Credit Archives | Page 66 of 80

Sep

2022

How Much Does Your Credit Score Increase After Paying Off a Debt

Does Paying Off a Debt Increase Your Credit Score?

By Kelly Boyer Sagert | Credit, relay | Comments Off

Whether you’re thinking about paying off a debt or mulling over how to increase your credit score — or both — it’s reasonable to ask if paying off debt helps your credit rating. The answer, though, is more complex than a simple yes or no.

We’ll delve into it all here, showing how paying off a debt can either raise or reduce your credit score, depending on the circumstances. We’ll also explain a bit about how credit scores are calculated, and especially how managing your credit utilization can give you some control over your credit score.

How Paying Off a Debt Is Connected to Your Credit Score

What affects your credit score is on a lot of people’s mind. Your credit score is determined by five factors, some of which are weighted more than others. Paying off a debt can affect each of these factors in different ways, causing your score to rise or dip. Sometimes changes in two factors can even cancel each other out, leaving your score unchanged. This is why it’s hard to predict how paying off a debt will affect your credit.

Before we continue, you may want to take a moment to find out your credit score for free.

Check your score with SoFi

Track your credit score for free. Sign up and get $10.*

Recommended: Does Net Worth Include Home Equity

Credit Score Calculation Factors

According to FICO® Score, a credit rating company, these are the five factors commonly used to calculate your score:

• Payment history (timely payments): 35%

• Amounts owed (credit utilization): 30%

• Length of credit history: 15%

• New credit requests: 10%

• Credit mix (installment versus revolving): 10%

Once FICO’s algorithm calculates your score, a credit score rating scale assigns it a category ranging from Poor to Exceptional. A higher number indicates to lenders that a person is a lower risk for default:

• Exceptional: 800 to 850

• Very Good: 740 to 799

• Good: 670 to 739

• Fair: 580 to 669

• Poor: 300 to 579

As you can see, a Fair credit score falls between 580 and 669. A Poor or bad credit score falls between 300 and 579. The minimum credit score required to qualify for a loan is around 610 to 640, depending on the lender — meaning not everyone with a Fair score would qualify.

Recommended: Do Personal Loans Build Credit?

Why a Credit Score Can Go Down After Paying Off a Debt

Because paying off debt feels good and improves your financial situation, people can be surprised when their credit score actually drops. This negative impact can be due to changes in one or more factors:

• credit utilization

• credit mix

• overall credit age

When you pay off a credit card and then close the account, you reduce your available credit and increase your credit utilization. Similarly, if you pay off your only car loan and close that account, you have one fewer type of account in your credit mix. Finally, paying off and closing an older account may reduce the average age of your overall credit history. (We’ll explore these scenarios in more detail below.)

While none of these things is “bad” in financial terms, it temporarily counts against you in the world of credit scores.

What Is Credit Utilization?

Now for a little more background on credit utilization. Credit utilization is a factor with revolving forms of credit, such as credit cards and lines of credit, where you can reuse the account up to your limit.

Your credit utilization rate, or ratio, is determined by dividing the sum of your credit limits by the sum of your current balances. So if someone has a $5,000 limit and is using $2,500, that’s a 50% credit utilization rate. Your rate should be kept below 30% to avoid a negative affect on your credit score.

What Is a Credit Mix?

Lenders like to see that an applicant can successfully handle different kinds of credit. This includes installment loans like mortgages, car loans, and personal loans, as well as revolving credit such as credit cards and lines of credit. If a person can manage both types of credit well, a lender will likely consider them less of a risk.

Recommended: Should I Sell My House Now or Wait

How Credit Age Factors In

The length of your credit history demonstrates your experience in using credit. To lenders, the longer the better. When payments are on time, this combo reassures lenders that you will likely continue to make on-time payments going forward.

New credit accounts can also lower your credit age. More important, opening or even applying for many new accounts is a red flag to lenders that you may be in financial trouble. The application process also involves a hard credit inquiry, which can lower your credit score.

Sample Scenarios

Here are two examples of someone paying off a credit card. In one case, the credit score goes up. In another, it goes down.

Credit Utilization Goes Down / Credit Score Goes Up

Let’s say that someone has a credit utilization rate of 40%, which is negatively impacting their credit score. (Remember, below 30% is best.) When they make enough payments to bring their utilization rate down to 25%, this can boost their credit score.

Credit Mix & Age Go Down / Credit Score Goes Down

Now, let’s imagine that someone pays off the balance of their first and only credit card. This should help their utilization score! But wait: Then they close the account, and their average credit age drops. And since this is their only form of revolving credit, their credit mix has lost out too.

Counterintuitively, paying off the card may make their credit score go down — at least in the short term.

Paying Off a Loan Early vs Paying It on Schedule

People often wonder if it’s better to pay off a loan early, if you can. In the case of a personal loan, early payoff can lower the average age of someone’s credit history, possibly lowering their credit score.

