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Typically, to qualify for a new credit card, you need to meet the card issuer’s underwriting requirements — including the minimum credit criteria. If you don’t have a long credit history or a strong credit score, asking if someone can cosign for a credit card for you can help you get approved.

However, this type of arrangement should be approached cautiously for various reasons. Before getting a credit card with a cosigner, here’s what you need to know.

What Is a Credit Card Cosigner?

A credit card cosigner is an individual who agrees to be responsible for a primary cardholder’s debt. If the primary cardholder fails to make payments or defaults on their debt, the cosigner is expected to assume their financial burden by repaying the outstanding debt, regardless of the circumstances that led to the account’s status.

Because of how a credit card works, a cosigner should ideally have a strong credit score and a solid credit history.

Why Might Someone Need a Cosigner to Open a Credit Card Account?

A person might decide to secure a cosigner for credit card applications if they have less than a “good” credit score (meaning below 670). This is because applicants who don’t have strong credit might find it harder to get approved for a new credit card at a low APR.

Additionally, credit card applicants must meet age requirements to get a credit card. Applicants who are under 21 years old are required to secure a cosigner if they can’t prove their ability to repay the card using their own income. This credit card rule from the Credit Card Accountability Responsibility and Disclosure Act of 2009 — also known as the Credit CARD Act — was designed to avoid predatory lending practices toward young cardholders.

Even if an applicant is 21 or older, they might need a credit card cosigner if they don’t have sufficient income. Keep in mind, however, that many credit card companies don’t allow for cosigners, so searching for one that does could increase the amount of time to get a credit card.

Parties Involved in Cosigning a Credit Card Account

Aside from the credit card issuer, there are two parties involved when opening a new credit card with a cosigner: the cardholder and the cosigner.

The Credit Card Holder

The individual who is the primary cardholder is the person whose income, age, or credit doesn’t meet the card issuer’s minimum requirements. If they successfully acquire a willing cosigner for a credit card application, the account is under the cardholder’s name. The cardholder is also the individual who will receive the physical credit card to use toward purchases.

As the primary cardholder, they’re still considered the first party that’s responsible for making on-time monthly payments for at least the minimum balance due.

Recommended: When Are Credit Card Payments Due

The Cosigner

A cosigner is an individual who meets the card issuer’s underwriting requirements. They provide a financial guarantee that vouches for the cardholder. This financial responsibility is taken on by the cosigner as soon as the credit card application is approved.

Typically, cosigners don’t enjoy the perks of using the physical credit card. They don’t have access to the credit line, nor do they have ownership of the goods that were paid for using the credit card.

However, if the cardholder fails to pay back their credit card debt, the card issuer will immediately seek payment from the cosigner. Credit card companies can also report late payments and default notices to the credit bureaus, and those updates will adversely impact a cosigner’s credit score and appear on their credit report.

Pros and Cons of Credit Card Cosigning

As mentioned previously, there are reasons to approach becoming a credit card cosigner with caution. However, there are positives to cosigning as well.

Pros of Credit Card Cosigning	Cons of Credit Card Cosigning
Helps the primary cardholder access a credit line they otherwise may not qualify for	Cosigner is responsible for unpaid credit card debt they did not accumulate
Allows someone under the age of 21 without regular income to access a credit card	Might affect a cosigner’s access to new loans or lines of credit since a cosigned credit card impacts their debt-to-income ratio
Positive credit card activity is reported to credit bureaus for both the primary cardholder and cosigner	Late payment activity and default is reported to credit bureaus for both parties
Helps secure a lower credit card APR for the primary cardholder	Card issuers can send unpaid debt to collections, sue cosigners, or request wage garnishment or property liens against the cosigner to collect on the debt
	Poor borrowing and repayment habits can negatively affect the relationship between the cardholder and cosigner

Credit Card Cosigner vs. Authorized User

Getting a credit card with a cosigner is different from being added as an authorized user on a credit card under someone else’s account. A cardholder can choose to add an authorized user to either their new or existing credit card account.

Authorized users can get their own physical credit card with their name on it. They can use the card to pay for goods and services, in the same way a primary cardholder uses the card.

