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Whether you’re renting a car to use while on vacation or because your usual vehicle is temporarily out of commission, you might have been asked if you’d like to purchase additional car rental protection. If you paid for your car rental reservation using a credit card, your card may already offer some form of rental protection. However, not all credit cards offer this benefit, and those that do provide varying car rental insurance benefits.

Learning the requirements and limits of your credit card’s car rental insurance coverage — if any at all — can help you make an informed decision when booking or picking up your car rental.

What Is Credit Card Rental Car Insurance?

Rental car insurance through a credit card is also called an “Auto Rental Collision Damage Waiver.” It generally states that if a rental car that was purchased using the card sustains damage due to an automobile collision or theft, you can file a reimbursement claim through your credit card issuer.

This might include a range of damage, from a smashed window due to theft to a car accident involving another vehicle. An Auto Rental Collision Damage Waiver typically covers damage-related costs of the vehicle itself, but it doesn’t cover stolen personal items resulting from the theft, like a laptop, or costs related to bodily injury.

Understanding Your Credit Card’s Coverage for Rentals

Not all credit card car rental insurance terms offer the same level of coverage. For example, some credit card rental car insurance only kicks in after your personal auto insurance coverage and with reimbursement limitations.

Credit card car insurance generally falls into one of two categories: primary or secondary coverage.

Primary Coverage

Certain issuers offer credit card rental car insurance as primary coverage. Primary coverage means that, in the event of damage or theft, you can file a claim directly through the card issuer for reimbursement. You’re not required to file a claim through other insurance sources, like your personal auto insurance company, before the primary credit card car rental insurance benefit applies.

Secondary Coverage

Unlike primary coverage, secondary coverage rental car insurance protection through a credit card offers supplemental reimbursement. With secondary coverage, you’ll first need to file a claim through your personal insurance coverage policy or other sources, such as supplemental insurance through the rental company.

What if you’ve reached your maximum reimbursement through other insurance sources, but you have a remaining reimbursable amount? In this scenario, your credit card rental car insurance benefit can then be used to claim the remaining amount.

Recommended: How Much Auto Insurance Do You Need?

How Does Credit Card Rental Insurance Work?

If you’re renting a car using a credit card that offers rental insurance benefits, you’ll need to follow certain steps to claim a reimbursement. Requirements might vary slightly between card issuers, but below are the general steps you can expect to follow:

1.    Use a credit card with rental insurance protection. The first question you’ll need to answer is, does my credit card cover rental car insurance? If it does, put the entire cost of the rental on your credit card. Keep that card on file with the rental company in case any eligible damage occurs.

2.    Opt out of the car rental company’s collision insurance coverage. If you purchase coverage through the rental company, that becomes the primary source of coverage instead of your credit card issuer.

3.    Pay for damages out-of-pocket. If an incident occurs involving the rental vehicle, your credit card will be charged. You’ll then file a reimbursement claim for the amount of any applicable repair costs through your credit card rental car insurance coverage. Some card issuers allow claim payments to go directly to the rental company, upon request.

4.    Maintain documentation. This includes police reports, if available, as well as rental receipts, damage charges from the car rental agency to your credit card, towing receipts, and any other documentation or proof of expenses as a result of the incident.

5.    Submit your claim ASAP. File an Auto Rental Collision Damage reimbursement claim as soon as possible, as it can take weeks to settle a claim. If your card issuer’s benefits administrator reaches out for additional information or documents, submit those details within their designated timeline to avoid issues or possible denial of your claim.

Questions to Ask Your Credit Card Issuer

In addition to learning what your own car insurance covers, it’s important to know your credit card’s rules around its Auto Rental Collision Damage Waiver benefit. If you’re unclear about how your card can protect you while using a rental car, contact your issuer’s customer support number. Here are some important questions to ask:

•   Does the rental car insurance benefit offer primary or secondary coverage? The answer to this question can help you choose the best payment option to use for your next rental car. It will also give you a sense of what to expect if you need to file a claim.