In reality, the effect will depend upon their overall credit situation. Paying the loan off according to the schedule will keep it open longer, which can help with their credit age. On the other hand, they’ll pay more in interest because the loan is still open.

If you’re in this situation, weigh the pros and cons before making the decision that’s best for you.

How Long Can It Take To See Your Credit Score Change?

According to the credit report agency TransUnion, credit reports are updated when lenders send them new information. In general, this happens every 30-45 days, though some lenders update more frequently.

If you’re concerned about your credit score, consider signing up for a credit monitoring service. What qualifies as credit monitoring varies from company to company. Look for a one that sends alerts whenever your score changes for better or worse.

Recommended: What Is a Tri-Merge Credit Report?

The Takeaway

How paying off a debt affects someone’s credit score depends on the person’s overall credit profile. Paying off a credit card typically helps your credit score because the account remains open, lowering your credit utilization. Paying off a loan can hurt your score because the loan is then closed, potentially reducing your credit mix and age. Generally, though, borrowers shouldn’t let credit score concerns prevent them from taking actions that are in their financial interest.

To benefit from free credit monitoring and gain a bird’s eye view of your financial picture, try the SoFi app. You can connect all of your accounts into one convenient mobile dashboard, set multiple financial goals, track your spending, and more — all in one place.

Track your money like a champion with SoFi.

FAQ

How fast does your credit score increase after paying off a debt?

In fact, your credit score may dip for a short period after a debt is paid off. Lenders report new information to credit reporting agencies every 30-45 days, though some lenders update more frequently. Generally, you shouldn’t let concerns about your credit score prevent you from taking action that is in your best financial interest.

Is it best to pay off all debt before buying a house?

Credit report agency Experian says it generally makes sense to pay off credit card debt before buying a home. Just know that in some circumstances, paying off a debt may temporarily reduce your credit score — which can affect the loan terms you qualify for. If you do pay off a credit card, keep the account open until after you qualify for a loan.

How do you get an 800 credit score?

Pay bills on time, maintain a credit utilization rate under 30%, and effectively manage your credit history length, new credit requests, and credit mix. Although this won’t guarantee a score of 800, it will help you maximize yours.

Photo credit: iStock/Patcharapong Sriwichai

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.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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 .

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.

SORL0822007

Sep

2022

Does a Background Check Include a Credit Check from a Potential Employer

Does a Background Check for Employment Include a Credit Check?

By Kelly Boyer Sagert | Credit, relay | Comments Off

Sometimes employers approach background checks in different ways. In some cases, credit reports are included. A job background check may include a credit check in certain industries, such as banking and security. The size of the company can be a factor, too: Large corporations are more likely to conduct a credit check than a small family business.

We’ll walk through the specifics of when an employment background check may include a credit check, why potential employers want this information, and what financial data they have access to.

What Are Credit Checks?

A credit check is a request to see your financial data as collected by one of the three major credit reporting bureaus. Credit reports contain information about past and existing credit accounts, payment patterns, and how much debt you’re carrying.

According to the Fair Credit Reporting Act (FCRA), only certain individuals and organizations have the right to check credit histories, such as lenders, insurance agents, and landlords. Potential employers can also conduct a credit check for employment purposes, with your permission.

Sometimes credit checks are conducted to confirm a consumer’s identity — and head off identity fraud — rather than to investigate your financial history. For instance, banks may run a limited credit check on customers looking to open a checking account.

Check your score with SoFi

Track your credit score for free. Sign up and get $10.*

Credit Check vs Background Check

A background check contains identification verification information along with data from criminal records, educational and employment backgrounds, civil records, driving history, and more. In some instances, a background check may also contain a credit check.

The Importance of Good Credit

A good credit history primarily makes it easier to get approved for a loan, and to qualify for better interest rates and loan terms. The higher the score, the less someone will pay in interest over their lifetime, potentially saving them thousands of dollars.

Good credit can also help renters qualify for an apartment. In some cities, renters routinely provide a credit reference with their rental application. While there’s no minimum credit score needed to rent an apartment, a strong credit history shows landlords that you’re someone who pays their bills on time.

Employers may also check your credit if you’ve applied for a job. Having good credit without any red flags can make the hiring process go more smoothly. However, some cities and many states have banned this protocol or put limits on it.

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Why Employers Look at Your Credit Score

An employer may run a credit check on a job applicant whom they’re seriously considering hiring. Employer credit checks are more common in industries where employees handle money or have access to customers’ financial data.

By conducting credit checks, businesses hope to confirm that an applicant demonstrates financial responsibility and doesn’t pose a security risk to the company, other employees, or customers.

Responsibility

A credit report shows how responsibly an applicant has handled their own money. If there are any red flags, the employer may not want to hire that person to handle company funds or take on other important responsibilities.

