, there’s one detail you should not overlook: the card’s annual percentage rate, or APR. This represents the rate lenders charge to borrow, including fees and interest. But credit cards don’t have one single rate, and it may be hard to evaluate what’s a good deal and what isn’t.
In general, a good APR is one that’s below the current average interest rate, which is 21.47%, according to the latest data from the Federal Reserve at the start of 2024. However, what’s a good APR will also depend on the type of credit card, the various rates that could be assessed, and your own creditworthiness. This guide will take you through the details.
What Is an Annual Percentage Rate (APR)?
The APR on a credit card represents the total cost of the loan expressed in annual terms. A credit card’s APR includes the interest rate as well as any fees, including for late payments, foreign transactions, or returned payments.
Taking these fees into account when applying for a credit card helps to provide a fuller picture of what the loan may actually cost over its lifetime.
Keep in mind that APR is distinct from interest rate, which is simply the additional cost of borrowing money. Like APR, interest rate is typically expressed as a percentage of the principal. However, when looking at the average credit card interest rate vs. the average APR, you’re not comparing apples to apples.
For example, if a consumer takes out a $1,000 loan with a 10% simple interest rate and a one-year term, they will pay $1,100 over the lifetime of the loan — the principal $1,000 plus interest of $100.
While this example is extremely simplified, it’s helpful in demonstrating the difference between a simple interest rate and a not-so-simple APR calculation. If the consumer calculates the cost of the same $1,000 loan, considering the various fees that go into the APR, the number will likely be higher than the stated interest rate.
How Is APR Determined?
Knowing how APR is determined is an important part of understanding how credit cards work. A credit card’s APR is largely determined based on an individual’s financial specifics when they open the account.
• The lender will look at the person’s credit score and credit history, as well as factors like their payment history and debt-to-income (DTI) ratio, which represents how much of an individual’s gross income is already going toward debt payments. In general, someone with a good payment history and credit score and a lower DTI ratio will qualify for a better APR.
• However, APR isn’t only based on a borrower’s creditworthiness. Lenders will also take into account the current US prime rate, which is used to set rates on consumer loan products. Typically, a lender will take this rate and then bump it up a bit to minimize risk and increase profits.
• Lastly, APR will vary based on the type of credit card. If you know what a credit card is, you’ll know all credit cards aren’t created equal. For instance, a credit card that offers lucrative rewards (like travel points or cash back) will generally have a higher APR than a more basic card.
When It Matters to Look at APR
If a consumer is comparing two similar loan or credit card offers, they may want to also look at the offer’s APR.
Let’s say a person has two loan offers. Each is a $1,000 loan with an interest rate of 10%. With just that information to compare the two, they seem equal to each other. A little more digging, though, will uncover that Offer A has a $100 origination fee while Offer B only has a $50 origination fee — both of which could be calculated and accounted for in the offer’s APR.
With credit cards, it could be that two cards have the same interest rate, but Card A has no late payment fees, while Card B carries a 20% late payment fee, making its APR potentially higher.
When it comes to APR, the devil really is in the details. And reading the fine print can reveal that the APR could make a difference to your credit card balance and debt management.
Types of Credit Card APR
To further complicate the answer to the question of what’s a good APR for a credit card, it’s important to understand that credit cards have different types of APR. The main one you’re probably going to want to consider when considering your total cost of borrowing is the purchase APR. However, if you’re planning to take out a cash advance or do a balance transfer, you’ll want to look at those APRs as well.
Introductory APR or Promotional APR
Sometimes, cards will offer a lower (or even 0%) APR to new customers for a limited time after they open the account. This APR can apply to purchases or to balance transfers. Introductory or promotional APRs must last at least six months, but they can be longer, too. Once this period is up, the regular APR kicks in.
Purchase APR
The purchase APR is the rate that applies when you use your credit card to make a purchase and then carry a balance into the next billing cycle, perhaps only making the credit card minimum payment. This is the most commonly discussed type of APR, and the main one you’ll want to look out for when comparing credit cards.
Cash Advance APR
A cash advance APR applies if you withdraw money from an ATM or bank using a credit card. Unlike your purchase APR, this APR doesn’t have a grace period, meaning interest starts accruing immediately. Additionally, cash advance APRs tend to be on the higher side.
Penalty APR
If you fail to make your payments on time, the penalty APR will kick in, driving up your card’s previous APR to one that’s often much higher. This is why it’s always important to make your credit card payments on-time — even if you’re in the midst of disputing a credit card charge, for instance.
Balance Transfer APR
A balance transfer APR will apply when you transfer any balances from other cards onto your credit card account. Often, this APR is comparable to the purchase APR, though this can vary depending on the credit card company.
How to Evaluate and Compare APRs
To get a sense of a credit card’s APR, follow these steps:
• First take a look at a card’s purchase APR range, and compare that to other credit cards. For a fair comparison, make sure to look at the same type of credit card. (For example, only compare travel rewards cards to other travel rewards cards, or a credit-building card to another credit-building card.)
• Then, get into the nitty-gritty and look at the APR for different types of transactions. Even one credit card can have varying APRs on different transactions. For example, a card may have a different APR on late payment penalties than it does for balance transfers or cash advances.
• Evaluate each APR and compare those to any other offer you may have in front of you to ensure you pick the most competitive option. It’s a good idea to attempt to seek out the lowest rate possible for your financial situation. That way, you can feel confident using your credit card for what you need to use it for — which might include paying taxes with a credit card.
Low vs High APR Credit Cards
As you’re evaluating credit card APRs, it’s important to keep in mind that some credit cards tend to have higher APRs than others. For example, rewards credit cards generally have higher APRs, but provide value through perks, discounts, points, or other benefits.
On the other hand, many low-interest cards come with fewer perks. But again, these cards can save someone money in the long run if they need to carry a balance from, say, covering a large purchase at an establishment that accepts credit card payments.
Low-interest cards also tend to be reserved for those with higher than average credit scores, so they may be harder to qualify for with lower credit.
What Is a Good APR for a Credit Card?
According to the Federal Reserve, the U. national average credit card APR was 21.47% in December 2023. It’s reasonable to assume that an APR at or below the national average is considered “good.”
That said, qualifying for a “good” APR may hinge on a consumer’s credit score. For instance, someone with a below-average credit score may have a different definition of a good APR for a credit card compared to someone whose score is excellent.
APR and interest rates also change alongside federal interest rates changes. Because of this, it’s important for consumers to find the most recent data available on average credit card APR to ensure they aren’t relying on out-of-date information to inform their decision.
How to Avoid Paying APR
The APR a person qualifies for typically depends on their individual credit score. This means that those with credit scores on the higher end of the scale might qualify for lower APRs. If a consumer has a lower credit score, that doesn’t mean they’re totally out of luck, but they might be offered the same card at a higher APR.
However, there are a few ways a person can improve their chances of qualifying for a lower APR, and that starts by doing the work to build one’s credit score.
Tips for Qualifying for a Better APR
The APR a person qualifies for typically depends on their individual credit score. This means that those with credit scores on the higher end of the scale might qualify for lower APRs. If a consumer has a lower credit score, that doesn’t mean they’re totally out of luck, but they might be offered the same card at a higher APR.
However, there are a few ways a person can improve their chances of qualifying for a lower APR, and that starts by doing the work to improve their credit score.
• One step is to check your credit report regularly for accuracy. US federal law allows consumers to get one free credit report annually from each of the three credit reporting agencies. Look out for any incorrect or suspicious charges. Even if you’d thought you’d resolved an issue related to a credit card skimmer, for instance, you’ll want to make sure those charges aren’t affecting your credit report in any way.
• You can build your personal credit scores by making debt payments on time and trying to use only 30% of your available credit limit at any given time. Payment history accounts for 35% of the total credit score, and credit utilization — how much of a person’s total credit is being used at a given time — accounts for 30% of the total credit score.
Repairing a poor credit score can take some time, but it’s worth the work.
The Takeaway
Currently, the average credit card APR is 21.47%, and anything below that could be considered a good rate. However, when it comes to what is a good APR for a credit card, the answer is that it depends on a variety of factors. It will also depend on your credit scores and history as well as what type of credit cards and rewards you’re looking for. When you do get a credit card, it’s important to use it wisely so that you don’t wind up getting charged higher penalty rates.