•   What is included and not included in the coverage? In addition to reimbursements for damage, you’ll want to know if the card’s rental car insurance covers loss-of-use charges from the rental company, for example. Be clear on what isn’t eligible for reimbursement, too.

•   What are the coverage timelines? Depending on your credit card issuer, the number of days when your rental coverage is in effect might be limited.

•   Are there any countries in which the coverage is ineligible? Rental car insurance coverage might not be offered if the incident occurred in certain countries.

•   What do I need to do to ensure I’m covered? Ask what you can do on your end to ensure your rental car is covered by the credit card’s insurance benefit. This may include putting the entire purchase on the card, declining supplemental rental insurance coverage from the rental company, or other requirements stipulated by your insurer.

•   What’s the process for filing a claim? Knowing how to swiftly file a claim after an incident can offer some peace of mind during an already stressful situation.

Recommended: When Are Credit Card Payments Due

Guide to Choosing the Right Credit Card for Car Rental Insurance

If you have multiple credit cards in your rotation that offer differing levels of credit card car insurance protection, consider using the card that offers primary coverage. This helps you avoid the added step of going through your own auto insurance company before being able to successfully file a claim through the card issuer.

The next factor for consideration is coverage amounts. Your maximum reimbursement amount will vary between insurance coverages, so be mindful about how high or low this limit is. Also, pay attention to the exclusions for coverage, including ineligible countries, activities (e.g. off-roading in the rental vehicle), and restrictions on vehicle type.

Other Ways Your Card Can Protect You When You Travel

When a credit card is used responsibly, it can offer many travel-related benefits. In addition to rental car insurance coverage, some credit cards provide protection for lost luggage expenses and trip interruptions.

Credit card travel insurance is especially useful if your travel plans are canceled due to reasons like severe weather or illness.

Keep in mind that many premium travel credit cards will have higher credit score requirements, which is another reason why good credit is important if you’re interested in accessing these benefits.

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

The Takeaway

If your credit card covers rental car insurance, in many cases you can decline the duplicative car rental company’s offer for collision coverage. However, it’s worth learning whether your credit card car rental insurance coverage is primary or secondary and what its coverage limits are in case you need to file a claim

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

FAQ

Do you need a credit card to rent a car?

No, you generally do not need a credit card to rent a car through many national car rental companies, like Enterprise, Hertz, and Avis. Major car rental companies often accept a debit card to secure your rental. Depending on the rental company, your debit card may need to have the logo of a credit network, such as Visa, MasterCard, Discover, or American Express.

Do all credit cards have car rental insurance?

No, not all credit cards provide car rental insurance benefits. However, many credit cards offer this protection to some extent, whether as a primary or secondary coverage. If you’re interested in accessing this benefit, make sure to familiarize yourself with which credit cards cover rental car insurance.

How do I know if my card comes with primary or secondary insurance?

You can refer to your credit card’s terms and conditions to learn whether your credit card offers car rental insurance protection and, if it does, whether it’s primary or secondary coverage. You can also contact the customer support phone number listed on the back of your credit card to speak to a representative about your specific card’s car rental insurance benefits.

Photo credit: iStock/g-stockstudio

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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

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Getting a credit card refund is usually a straightforward process, whether you’re asking for one because a product is defective or you’ve simply changed your mind. When you get a refund on a credit card, you’ll receive a credit on your account for the amount you paid for returned goods that you’d charged to your card.

Although credit card refunds are routine, there are some important things to know about the process. Read on to learn more about how credit card refunds work.

What Is a Credit Card Refund?

A credit card refund is the money you get back when you return something that you’d paid for with your credit card. Rather than getting cash back for the full amount of the returned item, you’ll receive a credit to your credit card account for that amount. The process of a credit card refund is started when you go to return the item, and it can take a few days or longer to see the money credited to your account.

How Do Refunds on Credit Cards Work?

When using a credit card to make a purchase, there’s a third party involved in your transaction. The store or other merchant at which you swipe or tap your card to buy something requests their payment from the credit card issuer. When your credit card issuer pays the charge, it adds the amount of the purchase to your account balance. Then, you pay your credit card bill to pay back the credit card issuer for the purchase you made.

