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A secured credit card is one that requires a security deposit — typically several hundred dollars — that is used as collateral in case the cardholder fails to make payments. If you have a brief credit history or dinged credit, a secured credit card can be a good tool for building credit.

Why care about your credit health? Because creditworthiness can come into play when applying for loans, jobs, apartments, and other situations that require a credit check. If you can’t get a regular unsecured credit card, a secured credit card may be a good option.

What Is a Secured Credit Card?

A secured credit card is a credit card that requires a refundable security deposit, which counts as collateral until the account is closed.

The security deposit decreases the risk for the credit card issuer, and allows people with damaged or limited credit to build a history of on-time payments. If your credit score is 600 or so (fair) or perhaps lower, you may be able to get a decent secured credit card.

Most secured cards require a minimum deposit of $200 or $300, and that amount is usually equal to your credit limit. If your deposit is on the low end, you’ll want to be careful how you use the card. Credit scoring models typically penalize utilization over 30%, so if your credit limit is $300, you may want to keep your balance under $90. A higher deposit will provide breathing room. A deposit of, say, $1,000 boosts the 30% threshold to $300.

Finally, a heads-up if your credit is bad: Unsecured cards targeting people with bad credit are notorious for high fees and confusing terms. And issuers of these cards usually don’t have good cards to upgrade to.

How Does a Secured Credit Card Work?

Here’s how a secured credit card works: You put down your security deposit, and then you get the same amount to spend as a line of credit.

If you want to increase your limit, you’ll have to contribute more to your security deposit. Secured credit card issuers don’t want to be left in the dust if you decide not to pay — or cannot pay — your balance. If that were to happen, they would just take your security deposit.

This type of card may be suitable for people who’ve gone through bankruptcy or are just starting out and have a limited credit history. Typically, a secured card is a better option than a high-interest unsecured credit card that’s targeted to people with a low credit score. That’s because a high-interest card, while enticing, can take years to pay off and end up damaging your financial reputation even further. A secured credit card poses a much lower risk.

A secured credit card looks the same as a regular credit card on a credit report — so users don’t have to worry about other lenders seeing that they have this type of card. And as long as the balance is paid in full and on time every month, you should start to build your credit score.

After using the card responsibly for a certain amount of time, a secured card holder may be able to get an unsecured card. Your secured card company can switch a card to unsecured as well, allowing access to a higher line of credit without a deposit.

Recommended: What Are Purchase Interest Charges on Credit Cards?

Pros and Cons of a Secured Credit Card

Like most things in life, there are positives and negatives to this kind of card.

Pros

•   Can build credit. Secured cards can allow you to build your credit history if you have limited or damaged credit. You do that by making on-time payments every month — at least the minimum payment, but preferably the full amount to avoid interest charges.

•   Lower credit line. A lower limit means you’re less likely to go over it and risk running a high balance. This is helpful for people who are still learning how to use credit responsibly.

•   Card benefits. Secured cards may offer basic benefits like fraud protection and cash back, just like you get with an unsecured card.

•   Potential to upgrade. Some secured cards allow the holder to switch to a regular unsecured card after a period of responsible use.

Cons

•  Security deposit. All secured cards by definition require the holder to provide the issuer with a cash deposit. That deposit is refunded once you switch to an unsecured card.

•  Fewer rewards. Secured cards don’t offer all the bells and whistles that an unsecured card can. For instance, you may not earn travel points, receive any discounts on goods and services, or get access to airport lounges.

•  Interest rate. As noted above, secured cards often carry higher interest rates than regular credit cards. (Of course, the interest rate won’t matter if you’re paying your bill in full each month.)

•  Requires a hard inquiry. The issuer will need to run a hard inquiry or pull on your credit report. This usually translates to a slight drop in your credit score.

Applying for a Secured Credit Card

The application process for a secured card should be relatively quick and simple, provided you prepare what you need ahead of time.

1.   Shop Around. Secured credit cards are not all the same. Look for a card with no annual fee (they’re nonrefundable) and a minimum deposit amount that meets your needs. Some cards even offer limited rewards, like cash back. Finally, make sure your payment history will be reported to the three main credit bureaus — that is how you’ll build your credit.

2.   Check your credit score. It’s smart to go into the application process knowing exactly what your credit score is. There are several ways to find it without having to pay a fee. Visit AnnualCreditReport.com, for example. Your bank may also provide your credit score online for free.