Whether you’re looking to build credit, apply for a new credit card, or save money with the cards you have, it’s important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
What is a bad APR rate?
A bad APR for a credit card is generally one that’s well above the current national average credit card rate. APR for a credit card can vary widely, with some offering APRs as high as a whopping 36%.
What APR will I get with a 700 credit score?
A credit score of 700 is considered in the good range. It’s likely you could qualify for an APR around the average, though of course this will also depend on other factors, including the type of card and the current prime rate.
Does the interest rate on my credit card change?
Your credit card company can increase your interest rate. However, they are not permitted to do so within the first year of opening the account. Additionally, they must give you notice at least 45 days in advance.
What other financial products have an APR?
Many different types of lending products have APR. Beyond credit cards, this can include mortgages, car loans, and personal loans.
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.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
An authorized user is an individual added to a credit card by the owner of the account or primary cardholder. The authorized user, also referred to as the additional cardholder, can make purchases using the credit card, although the responsibility to make payments falls on the primary cardholder.
Building credit from scratch can be a difficult task, especially for those with limited credit knowledge. One way to get your feet wet with credit is by becoming an authorized user on someone else’s account. As an authorized user, you can leverage someone else’s positive credit habits to improve your own creditworthiness.
However, there are important factors to consider before becoming an authorized user yourself or adding an authorized user to your account. Read on to learn more.
Table of contents:
What is an authorized user?
An authorized user is a person added to someone else’s credit card account who has permission to make charges. The main user who owns the account is the primary cardholder, while an authorized user is sometimes referred to as an additional cardholder.
Who can be an authorized user?
Anyone can be an authorized user, provided they meet the card issuer’s requirements and the primary cardholder adds them to the account. Typically, the primary cardholder and authorized user have an established, trusted relationship.
Here are the most common scenarios where adding an individual to your account is beneficial.
Parent/child: Parents may add their children as authorized users to their account to help them build credit history and give them access to the line of credit for emergencies or family expenses.
Employer/employee: Business owners may add trusted employees as authorized users for business-related expenses.
Couples: Couples may designate one spouse as the primary cardholder and the other spouse as the authorized user, especially when one partner has a higher credit score than the other.
Is an authorized user responsible for credit card debt?
No, being an authorized user doesn’t make you responsible for paying credit card debt. While an authorized user can make purchases, payment responsibilities fall to the primary cardholder. Authorized users have no legal responsibility to make payments.
How does being an authorized user affect your credit?
Accounts you’re an authorized user of are typically included in your credit report, which can help you build credit history. Also known as piggybacking credit, this allows you to use the primary cardholder’s positive credit habits to build your credit.
While being an authorized user can help increase your credit score, it can also have the opposite effect. If the primary cardholder falls behind on payments or maintains a high credit utilization ratio, this can negatively impact your credit.
It’s important to note that not all credit card issuers report authorized user activity to the three major credit bureaus. Consider checking with the primary cardholder’s issuer before becoming an authorized user to make sure they report to the credit bureaus.
How to add an authorized user
To add an authorized user, reach out to your credit card company online, by phone or in-person. Your credit card company will likely require the authorized user’s name, address, birth date and Social Security number to add them to the account.
Once you add someone as an authorized user, your credit card company will mail you a second card that the authorized user can use, although you can decide whether or not you give it to them. Keep in mind that you don’t need to give the authorized user a physical card for them to receive the credit-building benefits.
Here are additional tips to remember when adding an authorized user:
Only add authorized users you trust since they will have access to your credit line.
If your credit card company offers this option, consider setting up spending limits for authorized users to prevent overspending.
Set up alerts to notify you when an authorized user makes a purchase.
How to remove an authorized user
You can easily remove an authorized user if your circumstances have changed. Similarly to adding an authorized user, just contact your credit card company and request the authorized user be removed from the account. Consider also contacting the authorized user to notify them that you’re removing them from the account.
Here are some circumstances in which you may want to remove an authorized user from your account:
There’s been a change in relationship: For example, if your partner is an authorized user on your account and you break up
The account has been misused: If an authorized user is overspending on your account and negatively affecting your finances. For example, if your teen’s spending habits are out of control
There are also scenarios in which you may want to remove yourself as an authorized user from someone else’s account, such as:
You achieved financial independence: If you’ve established a credit history and no longer need access to the account, consider removing yourself to manage your finances independently.
The primary cardholder’s poor credit habits are affecting your credit score: If the primary cardholder is falling behind on payments, your credit could also take a hit, so it’s best to cut ties.
Joint credit card vs. authorized user
A joint credit card allows two people to share one account equally. The main difference between an authorized user and a joint credit card is who is legally obligated to make payments. While both parties are responsible for paying debt on a joint card, an authorized user isn’t required to make payments.
Keep in mind that fewer credit card issuers are offering joint accounts since companies prefer that only one individual is liable for the account. Meanwhile, most credit card issuers offer the option to add authorized users.
Authorized user FAQ
Still unsure whether becoming an authorized user is right for you? We’ve answered some common questions below.
How old do you have to be to be an authorized user on a credit card?
Some credit card issuers have age requirements ranging from 13 to 16, while others have no minimum age requirement.
How long does it take for authorized user accounts to show on your credit report?
Authorized user accounts will typically appear on your credit report within 30 to 45 days after you’re added to the account, as long as your credit card issuer reports to the credit bureaus.
What is the difference between having a cosigner and becoming an authorized user?
A cosigner shares responsibility for repaying the debt, while an authorized user isn’t legally obligated to make payments.
Monitoring your credit as an authorized user
Becoming an authorized user is a great way to kick-start your credit journey. As you start to build credit, it’s important to monitor your credit and ensure that no inaccurate negative items are impacting your score.
When you sign up for a free credit assessment with Lexington Law Firm, you’ll receive your credit score, credit report summary and a credit repair recommendation. View your credit snapshot today.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Brittany Sifontes
Attorney
Prior to joining Lexington, Brittany practiced a mix of criminal law and family law.
Brittany began her legal career at the Maricopa County Public Defender’s Office, and then moved into private practice. Brittany represented clients with charges ranging from drug sales, to sexual related offenses, to homicides. Brittany appeared in several hundred criminal court hearings, including felony and misdemeanor trials, evidentiary hearings, and pretrial hearings. In addition to criminal cases, Brittany also represented persons and families in a variety of family court matters including dissolution of marriage, legal separation, child support, paternity, parenting time, legal decision-making (formerly “custody”), spousal maintenance, modifications and enforcement of existing orders, relocation, and orders of protection. As a result, Brittany has extensive courtroom experience. Brittany attended the University of Colorado at Boulder for her undergraduate degree and attended Arizona Summit Law School for her law degree. At Arizona Summit Law school, Brittany graduated Summa Cum Laude and ranked 11th in her graduating class.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
Credit card companies report payments at the end of their monthly billing cycle, also known as the statement closing date.
Credit cards are great for making large purchases and racking up points or miles and useful for building and improving your credit. If you’re a credit card holder constantly tracking your credit score to see improvement, it can be helpful to know when companies report to credit bureaus.
Unfortunately, issuers don’t report to credit reporting agencies on a specific day of the month. However, we can investigate a few factors to provide a prediction of when they will report as well as when you will see your payments reflected on your credit report.
Table of contents:
When do credit card companies report to credit bureaus?
How does credit card utilization affect your credit score?
How to decrease your credit utilization risk
How often do credit reports and scores update?
When do credit card companies report to credit bureaus?
Unfortunately, there isn’t a set date for when credit card companies report to the three credit bureaus: TransUnion®, Experian® and Equifax®. However, you can estimate the time frame by considering a few factors. Credit card companies typically report payments at the end of the monthly billing cycle. This is also known as your statement closing date. You can find these dates on your monthly statement.
However, don’t expect your credit report to update on the same day. It usually takes a bit for credit reporting agencies to update the information on your credit report. Updates on your credit report will also depend on:
The number of lines of credit
Due dates for every line of credit
If the credit issuer reports to all three credit bureaus or just one or two
The frequency and speed with which the credit bureau updates reports
If you’ve just paid your statement balance or previously unpaid balances, you likely want to see that reflected on your credit report as soon as possible. Since we don’t have a set-in-stone date for when you’ll see updates on your credit report, we recommend waiting at least a month or so to see any changes. If several months pass and you don’t see any updates to your report, we recommend contacting your credit card company to confirm your payments were correctly processed.