When you return a purchase, the merchant issues a refund to the credit card issuer, not directly to you. In turn, your credit card company posts the credit to your account. This process is why credit card refunds aren’t immediate like cash refunds.

Recommended: When Are Credit Card Payments Due

Types of Credit Card Refunds

There are two basic types of credit card refunds. It can be helpful to know the difference between the two and how a refund to a credit card works in each instance. It may not be something that you took note of when applying for a credit card.

Refund at the Point of Sale

This is when you return an item, either by going to the store in person or sending back an online purchase. The retailer then credits you for the return when the item is received.

Disputed Transaction

Disputed transactions are different from straightforward returns. With a disputed transaction, you’re making a complaint about the purchase as opposed to just making a return. For instance, you might dispute a credit card charge for an online purchase that never arrived. Or you might dispute a charge for a canceled event.

In most cases, you must file a dispute within 60 days of the transaction, providing details and perhaps documentation of the problem. From there, your credit card company has 90 days to investigate the issue and resolve the issue.

While it’s best to start with the merchant when you have an issue with the goods or services provided, you do have options if the merchant will not grant you a credit card refund. In this instance, you can request a credit card chargeback, which reverses your original charge after you have filed a claim with your credit card company.

With a chargeback, the refund process is initiated by the credit card company (often automatically once you dispute a charge), whereas with a credit card refund, the merchant initiates the process.

Recommended: What is a Charge Card

How Long Does a Credit Card Refund Typically Take?

The amount of time it takes to receive a credit card refund depends on the retailer and the type of refund you’re requesting. It typically takes about three to seven business days to see your refund from a routine return you make in person, and sometimes it’s even faster than that.

Online merchants may take a bit longer to issue a credit card refund because you need to allot time for shipping and processing the returned merchandise. As mentioned above, chargeback or disputed charge refunds can take much longer — sometimes as long as 90 days due to the time allowed to file and investigate a disputed charge.

Do Credit Card Refunds Count Toward Payments?

No, credit card refunds are not considered a payment or partial payment, and they do not automatically go toward that month’s minimum payment on your card.

Instead, you’ll see a credit in the amount of the refund in your account statement and, depending on where you are in the billing cycle, this could reduce the total amount you owe by the amount of the refund. You will still need to make your monthly minimum payment while you’re waiting for a refund credit to appear on your account. In fact, one of the cardinal credit card rules is to always make your minimum payment on time.

Keep in mind that interest will continue to accrue on your charge until the refund credit appears. Depending on how much the purchase is for and where you are in the billing cycle, this can affect your overall balance.

How Credit Card Refunds May Affect Your Credit Score

To understand how credit card refunds work when it comes to your credit score, it’s important to understand something called credit utilization ratio. This term refers to the percentage of your total credit limit that you are currently using. Credit utilization can be an important factor in calculating your credit score — the lower your credit utilization ratio, the better. Most financial experts suggest a credit utilization ratio of no more than 30%, with 10% being a good figure to aim for.

In some situations, a refund may build your credit score if the refund reduces your balance and lowers your credit utilization ratio. On the other hand, a delayed refund could lower your credit score if the amount of the purchase pushes your credit utilization higher during a certain billing period.

What to Do With a Negative Account Balance

Sometimes a refund will give you a negative balance on your credit card, meaning your available credit is more than the amount you owe on the card. This can often happen with cardholders who pay their balance in full each month.

If you have a negative balance, it’s usually not a problem. The negative balance will be applied to the next purchase you make on that card, eventually bringing your balance back to $0 or above. A negative balance will likely not affect your credit score because that’s something that credit card companies report to credit bureaus.

However, a negative balance can be problematic if you’re receiving a large refund and don’t often use that credit card. In these instances, you can ask your credit card company to issue a refund via check, money order, or direct deposit. Your credit card issuer may require this request in writing in order to issue the refund.

How Credit Card Refunds Affect Your Rewards

Any credit card rewards you earned on a purchase that was returned, such as cash back rewards or miles, will not be awarded after your refund is processed.