3.   Collect your information and paperwork. Application requirements vary depending on the card issuer. To make sure you have all the documentation you need, gather the following:

  – Proof of identity, such as a driver’s license, passport, or other photo ID.

  – Proof of address, like a recent utility bill.

  – Bank account info. If you have a checkbook, your bank info and account number appear on your checks.

  – Citizenship or residency info.

  – Recent pay stub, W2 form, tax return, or other proof of employment and income.

  – Social Security number. You don’t have to bring your card; just make sure you know your number.

4.   Complete the application. You can do this in person if your credit card issuer has a branch near you. You may also do it over the phone with a customer service rep — just be aware you’ll need a way to provide your documentation, either in person or via upload. The easiest method may be online, as long as you have access to a computer or smartphone that allows you to upload documents or images.

5.   Provide a deposit. This is usually done via online transfer from your checking or savings account.

Tips for Bettering Your Chances at Approval

If you’re nervous about getting approved, taking these extra steps can help you maximize your odds.

1.   Review your credit report. Request free reports from the three major credit agencies at AnnualCreditReport.com, as noted above, and review them carefully. If you find any errors — from outdated information to unfamiliar accounts — file a dispute to have the data corrected or removed.

2.   Pay your bills on time. Many people hit a financial rough patch at some point. The important thing is to show a recent history of on-time payments. If you can point to a year’s worth of good habits, credit card issuers will be more likely to consider you worth the risk.

3.   Maintain a steady job. Even if you don’t have a high income, job security reassures credit card companies that you have the cash flow you need to pay your bills. Your employer may be able to give you a reference letter stating how long you’ve worked for the company and your track record of reliability and good work.

4.   Become an authorized user. Got a family member or close friend with great credit? Ask them if they’ll add you as an authorized user on their credit card. Over time, their good habits will rub off on your credit history. And that may give you the boost you need to get approved for your own card.

Using a Secured Credit Card

Major credit card companies such as MasterCard, Visa, and Discover offer secured credit cards. This means you can use your card anywhere these brands are accepted.

Some secured credit cards offer benefits like cash back and free access to your credit score.

Many major credit cards also provide liability protection, so you won’t be responsible for fraudulent charges on your account. You may have to pay fees, such as a monthly maintenance fee, annual fee, balance inquiry fee, or an activation fee.

Though you may be able to get a secured credit card with a lower interest rate than an unsecured credit card, the average rate for secured cards can still be high, so be prepared for those charges.

It’s smart to do some online comparison shopping of different credit cards to see which one has the most appealing terms. However, it’s best not to apply for too many; one hard inquiry can cause a credit score to drop 5 to 10 points temporarily. If you apply for more than one or two cards, that could have a negative effect on your credit score.

When you start using your card, paying it on time is going to impact your credit score rating. If you may not remember to pay it each month, you could set up automatic payments to ensure your bills are up to date. You can also check your credit score every month to make sure it’s trending upward.

Building Credit with a Secured Credit Card

Secured cards are a great way to build credit if you have a low credit score or a limited credit history. How they do that is not so different from how a regular credit card works.

•   First, you need to pay your bills on time, each and every month. Missing one payment will undo all your good work up to this point. If you don’t trust yourself to remember every single time, there’s a simple solution. Set up automated payments through your bank so that your card is paid on the same day each month. You can choose to pay the minimum, a set amount over the minimum (say, $100), or the whole balance. What’s more, paying off the balance each month will save you money on interest.

•   Second, avoid running up a high balance. In this case, a high balance just means an amount approaching your credit limit (the same amount as your security deposit). Try to keep your credit utilization — the percentage of credit that you actually use — below 30%. If your credit limit is $500, the most you should charge per month is $150 (this assumes you have no other debt). As you rack up a history of on-time payments, you can request a higher limit, though that will require a higher deposit.

Denial of a Secured Credit Card

Even though getting a secured credit card with limited or damaged credit history is possible, an applicant may still be denied. Anyone who is denied a card should receive a letter from the credit card issuer explaining why. Perhaps they didn’t fill out the application properly and all they need to do is fix it, or their credit score wasn’t high enough.

