Can You Buy a Car with a Credit Card?

Here’s the short answer. Yes, you can buy a car with a credit card. The better question may be whether or not this is the best way for you to purchase your vehicle—and this post will take you through the pros and cons of this method of car buying, as well as provide information about how this process may go.

The reality is that not all car-buying processes where the purchasers use credit cards are alike. So, we’ll show how some are more financially-savvy than others. We’ll also share the average car financing amounts and APRs today, along with average monthly car payments.

As with most situations involving money, what’s right for you isn’t necessarily right for someone else. Factors that help to determine the best financing strategy for you include how much ready cash you have in the bank and your credit score. Finally, we’ll also discuss other strategies for financing the car you want.

So, if you find yourself asking this question—Can I buy a car with a credit card?—then we recommend you read this post to explore your options and decide what’s best for your financial situation.

Pros of Car Buying With a Credit Card

Under certain circumstances, using a credit card to buy a vehicle can be an excellent strategy to consider—for example, when you have the money in the bank to pay off the balance in full when your statement comes.

In this scenario, you’ll have a fast and easy way to purchase your car of choice and, depending upon the credit card you’ll use, you may earn reward points, something you wouldn’t get if you simply used a cashier’s check to buy the car.

Here’s another way that strategy can work: If you have a credit card with a zero percent interest rate for a certain period of time. This strategy, though, isn’t as foolproof as the one where you pay the balance off in full, for more than one reason.

First, if, for some reason, you can’t pay the balance off within the introductory no interest period (emergencies do happen!), then the card will revert to its regular rate, which may be quite high.

If that happens, the situation can go downhill from there, because some credit card companies will then charge the full interest rate on the entire purchase, not just on the remaining balance. So, in that case, nothing was free and you’ll end up paying a high interest rate on the total balance.

Cons of Car Buying With a Credit Card

The biggest con of this strategy is that credit card interest rates are typically high, probably much higher than other available options. And, let’s say that your strategy is to purchase the car on your current credit cards, then transfer the balance to a zero interest credit card.

Besides the challenges listed above about these kinds of credit cards, there may be another one added to the picture if you transfer balances: transfer balance fees. These fees can be as high as 5% and, on a $20,000 car, that’s $1,000.

Here’s something else to consider. Having different kinds of debt can actually help with your credit score, so using an installment loan to buy your car may be helpful from a credit perspective.

Now, let’s return to the original question.

Can You Use a Credit Card to Buy a Car? Sometimes, Yes.

You’ll first need to check with your car dealership to verify that they accept credit card purchases. If they do, which ones do they accept? Some dealerships will allow a certain amount of the purchase, say $5,000, to put be on a credit card.

What’s most important is that you’re clear about what’s allowed; to save time, find out before you get too far along in the negotiating process.

If you go to a dealer that won’t accept credit card purchases, or limits the amount, you’ll have to decide whether to pay another way or to go to another place that sells the car you want and allows credit card purchases.

If you’ve selected a car at a place that takes credit card payments, you’ll need to check your credit limits to make sure you’ve got enough on one card or if you’ll need to use multiple ones.

If you still don’t have enough, you could pay the difference with a cashier’s check and still reap some of the reward-point benefits available through credit card use.

Or you could ask credit card companies for an increase in your limits. Note that, with the latter strategy, it can take a few days for the increased limit to take effect.

It also makes sense to notify your credit card companies that you intend to use your credit cards to make a large purchase. That’s because, if you don’t regularly make large purchases on your credit cards, the transaction might get flagged as potentially fraudulent and could get declined.

Car Financing Options

First, you’ll likely negotiate the price of the car, trying to get the best price possible. Then, if you don’t plan to simply pay the car off in full in cash, it’s now time to finance the vehicle.

You can, as discussed above, use credit cards to purchase a car if the dealer allows that method. You can apply for car loans through the dealership and through lenders that offer loans that use vehicles as collateral.

Note that, when you take out a loan using the vehicle as collateral, the lender has the option of repossessing that asset if payments are not made as agreed upon. This is a secured type of loan.