If you decide that it makes more sense to keep the rewards, you can ask the merchant or service to refund you in the form of a merchant credit or store credit. However, that means you will still have to pay for the purchase on your credit card.

The Takeaway

Knowing how credit card refunds work will help you manage both your budget and your credit score. Credit card refunds are usually straightforward transactions. But they can take longer than a purchase made with cash, and they can affect your credit score. Additionally, you usually won’t be able to hang onto the rewards you’d earned from the purchase you returned.

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

FAQ

Do credit card refunds affect your credit

Yes, refunds can affect your credit score. A refund can lower your credit utilization — or the total amount of credit you’ve used compared to your overall credit limit. Credit utilization is something credit rating agencies look at closely when determining your credit score. A delayed refund could hurt your credit score because if the charge stays on your account for a while, it may increase your credit utilization ratio, thus negatively impacting your store. On the other hand, when you receive a refund, that may lower your credit utilization, helping to build your credit score.

Do credit card refunds affect the rewards earned from a refunded purchase?

In most cases, you will not receive the rewards that you may have earned from a purchase you’ve returned. You may want to consider getting a store credit for your refund if you want to keep your rewards, but you will then have to pay for the full amount of the purchase on your credit card.

What happens if I have a negative balance after a credit card refund?

Sometimes you’ll get a refund credit, and it will exceed the balance you have on your card. This is usually not an issue, as the amount of the credit will be applied to the next purchase you make on the card. If the refund is quite large and you don’t use the card often, you may want to ask your credit card issuer for a refund via check or direct deposit.

Photo credit: iStock/Amax Photo

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The annual percentage rate (APR) of your credit card has a big impact on how much it costs you to carry a credit card balance. In some cases — if you have a variable interest rate or are late making payments, for example — your APR can change, causing your credit card interest rate to increase or decrease.

Understanding when and how these changes might occur can help you choose the right credit card and control how much you spend on interest. Here’s a look at what can impact your credit card’s APR.

What Is Credit Card APR?

A credit card’s APR, or annual percentage rate, is the interest rate you’ll pay on the money you borrow, stated as an annual rate. Your credit card APR will tell you how much a credit card costs you in terms of interest on the balance you carry. However, it won’t tell you anything about other fees and other credit card charges you may incur.

Credit cards will typically have a separate APR for credit card purchase interest charges, balance transfers, and cash advances. The APR you receive when you open a credit card will depend on a benchmark interest rate as well as factors like your creditworthiness, as determined by your credit score.

However, the definition of APR will vary depending on what type of loan product you’re talking about. In contrast to credit cards, the APR on other types of loans is determined by interest rates, the length of the loan, and lender fees.

Recommended: What Is a Charge Card

What Can Cause Your Credit Card’s APR to Increase?

There are a number of reasons that credit card APR can increase. Your credit card company can increase your APR on new transactions as long as they give you 45 days’ notice. The company is not allowed to increase your APR during the first year after your account is opened.

Further, there are only certain cases in which your card company can raise rate on existing balances, including when:

•   An introductory rate expires

•   You have a variable rate card (most credit cards have a variable rate) and the benchmark interest rate rises

•   You’re 60 days late making your minimum payment

•   You have completed or don’t comply with the terms of a workout agreement, which has renegotiated the terms of your agreement for a period of time

No matter how the increase occurs, it’s important to realize that your credit card payments increase when your interest rate increases.

Prime Rate Rises

Your credit card will have either a fixed or variable credit card interest rate. If you have a credit card with a variable rate, that rate is largely based on a benchmark interest rate. The benchmark that many credit card companies use is what’s known as the prime rate. And when the prime rate rises, your APR will rise, too.

The prime rate could rise due to a change in the federal funds rate, which is the Federal Reserve’s recommendation for what banks should be charging when they make overnight loans to help each other meet federal reserve requirements.

One rule of thumb states that the prime rate is equal to the federal funds rate plus three.

Late Payments

Your credit card interest rate may also increase if you’re 60 or more days behind on paying your credit card minimum. This is what’s known as a penalty APR. Not only may this rate apply to your overdue balance, it may also raise interest payments on future purchases.