However, unlike a cosigned credit card, the authorized user doesn’t have any legal responsibility to repay the debt they’ve put on the card. In this arrangement, the primary cardholder still bears that responsibility. Still, any account activity — whether positive or negative — impacts the primary cardholder’s credit as well as that of the authorized user.

This option is often used to help someone build their credit or simply access borrowing power. For example, parents may add their child as an authorized user on a credit card.

Recommended: Tips for Using a Credit Card Responsibly

Credit Card Cosigning vs. Joint Accounts

Cosigners don’t have access to the line of credit. Through a joint account, however, both parties have equal borrowing power through the credit card, as well as equal financial responsibility for the debt incurred. In other words, both parties are responsible for paying outstanding balances on the credit card — even if the purchase was made by only one person.

Joint accounts are commonly used by individuals who share other financial responsibilities together, such as spouses, family members, or business partners. Since the account is shared and both parties are liable for the account, both of their credit scores and credit reports are impacted by the card’s activity.

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

Alternatives to Cosigning a Credit Card

Outside of the above options, there are a couple of alternatives to applying for a credit card with cosigner support.

•   Secured credit cards: Secured credit cards are a useful credit-building tool for primary cardholders who would otherwise not qualify for an unsecured card. Credit card requirements for a secured credit differ a bit, as a deposit is needed that acts as collateral and usually becomes the card’s credit limit. The deposit is returned when the account is closed.

•   Guarantor loans: Unlike a cosigned credit card that holds the cosigner responsible for the debt from the start, a guarantor loan only puts legal responsibility on the cosigner if the lender has exhausted all other options through the primary borrower. This marks a major difference between a guarantor and cosigner. Plus, a fixed loan is a known quantity of debt, rather than a revolving line like a credit card is.

Recommended: What is the Average Credit Card Limit

The Takeaway

Becoming a credit card cosigner or asking someone to cosign a credit card is a huge responsibility that poses significant risk for the cosigner. Only consider this route if both parties — the primary cardholder and cosigner — understand the implications and can financially handle the debt that’s put on the card.

If a credit card that allows an authorized user is a better option for you, consider getting a credit card with SoFi. Qualified SoFi cardholders can add an authorized user to their account. Purchases made by both the primary cardholder and their authorized users earn cash-back rewards.

Apply for a SoFi Credit Card online today!

FAQ

What is the minimum credit score for a cosigner?

Cosigners typically need a minimum credit score of 670, which is considered “good” based on the FICO credit scoring model. Credit requirements, however, vary by card issuer. Before securing a cosigner for a credit card, ask the issuer about its cosigner criteria.

Can I cosign for a credit card with my child?

Some credit card issuers allow parents to cosign on a credit card for their child. However, not all issuers provide this option. If the desired card issuer doesn’t permit cosigners, another option is adding your child as an authorized user on your personal credit card.

Is it possible to get a credit card with a cosigner?

Technically, yes, it is possible to get a credit card with a cosigner. However, this option isn’t always offered by major credit card companies.

Whose credit score is impacted with a cosigned credit card?

If the primary cardholder is late on their payments or defaults on the credit card debt, the cosigner’s credit is adversely affected. Additionally, the cosigned card is considered another open account on the cosigner’s credit record so it can impact their ability to secure their own loans, if needed.

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Photo credit: iStock/PeopleImages

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website .
SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back rewards when redeemed for a statement credit.¹
The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
¹See Rewards Details at SoFi.com/card/rewards.
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Although you might not think twice about amassing miles and points, it’s wise to learn what happens to credit card rewards when you die. After all, you don’t want the work that went into earning rewards — and the value of those credit card rewards — to be all for naught.

While some credit card rewards die with you, some issuers do allow redemptions or transfers after death. Here’s a closer look at what happens to credit card rewards when you die, as well as what steps you can take to avoid forfeiting your rewards.

Recommended: Can You Buy Crypto With a Credit Card

What Are Credit Card Rewards?

Credit card rewards are a type of currency that can come in the form of credit card points, miles, or cash back rewards. They’re designed to incentivize cardholders to make eligible purchases on their rewards credit card.

As you make purchases and earn various credit card rewards, you can choose to hold onto the rewards in your account until you have enough to redeem toward a high-value purpose. Each rewards program lets cardholders redeem rewards in different ways, depending on its rules. Common redemption options include statement credits, travel bookings and reservations, special experiences, merchandise, gift cards, and more.