Dealers often offer loans on payment plans of 36, 48, or 60 months in length. They are often able to get financing approved that same day, while banks and private lenders may offer better deals, as far as interest rates and terms.

Saving For Your Car With SoFi Money

If buying a car is in your future, a good move may be to start saving in an account like SoFi Money®. SoFi Money is a cash management account where you can save, spend, and earn all in one place.

There no account fees (subject to change), and you can easily create vaults within your SoFi Money account, each for its own purpose (like one for a car fund).

Get started with SoFi Money today to save for your dream car.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank.

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Credit Card—and Credit Card Debt—FAQs

If you’re having trouble getting out of credit card debt, you’re not alone. According to the Federal Reserve Bank of New York’s Center for Microeconomic Data , household debt is higher than ever before. In the last quarter of 2019, household debt increased by $193 billion (1.4%). This marked the 22nd quarter in a row that household debt increased.

The current total is $1.5 trillion more than the country’s previous household debt peak in the third quarter of 2008. And credit card balances increased by $46 billion.

While these statistics provide a snapshot-view of what’s happening in many households across the United States, what probably matters most to you is finding ways to manage your own debt. To help, this post will provide some answers to frequently asked questions about credit cards and associated debt.

What Are (some of) the Benefits of Having a Credit Card?

There are a variety of advantages when it comes to credit cards, including that you:

•   don’t need to carry as much cash with you
•   can track your purchases
•   can make larger purchases
•   can benefit from reward programs and other discounts
•   can build your credit score with responsible use
•   have access to emergency funds when needed
•   can use your card to secure a hotel room, rental car, and so forth

Although this is not intended as a complete list of benefits, and credit cards are not for everyone, it does contain many of the significant advantages of having a credit card.

What Are (some of) the Disadvantages of Having a Credit Card?

Although the convenience of credit cards is significant, it’s possible for these cards to become a little bit too convenient. Some people believe that as long as they can make their minimum monthly payments on their credit card debt, they’re in good financial shape. In reality, though, making minimum payments isn’t usually enough. Typically, it can cause debt to increase because of compounding interest.

For example, let’s say you’ve got a balance of $5,000 on your credit card; the interest rate is fixed at 16.71%, and you’re paying $100 monthly. At that pace, it would take you five years-plus to pay off your original debt of $5,000, with an additional $3,616 in interest alone. That’s a simplified hypothetical, but if you’d like to get an idea of how much you may be paying back on your own credit card debt, you can use SoFi’s credit card interest calculator.

Another disadvantage of credit cards is that your account numbers can be stolen, leading to potentially serious identity theft problems. Plus, these thieves can use your account information to rack up charges and it can be a real hassle to address this issue.

Choosing the Right Credit Card for Your Situation?

Those who use a credit card responsibly might find it worthwhile to check around to find a card that offers the rewards they’d use and benefit from. These rewards can include frequent flyer miles, loyalty points, cash back, and so forth.

If you don’t typically pay off your balance in full each billing cycle, however, then credit card rewards might not be worth it since they typically have higher rates or annual percentage rates (APRs).

If you often carry a balance on your credit cards, then it could make sense to shop around for the best interest rate. These cards probably won’t have all of the extras that come with reward cards, but they could help you accrue less interest.

If you’re just building your credit or need to repair your credit score, a secured card may be worth considering. This functions like a typical credit card except that you’d need to put a deposit into the bank to serve as a backup.

If you close the account with your credit in good standing or you improve your credit to the degree that you’d qualify for an unsecured credit card, then the deposit is returned.

As another option, you can load a prepaid credit card with a certain amount of money, through cash, direct/check deposits, or online transfers from a checking account. You can use that card until the funds are used up.

Although this can make sense in certain circumstances, perhaps because of a challenging credit history, this type of card doesn’t help you to build or repair credit, and can come with plenty of fees.

Fees for prepaid credit cards can include a monthly fee, individual transaction fees, ATM fees, reload fees, and more. If you go this route, compare options to get the best deal.

Here’s the bottom line on this FAQ. What’s most important is to find a credit card that dovetails with your needs and usage patterns.