How does credit card utilization affect your credit score?
Credit utilization is the ratio of your current outstanding credit debt to how much total available credit you have. Available credit is the maximum amount of money you can charge to your credit card. A low credit utilization is a good sign that you, the borrower, are using a small amount of your credit limit.
A large outstanding credit balance—or higher credit utilization—can negatively affect your credit. This is especially true if the credit utilization percentage is higher than 30 percent. The lower your credit utilization, the better your credit may be.
How to decrease your credit utilization
Your credit score is affected by five factors: credit utilization, credit mix, new credit, payment history and length of credit history. However, credit utilization makes up 30 percent of your score. If you’re worried about how your credit utilization impacts your credit score, there are ways to decrease your risk and potentially improve your credit.
1. Complete multiple payments
Completing smaller payments every month can help lower your credit balance. You can also set up automatic payments so your credit balance is as low as possible when your credit card company reports to the credit bureaus.
2. Ask for a higher credit limit
Increasing your credit limit can lower your credit utilization ratio, as you’ll have more credit available. This can improve your credit score as it reduces the percentage of credit used every month. However, a higher credit limit may encourage you to spend more, which could go against your goal to improve your credit. Only ask for a higher credit limit if you think you’ll stay within your current average spending amount.
3. Complete payments on time
Paying your bills by their due date is the easiest way to improve your credit. This can become harder if you have multiple credit accounts, as they won’t always have the same due dates. Keeping track of your due dates (found on the monthly statements) via credit card management apps or similar tools can help you stay on top of your bills.
If you can do so, making multiple payments on your card(s) throughout the month is the smartest move. This is because it can increase the likelihood that your credit utilization ratio is low when your credit card provider reports your data to the credit bureaus.
How often do credit reports and scores update?
While there isn’t an exact date when your credit score and report will update, it usually occurs within a 30- to 45-day timeframe. This also depends on when the credit bureaus refresh the information in your report. Remember that if you have multiple lines of credit, you’ll see your credit score constantly fluctuating based on when your creditors report to the credit reporting agencies.
How long until a new card appears on your credit report?
Just received and activated a new credit card? You’ll need to wait a bit to see your new credit card appear on your credit report. You can expect it to show up 30 to 60 days after your application was approved and your creditor opened the account. The number of days will depend on your credit card’s billing cycle.
Assess your credit with Lexington Law
Now that you have a better understanding of when companies report to credit bureaus, it’s also a good time to assess your credit score. If you receive your credit report and notice your credit score isn’t as good as it should be, don’t worry. With help from professional credit repair consultants at Lexington Law Firm, you may be able to improve your credit through our credit repair process. Get started with a free credit assessment today.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Nature Lewis
Associate Attorney
Before joining Lexington Law as an Associate Attorney, Nature Lewis managed a successful practice representing tenants in Maricopa County.
Through her representation of tenants, Nature gained experience in Federal law, Family law, Probate, Consumer protection and Civil law. She received numerous accolades for her dedication to Tenant Protection in Arizona, including, John P. Frank Advocate for Justice Award in 2016, Top 50 Pro Bono Attorney of 2015, New Tenant Attorney of the Year in 2015 and Maricopa County Attorney of the Month in March 2015. Nature continued her dedication to pro bono work while volunteering at Community Legal Services’ Volunteer Lawyer’s Program and assisting victims of Domestic Violence at the local shelter. Nature is passionate about providing free knowledge to the underserved community and continues to hold free seminars about tenant rights and plans to incorporate consumer rights in her free seminars. Nature is a wife and mother of 5 children. She and her husband have been married for 24 years and enjoy traveling internationally, watching movies and promoting their indie published comic books!
Ever dream of leaving your job to pursue a project you’ve always been passionate about, like starting your own business? Or going back to school without taking out student loans? What about the option to retire at age 50 instead of 65 without having to worry about money?
Any of these opportunities could happen if you’re able to achieve financial freedom — having the money and resources to afford the lifestyle you want.
Intrigued by the idea of being financially free? Read on to find out what financial freedom means and how it works, plus 12 ways to help make it a reality.
What Is Financial Freedom?
Financial freedom is being in a financial position that allows you to afford the lifestyle you want. It’s typically achieved by having enough income, savings, or investments so you can live comfortably without the constant stress of having to earn a certain amount of money.
For instance, you might attain financial freedom by saving and investing in such a way that allows you to build wealth, or by growing your income so you’re able to save more for the future. Eventually, you may become financially independent and live off your savings and investments.
There are a number of different ways to work toward financial freedom so that you can stop living paycheck-to-paycheck, get out of debt, save and invest, and prepare for retirement. 💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.
12 Ways to Help You Reach Financial Freedom
The following strategies can help start you on the path to financial freedom.
1. Determine Your Needs
A good first step toward financial freedom is figuring out what kind of lifestyle you want to have once you reach financial independence, and how much it will cost you to sustain it. Think about what will make you happy in your post-work life and then create a budget to help you get there.
As a bonus, living on — and sticking to — a budget now will allow you to meet your current expenses, pay your bills, and save for the future.
2. Reduce Debt
Debt can make it very hard, if not impossible, to become financially free. Debt not only reduces your overall net worth by the amount you’ve got in loans or lines of outstanding credit, but it increases your monthly expenses.
To pay off debt, you may want to focus on the avalanche method, which prioritizes the payment of high-interest debt like credit cards.
You might also try to see if you can get a lower interest rate on some of your debts. For instance, with credit card debt, it may be possible to lower your interest rate by calling your credit card company and negotiating better terms.
And be sure to pay all your other bills on time, including loan payments, to avoid going into even more debt.
3. Set Up an Emergency Fund
Having an emergency fund in place to cover at least three to six months’ worth of expenses when something unexpected happens can help prevent you from taking on more debt.
With an emergency fund, if you lose your job, or your car breaks down and needs expensive repairs, you’ll have the funds on hand to cover it, rather than having to put it on your credit card. That emergency cushion is a type of financial freedom in itself.
4. Seek Higher Wages
If you’re not earning enough to cover your bills, you aren’t going to be able to save enough to retire early and pursue your passions. For many people, figuring out how to make more money in order to increase savings is another crucial step in the journey toward financial freedom.
There are different ways to increase your income. First, think about ways to get paid more for the job that you’re already doing.
For instance, ask for a raise at work, or have a conversation with your manager about establishing a path toward a higher salary. Earning more now can help you save more for your future needs.
5. Consider a Side Gig
Another way to increase your earnings is to take on a side hustle outside of your full-time job. For instance, you could do pet-sitting or tutoring on evenings and weekends to generate supplemental income. You could then save or invest the extra money.
6. Explore New Income Streams
You can get creative and brainstorm opportunities to create new sources of income. One idea: Any property you own, including real estate, cars, and tools, might potentially serve as money-making assets. You may sell these items, or explore opportunities to rent them out.
7. Open a High-Yield Savings Account
A savings account gives you a designated place to put your money so that it can grow as you keep adding to it. And a high-yield savings account typically allows you to earn a lot more in interest than a traditional savings account. As of February 2024, some high-yield savings accounts offered annual percentage yields (APYs) of 4.5% compared to the 0.46% APY of traditional savings accounts.
You can even automate your savings by having your paychecks directly deposited into your account. That makes it even easier to save.
8. Make Contributions to Your 401(k)
At work, contribute to your 401(k) if such a plan is offered. Contribute the maximum amount to this tax-deferred retirement account if you can — in 2024, that’s $23,000, or $30,500 if you’re age 50 or older — to help build a nest egg.
If you can’t max out your 401(k), contribute at least enough to get matching funds (if applicable) from your employer. This is essentially “free” or extra money that will go toward your retirement. 💡 Quick Tip: Want to lower your taxable income? Start saving for retirement with a traditional IRA. The money you save each year is tax deductible (and you don’t owe any taxes until you withdraw the funds, usually in retirement).
