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

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

What Is a Secured Credit Card?

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

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

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

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

How Does a Secured Credit Card Work?

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

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

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

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

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

Recommended: What Are Purchase Interest Charges on Credit Cards?

Pros and Cons of a Secured Credit Card

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

Pros

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

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

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

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

Cons

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

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

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

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

Applying for a Secured Credit Card

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

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

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

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

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

  – Proof of address, like a recent utility bill.

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

  – Citizenship or residency info.

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

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

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

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

Tips for Bettering Your Chances at Approval

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

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

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

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

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

Using a Secured Credit Card

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

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

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

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

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

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

Building Credit with a Secured Credit Card

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

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

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

Denial of a Secured Credit Card

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

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

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

The Takeaway

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

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

FAQ

Do secured credit cards build credit?

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

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

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

How do I close a secured credit card?

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

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

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

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

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

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


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


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

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

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If you’re not a seasoned credit card user, you might have questions about credit card payments and their impact on your credit.

Used smartly, a credit card can be a great financial tool, but the key is not charging more than you can afford to pay back and making payments on time each month. Here, you’ll learn more about how to manage your credit card payments well which can help optimize your finances.

The Benefits of Using a Credit Card

A credit card is convenient if you don’t have cash on hand to make a purchase. As long as you know you can pay back what you charge, either in full or over a few months, a credit card can be a useful tool.

There may also be situations like renting a car or booking a hotel room when you are typically required to have a credit card to avoid a deposit. The hotel or rental company will place a hold on your card so that in the event of damage or other expenses you need to cover, the company knows you can pay them. With a debit card, you may have that same hold of several hundred dollars tying up your funds for several days.

Another benefit of credit cards is the ability to earn rewards. Many cards give you points for purchases that you can redeem for travel, cash back, or other perks, and if you pay your balance before accruing interest, it can be like the card is paying you to use it.

Potential Downsides of Using a Credit Card

On the other hand, credit cards can cause issues if you don’t exercise good behavior in terms of your credit card payments. Each month, you are charged interest on your purchases. The interest is calculated by dividing your card’s annual percentage rate by 365 to get the daily rate, and then multiplying your current balance by the daily rate.

That may only amount to a few extra dollars a month, but if you don’t pay your balance in full for several months, that amount can snowball, and what you initially charged can easily cost you a lot more.

Another thing to be aware of is the fact that credit card companies charge fees in addition to interest. Some charge an annual fee (usually for cards with rewards programs).

Cash advances come with a fee and a higher interest rate than for purchases.

There are also late credit card payment fees to watch out for. Not only will you be charged a fee if you don’t pay the minimum due by the payment due date, but it may appear on your credit report as a negative mark. This may hurt your credit scores and your ability to take out other financing later.

How Credit Cards Impact Your Credit Scores

While a late payment can negatively affect your credit scores, credit card payments made on time can actually help your credit scores.

Each time you make a payment on time, it is reported to credit bureaus like Experian®, Equifax®, and TransUnion®. Over time, on-time payments may factor into the algorithms the credit bureaus use to determine your credit scores, and may build your number a few points.

Each bureau has its own formula for how scores are determined, and not every credit card company reports to each bureau, so there’s no easy way to know how your payments directly affect your score. But in general, paying on time is behavior that will benefit you over time.

Understanding Credit Utilization

Another factor that goes into your credit scores is credit utilization. This is a calculation of how much credit you have available to access compared with how much you are actually using.

Let’s say you have three credit cards and a total available credit of $15,000. You have a balance of $2,000 across all of them. By dividing the balance by the total credit available, you get 0.133, or 13% credit utilization.

When applying for new credit cards or loans, lenders will look at your credit utilization. If it’s too high — most look for a rate of under 30% or under 10% ideally — you may not be approved for the card or loan. That’s why it’s important to stay on top of how much of your total credit you’re using and pay down your debt so you don’t have a high credit utilization rate.

Recommended: Breaking Down the Different Types of Credit Cards

How to Build Your Credit With a Credit Card

Once you understand how credit card payments work, you may use credit cards to build your credit.

1. Pay Your Bill on Time Each Month

You’ve learned the importance of making your credit card payments on time. For some people, it can be helpful to put the credit card due date on a calendar (leaving a few days for the payment to get to the company and be processed) to ensure they don’t have late payments.

Many people find autopay, used wisely, a great tool.

If you’ve just received your first credit card, find out how to make credit card payments long before your first one is due, as you might need to set up your bank account information to send an electronic payment, and you want to allow time for that process to be finalized before the due date.

2. Pay More Than the Minimum

If you only charge what you can afford, you should be able to pay off your balance each month, but there may come a time when you have an emergency that requires a larger charge you can’t pay off all at once.