Using a Balance Transfer Credit Card

Balance transfer cards can allow you to consolidate your credit card debt onto a card that, for an introductory period, comes with a low or zero-interest rate. Sometimes, these low-to-no-interest credit cards make good sense.

For example, if you have a balance on a high interest credit card and you are anticipating a bonus or tax return in a couple of months, then it can make sense to pay off the high interest card with a zero-interest one, and then pay off that credit card with your bonus or tax return before the introductory period is up.

Or, if you want to make a larger purchase and have planned your budget in a way that allows you to pay off the balance during your zero-interest period, that might also work out well.

Problems with no-interest credit cards can include that, if you don’t pay off the balance in your introductory period then the card reverts to its regular interest rate that can be quite high. Plus, in some cases, if you don’t pay off the entire balance within the introductory period, you’ll owe interest on the original balance transfer amount.

Sometimes, there are balance transfer fees that can make this strategy more expensive than if you hadn’t transferred a balance in the first place.

If you have outstanding credit card debt that you aren’t paying in full each month—and if a balance transfer credit card doesn’t seem like the right strategy for you—here’s another idea to consider: a credit card consolidation loan.

What Is a Credit Card Consolidation Loan?

A personal loan, sometimes referred to as a credit card consolidation loan, is an unsecured installment loan with fixed or variable interest rates. It is ideally repaid in the short term (e.g., three to five years), and it can be used to consolidate credit card debt and hopefully offers a lower interest rate than your current credit card(s)interest rate. Your loan payments include both principal and interest.

OK, a credit card loan’s correct name is a credit card consolidation loan, which is just another name for an unsecured personal loan. How is a personal loan different from other types of loans?

A personal loan is an unsecured loan. Unlike a mortgage, there is no collateral attached to or “secured” for a personal loan. For example, if you take out a mortgage loan, your home becomes the collateral for your mortgage. If you default on your mortgage, your lender can then own your home.

With most personal loans, there is no underlying collateral required. When a loan has no collateral, it means it’s unsecured. Since the lender assumes more risk with an unsecured loan (given there isn’t a home to repossess should a borrower default), the interest rate on a personal loan is usually higher than the interest rate on a secured loan.

Considering a Personal Loan?

If you have credit card debt and want to lower your monthly payments and get a better interest rate than you currently have, a personal loan can be worth considering, since it can enable you to consolidate your credit card debt. Instead of paying off multiple credit card balances, consolidating your credit card debt into a personal loan means you can just make one convenient monthly payment.

Over the last year, the average credit card interest rate has hovered around 10% is just a small bump, however, and taking on more debt is not typically ideal—especially if you start adding to the credit card(s) balance(s) you zeroed out with a personal loan. . Personal loans can come with lower rates, especially for borrowers with strong credit histories and income, among other factors that vary by lender.

Credit scores are typically one of the main factors considered by lenders when reviewing applications for personal loans. So, it can make sense to know your score before you apply; in general , a FICO® Score between 740-700 is considered “very good” while 800-850 is considered “exceptional.” .

To get a rough estimate of how much you might be able to save by consolidating your credit card debt with a personal loan, you can take a look at SoFi’s personal loan calculator.

In sum, a personal loan can help you by offering a lower interest rate than what you have for your existing credit card debt. The interest rates on personal loans are often much lower than the interest rates on credit cards.

This means that if you consolidate your credit cards into one lower-rate loan, for short and fixed term, you could reduce the total interest you’d pay on the debt and have an opportunity to pay off your debt more quickly.In some circumstances, adding a personal loan could also be beneficial for your credit score.

Why? Because having a mix of credit types can help your score; with the FICO® Score, for example, your “credit mix” accounts for 10% of your base score—and, if you consolidate your credit card debt (considered “revolving” credit) with a personal loan (“non-revolving” credit) and you keep your credit card open, you now have a mix of revolving and non-revolving forms of credit.

10% is just a small bump, however, and taking on more debt is not typically ideal—especially if you start adding to the credit card(s) balance(s) you zeroed out with a personal loan.