Recommended: Tips for Using a Credit Card Responsibly

What Happens to Your Credit Card Rewards Upon Death?

Having a stockpile of credit card rewards after death might lead to a sticky situation for your surviving family. Akin to your credit card debt after death not passing on to your survivors in some states, some credit card rewards “die with you” and can’t be redeemed or transferred to your family or estate.

Conversely, some credit card issuers, like American Express and Bank of America, offer a limited period during which authorized trustees of your estate can redeem unused rewards. Certain programs that permit reward redemptions or transfers after death might require the outstanding account balance to be paid in full.

In other words, what happens to your credit card rewards after you pass on essentially depends on the terms laid out in your rewards program agreement. Some rewards terms specifically state that rewards aren’t the property of the cardholder and can’t be transferred through inheritance.

Recommended: What is the Average Credit Card Limit

What To Do With Credit Card Rewards if the Account Holder Dies

If you know that your deceased loved one amassed points, credit card miles, or cash back rewards, there are a few steps you can take to address it:

1.    Check on accounts and rewards balances. If your deceased loved one gave you access to their account before their death, log in to get an overview of their remaining rewards balances across all accounts. If you don’t have access to their accounts, proceed to the next step.

2.    Prepare paperwork. You’ll likely need to provide proof of the primary cardholder’s death, such as a copy of their death certificate. Additionally, you might need to provide the name and contact information of the authorized trustee, letter of testamentary, or other details.

3.    Contact the card issuer. You must inform the card issuer in the event of a primary cardholder’s death. Supply the necessary documentation you’ve gathered, and inquire about your options to redeem the rewards.

Generally, credit card companies offer at least one of a few options, though how a credit card works will vary by issuer. The rewards might be forfeited if they’re non-transferable or expire upon the cardholder’s death. Some credit card terms automatically convert the rewards into a statement credit, while other issuers allow rewards redemption or transfers to another existing, active account.

Ways You Can Avoid Forfeiting Your Credit Card Rewards

You’re ultimately at the mercy of your reward program’s user agreement in terms of what to do with credit card rewards after death. However, planning ahead can help you avoid relinquishing earned rewards.

Not Hoarding Your Points

To avoid facing a scenario in which your credit card rewards die with you, make an effort to redeem credit card points or miles on a rolling basis.

For example, at the end of each year, use credit card rewards to travel for less or apply them to your account as a statement credit. Keep in mind that different redemption options have varying valuations, so look into which redemption strategy makes sense for your situation.

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

Choosing Cards With Favorable Death Terms

Although a particular program might offer enticing rewards — such as the chance to enjoy credit card bonuses — it might not be advantageous if the program has strict terms regarding a cardholder’s death.

American Express, for instance, has fairly lenient terms when dealing with the rewards balances of a deceased cardholder.

Recommended: How to Avoid Interest On a Credit Card

Using a Reward-Tracking Tool

If you have multiple rewards credit cards in your rotation, using a reward tracking app can help you and your surviving family organize and track your rewards. Apps like AwardWallet and MaxRewards let you easily see all of your rewards in one view.

Naming a Beneficiary in Your Will

Although it’s not a foolproof way to avoid forfeiting your credit card rewards, adding a beneficiary to your will is a smart move. This way, if your card issuer allows rewards transfers or redemptions by authorized individuals, your beneficiary is formally named on your estate documents as your desired recipient.

The Takeaway

Since there’s no way to know when an accident or unforeseen health issue will result in your death, it’s best to be prepared. If possible, redeem earned credit card rewards in a timely manner so you can enjoy them in life.

If you don’t have a rewards card yet, the SoFi credit card can help you earn cash-back rewards on your purchases. Plus, after 12 consecutive months of on-time minimum payments, SoFi automatically lowers your APR by 1%. Learn more and apply for a credit card today with SoFi.

Apply for a SoFi credit card today!

FAQ

Can I transfer points from the account of a late family member?

Whether you’re allowed to transfer points from your deceased relative’s rewards credit card account depends on the card program’s rules. Some banks allow points transfers, while other programs state that points are non-transferable. Contact the card issuer’s customer support team to learn about its point transfer policy.