End of Introductory APR Offer

Some cards offer 0% APR on purchases or balance transfers for an introductory period. During that time, you won’t pay any interest on balances that you carry from month to month. However, once the introductory period is over, your APR will jump to the regular purchase interest rate, which will apply to any remaining balance on your account.

High Credit Card Balance

If you carry a growing credit card balance from month to month, or you’ve hit your credit limit and are unable to make payments, your card company may decide to raise your APR on new transactions.

Failure to Meet the Terms of a Workout Agreement

If you had trouble paying off your credit card debt in the past, you may have renegotiated the terms of your agreement, which is known as a workout agreement. When you successfully complete it, your card company may return your APR to what it was prior to the arrangement, which may have temporarily reduced your interest rate. On the other hand, if you fail to comply with the agreement, your card company may also decide to raise rates.

Recent Cash Advance

As mentioned above, credit card companies often typically set different APRs for purchases, balance transfers, and cash advances. If you’ve recently taken out a cash advance, you may have triggered the cash advance APR. This APR might be higher than the APR offered to you for regular credit card charges.

Recommended: What Is the Average Credit Card Limit?

What Can Cause Your APR to Decrease?

There aren’t as many triggers that will send your credit card APR lower, but here’s a couple to be aware of.

Prime Rate Falls

Once again, changes in the prime rate have a big impact on your APR. If the prime rate falls, your rate may also go down if you have a variable rate (as most credit cards do).

Negotiating for a Lower Rate

If you’d rather not sit around waiting for the prime rate to go down (or if it’s on an upward trajectory), one of the best ways to lower your credit card APR is by simply asking. Negotiating for lower rates and fees is one of the important credit card rules to know. (You can also negotiate on other things, such as credit card spending limits.)

You can improve your odds in this negotiation by arming yourself with some key information. First, get familiar with your credit score and make sure that it’s as high as possible. You may build your score by paying down debts and making sure to correct any errors on your credit report.

Also make sure to highlight your history with the company. Credit cards want to hold on to long-standing customers with a good history of paying their bills on time.

If your credit card company rejects your first attempt at negotiation, don’t be afraid to ask again or to speak to a manager who may have more power to make decisions about your account.

The Takeaway

Your APR can have a huge impact on how much it will cost you to carry credit card debt. As you choose a credit card, it’s important to shop around for the card that offers as low as possible an interest rate.

Still, your APR may rise at some point — especially if the prime rate increases or a low introductory offer expires. However, that doesn’t mean you’re stuck with the new rate. You can always try to negotiate with your card company to see if they can lower your rate.

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

FAQ

How can I lower my APR on my credit card?

You can try to lower the APR on your credit card by negotiating with your lender. Increase your odds of success by ensuring you have a history of paying your bills on time and a strong credit score.

How does the prime rate affect my credit card APR?

If you have a variable APR, when the prime rate rises, so too will your APR. When the prime rate falls, your APR falls as well.

Can the APR on a credit card change?

Yes, the APR on a credit card can change for a variety of reasons. This can include a shift in the prime rate, the expiration of a low introductory offer, or being 60 days late on paying your credit card minimum.

Photo credit: iStock/tolgart

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 .

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Your credit score is one of your most valuable assets, and it’s important to take action if you notice that yours is dropping. Many credit card issuers now offer customers free credit monitoring, and there are other ways to check your credit score without paying.

Let’s dive in.

Reasons Why Your Credit Score Can Drop

There are several factors that affect your credit score. Here’s a look at some common scenarios:

Late or Missing Payments

When it comes to determining your FICO score — a type of credit scoring model used in 90% of lending decisions in the U.S. — your payment history matters. A lot. It’s the largest factor in FICO’s credit scoring formula. Missed or late payments can cause your score to drop by as much as 180 points and could remain on your credit reports for up to seven years. Signing up for autopay is one way to help ensure your bills are paid on time.

