Credit Card Utilization: Everything You Need To Know

In order to fully understand credit card utilization, picture this: Imagine that you have four credit cards, each with a $5,000 limit. That means that you have access to $20,000 worth of credit total. Now, imagine you have a balance of $2,000 on Credit Card A from a trip to Panama, $1,000 on Credit Card B from when you had to unexpectedly replace all your tires, $2,000 on Credit Card C from last holiday season, and $1,000 on Credit Card D from your regular monthly bills.

In total, you owe $6,000. That means you are using $6,000 of the $20,000 in credit you’re entitled to. If we calculate that as a percentage (30%), we have your credit card utilization rate.

In this guide, we will look at calculating your credit card utilization rate, determining what percentage of available credit you should shoot for, and understanding how credit card utilization affects your credit score and overall financial wellness.

How do you calculate your credit card utilization rate?

Let’s start with the basics: How do you figure out your credit card utilization rate? In our example above, we determined that if you have $20,000 of credit available to you, and you owe $6,000, your credit utilization rate is 30%. How did we get there? Using pretty simple math. To figure out your credit card utilization rate, simply divide your total credit card balances by your total credit line, like this:

Total Credit Card Balance/Total Credit Line = Credit Card Utilization Rate

With the numbers from our example above, it looks like this:

6,000/20,000 = .3 or 30%

Simple, right? You’ve got this.

What counts as “good” credit card utilization?

As it turns out, just because you’ve been approved for a $10,000 credit card doesn’t mean it makes financial sense to charge $10,000 worth of rosé and seltzer to your credit card—even if you know you can pay it off over a couple of months. In fact, you might be shocked to learn how little of your available credit you’re supposed to use.

To maintain or boost your credit score, it is recommended the general rule is that you should not exceed a 30% credit card utilization rate. That means that in our example, you would not want to use more than $6,000 of your available $20,000 credit. Even though 30% might seem like a small percentage, keeping below that threshold can ensure that your credit score isn’t being dinged for over-utilization.

Is credit utilization affecting your credit
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How does credit card utilization affect your credit score?

The world of credit scores can make your head spin, but what we know for sure is that credit card utilization plays a big role in how companies compute your credit score. In fact, about 30% of your credit score is determined by your credit card utilization rate. That means a high credit card utilization rate can adversely affect your credit score.

How do you monitor your credit card utilization?

All of this might seem difficult to keep track of, but seeing as we live in the 21st century, it can actually be quite easy to set up account reminders that will alert you when you are approaching that 30% credit card utilization mark.

In addition to watching your credit card utilization rate, try to make payments on your credit cards on-time each month. Checking your credit score regularly will also help you keep your financial health in check.
(Though you don’t want to check your score too often, it’s good to keep tabs to make sure the reporting is accurate on your credit score.)

Overall, credit card utilization rates can be confusing, but now you’re prepared to better calculate your own credit card utilization rate and leverage that in pursuit of a great credit score.

Have high credit card utilization across multiple cards? consolidate credit card debt with a low interest personal loan and reduce your utilization rate, which can positively affect your credit score.


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.
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 on credit.
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Understanding Your Credit Card Statement

Your credit card statement might come to you by mail or email. Do you take the time to look at it, reviewing for errors and making sure everything looks right?

Or do you put it in the shred pile, quickly moving on with your life?

If you shy away from your credit card statements, you’re not alone. There’s a lot happening on those pages, between the ultra-fine print and numbers galore.

A credit card statement can also be a source of anxiety: a reminder of money that was spent throughout the month and of possible payments past due.

But, there’s also a lot of important information on a credit card statement.

If you spend a little bit of time learning to read your credit card statement, it won’t be nearly so overwhelming—you may even find it helpful in understanding how to manage your credit. It may be the catalyst you need to pay off your credit card debt.

A credit card statement includes information about rates, fees, transactions, payments, and any changes to the rules and regulations of your card.

Every credit card provider’s statement will look a bit different but will share similarities in the most important sections.

So this is just a high-level overview of some common facets of a credit card bill—including basic examples of what a credit card statement may look like; your statements will almost certainly vary, and may not contain every section outlined here. Think of this article as simply a jumping-off point to learning more about your own credit card bill.

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How to Read a Credit Card Statement

Account Summary

This section is an overview of all transactions that have taken place on your credit card account during a billing period. Often, the section begins with the account’s previous balance. Added or subtracted to the balance are additional purchases, interest charges, fees, balance transfers, credits, or payments.