Can an authorized user use credit card rewards upon the death of the account owner?

It depends. Not all credit card rewards programs allow authorized users to use a primary cardholder’s earned rewards. Those that do might have restrictions on how and when rewards can be redeemed after a primary user’s death, if at all.

What happens to the miles when someone dies?

Miles earned by a deceased primary credit card rewards cardholder might be forfeited, transferred, or redeemed by the estate or surviving family, depending on the rewards program. Terms vary between card issuers, and even across travel rewards programs, so call the program’s support team to learn about its terms.

Can estates redeem points after death?

Some rewards credit cards allow estates to redeem points after the primary cardholder’s death. American Express, for example, allows estates to request points redemption by submitting a formal written request, death certificate, and other details related to the redemption.

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Photo credit: iStock/supatom

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back rewards when redeemed for a statement credit.¹
The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
¹See Rewards Details at SoFi.com/card/rewards.
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 you’re interested in switching credit cards because you found one with better rewards or due to another reason, such as wanting to change to an option with no annual fee, it can make sense to do so. Also called a credit card product change, some banks allow you to make a switch without much consequence.
But before doing so, it’s best to understand how changing credit cards works and how to switch credit cards properly.

What Is a Credit Card Product Change?

A credit card product change is where a cardholder switches from one credit card to another credit card offered by the same bank or issuer. Because each credit card offered by an issuer is referred to as a different product, a product change is simply switching credit cards.

In theory, switching credit cards within the same bank won’t affect your credit as you’re not applying for a new credit card. Typically, your credit limit will stay the same for your new card as it was for your previous card.

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

How Does a Credit Card Product Change Work?

When you undergo a product change, you’re not canceling a credit card. Rather, you’re either making a switch to an equivalent credit card, upgrading to a card with more benefits, or downgrading to a card with fewer benefits. In many cases, your bank may send you targeted offers for different credit cards, and you may be able to switch to one of these credit cards.

Once you switch credit cards, you’ll no longer be able to use the credit card you previously had and can start using the new credit card instead. Features and benefits will most likely differ, and in some cases, so may your credit limit.

Recommended: What is the Average Credit Card Limit

Rules for Credit Card Product Changes

When it comes to following the credit card rules, each credit card issuer will have its own rules regarding product changes. For instance, some won’t allow you to change to certain credit cards, while others may allow a product change only if you’re switching to a similar type of card.

In general, though, there are some rules that are usually the same across the board. For one, cardholders can’t switch from a business credit card to a personal one and vice versa, since these are considered different classes of cards and may have different credit limits.

Additionally, issuers typically only let you change credit cards as long as they’re within the same family of cards, as this can impact how credit cards work. However, each issuer has a different definition of what that means.

For instance, if you have a travel rewards credit card and the bank offers two other cards that use the same travel portal to redeem points, all of those cards could be considered in the same family. Or, if you have a co-branded card with an airline, other co-branded cards with that airline may also count as within the same family of cards.

Unfortunately, it’s not easy to find information about whether you can switch your specific credit card to another. Even if you can find details from another bank, your card may not have the same rules and processes. Your best bet is to call your credit card issuer and ask them directly.

Recommended: Can You Buy Crypto With a Credit Card

Pros and Cons to Switching Credit Cards

There are certainly upsides to converting credit cards rather than closing out your account and starting over. However, there are downsides to take into account as well.

Pros of Switching Credit Cards	Cons of Switching Credit Cards
Generally won’t affect your credit score if the bank doesn’t conduct a hard credit inquiry	Not easy to find definitive information online about product change rules
Possible to get more benefits with the new card you switch to	May not be able to switch to your preferred card, depending on issuer’s rules
Won’t need to submit a new credit application	May lose existing credit card rewards or points

Guide to Switching Credit Cards

Switching credit cards can be a relative straightforward process, but it does involve contacting your bank or credit card issuer. Here are some best practices to keep in mind before making the switch.

Decide Which Card You Want

You want to make sure your new card will be a good fit for you. Before making moves to change your credit card, check your bank’s website to see what other products are currently on offer. In some cases, you may find that you’ll get upgrade offers in the mail or after logging into your bank account online.