Credit Utilization Increased

Credit utilization refers to how much of your credit you’re using, and it can indicate to potential lenders how well you manage your finances. It’s also the second-largest factor in your FICO credit score. The general rule of thumb is not to use more than 30% of the credit available to you. If your credit utilization rate is higher than that, you may see a drop in your credit score.

If you need help keeping tabs on where your money is going, consider using online tools like a money tracker. Besides monitoring spending, it can also provide insights on your finances.

Recent Application for a Mortgage, Loan, or Credit Card

Applications for new credit may only make up 10% of your FICO credit score, but that can still have an impact. That’s because lenders often pull a hard inquiry when you apply for credit, which may cause your score to fall slightly. The good news is, the dip is usually temporary.

A Credit Limit Decreased

If your credit limit decreases, that means you have less available credit. And this can cause your credit utilization rate — or debt-to-credit ratio — to increase. Why does that matter? Your credit utilization rate is one of the factors lenders consider when you apply for credit. In general, lenders consider a debt-to-credit ratio of 30% or below as “excellent.”

You Closed a Credit Card

You may want to think twice before closing a credit card, especially if it’s one you’ve had in good standing for a while. When you close a credit card, your total credit line decreases and your debt-to-credit ratio may increase. This could temporarily lower your credit score.

Inaccurate Information on Your Credit Report

Need another reason to routinely keep a close eye on your credit report? Having inaccurate information — say, defaults on loans you don’t have — could potentially hurt your credit. If you spot a credit report error, be sure to dispute it (more on that below).

Recommended: Does Checking Your Credit Score Lower Your Rating?

Major Event Such as Foreclosure or Bankruptcy

Having your home foreclosed or filing for bankruptcy are major issues that have the potential to damage your credit score for several years. For instance, Chapter 13 bankruptcy stays on your credit report for seven years, while Chapter 7 bankruptcy stays on for 10 years. Meanwhile, a foreclosure remains on your report for seven years.

Check Your Credit Report

If you’ve noticed a significant drop in your credit score, it’s worth looking over your credit report. Typically, your credit report updates every 30 to 45 days and includes key information about your credit history such as:

•   Your history of on-time and delinquent payments

•   How often you’ve applied for credit

•   How many accounts you have open and closed

•   Any accounts that are in collections

Every 12 months, you can get a free copy of your credit report from each of the three major credit reporting companies at AnnualCreditReport.com. Be sure to carefully review reports from all three companies, as there may be some differences between what’s reported with Transunion vs. Equifax vs. Experian.

Another option? Signing up for credit score monitoring, which can offer score updates and financial insights.

Dispute Credit Report Information You Believe to Be Incorrect

If you find information on your credit report that’s not accurate, you have the right to dispute it. And the good news is, doing so won’t negatively affect your credit score.

To get the ball rolling on resolving errors, you’ll need to file a formal dispute with the credit reporting company. You can contact them online or by mail or phone. The Consumer Financial Protection Bureau (CFPB) also offers helpful tips on how to file a dispute .

Take Actions to Build Your Credit

Is your credit score not where you want it to be? There are things you can do to help improve it.

One helpful step to take is to pay all of your bills when they’re due, as consistent, on-time payments can significantly raise your credit score over time. Automating your finances is one way to help ensure you don’t miss a due date. It’s also a good idea to focus on catching up past-due accounts so they’re current.

Another step to consider is to limit your credit utilization ratio so your credit balances aren’t too high in relation to your credit limit. You can explore setting up balance alerts that alert you when you’re nearing the recommended 30% credit utilization ratio. You may also want to consider paying your credit card bill more frequently, say, twice a month instead of once a month.

A third strategy is to pay off what you owe. Having a debt repayment plan in place can help, and there are several approaches to consider. Two common ones are the snowball method (where you pay off debts in order from the smallest balance to the largest) and the avalanche method (where you pay off accounts in order from the highest interest rate to the lowest).

What Is a Good or Bad Credit Score?

FICO credit scores run the gamut from 300 to 850, so where does a “good” credit score fall? While there’s no one magic number, most lenders consider scores between 670 and 739 “good.” If your FICO score is between 740 to 799, it’s classified as “very good”; 800 and higher is “exceptional.”