9. Consider Other Investments
After contributing to your workplace retirement plan, you may want to consider opening another retirement account, such as an IRA, or an investment account like a brokerage account. You might choose to explore different investment asset classes, such as mutual funds, stocks, bonds, or exchange-traded funds.
When you invest, the power of compounding returns may help you grow your money over time. But be aware that there is risk involved with investing.
Although the stock market has generally experienced a high historical rate of return, stocks are notoriously volatile. If you’re thinking about investing, be sure to learn about the stock market first, and do research to find what kind of investments might work best for you.
It’s also extremely important to determine your risk tolerance to help settle on an investment strategy and asset type you’re comfortable with. For instance, you may be more comfortable investing in mutual funds rather than individual stocks.
10. Stay Up to Date on Financial Issues
Practicing “financial literacy,” which means being knowledgeable about financial topics, can help you manage your money. Keep tabs on financial news and changes in the tax laws or requirements that might pertain to you. Reassess your investment portfolio at regular intervals to make sure it continues to be in line with your goals and priorities. And go over your budget and expenses frequently to check that they accurately reflect your current situation.
11. Reduce Your Expenses
Maximize your savings by minimizing your costs. Analyze what you spend monthly and look for things to trim or cut. Bring lunch from home instead of buying it out during the work week. Cancel the gym membership you’re not using. Eat out less frequently. These things won’t impact your quality of life, and they will help you save more.
12. Live Within Your Means
And finally, avoid lifestyle creep: Don’t buy expensive things you don’t need. A luxury car or fancy vacation may sound appealing, but these “wants” can set back your savings goals and lead to new debt if you have to finance them. Borrowing money makes sense when it advances your goals, but if it doesn’t, skip it and save your money instead.
The Takeaway
Financial freedom can allow you to live the kind of life you’ve always wanted without the stress of having to earn a certain amount of money. To help achieve financial freedom, follow strategies like making a budget, paying your bills on time, paying down debt, living within your means, and contributing to your 401(k).
Saving and investing your money are other ways to potentially help build wealth over time. Do your research to find the best types of accounts and investments for your current situation and future aspirations.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
Invest with as little as $5 with a SoFi Active Investing account.
FAQ
How can I get financial freedom before 30?
Achieving financial freedom before age 30 is an ambitious goal that will require discipline and careful planning. To pursue it, you may want to follow strategies of the FIRE (Financial Independence Retire Early) movement. This approach entails setting a budget, living below your means in order to save a significant portion of your money, and establishing multiple streams of income, such as having a second job in addition to your primary job.
What is the most important first step towards achieving financial freedom?
The most important first step to achieving financial freedom is to figure out what kind of lifestyle you want to have and how much money you will need to sustain it. Once you know what your goals are, you can create a budget to help reach them.
What’s the difference between financial freedom and financial independence?
Financial freedom is being able to live the kind of lifestyle you want without financial strain or stress. Financial independence is having enough income, savings, or investments, to cover your needs without having to rely on a job or paycheck.
SoFi Invest® INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
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.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
Some credit facts you need to know are your credit score is based on five key factors, FICO credit scores range from 300 to 850, checking your own credit won’t hurt your score, and twelve more facts outlined below.
With all of the misleading and incorrect information about credit floating around, it’s no wonder some of us feel lost when it comes to our credit reports and credit scores. Fortunately, we’re here to help set everything straight with these simple and clear explanations.
We’ve taken the time to compile the most important credit facts you need to know to understand your credit and everything that impacts it. Just as importantly, we’re setting the record straight when it comes to credit myths that have been lingering for too long. Read on to learn everything you’ve always wanted to know about credit.
1. Your credit score is based on five key factors
Most lenders make their decisions using FICO credit scores, which are based on five key factors. That means that when you apply for a new credit card or loan, these are the primary influences on whether you’ll end up getting approved. Here are the five factors, in order of importance: payment history, credit utilization, length of credit history, credit mix and new credit inquiries.
35% – Payment history. Your ability to consistently make payments has the biggest impact on your score. Having late and missed payments is detrimental to your credit score, while a streak of on-time payments has a positive effect.
30% – Credit utilization. Your utilization measures how much of your available credit you’re using across all of your cards. By using one-third or less of your total credit limit, you could help improve your credit.
15% – Length of credit history. In general, having a longer credit history is helpful, though it depends on how responsibly you’ve used credit over time. Using credit well over time signals to lenders that you can be trusted to manage your finances.
10% – New credit. Applying for new credit leads to hard inquiries, which can negatively impact your credit score. Spacing out your new credit applications—and only applying for credit when you need it—helps your score.
10% – Credit mix. Having a variety of different types of credit—like credit cards, an auto loan or a mortgage—can influence your score as well. A diverse credit portfolio demonstrates your ability to successfully manage different types of credit.
With the knowledge of exactly how your score gets calculated, you can make smarter decisions with credit.
Bottom line: Credit scores aren’t as mysterious as they first appear, and you have control over all of the factors that determine your score.
2. Credit reports are different than credit scores
Although they are related, a credit report and a credit score are different. Also, it’s a bit misleading to talk about a single credit report or a single credit score, because the reality is that you have several different credit reports, and your credit score can be calculated in many different ways.
A credit report is a collection of information about your credit behaviors, like the accounts you have and when you make payments. Three main bureaus—Experian, Equifax and TransUnion—each publish a separate credit report about you.
A credit score uses the information in your credit report to create a numerical representation of your creditworthiness. In other words, all of the information in your report is simplified into a single number that gives lenders an idea of how likely you are to repay a debt.
Surprisingly, your credit report does not include a credit score. Instead, lenders who access your report use formulas to determine a score when you apply for credit. The most common scoring models are FICO and VantageScore, but lenders can make modifications to the calculations to give more weight to areas that are more important to them.
Bottom line: You’ll want to be familiar with both your credit reports and your credit scores, as they each play a role in helping you obtain new credit.
3. Negative credit items will eventually come off your credit report
Negative items on your credit report can cause damage to your credit score. Negative items include late payments, collection accounts, foreclosures and repossessions.
Although these items can lead to significant drops in your credit score, their effect is not permanent. Over time, negative items have a smaller and smaller impact on your score, as long as your credit behaviors improve so that more recent items are more favorable.
Additionally, most negative items should remain on your report for seven years at the most due to the regulations set by the Fair Credit Reporting Act. A bankruptcy, on the other hand, can last up to 10 years in some cases.
Bottom line: Negative items can cause a decrease in your credit score, but they aren’t permanent. Start building new credit behaviors and your score can recover over time.
4. FICO credit scores range from 300 to 850
One of the most common credit scoring models is produced by the Fair Isaac Corporation, also known as FICO. While you may hear “FICO score” and “credit score” used interchangeably, there are in fact several different scoring models, so you could have a different credit score depending on which lender or financial institution you’re working with. The score you’re assigned by FICO will usually always be in a range from 300 to 850.
Accessing your FICO score gives you the chance to have a high-level overview of your credit health. Scores that are considered good, very good or exceptional often make it much easier to get new credit cards or loans when you need them. On the other hand, scores that are fair or poor can make getting new credit more difficult.
Here’s an overview of the FICO scoring ranges:
800 – 850: Exceptional
740 – 799: Very Good
670 – 739: Good
580 – 669: Fair
300 – 579: Poor
Remember, though: credit scores are not fixed and permanent. Your score responds to factors like payments, utilization and credit history, so positive decisions now will benefit your score in the long term.
Bottom line: The FICO scoring ranges lay out broad categories to give you a sense of how you’re doing with credit—and can also help you set a goal for where you want to be.
5. The majority of lenders use FICO scores when making decisions
While there are multiple credit scoring models, the majority of lenders check FICO scores when making decisions. That means that when you apply for new credit—whether it’s a credit card, a loan or a mortgage—the score that’s more likely to matter is your FICO score.
That’s important to know, because many free credit monitoring services will show you score estimates or your VantageScore. Some credit card companies provide a FICO score, however, and you can also request to see the credit score that lenders used to make their decision during the application process.
Fortunately, credit scoring models tend to reference the same data and weight factors fairly similarly. That means if you make on-time payments, keep your utilization low, avoid opening up too many new accounts and have a consistent credit history with a variety of accounts, you’ll probably be in good shape regardless.