The result is the new balance, which takes into account all of the activity for that billing cycle. The billing cycle’s dates are typically also included.

Note that only activity from the current billing cycle will be reflected on the statement. This means that your statement may reflect different numbers than what you see when you look at your account online.

Your online dashboard will likely display a current balance that includes transactions that happened after the credit card statement cycle closed.

You may also find information on the card’s credit and cash advance limits in this section.

Payment Information

In this section, you’ll find information on what is owed for the billing cycle. If you look at no other section on your credit card statement, you’ll probably want it to be this section.

In addition to the total balance on the card at the end of the cycle—sometimes called the “new balance”—this section will include information on your minimum payment for the month and the date the payment is due.

If you fail to make the minimum monthly payment on time, you may be charged a late fee. Missing a payment might also trigger a higher penalty annual percentage rate (APR), and could potentially negatively impact your credit score.

Paying the balance in full each month typically avoids accumulating interest payments. To do this, you would pay off the full “new balance” amount listed in the payment information section. (You may also have the option to pay the full “current balance,” which includes transactions made after the close of the billing cycle.)

Late Payment and Minimum Payment Warnings

Credit card statements typically have sections that state what happens in the event that a minimum monthly payment is not received by the due date listed.

The late payment warning generally includes information on the penalty APR (if applicable) and the late payment fee.

The minimum payment warning section explains how long it will take to pay off a credit card balance and how much interest you will owe if you only make the minimum payment.

It is possible to pay off a credit card balance by only making minimum payments, but the process can be slow and cost more in the long run when you factor in compound interest.

The minimum payment warning section may include details for an expedited payment schedule such as three years, or 36 monthly payments. This can be a useful comparison if you’re unsure of just how much in interest charges you’ll save by making more than the minimum monthly payment.

Another way to explore interest costs over different repayment periods is by using a credit card interest calculator.

Rewards Summary

If you carry a rewards credit card, the most fun section to review on a credit card statement can be the rewards summary, which details how many points or miles are able to be redeemed for cash or travel.

This section typically contains information on how many points or miles were accumulated over the most recent billing period, along with the number of points that are available to be redeemed currently.

Credit Counseling Notice

Your credit card statement may include information for nonprofit credit counseling. If you are having a difficult time managing your credit, you could consider utilizing this resource.

These programs are typically long-term solutions, however, and may not be able to help if you are in immediate risk of missing a payment.

If you are unable to make a payment, calling your credit card company and asking about your options may be helpful. Credit card companies may have ways to help.

Notice of Changes to Interest Rates and Other Changes

If an action on your account triggers some sort of change to the account, there is usually a section dedicated to explaining this change (or potential change). For example, if a missed payment triggers the penalty APR rate, you must be notified of the change.

Similarly, if there are any other major changes to your account, rates, or fees, you may find more details in this section.

Transaction Charges

This section is a list of all transactions that occurred during a billing cycle including purchases, returns, and any other activity that would affect the running balance on a credit card. Each transaction typically includes information about the vendor, the date the transaction was made, the date it was posted to the account, and the dollar amount.

This section will only include information from the transaction period. Transactions that happened after the billing cycle will be included in the next period’s statement.

You may want to consider making a regular habit of checking your transactions each month for errors or fraudulent activity. If something looks suspicious to you, report the activity to the credit card company.

Fees and Interest Charges

Credit card statements typically have a section dedicated to fees and interest charges. Interest charges are listed by the type of transaction for which they apply.

For example, you may be charged a different interest rate for purchases than for balance transfers or cash advances. Here, you will be provided with the calculation for each.

Credit card statements may also include a year-to-date total of all fees and interest charged.

Managing Credit

Successfully managing your credit card is not something that happens overnight. Learning to read your credit card statement is a great start.

But if you’ve got big goals—like paying off your credit card debt—you may just need an extra boost.

One option to climb out of credit card debt is to take out a personal loan. A low fixed-rate personal loan could be easier to manage than multiple different credit card payments.

SoFi offers personal loans with low rates and no fees (that means no application or origination fees) for qualified borrowers. Plus SoFi knows that navigating your finances and learning credit card jargon can be tough, which is why all SoFi members have access to helpful financial advisors, at no cost.