Contact Your Bank or Credit Card Issuer

You’ll also want to contact your bank to ask whether you can switch to the card you’ve decided on. If you can get the credit card you want, ask the bank what else you’ll need to do before you can officially make the switch.

You’ll also want to ask about certain features and benefits you’ll receive if you do decide to change credit cards. Specifically, make sure to ask about the following:

•   Whether your credit limit will remain the same after switching cards

•   If you need to pay off the balance before switching

•   Whether you’ll be subject to a hard credit inquiry

•   Whether you can keep existing rewards you’ve earned with your current credit card

•   What your new APR will

•   If you’re eligible for credit card bonuses with the new card

Learning these answers will help you to make an informed decision and avoid getting caught off guard after making the switch. You may even be able to negotiate for things like bonuses or perks that you may not have gotten otherwise.

Recommended: How to Avoid Interest On a Credit Card

Effects of a Product Change on Your Credit Score

It’s important to determine whether switching credit cards will have an adverse effect on your credit score. When it comes to your credit utilization, as long as you’ll have the same credit limit with your new card, you should be able to maintain it. This is unlike closing a credit card, where you’ll lose that credit limit, which could result in an increased credit utilization ratio and a negative impact to your credit score.

In some cases, your card issuer may require a hard credit pull before allowing you to switch credit cards, which could temporarily ding your credit score. Your issuer may make this request for a variety of reasons, including to ensure your credit profile is still good and to determine whether to continue offering you the same amount of credit (especially if you tend to max out your card). You’ll be asked permission before the hard inquiry is conducted, so you’ll know it’s coming.

Effects of a Product Change on Your Credit Card Rewards

Depending on what card you want to switch to, you may be able to keep your existing credit card rewards. For instance, if you’re switching to a credit card that has the same rewards structure or program, you’ll probably be able to keep the points or miles you’ve earned.

However, if you’re going from a travel rewards card to a cash back program, for instance, your bank may not allow you to keep your existing rewards. That means you’ll have to use up your rewards or forfeit them, though it may still be worth speaking with a customer representative to see what they can do.

If you want to get sign-up bonuses on a credit card that you plan on switching to, check with your bank to see whether you’re eligible. Some cards don’t allow bonuses for existing customers.

The Takeaway

Requesting a credit card product change can be an easy way to switch to a new credit card without going through the full application process. Before you make any moves, however, take the time to confirm whether or not converting credit cards will impact your credit and whether you’ll be able to keep the rewards you’ve earned using your existing credit cards. After all, valuable credit card rewards aren’t something you want to lose out on.

If you’re on the search for a rewards card, you might look to get a credit card with SoFi. With the SoFi credit card, cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back rewards when redeemed for a statement credit.1 And for a limited time, new credit card holders who also sign up for a SoFi Checking and Savings with direct deposit can start earning 3% cash back rewards on all eligible credit card purchases for 365 days*. Offer ends 12/31/22.

Learn more and apply today for a SoFi Credit Card!

FAQ

Does a product change reduce your credit score?

A credit card product change may affect your credit score if your issuer requires a hard credit inquiry to make the switch. This should only impact your score temporarily though.

How do I request a product change?

To switch credit cards, you’ll need to contact your bank or credit card issuer to determine whether you can switch the card you want. From there, it will inform you of the other steps you need to take.

What are the downsides of a credit card product change?

You may lose the rewards you’ve earned on your current card if you decide to switch credit cards. Your credit score could also be temporarily affected if your issuer conducts a hard credit check when you switch cards.

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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.
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 cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back rewards when redeemed for a statement credit.¹
The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
¹See Rewards Details at SoFi.com/card/rewards.
New and existing Checking and Savings members who have not previously enrolled in direct deposit with SoFi are eligible to earn a cash bonus when they set up direct deposits of at least $1,000 over a consecutive 25-day period. Cash bonus will be based on the total amount of direct deposit. The Program will be available through 12/31/23. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC.

SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 3/17/2023. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
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When you buy with credit, it’s easy to forget that you’re paying for that item with money that doesn’t belong to you. It’s like taking out a short-term loan to make a purchase. If you’re putting charges on your credit card throughout the month, the value of that loan — your “current balance” — fluctuates.