What about scores below 670? If yours falls in the 580 to 669 range, it’s considered “fair.” That means it’s below the average score of consumers, though you may not have issues getting a lender to approve you for a loan. A score of 580 or less is considered “poor,” and could signal to lenders that you’re a risky borrower.

Credit Score Tips

Since paying your bills on time factors heavily into your credit score, you should take steps toward preventing late payments. One good way to do that is to enable auto-pay on your credit cards and other loans.

You can also reduce your credit utilization by trying to minimize the outstanding balances reported to the credit bureaus. For example, if you make payments just before your statement closing date, the lower balance is reported, which reduces your credit utilization.

The Takeaway

Your credit score is invaluable. Lenders use it as they review your applications for credit, as do landlords, prospective employers, and utility providers. So it’s crucial to keep track of your credit score and take action when it falls.

If your score takes a noticeable dip, the first step is to find out why your credit score fell. This may involve carefully checking your credit reports and disputing errors with the credit reporting company. Next, it’s a good idea to take steps to improve your score, which can include paying bills on time, paying off debt, and limiting your credit utilization ratio.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Should I be worried if my credit score dropped?

Changes in a credit score are normal. That said, if yours dropped significantly, and you don’t know why, then you should consider reviewing your credit report and disputing any inaccuracies. However, if the drop is small and expected, then there’s no reason for concern. For example, if you applied for a new credit card, you might see your credit score temporarily drop a bit.

How long does it take to recover from credit score drop?

It all depends on the size of the drop and the cause. If you have higher credit utilization, for instance, your score will likely recover when your utilization ratio drops. But if you have a record of delinquent payments or a default, it can take much longer to recover. And with major events, such as bankruptcy or foreclosure, it may take many years until your credit score fully recovers.

Why is my credit score going down when I pay my bills on time?

While your payment history is the most important factor in your credit score, it’s not the only one. If you are paying your bills on time, your credit score could still drop if your credit utilization is increasing or you have a short credit history.

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SoFi Relay offers users the ability to connect both SoFi 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. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. 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 is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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You can count on your credit bill arriving every month, thanks to your billing cycle, or the length of time between one statement’s closing date and the next. But how does a billing cycle for a credit card work and does it impact your credit score? Many of us aren’t exactly sure, even if we regularly swipe and tap our cards in daily life.

Understanding the ins and outs of a credit card billing cycle can help you manage your money, make sure you have enough set aside to pay your bills, and avoid unnecessary fees.

Definition of a Billing Cycle

A billing cycle on a credit card is the length of time from one billing statement closing date to the next. The exact number of days in a billing cycle may vary, but they usually last from 28 to 31 days.

Credit cards usually have monthly billing cycles and require cardholders to make payments every month. Billing periods must end on the same day of every month, such as on the last calendar day.

The Consumer Financial Protection Bureau states that each billing cycle should be equal. “Equal” in this case means each billing period must not vary more than four days from its usual length. So your credit card bill has a rhythm to it; you can depend upon it being ready at pretty much the same time (give or take a few days) every month. That way you can plan ahead to have enough money in your checking account to cover it.

How Does a Credit Card Billing Cycle Work?

Credit card billing cycles coincide with a certain day of the month. During each billing cycle, new transactions are added to your billing statement. Your swipes, taps, online purchases, and credits are all being tracked and compiled.

Then, at the end of the billing cycle, the card issuer will send you a credit card statement, either electronically or by mail. Whether you receive a paper or electronic statement depends upon whether you opt into paperless billing. It’s important to note the due date and make a payment of at least the minimum amount due by that date to avoid incurring late fees on top of those typically high credit card interest rates.

Fortunately, credit card billing cycles often come with a grace period, which is a time between the end of the billing period and the due date. You won’t be charged interest during this time. By law, credit card companies must deliver your statement to you at least 21 days before the payment due date.

If your credit card is paid in full between the time you receive your statement and the due date, no interest will be charged. However, if there is still a remaining balance after the due date, interest may start to accrue.