Ready to take out a personal loan with SoFi? Check your rate today.



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Eligible Participants: All new members who apply and get approved for the SoFi Credit Card, open a SoFi Checking and Savings account, and set up Direct Deposit transactions ("Direct Deposit") into their SoFi Checking and Savings account during the promotion period are eligible. All existing SoFi Credit Card members who set up Direct Deposit into a SoFi Checking & Savings account during the promotion period are eligible. All existing SoFi members who have already enrolled in Direct Deposit into a SoFi Checking & Savings account prior to the promotion period, and who apply and get approved for a SoFi Credit Card during the promotion period are eligible. Existing SoFi members who already have the SoFi Credit Card and previously set up Direct Deposit through SoFi Money or SoFi Checking & Savings are not eligible for this promotion.

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

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

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Getting Rid of Credit Card Debt in the New Year

There’s nothing quite like the feeling of having your credit card balance paid in full. It’s like a breath of fresh air, a surge of pride, and a huge sigh of relief all rolled into one. But Americans have an on-going love affair with plastic.

Collectively we hold more than $1 trillion in credit card debt. When it comes to getting rid of credit card debt, baby steps can lead to big victories—even the possibility of getting those credit cards paid off in 2020.

To be clear, we’re not talking about being completely debt-free in 2020. Depending on how much you owe on all your debt in total, that could be a longer journey. But targeting your credit card debt can be a smart first-step since credit card debt can sometimes come with a high interest rate.

We’ve put together eight common strategies for how to get rid of credit card debt. But first, you’ll need to get your head in the game. Unless you suddenly receive an inheritance or win the powerball, unloading debt can be challenging.

If you truly want to try and eliminate credit card debt in the new year, it’s going to require a lot of budgeting, discipline, and will-power. You’ll likely have to make sacrifices and compromises. But if you can keep your eye on the prize, next year you could be looking at a nice, round zero.

1. Limit Your Use of Credit

No strategy for how to crush credit card debt is going to work if you continue to rely heavily on your credit cards. Pick one card to keep—ideally, one with good terms, like a low interest rate or a great rewards program —and put the rest away.

You can store them in a safe place or even cut them up so you’re not tempted to use them. If the card doesn’t carry a large annual fee, consider not canceling your credit card account, since losing that cards credit history or percentage of credit utilization could possibly have an affect on your credit score.

2. Take a Hard Look at Your Spending

Go through last month’s bank and credit card statements and add up all the money you spent eating out, or shopping for non-essentials. You may be surprised at what you find.

Review your spending closely and see if there is any room for you to cut back on unnecessary expenses. Then, create a budget that’s completely within your means.

The goal is to cut back on your discretionary spending so you can focus additional funds on paying off your credit card debt. Take a look at our tips for creating a better budget. Building a workable budget is one of the first steps in tackling your debt.

3. Create a Debt-Repayment Strategy and Stick to It

There are a few different schools of thought when it comes to eliminating your credit card debt, especially if you have debt spread over multiple credit cards. Regardless of the strategy you choose, make the minimum monthly payments on all of your debts.

One strategy is called the debt avalanche method. Using this method you’ll organize your credit card debt from highest interest rate to lowest interest rate.

Focus your efforts on repaying the debt with the highest interest rate first. Then as you pay off each credit card, you can contribute the money you were contributing to the next debt.

On average, Americans will pay more than $1,000 in interest this year, so tackling the highest interest rate first could be appealing. You can use our credit card interest calculator to see an estimate of how much interest you’ll accrue on your current track.

The other approach suggests you focus on the credit card with the smallest balance first. This is called the debt snowball method. The goal of this strategy is to encourage you to continue your debt repayments. Since you start with the smallest balance, you’ll start seeing the impact of your payments faster.

See how a SoFi personal loan can help
you get rid of your credit card debt
in the new year.


6. Transfer to a Balance Transfer Credit Card

This could help you toward your goal of eliminating your credit card debt but in order to do so it will require diligence to avoid common pitfalls.

A balance transfer credit card allows you to open a new low-interest or interest-free credit card and transfer your existing balance from a high-interest credit card, so you can pay off the debt. In theory, paying off the debt should be easier without a high APR.

The introductory APR on low or 0% transfers generally lasts anywhere from six to 18-months, so be sure you understand the terms and conditions. These can be a useful tool if you can repay your debt during the introductory period.