Security

A credit report can be used to verify your identity along with other pieces of background information. If there are discrepancies that can’t be easily cleared up, that’s a red flag.

What a Credit Report May Tell an Employer

The information in a credit report can include employment history as well as red flags such as late payments, debts sent to collections, foreclosures, liens, lawsuits, and judgments.

Employment History

Your complete employment history is not included in a credit report. Past and current employers may appear on your credit report, but only if you listed them on a loan or credit card application. Typically, if a lender wants your employment history, they will ask you for it directly.

Late Payments

Credit reports contain information about current and historical credit accounts, including installment loans (mortgages, car loans, personal loans) and revolving credit (credit cards and lines of credit). The reports typically contain information from the past seven to ten years, including a person’s payment history and whether credit accounts are paid up to date or are past due.

Debt Collection

Once someone is behind on payments — at least 120 days — the lender may send the account to a collections agency. These agencies attempt to collect on the bill. This can have a significant impact on your credit score, since making payments on time is the biggest factor in the algorithm that determines your credit score.

Debt Charge-Off

If a company you owe money decides they can’t collect the funds, they can “charge off” the amount as uncollectible. This may stay on your credit report for seven years, starting with the delinquency date that ultimately led to the charge-off. A debt charge-off typically lowers the person’s credit score even more than going to collections.

Foreclosures

When a homeowner misses multiple mortgage payments, the lender may take possession of the home, or “foreclose” upon it. This remains on a credit report for seven years, starting with the first missed payment that ultimately led to the foreclosure. This can significantly reduce someone’s credit score — although the impact may diminish over time — and can be a red flag for employers.

Recommended: Does Net Worth Include Home Equity

Liens

A tax lien is a claim that you owe money for taxes, usually federal, state, or property tax. Tax liens no longer appear on credit reports by the three major credit bureaus, and they can’t affect your credit. They are, however, available on public records. If an employer conducts a full background check, they can still receive this information.

Lawsuits and Judgments

Just like tax liens, judgments from lawsuits are not included in credit reports or factored into a credit score. An employer that conducts a background check, though, will likely receive this information because it’s part of public records.

How to Prepare for an Employer Credit Check

Every consumer should be aware of what information is available on their credit report. You can request your credit report and find out your credit score for free at AnnualCreditReport.com.

Review your report for errors. Even small typos — like misspelling your name — could present problems down the line. Report them to the relevant credit bureaus via their online dispute process to have them corrected or removed.

You may also consider signing up for a credit monitoring service. What qualifies as credit monitoring varies from company to company. Look for a service that sends customers alerts whenever their credit score changes, accounts are opened or closed, and red flags appear on their credit history.

If you’ve had financial problems in the past but have turned things around, be prepared to explain to your potential employer how you’ve accomplished that.

Recommended: What Is a Tri-Merge Credit Report?

Credit Check Limitations

Credit reports contain a lot of private financial information. However, you can feel secure knowing that there are strict limits to what can be included. The following information cannot appear on your credit report:

• Account balances for checking, savings, and investments

• Records of purchases made

• Income information

• Judgments and tax liens

• Medical information (physical and mental), although money owed to a doctor or hospital can appear

• Marital status

• Disabilities

• Race and ethnicity

• Religious affiliations

• Political affiliations

Does an Employer Credit Check Hurt Your Credit Score?

No. Employers conduct what is known as a “soft credit inquiry” or soft pull. Because the credit check isn’t the result of applying for a new loan or credit card, the request probably won’t appear on your credit report and it won’t affect your score.

What Are Your Legal Rights as a Job Applicant?

According to federal law, job applicants have the right to:

• know what is in their file

• ask for a credit score

• dispute incorrect or incomplete information

• be told if information in the file is used against them

An employer or potential employer must get written consent before they can request credit report information (the trucking industry is an exception). Some cities and many states have banned or put limits on an employer’s ability to check your credit report.

The Takeaway

Employers may run credit checks on applicants as part of the hiring process. By conducting credit checks, businesses hope to confirm that an applicant demonstrates financial responsibility and doesn’t pose a security risk to the company, other employees, and customers. Credit checks are more common at large corporations and in industries where employees handle money or have access to customers’ financial data. You can prepare for an employer credit check by requesting your report and correcting any errors.

SoFi is a mobile money tracker app that monitors all of your money, all in one place. Plus, you’ll receive free credit monitoring, spending breakdowns, and financial insights. Because SoFi credit monitoring involves only a soft pull, it won’t affect your credit score.

Track your money, and your credit, like a champion.

FAQ

Why do background checks include credit reports?

Information found in a credit report can give the employer a sense of the job applicant’s financial stability. This may be especially important if the job involves handling money, financial data, or pharmaceuticals. Some industries that routinely pull credit checks on applicants include banking, retail, insurance, public safety, and security.