Bottom line: Knowing your FICO score can help you have an idea of how lenders will view your application for new credit.
6. You have many different types of credit scores
Credit scores vary based on the credit bureau reporting them and the credit scoring model used. The major credit bureaus all have slightly different information regarding your credit history. This means that these three, along with other credit reporting agencies, report several FICO credit scores to lenders to account for different information they’ve collected.
There are also different scores specific to particular industries. For example, auto lenders review different risk factors than mortgage lenders, so the scores each lender receives might differ. Although it can get confusing, the most important things to remember are the five core factors that affect your credit score.
Bottom line: Although many people reference their credit score in the singular, the truth is that there are many different types of credit scores that take into account different factors.
7. Checking your own credit won’t hurt your score
Many people believe that checking their credit score or credit report hurts their credit, but fortunately, this isn’t true. Getting a copy of your credit report or checking your score doesn’t affect your credit score. These actions are called “soft” inquiries into your credit, and while they are noted on your credit report, they shouldn’t have any effect on your score.
Hard inquiries, on the other hand, are noted when lenders look at your credit during an application process—and these can temporarily reduce your score. This is used to discourage you from applying for new credit too frequently. However, the effect is typically small, and after a couple of years the notation of a hard inquiry will leave your report.
Bottom line: You can check your own credit report and credit score without any negative effect—and we actually encourage you to do so to stay on top of your credit health.
8. You can check your credit score and credit reports for free
There are three main ways to check your credit for free. You’ll likely want to take a look at both your credit reports and your credit scores. Here’s how to get a hold of both of those:
You’re entitled to a free credit report once each year by visiting AnnualCreditReport.com, a government-sponsored website that gives you access to your reports from TransUnion, Experian and Equifax.
You may be able to check your credit score free by contacting your bank or credit card company. Additionally, many free services—like Mint—enable you to monitor your score for free. Just make sure to note which kind of credit score you’re seeing, because there are many different scoring methods.
The information you find in your credit report lays out the factors that determine your credit score. By scanning your report closely, you’ll likely find out the best strategy for improving your score—for instance, by improving your payment history or lowering your utilization.
Bottom line: Information about your credit is freely available, so take advantage of those resources to stay on top of your credit report and score.
9. Your credit score can cost you money
Ultimately, the purpose of credit scores is to help lenders determine whether they should offer you new credit, like a loan or a credit card. A lower score indicates that you may be at greater risk for default—which means the lender has to worry that you won’t pay back your debts.
To offset this risk, lenders often deny credit applications for those with lower scores, or they extend credit with high interest rates. These interest rates can cost you a lot of money over time, so working to improve your credit score can have a measurable effect on your financial life.
Consider, for example, a $25,000 auto loan. With a fair credit score, you may secure an interest rate of 5.3 percent—so you’ll pay a total of $3,513 in interest over five years. With an excellent credit score, your rate could drop to 3.1 percent, and you’ll save nearly $1,500 in interest charges over that same five-year period.
Bottom line: A good credit score can have a positive impact on your finances, and a bad score can cost you money in interest charges.
10. Canceling old credit cards can lower your score
If you have a credit card that you’re no longer using, you may be tempted to close the account entirely. Before doing that, though, consider how it could impact your credit score.
Recall that two credit factors are utilization and length of credit history. Closing an old account could affect one or both of those factors when it comes to calculating your score.
Your credit utilization could drop after closing an account because your credit limit will likely be lower. Since utilization represents all of your balances divided by your total credit limit, your utilization will go up if your credit limit goes down (and if your balances stay the same).
Your length of credit history could be lowered if you close an older account that is raising the average age of your credit.
Some people worry that having a zero balance on their credit card can negatively impact their score. This is just a credit myth. A zero balance means you aren’t using the card to make any purchases. Keeping the credit card open while not using it actually works to your benefit. You’re able to contribute to the length of your credit history, while not risking the chance of debt and late payments.
You may need to use the card every now and then to avoid having it closed. Additionally, if the card has an annual fee, you may need to close the card or ask to have the card downgraded to a version that does not have a fee. Still, if there’s a way to keep the card open, it’s often good to do so even if you don’t plan to regularly use it.
Bottom line: An old credit card can benefit your credit score even if you aren’t using it anymore.
11. You can still get a loan with bad credit
It’s true that getting a loan can be more difficult with bad credit, but it’s not impossible. There are bad credit loans specifically for people with lower credit scores. Note, however, that these loans often come with higher interest rates—or they require some sort of collateral that the lender can use to secure the loan. That means if you don’t pay your loan back, the lender will be able to seize the property you put up as collateral.
If you don’t need a loan immediately, you could consider trying to rebuild your credit before applying. There are credit builder loans, which are specifically designed to help you build up a strong payment history and improve your credit in the process. Unlike a traditional loan, you pay for a credit builder loan each month and then receive the sum after your final payment. Since these loans represent no risk to lenders, they’re often willing to extend them to people with poor credit history looking to raise their score.
Bottom line: You can get a loan even with bad credit—but sometimes it’s wise to find ways to raise your score before applying.
12. Credit scores aren’t the only deciding factor for lending decisions
While credit scores are important in lending decisions, lenders may take other factors into account when deciding whether to offer you new credit. For example, your income and employment can play a significant role in your approval odds. Additionally, some loans (like auto loans and mortgages) are secured by collateral that the lender can seize if you default. These loans may be considered less risky for the lender in certain cases because the asset can help offset any losses from nonpayment.
In many cases, your debt-to-income ratio is also an important factor in whether you’re approved for a loan or credit card. Lenders consider your current monthly debt payments (from all sources) as well as your monthly income to determine whether you may be overextended financially.
Two different people may pay $1,500 each month for student loans, a car payment and a mortgage. That said, if one individual makes $3,500 each month and the other makes $8,000 each month, their situations will be considered very differently by a potential lender.
Bottom line: Keeping your credit score high can help you secure credit when you need it, but you’ll want to stay on top of all aspects of your financial health.
13. Your credit report can help you spot fraud
Regularly checking your credit report can help you notice fraud or identity theft. If someone is using your information to open accounts, they will show up on your credit report.
If you notice an account that you did not open, you’ll want to start taking steps to protect your identity from any further damage. You may also want to freeze or lock your credit, which prevents anyone from using your information to open up more accounts.
Bottom line: Reviewing your credit report provides you an opportunity to notice when something is amiss.
14. Joint accounts affect your credit scores, but you do not have joint scores
If you have a joint account with someone else, that account will be reflected on both of your credit reports. For example, a loan that was opened by you and your spouse will show up for both of you—and will affect both of your credit scores. That said, your credit history, credit report and credit score remain separate. No one—including married couples—has a joint credit report or joint credit score.
In addition to joint accounts, you may also have authorized users on your credit card, or be an authorized user yourself. Authorized users have access to account funds, but they are not liable for debts. That means that if you make someone an authorized user on your credit card, they can rack up charges, but you’ll be on the hook if they don’t pay.
Because joint account owners and authorized users can influence credit scores in significant ways, we advise you to be careful about who you open accounts with or provide authorization to.
Bottom line: Even though joint account owners and authorized users can influence someone else’s credit, there are no shared credit reports or joint credit scores.
15. Many credit reports contain inaccurate credit information
The Federal Trade Commission found that one in five people has an error on at least one of their credit reports, and these inaccuracies can greatly impact your credit. (Also see this 2015 follow-up study from the FTC for more information regarding credit report errors.) This is why you should frequently check your credit report and dispute any inaccurate information. For example, since payment history accounts for 30 percent of your credit score, one wrong late payment can significantly hurt your score.
It’s important to get your credit facts straight so you understand exactly how different things impact your score. One of the first things you should learn is how to read your credit report so you can quickly spot discrepancies and ensure that the information reported is fair and accurate.
After scrutinizing your credit report, you can look into other ways to fix your credit, like paying late or past-due accounts, so you can help your credit with your newfound knowledge. You can also take advantage of Lexington Law Firm’s credit repair services to get extra help and additional legal knowledge to assist you.
Bottom line: Your credit report could have inaccurate information that’s hurting your score unfairly. Fortunately, there is a credit dispute process that can help you clean up your report and ensure all of the information on it is correct.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Nature Lewis
Associate Attorney
Before joining Lexington Law as an Associate Attorney, Nature Lewis managed a successful practice representing tenants in Maricopa County.