7. Consolidate Your Debt with a Personal Loan

A personal loan won’t eliminate your debt, but it could help you get out of the high-interest credit card game. Instead of a revolving door of debt, you can opt to pay one monthly fixed payment, possibly at a lower interest rate.

8. Pay More than You Owe, More Often than You Owe It

As you work toward paying your credit card debt, consider making more than the monthly minimum payments. This can help you pay off your debt faster and in doing so, could help you reduce the amount of money you spend in interest over the life of the debt. This can be helpful in both the avalanche and snowball methods of debt repayment.

Ready to see how consolidating your credit card debt with a personal loan could help you take control of your finances? SoFi can help. Use our personal loan calculator to compare your current debts with a personal loan.

When you take out a loan with SoFi there are no prepayment penalties or origination fees. You’ll also gain access to a community of like-minded savers.

Check your rate in just a few minutes.


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.
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 Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

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How Long Does it Take to Repair Credit?

Do you know what your credit score is? If not, maybe it’s time to take a peek.

Knowledge is power, and knowing (and understanding) your credit score is important. It may just be three digits, but your credit score can be an impactful number—it can be used to determine whether or not you’re able to borrow a loan or even to rent an apartment.

If you’re new to the game and don’t have much credit history, you may be wondering how to build credit. On the other hand, if you are in need of a little credit restoration, you might be wondering how long it takes to repair credit.

The truth is there is no hard and fast timeline. Building credit from scratch can take time and so can rebuilding it. The process can be complex and can vary from person to person. In fact, many factors can affect your credit scores, so we want to be clear here that SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. This is just a higher-level look at some factors to help give you a better idea of what the credit-repair landscape can look like. With all that said, let’s dive in!

Factors that Can Influence Your Credit Score & Report

A credit score gives a numerical value to a person’s credit history. It can help give lenders a big-picture look at a potential borrower’s creditworthiness. These scores (there isn’t just one) give lenders insight into how reliable a person might be when it comes to repaying their debt.

This can influence a lender’s decision on whether or not to loan a person money, how much money they are willing to lend, and even the rates and terms for which a borrower qualifies.

Since credit scores are so widely used, it’s easy to see why some individuals may be interested in improving their credit scores. First, it might be helpful to understand the factors used to actually determine your score. Let’s take a look specifically at what goes into a FICO® Score 8 , since that is the credit score used by many lenders right now. Typically, the two most prominent are payment history and credit utilization ratio.

Your payment history accounts for approximately 35% of your FICO® Score, making it one of the most influential factors. Even just one missed or late payment could potentially lower a person’s credit score.

Lenders want to be sure that you’re able to payoff the debt, and a history of on-time payments could illustrate your reliability. A history littered with late payments could be a red flag.

Credit utilization ratio accounts for 35% of your FICO® Score . Credit utilization ratio is your total revolving debt in comparison to your total available revolving credit. Revolving credit is what’s considered when looking at an individual’s credit utilization ratio.

Revolving credit (also known as revolving debt) is essentially credit that is renewed as it is paid off, like credit cards. So, things like credit cards or other lines of credit will be included in a utilization ratio while other debts, like student loans or a mortgage, wouldn’t be.

A low credit utilization ratio can indicate to lenders that you are effectively managing your credit. Typically, lenders like to see a credit utilization ratio that is less than 30% , but how much credit being used is “too much” can depend on a number of factors.

Those factors, like the mix of your credit, the number of hard credit inquiries in your name, the length of your credit history, and negative information (like a foreclosure) can also impact your credit score.

Credit Issues: How Long Do They Linger?

Negative factors like late payments and foreclosures can hang around on your credit report for a while. Generally, the information is included for around seven years .

Bankruptcy is an exception to this seven year guideline—it can linger on your credit report for up to 10 years , depending on the type of bankruptcy filed. Bankruptcies filed under Chapter 7 can be reported for up to 10 years from the filing date. Bankruptcies filed under Chapter 13 can be reported for seven.

While a late payment will be listed on a credit report for seven years, as time passes it typically has less of an impact .

Disputing an Error on Your Credit Report

Checking your credit report can help you stay on top of your credit. You’ll also be able to make sure the information is correct, and if needed, dispute any mistakes.

There are three major credit bureaus—Experian®, Equifax, and TransUnion® . Once a year you can request a copy of your credit report from each of the three credit bureaus, at no cost. Checking in with each report may feel a little repetitive, but it’s possible that the credit bureaus could have slightly different information on file.