Borrowing a Personal Loan

Applying for a personal loan with SoFi is typically a simple and fast process. Loan eligibility takes into consideration a few different personal financial factors, including credit history and income . If you’re interested in applying for a personal loan with SoFi, you can review the eligibility requirements for more information—and see your rates in just two minutes, before you even apply.

SoFi offers loans up to $100,000 with low fixed interest rates, no prepayment penalties and no origination fees. SoFi also offers unemployment protection to qualifying members who lose their job through no fault of their own. If you have questions while applying for a loan online, you can contact SoFi’s live customer support 7 days a week.

Interested in exploring a credit card consolidation loan with SoFi? Learn more.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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Soft vs Hard Credit Inquiry: What You Need to Know

Did you know that a company can pull your credit information with just your name, address, date of birth, and consent? Although it may seem like they would need your Social Security number, they don’t.

Credit checks are an uncomfortable fact of adulthood. Everything from buying a home or car, renting an apartment, taking out a personal loan, applying to certain jobs, and even having utilities turned on, can involve a credit check.

Yet one of the confusing aspects of having good credit is that even as credit checks are becoming more common, having too many done can possibly lower your credit score.

Although it may not seem like a big deal if your credit score goes down a little bit, it could possibly cost you money. When you apply for a credit card or loan, the interest rates and annual percentage rates you are offered are typically dependent in no small part on your credit score.

Not all credit checks are equal in terms of their impact on your credit score, however. There are two types of credit checks: a “soft” inquiry and a “hard” inquiry.

A lower score can sometimes cost you on a monthly basis, as in the case of your credit card companies, which may conduct a “soft” credit inquiry on your score every month. One good thing of note is that “hard” credit inquiries have only a small impact on credit scores (typically just up to five points) and are primarily utilized by lenders to evaluate risk. Excessive credit inquiries, however, can indicate to a lender that a potential borrower is having cash flow issues and may impact credit score more dramatically. Below is a more in-depth look at each type of inquiry.

(Before we dive in, however, it’s important to note here that we’re not tax or credit repair experts. For any tax-related or credit-related questions or advice, you’ll want to consult a credit repair organization and/or your trusted financial advisor—and not a blog post like this one.)

What Is a Soft Credit Inquiry?

Soft inquiries often take place during an employment background check, when you check your own credit, or sometimes when rate shopping. Soft inquiries don’t negatively affect credit scores, no matter how often they take place, and they can even occur without the individual knowing about them.

Potential employers might view a credit report to get an indication of whether you manage your finances responsibly. However, they can’t see information like marital status, or even your actual credit score. Insurance companies see a similar report, which doesn’t give them your credit score.

Soft inquiries are often used by companies that send out pre-approved financial offers by mail, for example. Soft credit inquiries may show up on your credit report but, as noted, they don’t affect your credit score.

You can review your own credit report without worrying that it will affect your credit score. In fact, Federal Law guarantees the right to access credit reports from each of the three major credit bureaus annually for free; however, this free annual credit report does not show credit scores, only credit history. However, many credit card companies, online financial companies, and banks have started to offer consumers access to at least one credit score for free.

You can usually see soft credit inquiries on your own credit report. You might see language like “inquiries that do not affect your credit rating” with the name of the requester and the date of the inquiry.

Here are some of the benefits that can be gained from soft credit inquiries:

•   You can get pre-qualified for various types of loans.
•   You can receive pre-screened credit card offers.
•   Checking your credit score regularly may help you keep track of it.
•   Landlords can use soft inquiries to help determine which applicants meet the criteria to rent their apartment.

It’s recommended to regularly (at least once a year) review your own credit to make sure you’re on track and that there aren’t errors in the credit report that need correcting.

Errors can be disputed by writing directly to the credit reporting agency whose report shows inaccurate information. Additional information about how to dispute errors can be found on the Federal Trade Commission’s website .

What Is a Hard Credit Inquiry?

A hard credit inquiry typically takes place when applying for credit such as a credit card, mortgage, or car loan.