Does a background check include a hard credit check?

No. A background check with credit check involves a soft inquiry, so it won’t affect your credit score.

What causes a red flag on a background check?

Criminal records, suspicious credit histories, inconsistencies in information provided, and gaps in employment history can be considered red flags.

Photo credit: iStock/serggn

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.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

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

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.

SORL0822006

Sep

2022

What Does Unlimited Cash Back Mean? Is It Worth It?

By Sarah Li Cain | Credit, credit card, Financial Independence | Comments Off

There are lots of different credit card types to choose from, especially if you have a high credit score. In an attempt to earn your business, many card issuers offer rewards every time you use their card, including unlimited cash back for qualifying purchases.

What unlimited cash-back means is you can earn uncapped rewards using the card — in other words, your earning potential isn’t limited to a certain amount. While this might sound too good to pass up, there are both pros and cons to consider to determine whether unlimited cash back is worth it for you.

What Is Cash Back?

Cash back is a type of reward that a credit card issuer may offer through its rewards credit cards. Depending on the terms, cardholders can earn a certain percentage back on qualifying purchases (cash advances typically don’t qualify). For instance, you may be able to earn 2% cash back on purchases at gas stations, or 3% back at grocery stores.

Some cards may put caps on how much cash back you can earn. As an example, a card may limit cardholders to 2% cash back for up to $5,000 in purchases in a calendar year. While cardholders may still be able to earn cash back after they’ve hit their certain earnings threshold, they may earn rewards at a lower rate thereafter.

What Is Unlimited Cash Back?

Unlimited cash back means that your credit card offers cash-back rewards with no caps or limits on how much you can earn. In most cases, you can earn cash back on all of your purchases, though some cards may only offer unlimited cash back on certain spending categories.

For most credit cards, your cash-back rewards don’t expire as long as you keep your card open. This means that if you continue racking up rewards, you may be able to redeem your accumulated cash-back rewards for a sizable statement credit or other perk.

How Unlimited Cash Back Credit Cards Work

How credit cards work that offer unlimited cash back is that they allow cardholders to earn cash back on their purchases with no earning cap. In other words, there is no limit as to how much you can earn on qualifying purchases with these types of credit cards.

As you earn these rewards, you can redeem them in several ways. This includes as a statement credit or actual cash via a check or bank transfer.

In general, you’ll need good or excellent credit (meaning a score of 670 or above) to qualify for an unlimited cash back card. That being said, there are also cash back credit cards with less stringent credit card requirements, meaning you may be able to qualify even if you have a fair credit score or limited credit history. In general, however, the higher your score, the better the rewards tend to be.

Pros and Cons of Unlimited Cash Back

Before signing up for an unlimited cash back credit card, consider the advantages and disadvantages first.

Pros	Cons
Can earn money back on purchases, with no caps on earnable rewards	Generally need at least good credit to qualify for top rewards programs
Don’t have to worry about hitting spending thresholds or other caps	May need to pay an annual fee
Simple and straightforward to earn and redeem rewards	Like other rewards credit cards, may have a higher APR than standard credit cards
Can help to build credit with responsible usage	Not as lucrative of a rewards option for frequent travelers

Is Unlimited Cash Back Worth It?

Getting an unlimited cash back credit card might be worth it if you’re confident you can maximize its rewards. For instance, if you continually make purchases in higher rewards categories, you can save some serious cash due to the rewards earnings. Ideally, you’d be able to earn enough rewards to entirely offset the annual fee, if your card has one.

An unlimited cash back card may not be a great fit if you continually carry a balance on your credit card, given what a credit card is and how you’ll accrue interest. Your interest rate will likely be higher than the cash back rate you’ll earn, which means carrying a balance could cancel out rewards earnings.

Another reason to think twice about an unlimited cash back card is if you’re a frequent traveler. A travel rewards program may be a better choice since you can earn free flights, hotel rooms, and even cash back. Plus, you might earn more lucrative rewards on travel-related spending than a cash back card would offer.

Recommended: How to Avoid Interest On a Credit Card

Categories of Unlimited Cash Back Credit Cards You Can Choose From

There are several ways credit cards give you cash back, including flat rate and through different spending categories.

Flat Rate

Flat-rate rewards allow you to earn the same cash-back rate across all purchases made using a credit card. For instance, you might earn 3% cash back on all purchases made with the card. Some may issue you a certain percentage cash back when you make a purchase, and then another amount you pay off your credit card bill. Regardless, your specific spending category won’t matter for earning with a flat-rate rewards card.

Rotating Categories

Your credit card may offer several spending categories each quarter that you can select from to earn cash back. For instance, you might be able to choose to get 5% cash back on purchases at gas stations or office supply stores for the first quarter. After the quarter is over, you can choose a different spending category.