If you find that there are discrepancies or errors , you can write a letter to dispute the mistake. You’ll have to write to each credit bureau individually. Generally, you’ll need to send in a letter with documentation to support your claim. Once you’ve submitted your dispute letter, the bureaus have 30 days to respond .

Often times, a bureau will require additional supporting documentation, which can lead to some back and forth within or sometimes after the 30 days. It could take anywhere from three to six months to resolve a credit dispute, but it could take less time, or potentially even longer, depending on the issues being disputed.

Staying on Top of Credit Repair Efforts

Sometimes, resolving issues on a credit report isn’t enough to completely repair a bad credit score. On the bright side, credit scores aren’t permanent. Here are a few ideas for helping to keep up with your own credit restoration plan.

Improving Account Management

If you’re struggling to keep up with accounts with a variety of financial institutions, it could be time to simplify. Take stock of your investments, debts, credit cards, and savings or checking accounts. Is there any opportunity to consolidate?

Having your accounts in one, easy to check location can make it easier to ensure you never miss an alert or important deadline. Having easy access and visibility into your accounts can help you spot any issues as they pop up, so they don’t fester under the surface and surprise you when you least expect it.

Making Payments On-Time

Lenders can be hesitant to lend money to people with a history of late payments. So make sure you’re aware of each bill’s due date and make your payments on time. One idea? You could set up autopay so you don’t even have to think about it.

Limiting Credit Utilization Ratio

It could help to set a realistic budget that reflects your credit utilization ratio and stick to it. Some accounts will let you set up balance alerts that can warn you as you inch closer to the 30% guideline. Another option could be paying your credit card bill more frequently (for example, setting up a mid-cycle payment in addition to your regular payment).

Strategizing to Destroy Debt

When it comes to paying off debt, having a plan can help. Without a clearly defined strategy, it can be easy to get swept up in the stress of debt.

For example, using a credit card can be an effective way to build credit, but if not used responsibly, credit card debt can be incredibly difficult to pay off. Not only that, it could end up impacting your credit score. As a part of your credit restoration plan, you might consider putting a debt repayment plan into place.

Your finances and personal situation will be a major factor in the debt repayment strategy that works best for you. If you need some inspiration, these potential methods may be helpful to reference in your quest to pay off debt. If you decide that one of these options works for you, here’s how you might go about them.

The Snowball

The Snowball Method of paying off debt is pretty straightforward. To put it into action, you would organize your debts from smallest to largest, without factoring in the interest rates.

Then you’d continue to make the minimum payments on all of your debts while paying as much as much as possible on your smallest debt. When the smallest debt is paid off, you’d then roll that money into debt payments for the next smallest debt—until all of your debt is repaid.

This strategy is all about changing behavior and building in incentives to help keep you going. Starting with the smallest debt means you’d see the reward of paying it off faster than if you had started with the larger debt. While this method can help keep you motivated and laser focused on eliminating your debt, it isn’t always the most cost effective, since it doesn’t take into account interest rates.

The Avalanche

The Debt Avalanche method encourages adherents to focus on high interest debts first. Prioritizing debts the debts with the highest interest rates by putting any extra cash towards them, while making the minimum payments on all of your other debts, could help save money in interest in the long run. And it could even help you pay off your debts sooner than the Snowball Method.

The Fireball

The Fireball combines the Snowball and Avalanche methods in a hybrid approach designed to help you blaze through costly debt so you can focus on the things that matter most to you.

The first step in this method is to go through all of your debts and categorize them as either “good” or “bad.” “Good” debts are those with an interest rate of less than 7%. Debts with interest rates higher than 7% are considered “bad.” Then, you’d list your “bad” debts from the smallest amount to the largest amount.

Then you’d take a look at your budget and see how much money you have to funnel toward making extra debt payments. While making the minimum monthly payment on all outstanding debts, you’d direct the extra funds toward the bad debt with the smallest amount.

When that smallest balance is repaid in full, you’d apply the total amount you were paying on that debt to the next smallest debt. Then you’d continue this pattern, moving through each outstanding bad debt until they are all paid in full.

An important note: while you are moving fiercely through your bad debts, you would still follow the normal payment schedule on your good debts.

When you’ve incinerated your bad debts, then you’d apply the money you were using to pay off bad debt toward investing in a financial goal—like saving for a house or for retirement.