Through her representation of tenants, Nature gained experience in Federal law, Family law, Probate, Consumer protection and Civil law. She received numerous accolades for her dedication to Tenant Protection in Arizona, including, John P. Frank Advocate for Justice Award in 2016, Top 50 Pro Bono Attorney of 2015, New Tenant Attorney of the Year in 2015 and Maricopa County Attorney of the Month in March 2015. Nature continued her dedication to pro bono work while volunteering at Community Legal Services’ Volunteer Lawyer’s Program and assisting victims of Domestic Violence at the local shelter. Nature is passionate about providing free knowledge to the underserved community and continues to hold free seminars about tenant rights and plans to incorporate consumer rights in her free seminars. Nature is a wife and mother of 5 children. She and her husband have been married for 24 years and enjoy traveling internationally, watching movies and promoting their indie published comic books!
Credit card debt is a widespread issue that affects countless Americans, becoming a heavy burden that can disrupt financial stability and well-being. Whether due to unforeseen expenses, medical emergencies, or the convenience of online shopping, the roots of accumulating debt vary widely across individuals.
However, when debt reaches overwhelming levels, seeking ways to reduce or eliminate it becomes a critical goal. This is where the concept of debt settlement enters the picture—a strategy that involves negotiating with creditors to resolve a debt for less than the total amount owed.
The path to settling credit card debt might appear challenging, but armed with the correct information and strategies, it’s entirely possible to regain control over your financial destiny. This article aims to provide a comprehensive guide through the different paths available for settling credit card debt, ranging from self-managed methods to seeking professional assistance.
By gaining an understanding of your options, the steps involved, and the implications of each decision, you can make choices that align with your financial situation and objectives.
Understanding Your Debt Settlement Options
When faced with credit card debt, choosing the best strategy to reduce what you owe can seem overwhelming. However, understanding your options can simplify this process, making it clearer and more manageable. Whether you’re considering a do-it-yourself approach, thinking about seeking legal advice, or pondering the assistance of a debt relief service, it’s crucial to weigh the benefits and challenges of each method.
DIY Settlement Strategies
Settling debt on your own can be empowering and financially beneficial, as it saves you the fees associated with professional debt settlement companies. This approach requires you to directly contact your credit card company to negotiate a settlement—a lump sum payment that’s less than the total amount owed.
To succeed, you’ll need to be well-prepared: research your credit card company’s policies on debt settlement, understand your financial situation thoroughly to know how much you can afford to offer, and be ready to present your case persuasively. While this method demands significant time and effort, it allows you to maintain complete control over the negotiation process.
Consulting with a Debt Settlement Attorney
For those who prefer professional guidance, consulting with a debt settlement attorney can provide valuable legal insights and negotiation leverage. An attorney can evaluate your financial situation from a legal standpoint, offer advice on the feasibility of a settlement, and represent you in negotiations with creditors.
This option is particularly beneficial if you’re facing lawsuits from creditors or if your debt situation is complex. While hiring an attorney involves legal fees, their expertise can lead to more favorable settlement terms and protect you from potential legal pitfalls.
Engaging a Professional Debt Settlement Company
Debt settlement companies act as an intermediary between you and your creditors. These services negotiate on your behalf to reduce the total amount of debt you owe. Opting for a debt relief company can be a good choice if you’re uncomfortable handling negotiations yourself or if you have a significant amount of debt.
It’s important to do thorough research before selecting a debt settlement company: look for reputable companies with transparent fee structures and positive customer reviews. Keep in mind, however, that while a debt relief service can simplify the process, it also means you’ll pay a fee for their assistance, which is typically a percentage of the debt reduced or settled.
Evaluating Whether Debt Settlement Is the Right Choice for You
Deciding to settle credit card debt is a significant financial decision that requires careful consideration of your personal circumstances. It involves analyzing your financial situation, understanding the advantages and drawbacks of settlement, and considering other potential strategies for managing debt.
Assessing Your Financial Situation
The first step in determining if debt settlement is the right path involves a thorough assessment of your financial situation. This means taking stock of all your debts, including credit card balances, loans, and any other financial obligations.
Additionally, evaluate your income, monthly expenses, and any savings or assets you may have. This comprehensive financial overview will provide clarity on how much you can realistically afford to pay towards settling your debts. If you find that your debts far exceed your capacity to pay, and you’re experiencing financial hardship, debt settlement might be a viable option to consider.
The Pros and Cons of Debt Settlement
Before deciding on debt settlement, it’s essential to understand both the benefits and potential drawbacks.
Pros
Reduced debt: The most significant advantage is the possibility of paying off your debt for less than the full amount owed, potentially saving you thousands of dollars.
Avoiding bankruptcy: For many, working with a debt settlement company is a preferable alternative to bankruptcy, which has a longer-lasting impact on your credit scores.
Cons
Credit score impact: Settling your debt can negatively affect your credit score in the short term, as it involves paying less than the agreed-upon amount.
Potential fees: If you use a debt settlement company, you will likely incur fees, which can be substantial.
Tax implications: Forgiven debt may be considered taxable income, which could increase your tax liability.
The Step-by-Step Process to Negotiate Credit Card Debt Settlement on Your Own
Tackling credit card debt through settlement is a proactive approach to managing financial challenges. This process involves several key steps, each designed to help you successfully negotiate with credit card companies and reach a settlement that reduces your debt. Here’s a structured guide to navigating this journey on your own.
1. Educate Yourself on Debt Settlement
Begin by conducting thorough research on how to settle your debt. Learn about the process, its impact on your credit scores, and the legal factors involved. Become familiar with the typical practices in this area, including the average percentage by which debts can be reduced. Gaining knowledge in these areas is crucial and equips you for effective negotiation with credit card companies.
2. Inventory Your Debts
Compile a detailed list of all your debts, including credit card company information, outstanding balances, interest rates, and monthly payment amounts. This comprehensive overview will clarify the total amount you owe and help you prioritize which debts to settle first based on their impact on your financial health.
3. Analyze Your Financial Capacity
Assess your financial situation by reviewing your income, expenses, and available assets. This analysis will help you determine how much you can realistically afford to offer in a settlement without compromising your basic living needs. Creating a budget, if you haven’t already done so, is a crucial step in this process.
4. Organize Your Negotiation Strategy
Before contacting your credit card issuer, develop a clear negotiation strategy. Decide on the initial settlement offer you’re comfortable with and the maximum amount you’re willing to pay. Also, plan how to address any counteroffers from the credit card company. Having a strategy in place will help you navigate the negotiation process more effectively.
5. Establish Communication with Credit Card Companies
Initiate contact with your credit card companies to express your interest in negotiating a settlement. It’s often best to start this communication in writing, followed by phone calls. Be polite, concise, and clear about your financial situation and your desire to settle the debt.
6. Negotiate with Persistence and Patience
Negotiation is a process that requires both persistence and patience. A credit card company may initially resist your settlement offers, so be prepared to negotiate firmly but respectfully. Keep detailed records of all communications and offers made during the negotiation process.
7. Secure and Review the Settlement Agreement
Once you reach an agreement, request a written settlement agreement from the credit card company. Review this document carefully to ensure it accurately reflects the terms you negotiated, including the settlement amount and any conditions regarding the reporting of the debt to credit bureaus.
8. Fulfill the Settlement Terms Diligently
After securing the settlement agreement, adhere to the terms diligently. Make the agreed-upon payment by the specified deadline to ensure the settlement is honored. Once the payment is made, confirm that the account is reported as settled on your credit report.
Negotiating a credit card debt settlement on your own can be challenging, but with thorough preparation and a strategic approach, it’s possible to reduce your debt and move towards financial recovery.
Alternatives to Debt Settlement
Turning to a debt settlement company is only one of several strategies for handling overwhelming debt. It’s crucial to explore all available options to make an informed decision that aligns with your financial situation and goals. Here’s a more comprehensive look at the alternatives:
Debt Consolidation
Debt consolidation involves taking out a new loan to pay off multiple debts, effectively combining them into a single debt with one monthly payment. This approach is particularly beneficial if you can secure a consolidation loan with a lower interest rate than your current debts.