If the reason has to do with the applicant’s credit report, they can get free access to their report through AnnualCreditReport.com and see their entire credit history. For example, the credit report may reveal that the credit utilization ratio or the amount of debt compared with the amount of credit a person has is too high. An applicant could start paying down debt more aggressively in order to bring down the credit utilization ratio and have a better chance of being approved for a secured credit card.

Another factor that may cause a denial is if an applicant doesn’t make enough income or can’t prove income. The credit score just may be too low as well.

The Takeaway

A secured credit card is one that requires a security deposit that is used as collateral in case the cardholder fails to make payments. Secured cards have more relaxed application requirements than unsecured cards, making them popular with people who have limited or damaged credit histories. Most secured cards report to the major credit bureaus, allowing holders to build up a positive credit history over time.

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

FAQ

Do secured credit cards build credit?

Many secured credit cards can help you build credit. Before you apply, check that the card issuer reports to the three main credit bureaus. Then, make sure you make on-time payments each and every month.

How does a secured credit card differ from an unsecured credit card?

A secured credit card requires a cash deposit that is equal to your credit limit, while an unsecured one doesn’t ask for this. This serves as collateral in case you are unable to pay your bill. The deposit is refunded if you close the card or switch to a regular unsecured card. Secured cards typically have low credit limits, higher interest rates, and few perks or rewards.

How do I close a secured credit card?

To close your card, call the number on the back or log in into your account online. Or you may choose to cut up the card without officially closing it, so that your credit history doesn’t take a hit due to a reduced credit history.

How can I change a secured credit card to an unsecured card?

If you have a record of on-time payments with your secured card issuer, ask them if they offer an unsecured upgrade. Some card issuers want to see a year or so of good credit habits before switching you to an unsecured card.

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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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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There are many ways you can keep your credit card clean without worrying about damaging the plastic, chip, or magnetic strip. Even better, most cleaning methods take less than 30 seconds.

During the course of a day, your card can pass through many hands and see plenty of action in credit card readers and ATMs. These exchanges increase the odds of your card picking up dirt, debris, and germs. With that in mind, take a look at some different ways you can practice good credit card hygiene.

Why Clean Your Credit Card?

It’s common knowledge that most paper money and coins carry germs, but credit and debit cards aren’t any cleaner. In fact, microbes, bacteria, and viruses typically stay active longer on hard surfaces like plastic and metal, sometimes for days or even weeks.

If you touch your bacteria- or virus-laden credit card and then touch your mouth, eyes, or nose, you could be introducing unwanted germs into your body. Washing your hands after handling your card can prevent the spread of germs. So can washing your credit card.

Besides wiping away bacteria, microbes, and viruses, scrubbing your card can also remove dust, dirt particles, and grime. These elements can make your card’s surface feel greasy, gritty, and sticky, and they can accumulate on or around any raised credit card numbers or letters or the edges.

Recommended: Cash vs Credit Card: Key Differences to Know

How to Clean Credit Cards

There is no one way to clean your credit cards. The method you use depends on personal choice and the cleaning materials you have on hand. If you’re worried about getting your card wet, rest assured plastic and metal credit cards are meant to be waterproof.

Whatever your cleaning method, there are a couple rules of thumb to keep in mind. The first is to be gentle. Too much elbow grease or force may cause the card to wear down prematurely and could wipe away the ink. The second rule is to dry the card completely before you put it back in your wallet or use it.

Here are some effective ways to clean your credit cards:

Soap and Water

You can wash your credit card as you would your hands — with good old soap and water. Simply suds up your card with hand or dish soap and warm water, and gently clean for 20 seconds before rinsing it off completely. Wipe dry with a paper towel, soft rag, or lint-free microfiber cloth.

Rubbing and Isopropyl Alcohol

Both types of alcohol can be used to clean your cards. Simply wet a cotton ball, tissue, paper towel, or soft cloth with the alcohol and wipe the card. To remove stubborn gunk trapped around the raised letters or digits of your card, try using a cotton swab dipped in alcohol.

Antibacterial or Sanitizing Wipes

The same wipes you use to clean surfaces at home can also be used on different types of credit cards. These products work to rid your card of any bacteria and viruses hanging out on your credit or debit card.

Multi-Surface Household Cleaner

An all-purpose cleaner will also do the trick of cleaning your card. It’s better to spray the solution onto a cotton ball, paper towel, or clean rag instead of directly onto your card. Vinegar, which also works as a household cleaner, is another option.