Credit issuers “pull” your credit information from one or all three of the major credit bureaus when doing a hard credit inquiry.

The three major credit reporting bureaus are Equifax®, Experian, and TransUnion. There are also dozens of smaller credit reporting agencies that may track your financial behavior.

•   Credit bureaus track much of your financial activity, including:
•   Credit card balances
•   Loan balances
•   History of credit payments for revolving, installment, and other loans
•   Number and type of credit accounts
•   Bankruptcy and other public record filings if they meet the minimum standards for reporting

Although it may seem like an invasion of privacy that these bureaus are constantly tracking your activity (especially considering data breaches ,) so far a better system hasn’t been invented or implemented to ensure that an accurate financial profile can be shared to inquiring parties. And there are laws, like the Fair Credit Reporting Act , that regulates how consumer credit information and credit reports are shared and with whom.

Some of the entities that credit bureaus can legally send your credit information to may include:

•   Employers
•   Lenders
•   Volunteer groups
•   Government agencies
•   Landlords
•   Banks and credit unions
•   Payment processors
•   Debt buyers and collectors
•   Retail stores
•   Utility providers
•   Insurance companies
•   Gaming casinos that extend credit

All hard inquiries will show up in your credit report and can factor into credit score calculations depending upon the type of inquiry and the time frame of the inquiries. Each hard inquiry outside the scope of “rate shopping” has the potential to lower your credit score up to five points.

Multiple inquiries can affect credit scores because they can indicate to lenders that a consumer is repeatedly trying to apply for new credit, potentially indicating that they might be having financial issues and are relying heavily on credit and loan accounts. Inquiries for rate shopping vs new/additional credit shopping are distinguished in part by the length of time in which the credit inquiries occurred.

For newer scoring models, this time frame is 30 days—for older scoring models, this time frame may be 14 days. Lenders may use different credit scoring models.

So, if those rate shopping (for a mortgage, for instance) apply for multiple loans within a short amount of time, those checks should only be counted as one hard inquiry.

It’s good to note that hard inquiries stay on a consumer’s credit report for two years and stop affecting the credit score after a year.

How Is Your Credit Score Calculated?

There are two common scoring models used to convert credit report information into a credit score. These are FICO® Score and VantageScore. However, different versions of these models are used by various lenders. And different models may produce different scoring results.

The primary FICO scoring algorithm is most commonly used by the credit bureaus, although there are different credit scoring versions used by lenders (and even FICO has multiple scoring models available). Each credit bureau may come up with a different credit score for an individual, because they each may collect slightly different consumer information that they then “feed”into the credit scoring algorithm.

FICO has five factors it considers when calculating its credit scores:

•   Payment history: 35% of this score is related to your history of payments on credit cards, student loans, mortgages, and other loans. The algorithm looks at the frequency and severity of missed and late payments.
•   Credit utilization: 30% of this score is based on how much of your available credit you are currently using. If you’re one of those people who always has their credit cards maxed out, it likely won’t look good on your credit score.
•   Length of credit history: The amount of time you’ve had each credit account open makes up 15% of this credit score. That’s why it’s nearly impossible to have perfect credit when you’re new to credit.
•   New credit: 10% of this credit score has to do with opening new credit. However, opening a bunch of new credit accounts at the same time isn’t typically a good way to bump up your score, because that can look like you’re in financial trouble.
•   Credit mix: The final 10% of this credit score is based on the different types of credit you have and how you’ve managed them.

VantageScore was created as a joint effort between Equifax, Experian, and TransUnion and has its own parameters you can read about here .

Credit scores can be negatively affected by late payments on anything from your gym membership to your cable bill. However, civil judgments and tax liens no longer affect credit scores because all three credit bureaus implemented a change in 2017 to remove tax liens from credit reports. One reason for the change: Too many cases of mistaken identity .

Avoiding Hard Credit Inquiries

While having a few credit and loan accounts is expected and can even boost a credit score, consumers should carefully consider if they need new credit before applying for an additional loan or account. It might not be a great idea, for example, to apply for a department store credit card just for a discount on a purchase. Also, applying for a credit card you know you won’t qualify for isn’t a great idea: The hard inquiry can hurt your credit score, and you wouldn’t have gained anything.