The advantages include simplifying your monthly payments, potentially lowering your overall interest rate, and providing a clear timeline for debt repayment. However, it requires a good credit score to obtain favorable loan terms.
Credit Counseling
Credit counseling agencies offer a valuable service for those struggling with debt. They work with you to create a personalized debt management plan (DMP) and can often negotiate lower interest rates and waived fees with your creditors.
Enrolling in a DMP means making a single monthly payment to the credit counseling agency, which then distributes the funds to your creditors according to the plan. A credit counselor can help you manage your debts more effectively without taking on new loans, but usually involves a small monthly fee.
Bankruptcy
Filing for bankruptcy is a legal process that offers a way out for those in severe financial distress. There are two main types of bankruptcy for individuals: Chapter 7, which liquidates your assets to pay off as much debt as possible, and Chapter 13, which sets up a repayment plan to pay back debts over time.
Bankruptcy can severely impact your credit scores and your ability to obtain future credit, but it provides a clean slate for those who have no other way to manage their debts. It’s advisable to speak to a bankruptcy attorney to understand the implications fully.
Budget Adjustments
Sometimes, the solution to managing debt is as straightforward as adjusting your budget. Reviewing your income and expenses meticulously to identify areas where you can cut back can free up additional funds to pay down your debt.
This might include reducing discretionary spending, canceling subscriptions, or finding ways to increase your income. While it requires discipline and may involve some lifestyle changes, this approach avoids the potential negative impacts on your credit score associated with other debt relief strategies.
Preparing for Life After Settlement
Successfully negotiating a debt settlement marks a significant milestone in your financial journey. However, the path to full financial recovery extends beyond just settling your debts.
Preparing for life after settlement involves taking proactive steps to monitor your credit report, rebuild your credit score, and develop healthy financial habits. These actions are crucial for ensuring long-term financial health and avoiding future debt issues.
Monitor Your Credit Report
After settling your debts, it’s important to regularly check your credit report from the three major credit bureaus—Equifax, Experian, and TransUnion. Ensure that the settled debts are accurately reported and reflect a zero balance.
Monitoring your credit report helps you catch and correct any inaccuracies or errors that could negatively affect your credit scores. It also keeps you informed of your credit status, which is essential for rebuilding credit. You’re entitled to one free credit report from each bureau per year through AnnualCreditReport.com, making it easier to keep tabs on your financial standing.
Rebuilding Your Credit Scores
Settling your debts can impact your credit scores, so focusing on rebuilding it is crucial. Start by making any remaining debt payments on time, as payment history is a significant factor in your credit scores.
Consider using a secured credit card, which requires a deposit that serves as your credit limit. Using this card responsibly and paying the balance in full each month can help demonstrate your creditworthiness and improve your credit scores over time. Additionally, keeping your credit utilization ratio low—below 30% of your available credit—is key to showing lenders you can manage credit effectively.
Developing Healthy Financial Habits
The final step in securing your financial future is developing and maintaining healthy financial habits. Create a realistic budget that accounts for your income, expenses, savings, and investments. Stick to this budget to avoid overspending and to ensure you’re saving adequately for emergencies and future goals.
Prioritize building an emergency fund with enough savings to cover at least three to six months of living expenses. This fund can help you avoid falling back into debt in case of unexpected expenses. Finally, continue educating yourself on financial management and seek professional advice when necessary to make informed decisions about investing and saving for the future.
Frequently Asked Questions
What happens if I miss a payment on a settled debt?
If you miss a payment on a settled debt, it could potentially void the settlement agreement, leading the credit card company to possibly demand the full original amount owed or take legal action against you. It’s crucial to adhere to the terms of the settlement agreement and make payments on time. If you foresee difficulties making a payment, contact the credit card company immediately to discuss your options.
Can I settle debt that’s already in collections?
Yes, you can settle debts that have been transferred to a collection agency. In fact, collection agencies might be more willing to negotiate a settlement since they acquire debts at a fraction of the original amount owed.
Negotiating with a debt collector follows a similar process to negotiating with the original creditor, but ensure any agreement is documented and that you understand the impact on your credit report.
How does debt settlement affect my ability to get new credit?
Debt settlement can impact your credit scores and might be viewed negatively by future lenders, as it shows you did not pay the full amount owed. This can make obtaining new credit more challenging, at least in the short term. However, as you rebuild your credit over time and demonstrate financial responsibility, lenders may be more willing to extend credit to you.
Should I use my savings to settle debts?
Using savings to settle debts can be a viable strategy, especially if it significantly reduces your financial burden and avoids accruing additional interest. However, consider keeping enough in your savings for emergencies.
Evaluate your financial situation carefully to make an informed decision. Consider working with a financial advisor to ensure you’re not putting yourself at risk for future financial emergencies.
How long does a settled debt stay on my credit report?
A settled debt typically remains on your credit report for seven years from the date of the original delinquency that led to the settlement. While the impact of the settled debt on your credit scores decreases over time, it’s important to focus on rebuilding your credit by maintaining good financial habits.
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations.
A credit card number is the specific number attached to your credit card. It includes a major industry identifier number, your account identifier, and a checksum.
The number on your credit card is more than a passcode to payments when you swipe your card. Many of the digits have a specific meaning. Find out what a credit card number is, what it means, and why it matters.
What Is a Card Number?
A credit card number is a unique number that helps identify your account and card. This number makes it possible for you to pay with the card and for money to be taken out of the right account.
Think about it similarly to your checking account number. Your personal checks are printed with a specific series of numbers. First is the routing number, which indicates which bank the check draws on. Next is the account number, which tells which account the money should come from.
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It’s basically everything my credit needs. I get 28 FICO® scores, rent and utility reporting, cash rewards and even a discount to one of the leaders in credit repair.
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Credit card numbers work the same way. Each part of that long number has a specific function. These are standardized by the International Organization for Standardization (ISO).
Need more credit?
Your credit card number is often located on the front of your card above your name, but it may also be located on the back, depending on your card’s style.
What Do Credit Card Numbers Mean?
You can break each credit card number into sections, and each section reveals specific information about the account.
Industry Identifier
The first six to eight digits reveal the credit card network and the card’s industry.
The first digit in any credit card number tells you what type of card it is—Visa, Mastercard, Discover, or Amex. Card numbers of each type always start with the same number:
3: American Express or cards under the Amex umbrella
4: Visa
5 or 2: Mastercard
6: Discover
American Express goes even further by starting card numbers with either 34 or 37, depending on the secondary branding on the card.
If your credit card number starts with any other digit, it refers to the industry that issues the card:
1 – 2: Air travel and financial services
7: Petroleum
8: Health care and telecommunications
9: Government and other industries
That first digit plus the next five in the credit card number is called the Issuer Identification Number (IIN) or Bank Identification Number. This identifies the credit card company and its network, similar to the bank routing number on a personal check.
In some cases, the IIN may be eight digits. To allow for more IINs to support growing needs, the ISO is requiring the financial industry to move to eight-digit IINs.
Account Identifier
The rest of the digits identify the account and cardholder information. This portion of your credit card number changes if your card is lost or stolen and you need a new card.
Within the account identifier, the last four digits are particularly important to you. If you save a credit card in an online account or other database, the information has to be encrypted. Employees of that company can’t just look up accounts and see full credit card information. They’re usually only able to see the last four digits.
You might be asked to confirm those numbers to ensure the right card is being charged. You might also be asked to confirm them when buying something online with a saved card number to ensure you’re really you and not someone who’s hacked into an account.
You can’t tell a credit card number by the last four digits. However, you could find a credit card you’ve saved in an account, such as on Amazon, by the last four numbers. Those are the only digits you’ll be able to see when you look at the saved payment methods in your account.
Checksum
The final digit is the checksum. Sometimes called the check digit, it is a way to verify the validity of a credit card using the Luhn algorithm.
Here’s how it works:
Starting from the first number of your credit card number, double every other digit.
If doubling results in a two-digit number, add those two digits together.
Add up all the doubled numbers.
The credit card number is valid if the number you reached in step three is divisible by 10.
Vendors use this algorithm to determine whether or not your credit card number is valid when you type it in online.