One caveat: If you have a credit card made of metal or a metal composite, you may need to follow a different cleaning regimen. Apple, for example, warns against applying certain products or methods when cleaning the titanium Apple Card. On the list are household or window cleaners, compressed air, ammonia, and abrasive cleaners. If you have a metal card and aren’t sure what material it’s made of, check with your credit card issuer before cleaning it.

UV Light Sanitizer

These devices use ultraviolet light to kill any viruses and bacteria found on nonporous surfaces. Often used to kill germs on cell phones, many of these machines sanitize credit cards as well.

How to Clean the Chip and Magnetic Strip on a Credit Card

There may be times when you insert a credit card into a chip reader or swipe it at the card reader machine, but can’t complete the transaction. This could be because your credit card’s chip or magnetic strip needs to be cleaned.

You might think getting the chip or strip wet would damage the card, but in reality, the chip reader and magnetic strip can be cleaned with the methods mentioned above. However, you don’t want to soak your card in any liquid — even soapy water — or scrub the chip or strip too hard. Doing so can damage it over time.

There are also ways to de-gunk a chip or strip that don’t involve cleaning products. For instance, after gently wiping off your card, you can use a rubber eraser to lift any remaining strip residue. Another option is to place a piece of clear tape over a dirty strip or chip and then peel it off; the grime should stick to the tape.

5 Things to Avoid Doing When Cleaning a Credit Card

Not all cleaning methods are created equal. In fact, some could damage your card. Here are five to avoid.

1. Scrubbing with a rough sponge

You don’t need to apply too much pressure or scour your card with an abrasive sponge. Both could damage the card, especially the chip and magnetic strip.

2. Your washing machine

You might think throwing your card into the wash with your clothes is harmless. But the harsh chemicals found in most laundry detergents could do more harm than good. For one thing, they can cause the card’s protective coating to peel off.

3. Hand sanitizer

While hand sanitizer can work in a pinch, it isn’t the best product to use when cleaning off your card. The moisturizing ingredients in the gel or liquid can leave behind a residue.

4. Soaking in rubbing alcohol

While you can wipe down your card with rubbing alcohol, experts warn against submerging your card in it because it can be corrosive.

5. Using heat

Heat and hot water can kill off germs, but using very high temperatures to clean or sterilize your credit card can actually damage it. Using a blow dryer, a clothes dryer, or boiling water to blast off any germs can cause the card’s plastic to soften or warp.

Cleaning vs Disinfecting a Credit Card

Both cleaning and disinfecting your credit card are effective, but they aren’t synonymous, and one step should precede the other.

According to the Centers for Disease Control and Prevention, you should clean first and then disinfect. Why? Washing a surface before you do anything else removes impurities like dirt, whose presence may make it harder for the chemicals in sanitizers and disinfectants to reach and kill germs.

How Often Should Credit Cards Be Cleaned?

How often you should clean your card largely depends on how often you use it. Ideally, you should clean your credit cards after every use, though that can be difficult if you’re out and about and using your card at different places. Generally, aim to clean your card once a day if you use it regularly, or once a week if you don’t.

Recommended: 7 Tips to Help You Use Your Credit Cards Wisely

Other Credit Card Maintenance Tips

Your wallet can get pretty dirty, making it harder to keep your credit card clean. Try storing it in a plastic photo holder or a card protector sleeve. Your credit card company may have issued your card in one, or you can make your own by wrapping a credit card-sized piece of paper around the card and taping the ends together. Another option is to purchase a separate credit card holder.

You may also want to use contactless credit card payments, which allow you to avoid swiping or inserting your card into a reader. One way to do that is with a contactless credit card. These cards feature an icon that resembles the wifi symbol and let you “tap and pay” at a payment machine.

You may also decide to store your credit card in a mobile wallet, which is a virtual wallet that lives on your cell phone, smartwatch, or other mobile device.

Recommended: Understanding Purchase Interest on Credit Card Charges

The Takeaway

Any time your credit card changes hands or is inserted into card readers and ATMs, it can pick up dirt and germs that can live on the surface for days or even weeks. Cleaning your credit cards regularly can help protect you. Using soap and water, rubbing alcohol, antibacterial wipes, or multi-surface household cleaners may all help you keep your card in tip top shape. Using a contactless credit card or mobile wallet are other ways to cut down on your card’s exposure to germs.