By focusing on the debts with the highest interest rates first, this method could save you some change when compared with the Snowball Method. And, since you’re then targeting bad debt from the smallest balance to the largest, you could still benefit from the same psychological boost as you see your debt shrink, one payment at a time.

The Fireball also places an emphasis on saving for the future over repaying low-interest debt, so some people may find this method less appealing, especially if they have a strong aversion to debt.

Creating a Goals-Based Approach

Studies have shown that people who write down their goals are more likely to achieve them. So, it makes sense that setting some financial goals could be a smart step in fine-tuning your financial plan.

Having financial goals could possibly help you streamline your efforts. If you’re actively working toward saving for a down payment, you may feel less inclined to spend money elsewhere.

You could try setting short-term, mid-term, and long-term goals. In the short-term your goals might be as simple as tracking your spending and setting up a budget. For mid-term goals, you might think about something a little further out, like buying a house or saving for a child’s education. Long-term goals are often things like saving for retirement.

Writing down your goals and setting a time for when you’d like to reach them can help you set up your plan.

Organizing Your Finances

Organizing your finances has never been easier thanks to handy credit repair apps and financial tracking software. If you’re looking for a tool to help you manage your money with ease, take a look at SoFi Relay.

You can connect your accounts, even those unaffiliated with SoFi, to the app so you have visibility to all your finances in one place that can be accessed in an instant. This can make it easier to see when payments are due. You can also track your cash flow and spending in real time, so you’ll never have to wonder where your credit cards stand.

With SoFi Relay, you also have the option to speak with a licensed financial advisor to clarify your goals and refine your financial plan.

It might take some time, but reaching your goals isn’t impossible. Learn how SoFi Relay can help.


Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
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Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice about bankruptcy.
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Is Your Credit Card Spending Limit Too High?

Your credit card spending limit is a powerful number.

Your spending limit determines how high a balance you can carry on your credit card at any given time without receiving a penalty. It can dictate whether you buy that 2019 Lincoln Navigator you’ve had your eye on or settle for that 20-year-old minivan you found on Craigslist. It can decide whether you finally buy a ticket to Costa Rica or purchase a tank of gas for a road trip to the other side of town.

Spending limits can vary drastically. According to a report by the American Bankers Association, If your credit score is low and/or you’re opening your first ever line of credit, your credit card spending limit could be below $3,000 . If you have excellent credit and a history of paying off credit cards, your spending limit could be over $11,000!

You may be thinking that a higher spending limit is automatically better. After all, it can give you a lot more freedom to make big purchases. And nothing says “adulting” like a credit card company trusting you to pay back a ton of money, right?

But here’s the question—could your credit card spending limit be too high?

How Does My Credit Card Spending Limit Work?

If your spending limit is $10,000, you can rack up $10,000 on your card, no problem. But if you go over that amount before paying any of it off, that’s when the trouble begins.

Once upon a time, credit card companies would charge you an over-limit fee for going over your limit. Thanks to the Credit Card Accountability Responsibility and Disclosure Act of 2009 , it has become illegal for companies to charge you these fees in most cases. These days, if you make a purchase that would push you over your spending limit, your purchase will just be declined—which can be both inconvenient and embarrassing!

Some credit card companies also set a daily spending limit and/or cash advance limit.

As you might guess, the daily spending limit is how much you can put on your credit card in one day. Daily spending limits aren’t super common, but some companies use these limits to protect you if your card is stolen. This way, a thief can spend only so much money before you or your company realizes your card has been stolen and cancels it.

Your cash advance limit, or the amount of money you can access immediately through your credit card, can vary depending on your credit limit. You should know that if you increase or decrease your credit card spending limit, there’s a good chance your cash advance limit will be adjusted accordingly.

Credit card companies take a variety of factors into account when determining your spending limit—your credit history, your income, and your debt-to-income ratio are some of the factors that may come into play. However, every credit card company is different in what it considers and how much emphasis it places on each component.

Your spending limit isn’t set in stone, though. If you have a good history with your card company and your income and/or credit score has increased, it might be a good time to request an increase in your limit. Likewise, if you find yourself tempted to overspend with your high limit, you can request a decrease in your spending limit.

What do you think? Is it time to increase your spending limit? Or is your limit already too high for your needs and has you thinking about decreasing it? Being aware of the pros and cons of having a high credit card spending limit could help you decide on your next move.