You may notice there are other numbers on your credit card statement, such as your statement balance. Wait a minute, you may ask, What’s the difference? Here we’ll discuss the meaning of statement balance and current balance, along with a few tips for paying down your credit cards.

Statement Balance vs Current Balance

Each credit card issuer may have a slightly different method of presenting and even calculating the numbers on your monthly statement and online portal. Still, you will likely see one number called the statement balance and another called the current balance.

The statement balance means all transactions during a designated period, called a billing cycle. If a billing cycle covers one month and starts on the 15th of each month, this statement balance will include all of the activity on an account between, say, January 15 and February 15, in addition to any previously unpaid balances. Until the close of the next billing cycle, the statement balance will remain unchanged.

Your current balance means the running total of all transactions on your account. It changes every time you swipe your card to pick up Chinese takeout or return a T-shirt that didn’t fit right.

To understand the interplay between the statement balance vs. the current balance, consider this. On February 15, the statement balance is $1,000, meaning that the total charges between January 15 and February 15 add up to $1,000. Two days later, you make a $50 charge to the card. Your current balance will reflect $1,050 while the statement balance remains the same.

In this case, the current balance is higher than the statement balance. The reverse can also be true, and the current balance can potentially reflect a smaller number than the statement balance.

Recommended: Personal Loan vs. Credit Cards

What to Know About Paying Off Your Credit Card

As each billing cycle closes, you will be provided with a statement balance. You will also likely be provided with a due date. At the time you make a payment, you may decide to pay off the statement balance, the current balance, the minimum payment, or some other amount of your choosing.

Recommended: Credit Card Closing Date vs Due Date

Paying the Statement Balance

If you regularly pay your statement balance in full, by its due date, you likely won’t be subject to any interest charges. Most credit card companies charge interest only on any amount of the statement balance that is not paid off in full.

The period between your statement date and the due date is called the grace period. During this period, you may not accumulate interest on any balances. It’s worth mentioning that not every credit card has a grace period. It’s also possible to lose a grace period by missing payments or making them late. If you have any questions about whether your card has a grace period, contact your credit card company.

Paying the Current Balance

If you’re using your credit card regularly, it is possible that you will use your card during the grace period. This will increase your current balance. At the time you make your payment, you will likely have the option to pay the full current balance.

If you have a grace period, paying the current balance is not necessary in order to avoid interest payments. But paying your current balance in full by the due date can have other benefits. For example, this move could improve your credit utilization ratio, which is factored into credit scores.

Paying the Minimum Monthly Payment

Next, you can pay just the minimum monthly payment. Generally, this is the lowest possible amount that you can pay each month while remaining in good standing with your credit card company — it is also the most expensive. Typically, the minimum payment will be an amount that covers the interest accrued during the billing cycle and some of the principal balance.

Making only the minimum payments is a slow and expensive way to pay down credit card debt. To understand how much you’re paying in interest, you can use a credit card interest calculator. Although minimum monthly payments are not a fast way to get rid of credit card debt, making them is important. Otherwise, you risk being dinged with late fees.

Missing or making a payment late can also have a negative impact on your credit score.
So, if the minimum payment is all you can swing right now, it’s okay. Just avoid additional charges on your card.

Making a Payment of Your Choice

Your last option is to make payments that are larger than the minimum monthly payment but are not equal to the statement balance or the current balance. That’s okay, too. You’ll potentially be charged interest on remaining balances, but you’re likely getting closer to paying them off. Keep working on getting those balances lowered. A good goal is to pay off your balance in full each month.

Your Credit Utilization Ratio

The balance you currently carry on your credit card can impact your credit utilization ratio. Credit utilization measures how much of your available credit you’re using at any given time. Credit utilization is one of a handful of measures that are used to determine your credit score — and it has a big impact. Credit utilization can make up 30% of your overall score, according to FICO® Score.

Not every credit card reports account balances to the consumer credit bureaus in the same way or on the same day. Also, the reported number is not necessarily the statement balance. It could be the current balance on your card, pulled at any time throughout the billing cycle. Again, it may be worth checking with your credit card issuer to find out more. If your issuer reports current balances instead of statement balances, asking them which day of the month they report on could be helpful.