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

FAQ

Can credit cards survive being washed?

They can, as long as you use gentle methods and surface-friendly products. Things to avoid: using an abrasive sponge and scrubbing too hard; submerging your card in potentially corrosive liquids like rubbing alcohol; and running the card through the washing machine.

Why do people clean their credit cards?

Credit cards can accumulate dirt and germs whenever they change hands or are inserted into a card reader or ATM. Cleaning your credit cards gets rid of bacteria and viruses that can stay on your cards for a period of time. But it can also remove stubborn grime that can scrape or otherwise damage your chip or magnetic strip.

Can you clean a magnetic strip on a credit card?

Although magnetic strips are less popular than in the past, they are still in use, and you can clean a magnetic strip with soap and water, an antibacterial wipe, rubbing alcohol, a safe household cleaner, or a UV light sanitizer. You can even use a pencil eraser or a piece of clear tape to remove dirt from a magnetic strip.

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Photo credit: iStock/Khosrork

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.

This content is provided for informational and educational purposes only and should not be construed as financial 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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Whether to use store credit cards vs. major credit cards can be a very personal decision. Store cards have limited reach and may have higher interest rates, but they can give additional perks specific to their store. Standard credit cards may not offer those rewards, but their near universal acceptance and their own benefits could work better for your needs.

Here’s a closer look at how store cards compare to major credit cards, what their pros and cons are, and how store cards can impact credit.

What Is a Store Card?

A store credit card or retail credit card is a card issued by a store or retailer. There are two main types of store cards — open-loop and closed-loop store credit cards.

•  An open-loop store credit card is likely a Visa or Mastercard that simply is co-branded with the retailer’s name and logo, but good to use anywhere those networks are accepted.

•  A closed-loop store card, also called a private label credit card, can only be used at the retailer that issues the card.

How Store Cards Works

Open-loop store credit cards are typically Mastercard or Visa credit cards, and they can be used anywhere those payment networks are accepted. While it may be marketed or branded with the retailer’s logo and name, an open-loop store card functions in the same way any other credit card works.

On the other hand, a closed-loop store card is only accepted at the store that issued the card. If you try to use a closed-loop store credit card at any other place, it will be declined.

With either kind of card, you’ll get a statement each month with the charges you’ve made. You’ll be charged credit card interest on any outstanding balance, just like with a general-purpose credit card.

Recommended: Charge Card vs. Credit Card

Pros and Cons of Store Cards

One pro of store credit cards is that they often give perks and rewards that are specific to that particular store. If you frequently shop at a particular retailer, it can be lucrative to get their store credit card. You may also be able to get a signup bonus for applying and being approved for the card. Or you might earn rewards that can translate into a discount on a purchase.

On the other hand, a store credit card can be limiting, especially if it is a closed-loop credit card that you can’t use anywhere else. Many store credit cards also come with higher-than-average interest rates, so it can be wise to pay off your balance in full each month so you can avoid paying any extra.

Store Card vs Credit Card Compared

While there are some important differences between store cards and general-purpose credit cards, they also share some similarities.

Similarities

•  You get a monthly statement with a list of all of your purchases.

•  You’ll be charged interest on any outstanding balance.

•  Payment history and balance information typically reported to the major credit bureaus.

•  Open-loop store credit cards and general-purpose credit cards can both be used anywhere the payment network (Visa, Mastercard) is accepted.

Differences

There are also some key differences between store cards and credit cards that you’ll want to be aware of:

•  A closed-loop store card can only be used by the issuing retailer.

•  You may pay a higher interest rate for a store card.

•  The rewards you get will likely only be usable at the retailer.

Here is how these features stack up in chart form:

	Store Card	Credit Card
Where they can be used	A closed-loop store card can only be used at the retailer who issues it	Anywhere the payment network (e.g. Visa or Mastercard) is accepted
Interest rate	Varies, but often higher than general-purpose credit cards	Varies depending on the card
Rewards	Usually limited to discounts or benefits at one particular store	May have more flexible credit card rewards or cash back.

Recommended: How Many Credit Cards Should You Have?

Is It Easier to Get Store Cards?