While rotating categories can allow you to maximize your rewards-earning potential, this setup does require some strategizing. You’ll need to stay on top of choosing a new category each quarter. Plus, you’ll then have to make sure you adequately take advantage of spending within that category.

Fixed Spending Categories

Instead of choosing different categories every quarter, some credit cards offer fixed cash-back earnings for various spending categories. For instance, a card may allow you to earn 3% cash back for purchases at grocery stores, and 1% cash back on all other purchases.

While fixed spending categories require much less planning ahead for, you will want to ensure the card you sign up for rewards you in a category you regularly spend in. Otherwise, you could end up forgoing valuable rewards.

Maximizing Unlimited Cash Back Earnings

If you want to make the most of earning unlimited cash back, here are some general credit card rules to keep in mind:

Select the Right Card

It’s a good idea to do your research and find a card that matches your spending habits. For example, if you use your credit card a lot at gas stations, it might not be the best choice to sign up for a card that doesn’t offer cash back rewards for this category.

Time Your Spending

If you sign up for a credit card with a sign up bonus, consider timing your card opening with a major purchase you’d been planning. Doing so will help ensure that you meet the minimum spend requirements in order to earn the bonus.

Or, if your credit card is about to have extra earnings for a rotating category, you might think about waiting until that time to make a planned purchase.

Note Spending Categories

After signing up for a card, pay attention to how much cash back you’ll earn in different categories if it’s not a flat rate card. That way, you can be sure to use that card exclusively for certain spending categories, or make sure you sign up for rotating categories well within the deadline.

Review Credit Card Terms

Looking over your credit card terms can help to ensure that you know what does and doesn’t count toward earnings. You might also discover through your card’s terms that you can earn enhanced rewards by taking certain actions, such as holding a certain amount of money in an associated bank account.

The Takeaway

A cash-back credit card is a great way to earn rewards that doesn’t necessarily require a complicated redemption process. Even better is when the card doesn’t place limits on the amount of cash-back rewards you can earn, which is the meaning of unlimited cash back.

Still, you’ll need to make sure you avoid carrying a balance and take steps to maximize your rewards to ensure you don’t negate your cash-back rewards earnings.

Looking for an easy way to earn cash back? Check out the SoFi credit card.

FAQ

How does unlimited cash back work?

If you have a credit card with unlimited cash back, that means there are no limits on the amount of rewards you can earn through qualifying purchases.

Is unlimited cash back better than points?

Whether cash back or points is better really depends on your preferences. Cash back is straightforward to track and redeem. Meanwhile, points may translate to a greater range of redemption opportunities, including for travel-related purchases. However, the value of points can vary depending on the card and the way the points are redeemed.

Photo credit: iStock/AsiaVision

Sep

2022

How to Take Advantage of Credit Card Limited-Time Offers

By Becca Stanek | Credit, Financial Independence | Comments Off

It’s not hard to understand the appeal of rewards credit cards that give cardholders cash back, travel miles, and other perks in return for charging everyday purchases. Credit card bonus offers can stretch those rewards even further for those who know how to take advantage of them.

When it comes to capitalizing on credit card promotions, it’s helpful to know how credit card bonus offers work and how to determine what limited-time credit card offers are available to you. From there, you can decide which promotional credit card offer makes the most sense for you to snag.

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How Do Credit Card Bonus Offers Work?

To understand how credit card bonus offers work, it’s helpful to first understand the basics of reward credit cards. Whether it’s a cash back card, travel credit card, or some other type of rewards card, these credit cards allow cardholders to earn back a small percentage of the value of their purchases. Account holders may get their rewards in the form of cash back, credit card points, or airline miles.

With credit card bonus offers, credit card issuers layer limited-time offers atop the regular benefits. Some common types of credit card promotions follow.

Welcome Bonuses

Designed to help make a specific credit card more appealing, welcome bonuses can fuel returns in the first weeks or months after signing up for a new card. How welcome bonuses work varies from card to card, but they generally provide increased reward earnings either up to a certain expenditure limit or for hitting a minimum spend.

The rewards may come in the form of flat-rate cash back or points, a better rewards rate, or another limited-time perk, depending on the type of credit card. For example, a card might provide a bonus for cardholders who charge at least $1,000 within the first three months of receiving their credit card. Another offer might double the rewards rate for a set time period, up to a maximum rewards dollar value. In some cases, cardholders might receive a welcome bonus simply for signing up.

Lower APR

The annual percentage rate, or APR, is the rate of interest that is applied to credit card balances and transactions like cash advances. Some credit card promotions offer a lower — or even 0% — APR for a limited time.

These promotional periods may last anywhere from six months to 21 months. After that point, your APR will return to your standard rate, which is determined based on factors like creditworthiness and the type of credit card.