For those looking into multiple options for a mortgage or car loan, for example, it might be wise to do it within a short period of time, typically between 14 and 45 days, so that they have a greater chance of counting as one hard credit pull.

Another way to help reduce the number of hard inquiries is to ask which type of credit check a company will run before agreeing to the inquiry. You may want to ask if there’s a way to avoid a hard credit pull. An example would be a cable company that requires a hard credit inquiry prior to opening a new account.

To recap, here are a few tips to help mitigate credit inquiries:

•   Check your own credit frequently (and take advantage of your annual free credit report)
•   Apply for loans sporadically and thoughtfully
•   Focus on behaviors that may help improve your score

Soft credit checks are becoming more commonplace, and it may be difficult to reach your financial goals without the help of loans and credit. Being proactive about achieving a good credit score and reducing the number of hard inquiries reflected on your credit report can be done. A strong score not only makes it easier to qualify for credit or a loan, it can also help consumers qualify for better lending terms.

Starting the Loan Process Without Hurting Your Score

If you’re in the market for a home or are interested in taking out a personal loan, you can find out what interest rates you qualify for without hurting your credit score1. SoFi offers home loans and personal loans at competitive rates.

With loans from SoFi, you’ll have access to customer service seven days a week. The application process can be done entirely online, and SoFi offers a variety of loan terms.

Find out what your rate options are in two minutes or less, today and keep your credit score intact.


Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
.

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 or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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How Many Credit Cards Should I Have?

In general, there is no “right” number of credit cards. Some people suggest having at least two credit cards is smart, preferably from different networks—say, a Visa and an American Express, or a Mastercard and a Discover card—strategically choosing them for the best combination of rewards, whether that’s cash back, travel miles, reward points, and so forth.

Here’s another way to look at it. It’s important to have the number you can effectively handle. Yet another way to look at the question is from a credit score perspective. How many credit cards should a person have to optimize his or her score?

Well, a principal scientist for FICO®, Ethan Dornhelm, has said that, “Generally speaking, there is no one perfect number.” FICO is the company providing data analytics for the credit score most commonly used by lenders.

Now that we’ve provided a high-level kind of answer to the question posed—how many credit cards should you have?—we’ll go into more detail about how many credit cards might be right for you, along with tips around credit card selection and their associated rewards.

Plus, we’ll take a look at some things to think about if credit card debt is weighing you down, including a debt consolidation strategy.

Credit Card Statistics

According to a report using November 2019 data from the American Banking Association:

•   374 million open credit card accounts existed in the United States in the middle of 2019, which was a 4.1% increase over the previous year; they include: 197 million accounts by superprime consumers, 103 million accounts by prime consumers, and 74 million accounts held by subprime consumers
•   More than 75.5% of Americans have one or more credit cards, approximately 191 million American adults
•   5% of people in the United States have a charge card, which is a credit card that must have its balance paid off in full each month

Meanwhile, credit card debt is at its highest ever , data as of Q3 2019 showed that credit card debt topped the $1 trillion mark, with an average household debt balance of $8,398.

So, this indicates that Americans have and use credit cards, and collectively carry a massive amount of credit card debt, but doesn’t yet answer the question of how many credit cards is too many or how to choose the best ones for your needs. That’s next.

Choosing the “Right” Credit Cards

What’s right for you isn’t necessarily right for someone else so, before you choose what credit cards to apply for, think about its main purpose. In general, it makes sense to select credit cards with comparatively lower interest rates and, ideally, no annual fees. But, what about beyond that?

Are you, for example, wanting to transfer balances to or make a large purchase on a zero interest credit card? In that case, you’d be wise to check to see what happens when the card reverts to its actual rate after the no interest introductory period ends.

Will you owe interest on just the remaining balance or the original balance if the debt isn’t paid off in full? What balance transfer fees are charged? Some can be as high as 5%, so compare options.