Need help climbing out of credit card debt?
See what a SoFi personal loan can do for you.


The Advantages of a High Credit Card Spending Limit

There are a few practical reasons for having a high spending limit. For example, it can be a lifesaver in an emergency situation. Let’s say you lose your job and are struggling to make ends meet until you find a new gig—with a higher spending limit, it would be possible to put a few big expenses on your credit card without going over the limit.

Or maybe you wake up one morning and realize your air conditioner is broken! Those babies don’t come cheap. You may choose to simply pay for a new unit with your card.

While this is technically possible, be wary of putting big emergency purchases on your credit card. You might consider saving a designated emergency fund that could cover three to six months worth of expenses. That way, you won’t have to rely on plastic and end up stuck with a credit card bill with interest. The average interest rate on credit cards is currently 17.73% —if a large purchase isn’t paid back at the end of the month, that is a huge interest charge!

If you’re responsible with your spending, having a high limit can lower your credit utilization rate. Your credit utilization rate is the relationship between your spending limit and your balance at any given time. If your limit is $10,000, and your balance is $1,500, your credit utilization is 15%. The lower your credit utilization rate, the better.

Why? Because your credit utilization rate can play a role in determining credit scores. In some cases, if credit utilization rate is kept low over time, it may have a positive impact on a credit score.

Frankly, we usually need fairly strong credit scores to accomplish major goals: renting places to live, buying houses, buying cars, buying phones. Not to mention, the higher your credit score, the lower your interest rate is likely to be on a lot of things… including your credit card. Yep, it’s a vicious cycle!

This means that putting $1,500 on your card with a $10,000 spending limit could be more useful than putting $1,500 on your card with a $5,000 limit. If you can make your credit card work for you instead of against you, the result could be a much more financially comfortable situation!

The Pitfalls of a High Credit Card Spending Limit

If your friend hands you one Oreo, you’ll probably eat it. If your friend hands you five Oreos, how many will you eat? Still just one… or all five?

Self-control is a tricky thing. If you have a higher credit card spending limit, there’s a chance you’ll be tempted to spend more than if your limit is low. That habit can quickly lead to an overwhelming amount of credit card debt.

If you’re the kind of person who would still keep your expenses low with a $20,000 limit, then congratulations—you might be able to make a high spending limit work for you! But if you’re someone who can get carried away with credit card spending, a high limit could end up making you a slave to your debt.

Remember, when you spend $1,000 on your credit card, you aren’t just spending $1,000. Don’t forget about interest! Interest rates on credit cards are notoriously high. As of mid-June, the national average credit card annual percentage rate (APR) was 17.73% . All of a sudden, that $1,000 could turn into $1,177.30 if the balance is not paid in full at the end of the month! The longer the balance is left unpaid, the more interest is accrued.

There’s no need to be ashamed about struggling with your spending. If we’re holding five Oreos, plenty of us would eat two or three (or five) instead of just one. The trick is knowing how to limit yourself and how to move forward if you do get yourself into a jam.

Taking Control of Credit Card Debt

Are you struggling with credit card debt? One possible option could be to consolidate with a personal loan.

With a credit card consolidation loan, all your balances are merged, so there is just one monthly payment—with one interest rate—instead of several. With a consolidation loan, you receive a new interest rate and monthly payment. This new interest rate could end up being lower than the rates on your current individual credit cards, which could save money over time.

When you take out a personal loan, it’s crucial to do so through a quality company that you trust. SoFi’s personal loans offer competitive interest rates and no fees, which can save you even more money. And if you lose your job, SoFi will pause your payments until you get back on your feet.

Ready to get started? Applying for a SoFi personal loan is quick, easy, and all online!


Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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
.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

If you lose your job through no fault of your own, you may apply for Unemployment Protection. If your loan(s) is/are in good standing at the time you request Unemployment Protection SoFi will, upon approval, suspend your monthly SoFi loan payments and provide job placement assistance during your forbearance period. Interest will continue to accrue and will be added to your principal balance at the end of each forbearance period, to the extent permitted by applicable law. Benefits are offered in three month increments, and capped at 12 months, in aggregate, over the life of the loan. To be eligible for this assistance you must provide proof that you have applied for and are eligible for unemployment compensation, and you must actively work with our Career Advisory Group to look for new employment.
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