Recommended: How to Avoid Interest On a Credit Card

Other Limited-Time Offers

While welcome bonuses are nice, credit card promotions don’t always dry up after the introductory period. Some credit cards may offer additional periodic promotions, such as increased credit card rewards earnings during a specific time period or offers for spending at a particular retailer or partner.

Look out for promotional emails or notifications on your statement or online account to stay aware of such offers.

What Offers are Available to Me?

If you’re not sure what new credit card bonus offers are currently available to you, it’s easy to check. Simply log onto your credit card account and click over to the rewards portal. That should give you a view of the credit card promotions currently on offer, though you’ll want to log on frequently to see the latest offerings.

You might also be able to opt in to communications from your credit card company about current promotional offers. Check your settings on your communication preferences to ensure you’re not missing out on these emails if you’d like to receive them.

Which Limited-Time Offer Should You Choose?

Any credit card promotion that keeps more money in the cardholder’s wallet is likely an attractive one. But some offers are better suited to certain financial situations.

If You Have a Big Purchase Coming Up

Whether it’s booking a big vacation, paying for a wedding or new appliances, or covering some other big-ticket outlay, timing a big purchase with a credit card promotion period can be beneficial.

It might be a stretch for some individuals to max out a welcome offer that requires $4,000 or more in spending within the first few months. But if a big planned expense is on the horizon, it could be a good time to take advantage of a welcome offer that requires a little more spending than usual. (Just make sure to pay off the balance to avoid interest charges and/or reward penalties.)

Recommended: What is a Charge Card

If You’re Carrying a Balance With a High APR

Although the best strategy to avoid paying interest on credit card charges is to pay off purchases in full by the statement date, that may not always be possible. For those who are trying to pay down a balance, taking advantage of a 0% APR offer (or switching to a balance transfer credit card) may reduce or eliminate interest costs and help with paying down credit card debt.

If You Want To Optimize Everyday Purchases

The best type of credit card promotion for getting the most back from everyday purchases really depends on both the spender and the card. For instance, a credit card that provides a welcome bonus of 30,000 airline miles might be a great deal — but only for individuals who travel.

As such, finding the best credit card promotion for regular, everyday spending means taking the time to look at your usual spending habits. Then, compare limited-time credit card offers to find the best personal fit, whether that’s credit card miles or cash-back rewards, or another form of credit card bonus.

Tips for Taking Advantage of Bonus Offers

If you’re hoping to cash in on credit cards bonus offers, here are some key tips to keep in mind.

Do Your Homework

There can be many credit card promotions to choose from, with more limited-time offers popping up all the time. Before choosing a new credit card, it’s always a good idea to do some comparison shopping, considering factors such as annual fees, the APR, and the specifics of any rewards programs.

For those who track their spending, these records can be helpful for gauging actual expenditures across categories in order to estimate the potential benefits of various cards.

Keep Track of Expiration Dates

The important thing to remember about limited-time offers? They expire.

You may want to set up reminders for when offers will end. That way, you’ll remember to meet any minimum spending requirements or get in last-minute purchases before bonus rates end.

Avoid Carrying a Balance

Most credit card purchases don’t incur interest — if the cardholder pays off the full balance by the statement due date. Carrying a balance means interest charges, which are usually applied going back to the date of purchase. This can quickly add up and potentially outweigh the benefits of any credit card promotions.

Furthermore, before only paying the minimum, it’s a good idea to check the terms and conditions, which will tell you specifics of how a credit card works. That way, you can ensure the promotion still applies for those who carry a balance.

Think Before Canceling a Card After an Offer Expires

With so many attractive credit card offers on the market, it might seem like a good idea to open and close accounts in order to keep claiming new promotions. However, this may not be the best strategy for those concerned about their credit score.

For starters, each new credit card application results in a hard inquiry to check the applicant’s credit score. Each time a lender conducts such a check, it results in a slight reduction in credit score — which can last up to a year (and will remain on one’s credit report for up to two years). Applying for many cards to claim multiple offers can add up.

Furthermore, as much as 30% of your credit score is informed by your overall credit utilization rate, or how much you owe on all your revolving accounts, such as credit cards, compared with your total available credit. Canceling cards reduces the total amount of credit you have available — and if it’s a card with a big credit limit, cancellation can have a significant impact on your credit utilization ratio.

Recommended: What is the Average Credit Card Limit

Will I Get Approved Immediately?

Even if you find the perfect promotional credit card offer, remember that there’s no guarantee that you’re going to get approved for it. Particularly if reaping the bonus credit bonus offer requires applying for a new card, know that there’s never a guarantee of approval.

Rewards credit cards generally require at least a good credit score (meaning 670+) to qualify for. If your score is too low, or there are any credit report concerns, that could impact your approval odds.

Application-related issues could interfere with how fast you’re approved, too. For instance, if there’s an issue verifying your income or you’ve inadvertently turned in an incomplete application, it might take a bit longer for the credit card company to make a decision.