If you do plan to transfer balances, note that closing the credit card(s) you previously used may hurt your credit score. Here’s why. When you have a credit card for a period of time, this can signal to credit bureaus that you have financial stability, especially if you’ve at least made minimum payments on time. If, though, you close a card, this might signal something else entirely.

Or, if you plan to apply for a credit card to build or rebuild your credit, you may want to search for issuers that are open to that process. Because credit card companies typically factor in credit scores when reviewing applications, it can make sense to carefully target where you apply. If you apply for cards that you ultimately don’t qualify for, these hard inquiries could end up hurting your score, the opposite of your goal.

If your credit history is problematic, it may help to apply for a secured card, one where you’d put down a deposit with the credit card issuer.

When choosing a credit card, perks are often also important to many. Are you looking for cash back opportunities? Do you travel for work and/or for pleasure?

Some credit cards offer extended warranties on purchases, with Kiplinger.com sharing more about lesser-known credit card perks.

Some card issuers, for example, will repair, replace or reimburse you if you charge an item that is damaged or stolen within a certain coverage period. Some might refund the difference if you charge an item that goes on sale, while others offer special access to tickets and events, cell phone replacement and more.

Determining How Many Credit Cards to Have

You’ll likely want fewer than the world record number of 1,562.

And, how you use your credit cards, in the big picture, may be more important than the number. Your credit utilization rate, which is the percentage of the credit you have available that you actually use, can have a more significant impact on your credit scores than the number of cards. So, when you open a new credit card, you might improve your credit utilization rate.

What’s also important for your credit score: your ability to pay at least all of the minimum payments on time.

But, even if you meet payment criteria for a good credit score, if you can’t pay off your balances monthly, you’re likely paying plenty of money in interest.

The reality is that credit card debt can be challenging to pay off. Most credit card companies charge compounding interest, meaning that you also pay interest on any accrued interest.

The interest is continually calculated and added to your balance, which you then pay interest upon—and, to make matters worse, most credit card debt is compounded daily, even when you make your minimum payments. It only stops when the balance is paid in full.

Here’s an example. If you owe $5,700 in credit card debt, and your APR (annual percentage rate) is 16.96% with a payment of $100 per month, it would take you 117 months to pay off your debt. That’s nearly 10 years! And, you would have paid $5,995 in interest, more than doubling your original charges.

You can use our Credit Card Interest Calculator to get a rough idea of how much interest you’ll pay on your debt and how long it might take you to pay off.

Getting Out of Credit Card Debt

To make this happen, you have at least two options. You could determine how much you can afford to pay each month and then reverse engineer how long it could take to pay off the debt, using a tool like SoFi’s Credit Card Interest Calculator linked above.

Or you can pick a date by which you want to pay off your credit card debt and determine what the payment needs to be to make that happen. Both of these strategies go on the assumption that either no new charges would be made or that you’d recalculate what you’d need to pay monthly based on new purchases.

A third method is consolidating your credit card debt into a low interest loan, like an unsecured personal loan, which has the potential to reduce the cost of your debt. With this strategy, you apply for a personal loan and, if approved, use the funds to pay off your credit cards. Then, you pay the personal loan off in monthly installments.

Personal loans typically don’t accumulate compound interest in the way that credit cards do. So, as long as you meet your monthly payments, the balance of your debt doesn’t increase.

Plus, if you have a strong personal financial picture, the interest on your personal loan can be more reasonable than what you’re currently paying in credit card interest. You can use SoFi’s Personal Loan Calculator to estimate how much you might save.

Finally, having different types of credit has the potential to improve your credit score. So, it can help to have a mix of revolving debt (credit cards, for example) and installment loans (such as personal loans).

Personal Loans for Credit Card Debt Consolidation at SoFi

Benefits of choosing SoFi to consolidate your credit card debt include that our personal loans:

•   are unsecured, so you don’t need to put up any collateral
•   have a fixed payment schedule, making them easy to track, with a target payoff date
•   can allow borrowers to enjoy lower interest rates without compounding interest
•   have absolutely no fees and no surprises

Ready to check your rates for a personal loan? At SoFi, the process is fast, easy, and convenient. Let’s get started!


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