In that case, you may be tempted to pay the minimum amount due, but realize that in doing so, you will pay more in the long run, as those interest charges will snowball. Even if you pay just $5 a month more than the minimum due, you can cut down on interest and pay off your balance faster.

This will also reduce your credit utilization rate and may build your credit score.

3. Review Your Credit Report Regularly

Working on your credit involves more than just making credit card payments on time. Access your credit report from Equifax, Experian, and TransUnion (it’s typically free to do so) and review it for accuracy. Make sure the payments you’ve made are reported as on-time, and look at your list of trade accounts to make sure there are no errors.

For example, maybe you closed a credit card six months ago, but it still appears on your credit report. This is a discrepancy that you can report to the bureau (each bureau’s website has information on how to report a discrepancy). Check again after you report it (allowing for time to process your request) to ensure it has been removed.

Regularly reviewing your credit report will also alert you to any fraudulent activity that might occur. It’s rare, but identity theft does happen, and you’ll want to know if someone is using your identity to open credit cards or take out loans.

4. Only Charge What You Can Afford

Credit cards can be tempting. Without discipline, you might feel like taking a shopping spree, ignoring the financial consequences.

As mentioned in terms of using a credit card responsibly, only charge what you can afford to pay back in a reasonable time frame. A credit card isn’t meant to be free money, and overspending with one can cost you much more than you initially spent.

The Takeaway

Using credit cards responsibly and making credit card payments on time (and in full, when you can) can set you on the path to financial success. The key is to be aware of your spending and your credit utilization so you can help build your credit scores over time.

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

FAQ

How do credit card monthly payments work?

Credit card monthly payments involve paying at least the minimum amount due to avoid late fees and keep your account in good standing. Paying off the full statement balance avoids interest charges.

Do you pay your credit card in full every month?

Credit cards don’t need to be paid in full every month, but doing so prevents interest charges and debt from accumulating. Even so, carrying a balance with interest can be an effective way to finance major purchases, like a kitchen renovation or a significant car repair.

How are credit card payments worked out?

Credit card minimum payments are usually calculated as a percentage of your statement balance. Some lenders may charge a percentage of your balance, while others factor in interest and other fees. You can check the fine print or contact your card issuer for details.

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

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

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


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

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

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

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

Why Clean Your Credit Card?

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

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

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

Recommended: Cash vs Credit Card: Key Differences to Know

How to Clean Credit Cards

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

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

Here are some effective ways to clean your credit cards:

Soap and Water

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

Rubbing and Isopropyl Alcohol

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

Antibacterial or Sanitizing Wipes

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

Multi-Surface Household Cleaner

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

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

UV Light Sanitizer

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

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

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

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

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

5 Things to Avoid Doing When Cleaning a Credit Card

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

1. Scrubbing with a rough sponge

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

2. Your washing machine

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

3. Hand sanitizer

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

4. Soaking in rubbing alcohol

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

5. Using heat

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

Cleaning vs Disinfecting a Credit Card

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

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

How Often Should Credit Cards Be Cleaned?

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

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

Other Credit Card Maintenance Tips

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

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

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

Recommended: Understanding Purchase Interest on Credit Card Charges

The Takeaway

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

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

FAQ

Can credit cards survive being washed?

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

Why do people clean their credit cards?

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

Can you clean a magnetic strip on a credit card?

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

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Photo credit: iStock/Khosrork

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

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


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

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

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

What Is a Store Card?

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

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

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

How Store Cards Works

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

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

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

Recommended: Charge Card vs. Credit Card

Pros and Cons of Store Cards

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

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

Store Card vs Credit Card Compared

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

Similarities

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

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

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

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

Differences

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

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

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

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

Here is how these features stack up in chart form:

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

Recommended: How Many Credit Cards Should You Have?

Is It Easier to Get Store Cards?

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

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

Can Store Cards Impact Credit?

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

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

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

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

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

The Takeaway

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

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

FAQ

Which is better: a credit card or store card?

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

Does a store card count as a credit card?

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

What are the disadvantages of a store card?

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

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Photo credit: iStock/RgStudio

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

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


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

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

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If you don’t pay your credit card bill, you could face more severe consequences than you might think. Though it will depend on your credit card issuer, you can generally expect to be charged a late fee as well as a penalty interest rate which is higher than the regular purchase annual percentage rate, or APR.

Life happens, and, from time to time, payments are missed, especially if you’re dealing with emergencies such as losing a job or a family crisis. In the event you have skipped a credit card payment, it’s crucial you understand what consequences you may face. That way, you can take steps to reduce the odds of it having a major impact on your financial health.

What Happens If You Don’t Pay Your Credit Card?

Consequences for missed credit card payments could include being changed late fees and possibly losing your grace period. It may also negatively affect your credit score since issuers report your payment activity to the credit bureaus — in most cases after 30 days.