Sometimes, the lower your credit card utilization is, the better your credit score. While you may feel in more control to know which day of the month that your credit balance is reported to the credit bureaus, it may be an even better move for your general financial health to practice maintaining low credit utilization all or most of the time.

If you are worried about your credit utilization rate being too high during any point throughout the month, you can make an additional payment. You don’t have to wait until your billing cycle due date to reduce the current balance on your card.

According to Experian, one of the credit reporting agencies, keeping your current balance below 30% of your total credit limit is ideal. For example, if you have two credit cards, each with a $5,000 limit, you have a total credit limit of $10,000. To keep your utilization below 30%, you’ll want to maintain a balance of less than $3,000.

Recommended: When Credit Card Companies Report to Credit Bureaus

3 Tips for Managing Your Credit Card Balance

If you’re struggling to juggle multiple credit cards and make all of your payments, here are some tips that may help.

1. Organizing Your Debt

A great first step to getting a handle on your debt is to organize it. Try listing each source of debt, along with the monthly payments, interest rates, and due dates. It may be helpful to keep this list readily available and updated. Another option is to use software that aggregates all of your finances, such as your credit card balances and payments, bank balances, and other monthly bills. Check out SoFi Relay if you haven’t already.

Whether you use existing software or your own calendar system, keep in mind that staying on top of your due dates and making all of your minimum payments on time is one of the best ways to stay on track.

You can also ask your credit card providers to change your due dates so that they’re all due on the same day. Pick something easy to remember, such as the first of the month.

2. Making All Minimum Payments, But Picking One Card to Focus On

While you’re making at least the minimum payments on all your cards, pick one to focus on first. There are two versions of this debt repayment plan: the Debt Avalanche and the Debt Snowball.

With the Avalanche method, you attack the card with the highest interest rate first. With the Snowball method, you go after the card with the lowest balance. The former strategy makes the most sense from a mathematical standpoint, but the latter may give you a better psychological boost.

If and when you can, apply extra payments to the card’s balance that you’re hoping to eliminate. Once you’ve paid off one card, you can move to the next. Ultimately, you’re trying to get to a place where you’re paying off your balance in full each month.

3. Cutting up Your Cards

Whether you do this literally or not, a moratorium on your credit card spending can be a great strategy. If you are consistently running a balance that you cannot pay off in full, you may want to consider ways to avoid adding on more debt.

A word of warning: Don’t be tempted to cancel all your cards. This can negatively affect your credit score. However, if you feel you really have too many credit cards to manage — say, more than three or four — cancel the newest credit card first. This will ensure your credit history length is unaffected.

The Takeaway

Your credit card statement balance is the sum of all your charges and refunds during a billing cycle (usually a month), plus any previous remaining balance. It changes monthly with each statement. Your current balance is updated almost immediately every time you make a purchase. It is the sum of all charges to date during a billing cycle, any previous remaining balance, and any charges during the grace period. Whenever you can, pay off the full statement balance to avoid interest charges.

Trying to pay off credit card debt? Taking out a personal loan can consolidate all of your credit card balances. You’ll have only one monthly payment to make, a low interest rate, and no fee options. Plus, there is an easy online application and access to live customer support seven days a week.

See if a SoFi Personal Loan can help you get on top of your credit card debt.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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 .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi’s Insights tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
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It’s common knowledge that a person’s credit score can have a significant impact on their ability to get the best deals on loans and credit cards. And that can potentially save borrowers many thousands of dollars over a lifetime. But exactly what the credit rating scale involves is a mystery to many people. That’s a problem for potential applicants who’d like to boost their score before shopping around for a loan.

We’ll offer insights into how credit scores are calculated, what credit range might qualify as “good” versus “exceptional,” and what you can do to qualify for the best interest rates.

The Three Major Credit Bureaus

Credit bureaus are independent agencies that collect and maintain consumer credit information and then resell it to businesses in the form of a credit report. The Fair Credit Reporting Act allows the government to oversee and regulate the industry.

There are three major credit bureaus that 90% of lenders pull scores from:

•   Equifax, whose scores range from 280 to 850

•   Experian, whose scores range from 300 to 850

•   TransUnion, whose scores range from 300 to 850

What Actually Factors into Your Credit Score?