The Takeaway

Whether it’s a welcome bonus, a low APR introductory rate, or a periodic promotion, credit card bonus offers can amplify rewards for those who know how to take advantage of them. To choose the right credit card promotion for your financial situation, it’s important to know the options and how they work. For instance, you might opt for a welcome bonus if you know a big purchase is coming up, whereas a 0% APR promo might be better if you’re working to pay down a credit card balance.

Always keep your eyes peeled for new credit card bonus offers to crop up, too. For instance, those who get a SoFi Credit Card temporarily have the chance to earn a higher rate of cash-back rewards.

Sep

2022

Can You Pay Rent With a Credit Card?

By Alyssa Schwartz | Credit, credit card, Family Finances | Comments Off

From everyday purchases to splurges, consumers often turn to credit cards. Some even reach for the plastic to pay the rent. But is paying rent by credit card a good idea? And can you pay rent with a credit card even? The answer to both questions: It depends.

Whether you can pay rent with a credit card largely depends on your landlord’s rules, though there are potential workarounds. But even if you can figure out how to pay rent with your credit card, there are pros and cons to paying rent with a credit card that you’ll want to consider.

Do Landlords Allow Payment by Credit Card?

For renters tempted to reach for the plastic, the first likely question is whether this mode of payment is even accepted. The answer to whether you can pay rent with a credit card will depend on the landlord, though many do not allow it.

The reason many landlords don’t allow it is because accepting credit card payments causes them to incur fees. Due to how credit cards work, credit card transactions are subject to fees that are set by the financial institution that issues the card, the companies that partner with the financial institution (like Visa and Mastercard), and the processor responsible for securing and carrying out the credit card transaction.

The amount of these fees depend on a number of things, including the merchant’s total sales volume and how credit cards are processed. Businesses that process between $10,000 and $250,000 in credit card payments annually pay between 2.87% and 4.35% per transaction, according to Square. This means that if a tenant were to charge $1,000 in rent, the landlord would net about $957 to $971 — unless the cost of credit card processing was extended to the renter in the form of a surcharge. To avoid that bite, some landlords do not permit credit card payments for rent.

Even when a landlord does not allow people to pay rent using a credit card, there may be workarounds via third-party apps. These apps effectively charge renters a fee to convert their credit card payment into a form of payment their landlord accepts. Fees can range from 2.75% to 3% of every rental payment. Additionally, the landlord often has to agree to the arrangement.

Pros of Paying Rent With a Credit Card

There’s a famous old saying: “Just because you can doesn’t mean you should.” But there are some scenarios when charging the rent might make sense. Here are some of the potential pros of paying rent with your credit card.

Flexibility

Rent schedules are typically fairly rigid, with payment due at the same time each month. Though this regular schedule can be a boon for budgeting, it can be challenging for gig workers or anyone else with irregular pay periods that don’t line up with when rent is due.But if a cardholder charges the rent, that money becomes due only when their credit card bill is due, providing greater flexibility on the actual payment date.

However, it’s important to stay strict about honoring your credit card due date. Making late credit card payments can result in credit card interest charges, late fees, and even a hit to one’s credit score.

As such, individuals may want to leverage credit cards for flexibility only if they are sure they’ll have the money available when their credit card payment becomes due. In other words, even if charging rent to your credit card offers more flexibility, it’s still necessary to budget for rent each month.

Earn Rewards

While there are many basic credit cards on the market, there are also cards that reward people for spending. Rewards can come in the form of cash back, points that can be redeemed toward travel and other perks, and airline miles. For those with reward credit cards, paying rent by credit card can represent a great opportunity to rack up spending and earn those perks.

However, it’s important to do the math. Third-party fees or credit card payment surcharges can cancel out any benefit a cardholder may earn, or even ultimately cost more if fees are greater than the reward offering.

Cover Immediate Expenses

If you’re short on cash, paying rent with a credit card can buy you some time. By putting what’s likely one of your largest expenditures on your credit card, you can free up funds for more immediate expenses. Then, you’ll have a bit of time to restock your bank account by the time your credit card bill comes due.

If you do this, however, you’ll want to make sure you’re ready to pay off your credit card balance in full by the end of the month, rather than just the credit card minimum payment. Otherwise, you’ll end up accruing interest on top of the money you’ll still owe for rent.

Also take notice if you regularly charge the rent out of necessity. If you do, this merits taking a closer look into the root causes. You’ll want to figure out how you might address those issues in your monthly budget instead of constantly relying on your credit card for backup.

Cons of Paying Rent With a Credit Card

Charging the rent can be a risky proposition, given what a credit card is. Here are additional reasons why paying rent with a credit card may not be a good idea.