How easy it will be to get any kind of credit card depends on the specific card and your own financial situation. However, it is generally believed that on average it is easier to get a store credit card than it is to get many other major credit cards.

In fact, at some stores, you may even be able to get approved in the middle of your transaction as you check out.

Can Store Cards Impact Credit?

Yes, store cards can impact your credit, either positively or negatively, depending on how you use them. That’s true of all credit cards and is part of how they work.

Just like any credit card, your store card information is also reported to the major credit bureaus (Equifax®, Experian®, and TransUnion®). That means that if you use your store card responsibly, you can help build your credit, while if you fall behind on payments and/or carry a balance, it might have a negative impact on your credit.

Which Is Right for You: Store Card or Credit Card?

Deciding whether a store card or regular credit card is right for you will depend on your own specific shopping habits and overall financial situation. If you frequently shop at a particular store or retailer, you may be able to take advantage of rewards, discounts, or other benefits that come with the store’s credit card.

However, general-purpose credit cards may offer better or more flexible rewards, in addition to having more flexibility in where you can use them.

The Takeaway

Store credit cards come in two different varieties — open-loop and closed-loop cards. An open-loop store card is one that may be branded or marketed as a store credit card, but can be used anywhere the card’s payment network (e.g. Visa or Mastercard) is accepted. A closed-loop store card can only be used at the store or retailer that issues it. While there can be good reasons to get a store credit card, you might be better off with a more flexible credit card that gives cash back or other flexible rewards and may charge a somewhat lower interest rate.

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

FAQ

Which is better: a credit card or store card?

There isn’t a single right answer as to whether a credit card or a store card is better. Instead, it will depend on your own specific situation. If you are a frequent shopper at a particular store or retailer, it may make sense to open its store credit card and get those rewards. However, if you’re not especially loyal to certain stores, you might prefer to get a general-purpose credit card and earn rewards that way.

Does a store card count as a credit card?

A store credit card can be considered a credit card since you can carry a balance and get charged interest. But keep in mind that only open-loop store credit cards can be used more widely like other major credit cards.

What are the disadvantages of a store card?

While it can make sense to apply for a store card, depending on your financial situation and shopping habits, store cards may come with some disadvantages. Many store credit cards have interest rates that are higher than average, so it can be best to pay off your balance in full each month to avoid those steep charges. Additionally, closed-loop store cards can only be used at the retailer that issues them, which makes them less flexible.

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Photo credit: iStock/RgStudio

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.

This content is provided for informational and educational purposes only and should not be construed as financial 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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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If you are thinking about closing a credit card you don’t use, know that while it may eliminate a fraud risk, doing so can negatively impact your credit. It can shorten your credit history and lower your credit limit, which in turn could increase your credit utilization ratio. Both of these factors can lower your score.

So before you cancel an unused credit card, make sure you understand how that can alter your credit score. That will allow you to make an informed decision that is best for your specific financial situation.

How Do Unused Credit Cards Affect Your Credit Score?

There are a few factors that make up your credit score. Two of the components of your credit score are your utilization ratio (how much of your available credit you’re using) and your average age of accounts. Closing an unused credit card can impact both of these.

Credit Utilization

Your credit card utilization is defined as the amount of your available credit that you are currently using. So if you have a card with a $10,000 limit and you have an average balance of $1,000, your utilization is 10% ($1,000 divided by $10,000). A low utilization is a positive indicator for your credit score. So closing any credit card account will lower the total amount of available credit you have. This will raise your utilization percentage and possibly lower your credit score.

Recommended: How to Read a Credit Report

Credit History Length

Another factor that makes up your credit score is the average age of your accounts. Having credit accounts that have been open for a long time is generally considered more positive for your credit score than having only recent accounts. So if you close an unused credit card, especially one that you’ve had open for a long time, it can lower your average age of accounts and possibly also hurt your credit score. The account may stay on your report for a while, but when it eventually drops off, your score could decrease.

Recommended: 10 Advantages of Credit Cards

Are There Risks to Keeping Unused Credit Cards?

So while it can make sense to keep your unused credit cards open, there are a few risks of keeping unused credit cards. If you no longer are monitoring your account, there is a higher risk that someone might commit credit card fraud with your account. So you’ll want to make sure that you are regularly looking at your accounts, and maybe even make an occasional purchase on each credit card that you have.

When Is It Better to Cancel a Credit Card?