The FICO® Score uses a scoring model that sources data from credit bureaus to calculate your score. Elements used in the FICO scoring model (as of this writing, that’s FICO Score 8) include:

•   Payment history: 35%

•   Credit utilization (amount owed): 30%

•   Length of credit history: 15%

•   Credit mix: 10%

•   New credit: 10%

Wondering what those terms mean? Let’s break it down:

Payment History

Payment history looks at whether you pay your bills in a timely manner. Do you have a history of paying bills a couple weeks late, or are you the type who always paid your cable bill even before it was due? That’s the kind of thing that will come into play here.

Credit Utilization

“Amount owed” is pretty self-explanatory — it’s how much total debt you’re currently carrying. Your “credit utilization ratio” may not be quite so clear. That’s the amount of credit you actually use compared to the amount of credit available to you. Lenders generally like to see a credit utilization ratio of 30% or lower.

Recommended: Credit Card Utilization: Everything You Need To Know

Length of Credit History

This factor looks at the age of your oldest and newest accounts and the average age of all your accounts. To lenders, longer is better.

Credit Mix

Credit mix considers the variety of your debt — is it primarily credit card debt? Do you carry student loan debt or have a mortgage? A desirable mix is a combination of revolving debt (lines of credit, credit cards) and installment debt (loans with fixed repayment terms like student loans and car loans).

New Credit

New credit looks at what accounts have recently been opened in your name, or if you’ve taken out any new debts.

How’s Your Credit?

Where your credit score falls on the scoring table determines how “good” your credit is. Here’s a breakdown of the credit rating scale according to FICO standards.

•   Exceptional: 800-850

•   Very Good: 740-799

•   Good: 670-739

•   Fair: 580-669

•   Very Poor: 300-579

Ready for a plot twist? FICO can tweak their algorithm depending on the type of loan you’re applying for. If you’re looking to get an auto loan, your industry-specific FICO Score may emphasize your payment history with auto loans and deemphasize your credit card history. In effect, each consumer has multiple credit scores.

You may also hear the phrase “educational credit score.” This can refer to the proprietary scoring models used by TransUnion and Equifax. The term means that these scores may not be used by lenders, but they help educate consumers about their credit scores.

Trying to Improve Your Credit Score With Credit Card Debt

You’ll notice that a lot of information around improving your credit scores focuses on debt reduction. After all, 30% of your FICO Score is based upon outstanding debt. By paying that down on time, you may be able to boost your credit score. One potential action item for those trying to strengthen their credit history is to work on paying down credit card debt.

Credit card debt may be the highest-interest debt you’re carrying. After all, the average credit card interest rate is currently around 15%, compared to federal student loans, currently at 4.99%, and the average mortgage, hovering around 5.8%. That means if you have credit card debt, it could be your fastest growing debt. By getting rid of it, you may be able to significantly reduce your outstanding debt.

One way to get out of credit card debt is to consolidate it into a lower-interest option. With a balance transfer credit card, you can move your high-interest debt to a 0% interest card. The catch is that the 0% interest is temporary, and after a given amount of time (typically six to 21 months), the interest rate shoots up.

One other tip for potentially boosting your credit score: Thoroughly review your credit report for errors. Mistakes happen, and some of them can bring down your score. You can file a dispute online to correct or remove the information.

Recommended: Using a Personal Loan to Pay Off a Credit Card

The Takeaway

Credit scores, calculated based on information in your credit report, influence the interest rates you qualify for on loans and credit cards. The higher your score, the less you’ll pay in interest. The factors that determine your score include your history of on-time payments, your total debt compared to the amount of credit available to you, the types of debt you have, and the age of your accounts. One of the best ways to boost your credit score is to pay down credit card debt.

A common way to consolidate high-interest credit card debt is with a low-interest personal loan. While your credit score is likely to be reviewed by lenders when you apply for a personal loan, there are other financial factors they consider, such as your current employment situation and income. If you think a personal loan might be right for your financial situation, SoFi offers personal loans with no fees required — and no headaches.

SoFi’s Personal Loan was named NerdWallet’s 2022 winner for Best Online Personal Loan.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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 .
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.
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