How Long Is a Billing Cycle?

The length of a credit card billing cycle can vary, but the length is usually between 28 and 31 days, just like the months of the year.

Credit card billing cycles must be as close to the same length as possible from one month to the next. But they can vary by up to four days to take into account things like weekends, holidays, and months that are different lengths.

Check your statement to find out the exact length of each billing cycle. The first page of the statement usually shows such information as opening and closing date. All of the transactions on the statement fall within that date range.

Can I Change My Billing Cycle?

Your card issuer probably won’t allow you to change some things related to your billing cycle, such as the billing period length. However, one of the things you may be able to change is the date when your credit card payment is due. You may find that helpful because a different due date might suit your situation better.

For instance, you might be able to sync up your payment due date to fall after you get paid, so you know there’s money in your bank account.

Keep in mind that not all card issuers will be flexible with this, and many will only allow you to change your due date within a certain time frame. And if you do request a due date change, it may take one to two billing cycles to take effect. Hence, you should monitor your statement to watch for the change.

Also, note that your card issuer has the right to change the terms and conditions of your credit card agreement at any time. However, if they do so, they generally must notify you 45 days in advance.

How Does A Billing Cycle Affect Your Credit Score?

Your credit card billing cycle can impact your credit score if you aren’t able to pay at least the minimum due on time. Most credit card issuers send monthly updates to credit reporting bureaus about your credit usage. The three main credit reporting bureaus are Experian, TransUnion, and Equifax. These updates usually coincide with your billing cycle date.

On your billing cycle date, reporting bureaus may receive information about your credit usage, including any instances of late payments on your credit cards. Late payments can have a negative impact on your credit score, so be sure you are aware of the due date on your statement at the end of your billing cycle.

It’s also important to be aware that paying your bills on time, all the time, can be one potential way to help build your credit.

Why Understanding Your Billing Cycle Is Important

Understanding your billing cycle and how it works is key to your financial health. Here’s why:

•   Your billing cycle lets you know when your next payment is due and the minimum amount due. Paying the minimum can help you avoid penalties and possible hits to your credit score. Paying the full amount due will avoid accruing interest.

•   Understanding your billing cycle may help you budget more effectively. Because you know when you have to pay your credit card bill, you can set money aside to make your payments on time. You can request your due date be moved a bit to better suit your cash flow, if needed.

•   It will help you monitor your credit card balance more efficiently. That purchase you made today might not appear on the last statement issued, but it will appear on the next one. You may use your cycle’s timing to schedule purchases for the optimal time in terms of keeping your balance due in check.

The Takeaway

Your credit card billing cycle is the period of time between one billing statement’s closing date to the next. This period usually lasts between 28 and 31 days and should be as close as possible to the same length every month. Be sure to pay at least the minimum by the due date to avoid penalties and fees as well as possibly hurting your credit score.

You can request that your due date be moved, if that would help you better manage your budget, and you will likely have a few days’ grace period in which to pay your bill without getting hit with additional charges. Given how high credit card interest rates can be, knowing and following your billing cycle is an important part of being financially responsible.

Another way to help reach your financial goals is to make sure you have enough money in savings. And choosing the right savings vehicle can potentially help your money grow. You may want to explore such options as a high-yield savings account, for instance. Paying your bills and saving for the future are important tools for securing your financial future.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Why is a billing cycle important?

A billing cycle is important because it keeps you informed of your credit card activity for the month. Plus, your payment is due at the end of each cycle (after the grace period), and you want to respect that to avoid accruing additional interest and fees.

How long is a billing cycle for a debit card?

Your checking account or debit card may issue regular statements, and the billing cycle length is approximately 30 days. In other words, the length is similar to your credit card billing cycle, but with a debit card, the funds are automatically deducted from your bank account. You don’t get a bill to pay.

What is two-cycle billing?

Two-cycle billing or double-cycle billing is a credit interest calculation. The interest is applied to the average of the prior two months’ outstanding balance. However, the practice was outlawed with the passing of the Credit CARD Act of 2009.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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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 .