There are also some situations where it’s better to just cancel a credit card. One reason to cancel a credit card is if it comes with an annual fee.

•   If you’re not using a credit card and not getting any value from its benefits, it usually won’t make sense to pay the annual fee, especially when there are so many credit cards that offer good rewards with no annual fee.

•   Another situation where it might make sense to cancel a credit card is if you’re having trouble controlling your spending. If having a credit card is causing you to go into debt or spend more than you earn, it might make sense to do a bit of a financial reset.

Using a debit card or moving to paying with cash might help you get to a better spot, financially speaking.

Recommended: 10 Advantages of Credit Cards

Can You Cancel a Credit Card Without Hurting Your Credit Score?

If you’re thinking about canceling a credit card without impacting your credit score, there are a few things that you can do to help mitigate the hit to your credit score.

•   One thing is to make sure to pay down any balance on the card before you close it.

•   Another possible option is to call your credit card company and see if you can move some of your available credit to another credit card. That might help keep your credit utilization ratio high.

The Takeaway

If you have a credit card that you no longer use, you might be tempted to just cancel the card so you don’t have to think about it anymore. However, there may be some reasons where it can make more sense to keep the card open, even if you never or rarely use it. Keeping it open may help build your credit score, and, if you close a card you’ve had for a long time, it can impact your credit score.

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

FAQ

Do unused credit cards close automatically?

An unused credit card generally won’t be closed automatically, at least at first. However, most credit card companies do reserve the right to close your account for any reason, including if you don’t use your credit card. So if you want to keep a credit card account open, it may make sense to occasionally make a purchase or two.

Does canceling an unused credit card hurt your credit?

Canceling an unused credit card can lower the total amount of your available credit. This may raise your credit utilization ratio, which is one of the major factors that make up your credit score, and a higher number can ding your score. You may also shorten your credit history, which can negatively impact your score as well. Make sure that you understand any possible impacts to your credit score before you cancel an unused credit card.

Is it bad to have an unused credit card?

No, in most cases it is not bad to have an unused credit card. In some cases, it can even help to keep your credit card accounts open, even if you’re not actively using the card. This is because having an open account increases your available credit and it may raise your average age of accounts. Both of these are factors that go into calculating your credit score.

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Photo credit: iStock/FreshSplash

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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Adding your spouse to a credit card could indirectly affect your credit, for better or for worse. If the bill is paid on time and credit utilization is lowered, it might build your score. But if your partner doesn’t use the card responsibly and it impacts your ability to pay the monthly bill, your credit may suffer as a result.

Regardless of whether or not you choose to combine your finances, both partners will still have their own separate credit scores. Credit cards in the name of one spouse will not directly affect the credit of the other spouse.

That said, take a closer look at how adding your spouse to a credit card can affect credit.

Can Adding Your Spouse as a Co-borrower Affect Your Credit Score?

Cosigning on a loan, credit card, or other debt account can impact your credit score. Applying for a new credit account, even as a cosigner, will show up on your credit report. Having a new account on your credit may have a small impact just for opening the account.

Additionally, how you and your spouse use the new account will also affect your credit score, as your balance and payment history will be reported to both of your credit reports. For instance, a new account could raise your total credit limit. That could lower your credit utilization even if you carry the same balance, which can be a positive.

If however, you use that credit you are granted and your credit utilization percentage goes up or you make late payments, then it could have a negative effect. For these reasons, adding a spouse to a credit card may not help your credit.

Can Cosigning Affect Your Credit Score?

Cosigning on a loan, credit card, or other debt account can impact your credit score. Applying for a new credit account, even as a cosigner, will show up on your credit report. Having a new account on your credit may have a small impact just for opening the account.

Additionally, how you and your spouse use the new account will also affect your credit score, as your balance and payment history will be reported to both of your credit reports. For instance, a new account could raise your total credit limit, but if you don’t carry a balance, then your credit utilization would look smaller, which can be a positive.

If however, you use that credit you are granted and your credit utilization percentage goes up or you make late payments, then it could have a negative effect. For these reasons, the answer to “If I add my spouse to my credit card, will it help their credit?” is “Maybe.”