How to Protect Your Credit Card Number
Credit card fraud impacted nearly half a million consumers in 2022 and is the most common type of identity theft. Sadly, scammers can get your credit card number in many ways:
ATM skimming: People install credit card skimmer devices on public card terminals such as gas stations or outdoor ATMs. These devices store the data on your credit card’s magnetic strip for scammers to download and use.
Data breaches: There were more than 2,800 data breaches in 2023. A data breach occurs when secure data is accessed through unauthorized means, often because of a hacker. The largest data breach occurred in 2013 and involved the unauthorized access of more than three billion records.
Discarded documents: While bills and statements often don’t include your full credit card number, people may be able to gather enough information to determine your credit card number.
Phishing: These scams are fraudulent emails, texts, or phone calls that try to convince you to share your personal information to verify your identity.
Public Wi-Fi: Free public Wi-Fi is convenient but often unsecured. Hackers may be able to access your data through spyware or ransomware.
To protect your credit card information, take the following steps:
Avoid using public Wi-Fi when making online purchases or accessing account information.
Shred documents related to your credit card and always cut up old cards.
Don’t give out your account information.
Use strong passwords.
Enable two-factor authentication for your accounts.
Don’t give out personal information over the phone or online without verifying the validity of the request.
Use a virtual card number, which is a unique number connected to your actual credit card number.
Monitor your credit card statements carefully.
Monitor your credit score regularly with Credit.com’s Credit Report Card.
Credit Card Number FAQ
Below you’ll find additional information about credit card numbers.
How Many Numbers Are in a Credit Card?
Typically, credit card numbers are 16 or 15 digits. Only American Express uses the 15-digit format. Around 2020, Visa started issuing some cards with 19-digit card numbers, which aren’t typical in the United States.
What Other Numbers Are on a Credit Card?
You’ll also find a few other numbers on your credit card:
The expiration date: Every few years, credit card issuers will send you a new card for security reasons. This expiration date may be on the front or back of your card and is formatted with two digits for the year, a slash, and the last two digits of the year. For example, if your card’s expiration date is May of 2030, the expiration date would read 05/30. In this case, the card would stop working on May 31, 2030.
Card verification value (CVV): The security code, called a card verification number, is typically a three- or four-digit code on the back of your card. Vendors ask for it whenever they do not physically see your card, such as when you make a purchase online or over the phone.
Finding the Right Credit Card
Before applying for a new credit card, determine what kind of credit card you should get. For example, if you want to maximize rewards, you may want a cash-back card with perks that match your budget. If you’re looking to build credit, you may need to apply for a secure credit card that’s easy to get with lackluster credit.
To understand what options might be right for you, check your credit. This helps you know what type of credit card you might be approved for. Next, educate yourself about applying for a credit card online. Review options that seem appropriate for you and pick the best one—you can get started in our credit card marketplace. Then, gather all the information you need and apply.
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations.
If you successfully dispute a charge, the bank will notify the merchant and return funds to the issuing consumer via a chargeback. From here, merchants can decide if they want to dispute the chargeback or not.
If you file a dispute for a credit card charge with a bank, that bank will quickly notify the corresponding merchant that you’ve initiated this process. From here, the merchant can review your claim and decide whether or not to accept or deny your dispute.
Disputing a credit card charge can be a lengthy process with sweeping ramifications. That’s why it’s important to understand what a credit chargeback is and whether this tool is the best option at your disposal.
Key Takeaways:
Merchants may want to cancel a chargeback even if your bank sides with you.
Your bank will initially cover the cost of a chargeback until the matter is settled.
It’s often best to contact a merchant before initiating a chargeback.
What Is a Chargeback?
A chargeback occurs when you successfully dispute a charge on your credit card. The charge is taken off your credit card account and the money paid to the merchant is reversed (or “charged back” to the merchant). Many people dispute credit card charges for services not rendered. For example, there was a strong link between COVID-19 and chargebacks throughout 2020 as many companies struggled to keep up with demand.
A chargeback can be a powerful tool for consumers who do not receive products or services they paid for, but it comes with several caveats. Even if the credit card company sides with you, the merchant may not—and they may try to collect the chargeback funds.
What Happens When You Dispute a Charge?
The Truth in Lending Act is the federal law that gives consumers the legal right to dispute credit card charges if there is a billing error, as outlined in the Federal Reserve’s Consumer Compliance Outlook. This law defines a card issuer’s responsibilities when cardholders file disputes.
When you dispute a charge with your credit card company, it must conduct what the law calls a “reasonable investigation” to determine whether the charge was correct. It must also present you with the result of the investigation within 90 days.
During that process, the credit card company typically reaches out to the merchant involved in the charge. It requests documentation from the merchant regarding the transaction in question, and the merchant may be able to state why the charge was correct.
If the credit card company sides with you, it removes the charge from your credit card statement, and you do not need to pay the charge on your credit card.
Can a Merchant Try to Collect the Money From You After a Chargeback?
The Truth in Lending Act covers your right to dispute a credit card charge, but it doesn’t define what merchants are obligated to do—nor does it bar a merchant from trying to collect the money from you later. Instead, merchant agreements outline what actions a merchant can and can’t take concerning a dispute.
A chargeback means that the credit card company decides in your favor regarding the dispute. It doesn’t mean the merchant agrees or that they’ll return your funds.
Merchants can engage in “chargeback representment” to challenge your chargeback request and prove the original payment was valid. This process can be challenging, and merchants must decide if the potential loss of revenue is worth it—or if they might lose consumer trust with an aggressive approach without evidence.
The merchant might also seek to recover its loss by invoicing you for the charges. If you don’t pay, it might threaten collections activity or even sue you. Understanding your debt collection rights is pivotal if legal action seems imminent.
What’s the Difference Between a Refund and a Chargeback?
Chargebacks are granted by card issuers, while refunds come directly from merchants. While chargebacks can become lengthy and complicated processes, refunds are often straightforward.
So long as your claim aligns with a merchant’s terms and conditions, you’ll likely receive a refund shortly after the merchant receives the product you wish to return.
How Do You Manage Chargebacks?
No one wants to deal with an issue only to have it pop up unexpectedly in the future—especially financial issues that could affect credit scores. Here are some tips to avoid future issues when you request a chargeback.
Only Dispute Credit Card Charges If You Have a Legitimate Reason
Unfortunately, some people request chargebacks even if they received the goods or services in question. They might do so because they have a problem with the vendor or simply because they don’t want to pay for the products. That last instance counts as fraud, and it could lead to your credit card account being closed or other legal consequences.
Reach Out to the Vendor First
Before you file a chargeback, give the merchant a chance to make the issue right first. Many merchants are willing to work with you and might refund the money, offer an exchange, or work to resolve your specific grievance.
As part of your chargeback process, you’ll want to demonstrate that you attempted to contact the merchant about the issue. If you file a chargeback without working with the vendor first, you give the vendor more of a reason to insist that you still owe the money.
Act Quickly
You must dispute a credit card charge in writing, and your letter should reach the credit card company within 60 days of the first bill or statement with the error on it. This short timeline means knowing how to read a credit card statement is critical.
Keep an Eye on Your Account
According to the Federal Trade Commission, you can withhold payment for disputed charges while the investigation is underway. Your credit card company can’t penalize you with late fees, interest, or reports to the major credit reporting agencies regarding nonpayment of those charges.
That doesn’t, however, extend to your account in general. Implementing relevant tips for improving your credit history can keep your score from falling during the investigation. If you do pay your credit card charges and then realize something isn’t right, you can dispute that error. A decision in your favor might result in a credit to your account.
Save the Documentation
Don’t toss receipts, emails, or other evidence just because the chargeback occurred. You might need the documentation again if the merchant decides to try to collect from you. Typically, the higher the amount in question, the more important it is to maintain your documentation.
Monitor Your Credit With Credit.com
Chargebacks won’t affect your credit score alone, but there’s a margin for error while investigation is underway. In addition to reviewing your statements regularly, ensure you’re familiar with the laws that protect you and how you can assert your rights.
If any type of inaccurate negative reporting dings your credit—whether it’s related to a chargeback collection or not—tools like credit repair letters can be vital. One way to help protect yourself is to stay on top of your credit and invest in products and services that let you easily monitor your credit, such as ExtraCredit®.