There may be other consequences depending on how late your payment is and whether it’s your first time missing a payment.

Accruing Interest

When you don’t pay your credit card, interest will accrue and will continue to do so as long as you have a balance on your card. In essence, you are paying more for your initial purchase thanks to that interest.

The longer you go without paying your credit card, the more you risk your rate going up. Your credit card issuer may start imposing a penalty annual percentage rate (APR), which tends to be higher than your regular purchase APR. If this happens, you’ll end up paying more in interest charges. The penalty APR may apply to all subsequent transactions until a certain period of time, such as for six billing cycles.

Collections

Depending on your credit card issuer, your missed payments may go into collections if it goes unpaid for a period of time. You’ll still continue to receive notices about missed payments until this point.

More specifically, if you don’t pay your credit card after 120 to 180 days, the issuer may charge off your account. This means that your credit card issuer wrote off your account as a loss, and the debt is transferred over to a collection agency or a debt buyer who will try to collect the debt.

Once this happens, you now owe the third-party debt buyer or collections agency. Your credit card issuer will also report your account status to the major credit bureaus — Experian®, TransUnion®, and Equifax®. This negative information could stay on your credit report for up to seven years.

It’s hard to tell what third-party debt collectors will do to try and collect your debt. Yes, they may send letters, call, and otherwise attempt to obtain the money due.

Some collections agencies may even try to file a lawsuit after the statute of limitations expires. In rare cases, a court may award a judgment against you. This means the collections agency may have the right to garnish your wages or even place a lien against your house.

If your credit card bill ends up going to collections, take the time to understand what your rights are and seek help resolving the situation. Low- or no-cost debt counseling is available through organizations like the National Foundation for Credit Counseling (NFCC).

Bankruptcy

You may find that you have to declare bankruptcy if you still aren’t able to pay your high credit card debt and other financial obligations. This kind of major decision shouldn’t be taken lightly. You will most likely need to see legal counsel to determine whether you’re eligible.

If you do file for bankruptcy, an automatic stay can come into effect, which protects you from collection agencies trying to get what you owe them. If you successfully declare bankruptcy, then your credit card debt will most likely be discharged, though there may be exceptions. Seek legal counsel to see what your rights and financial obligations are once you’ve filed for bankruptcy.

Recommended: Understanding Purchase Interest Charges on Credit Cards

Making Minimum Payments

A minimum payment is typically found in your credit card statement and outlines the smallest payment you need to make by the due date. Making the minimum payment ensures you are making on-time payments even if you don’t pay off your credit card balance. Any balance you do carry over to the next billing cycle will be charged interest. You can also avoid late fees and any other related charges by making a minimum payment vs. not paying at all.

Recommended: Breaking Down the Different Types of Credit Cards

What Happens if You Miss a Payment

If you can’t pay your credit card for whatever reason, it’s best to contact your issuer right away to minimize the impact. Let them know why you can’t make your payment, such as if you experienced a job loss or simply forgot. For the latter, pay at least the minimum amount owed as soon as you can (ideally before the penalty or higher APR kicks in).

If this is your first time missing a payment but you have otherwise paid on time, you can try talking to the credit card company to see if they can waive the late fee.

Some credit card issuers may offer financial hardship programs to those who qualify, such as waiving interest rates, extending the due date, or putting a pause on payments (though interest may still accrue) until you’re back on your feet.

15/3 Rule for Paying Off Credit Cards

The 15/3 payment method can help you keep on top of payments and lower your credit utilization — the percentage of the credit limit you’re using on revolving credit accounts — which can impact your score.

Instead of making one payment when you receive our monthly statement, you pay twice — once 15 days before the payment due date, and the other three days beforehand. This plan is useful if you want to help build your credit history and pay on time.

The Takeaway

Missing your credit card payment may not be a massive deal if it just happens once or twice, but it can turn into one if you continue to ignore your bill. Late fees, a higher penalty APR or, worse still, having your account go to collections could result. That’s why if you are having trouble paying your bill (or simply forget to), you should contact your credit card issuer ASAP.

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 long can a credit card go unpaid?

The statute of limitations, or how long a creditor can try to collect the debt owed, varies from state to state, which can be decades or more.

What happens if you never pay your credit card bill?

If you never pay your credit card bill, the unpaid portion will eventually go into collections. You could also be sued for the debt. If the judge sides with the creditor, they can collect the debt by garnishing your wages or putting a lien on your property.

Is it true that after 7 years your credit is clear?

After seven years, most negative remarks on your credit report, such as accounts going to collections, are generally removed.

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Photo credit: iStock/MStudioImages

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

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


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

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 .

This article is not intended to be legal advice. Please consult an attorney for advice.

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

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