Recommended: Joint Accounts vs. Separate Accounts in Marriage

7 Ways You Can Help Your Spouse Build Credit

If you have good credit but your spouse does not, here are a few ways that you might consider helping them build credit:

1. Authorized User

If you already have good credit but your spouse does not, one thing that you can do is add them as an authorized user on a credit card. Having them on an account that you already have in good standing can help them to build their credit. Just make sure that they use their card responsibly or it can negatively impact both of your credit scores.

2. Secured Credit Card

If you don’t want to or can’t add them as an authorized user to one of your accounts, another option might be to have them apply for a secured credit card. With a secured credit card, you put down an initial deposit that serves as your credit line. As you make payments to your account, your available credit increases.

Depending on the card, you may be able to change from a secured card to a traditional or unsecured credit card after building your credit history.

3. Joint Credit Account

Like a joint bank account, a joint credit account is one where two people are both listed as owners of the account and are jointly responsible for usage. With a joint credit account, usage, balance and payment history will show up on both borrowers’ credit reports.

However, it’s worth noting that many major credit card issuers no longer allow joint credit card accounts. If you find one that does, then this could be an option to help build credit.

Recommended: How to Build Credit Over Time

4. Apply for a Small Loan

Another option to help build credit may be to apply for a small loan together. Getting a personal loan in both of your names may help build credit. One of the things many lenders look for in a credit report is a reliable history of on-time and regular payments. Taking out a small personal loan (and then regularly making payments) can help build credit history.

5. Review Credit Reports Together

Another tip for establishing credit is to regularly review both of your credit reports together. Your credit report contains a history of the different loan, credit card and other debt accounts that you have had. Reading your credit report regularly is a great habit to have as you can make sure that there are no errors, inconsistencies or incorrect information on your report. If there is, you can take steps to correct it, either with the account directly or the credit bureau.

You are entitled to one free credit report per year from each of the big three credit-reporting agencies (Equifax®, Experian®, and TransUnion®). You can access your reports at AnnualCreditReport.com .

6. Discuss Money Management

Another great financial habit to have is to regularly discuss money management. You’ll want to work together on making sound financial decisions, setting financial goals, or deciding on big-ticket purchases. When both partners are involved in the household budgeting and finances, it makes it easier to stay on the same financial page.

7. Establish and Stick to a Budget

One of the best habits that you can have to improve your finances is to establish and stick to a budget. A budget is a tool that helps you not spend money on things that are not important to you, so that you still have money to spend on the things that are important to you.

At its simplest, a budget can just be a listing of the expected income and expenses for a month. Sticking to a budget can just mean making sure that your income exceeds your expenses. There are a variety of methods you might try out and see how they work for you, such as the envelope system and the 50/30/20 budget rule, among others.

Recommended: Breaking Down the Different Types of Credit Cards

The Takeaway

Even if you combine finances in your marriage or partnership, each individual will still have their own credit report and credit score. Adding your spouse to a credit card account will not directly impact your credit score. However, the manner in which they use the card can have an effect on your credit.

Work together to set up sound financial habits so that both of you use your credit responsibly. Having a good credit score is one of the biggest financial assets that you will have in life.

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

Will adding my spouse to my credit card build our credit?

It’s important to note that even if you combine your other finances, both you and your spouse will continue to have separate credit reports and credit scores. If you have good credit but your spouse does not, you could add them as an authorized user to one of your credit card accounts. Just make sure that they use the card responsibly, or it can have a negative impact on both of your scores.

Does my spouse affect my credit score?

Regardless of whether or not you combine finances in marriage, your credit scores remain individual accounts. Your spouse will not affect your credit score, unless you have joint accounts where both of you are listed as borrowers on the account. Another way your spouse can affect your credit score is if their spending or financial habits cause you to miss payments or increase balances on your own accounts.

Will lenders look at both spouses’ credit scores?

Whether or not lenders look at both spouses’ credit scores will depend on what type of loan you’re applying for. If you apply for an individual credit card, the lender will generally only look at your credit report. However, if you apply for a joint loan (such as a home mortgage), then lenders will look at both credit reports. If one spouse has poor credit, it may not make sense to apply in both spouses’ names.

What happens if I have a good credit score, but my spouse doesn’t?

One spouse’s credit score does not directly affect the credit score of the other spouse, unless they are joint borrowers. If you have a good credit score but your spouse does not, that may mean that you will want to apply for loans or mortgages in only your name.

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Photo credit: iStock/Eva-Katalin

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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