There May Be Extra Fees

As discussed, some landlords and third-party payment companies may tack on a surcharge for credit card payments. Let’s say the surcharge is 3%, or an extra $30 on $1,000 in monthly rent. While that may not sound like much, it adds up to $360 a year — money some individuals may prefer to spend elsewhere.

Landlord surcharges aren’t the only cost that can make it more expensive to pay rent by credit card. Making a credit card payment even a day late can increase the total amount due, thanks to interest charges and late fees. And the later the debt — in this case, rent — is paid off in full, the more interest that will accrue.

Though interest rates vary by credit card, they are often higher than other lending products, like personal loans. The average credit card annual percentage rate is over 21%. Worse, the interest compounds, so each month that cardholders do not pay off the rent in full, they’ll incur interest on both the balance and the interest that has accrued.

It Can Affect Credit Score

If you put your rent on your credit card but then don’t handle your credit card debt responsibly, it could have negative implications for your credit. Behaviors like regularly missing credit card payments can lead you to have a bad credit score, which can have serious repercussions down the road.

Your credit score reflects your creditworthiness, or the risk you pose to lenders. The number (300 to 850 for the FICO® Score and VantageScore models) affects how likely it is for you to be approved for another credit card (or a mortgage or other loan) and the interest rate you’ll have to pay. You may also need to maintain a minimum credit score to rent an apartment.

Because rent tends to be a significant expenditure in most people’s budgets, you’ll want to ensure that you’ll have the funds on hand to pay the balance in full if you do choose to charge the rent.

It Can Increase Your Credit Utilization Rate

Even if you make your payments on time, paying rent with a credit card can still affect your credit score. That’s because scores are based in part on an individual’s credit utilization ratio, which is the proportion of credit being used relative to the total available amount.

When it comes to credit utilization, the lower the better. Individuals with high credit utilization are at risk of hitting their credit limit (which can also ding their credit score). With rent likely making up a large proportion of the average individual’s expenditures, such payments can significantly increase total credit utilization. The same principle applies to other major charges as well, such as if you were to buy a car with a credit card.

Should You Pay Your Rent With a Credit Card?

Whether to pay rent with your credit card ultimately depends on your financial situation. As discussed, there are some major downsides to paying rent with your credit card, such as paying extra fees and potentially harming your credit score. You could even get into a cycle of debt if you charge your rent and then aren’t able to pay off your credit card balance in full to avoid interest charges.

If you do decide to move forward with paying rent with a credit card, proceed with caution. Do the math to make sure the rewards you may earn will actually offset the cost of any fees you’ll incur. Also verify that you’ll have the funds available within your monthly budget to pay off your accumulated credit card balance, especially since a hefty charge like rent can drive up credit utilization.

Steps for Paying Rent With a Credit Card

How you’ll pay rent with a credit card depends on whether your landlord will directly accept credit card payments for rent or whether you’ll need to go through a third-party app.

• If your landlord does accept credit card payments: In this case, you’ll either pay your landlord directly or through an online payment portal. You’ll need to provide your credit card information, including your account number, expiration date, and CVV number. Make sure to verify the total amount. Also check to see whether there are any fees involved and if so, how much those will run.

• If you need to go through a third-party app: Renters who need to go through a third party in order to pay rent with a credit card will first need to set up an account with one of the apps that provides this service. Make sure to find out what fees are involved before proceeding. You’ll then complete your credit card transaction through the intermediary, which will then pass along the funds to your landlord, either with a check or directly to their bank account.

Alternatives to Paying Rent With a Credit Card

Paying rent with a credit card is more like a last resort than a go-to option. If you’re wondering how to pay rent when you’re in a bind, here are some alternatives to consider:

• Borrow money from family or friends: If you’re really in a pinch, consider asking a trusted family member or friend if they can lend you the funds. This will save you interest, and it will also save your credit score from the impact of a hard credit inquiry. Just make sure to reach an agreement about how and when you’ll pay back the money — otherwise, it could negatively affect your relationship.

• Talk to your landlord: If you’re really struggling to come up with rent for the month, consider reaching out to your landlord. Especially if you’ve been prompt with rent payments in the past, they may be sympathetic and offer a little breathing room. Just make sure to come up with a plan in the meantime, as a break on rent won’t last forever.

• Reach out to rental assistance resources: Another option for those who are having a hard time making rent payments is seeking out assistance. There might be local nonprofits, charities, or even government groups in your area that can offer help to those in need. You may also look into resources like 211.org or the CFPB.

The Takeaway

Can you pay rent with a credit card? Sometimes. But is it a good idea to pay rent with a credit card? If all of the numbers make sense, it could be. You’ll want to weigh both the potential pros of charging your rent to a credit card, like possibly earning rewards or gaining flexibility, against the downsides, such as possible repercussions for your credit score.

If paying with plastic is tempting, your choice of card can make a big difference in the ultimate benefits you receive. The SoFi Credit Card, for instance, allows you to earn generous cash-back rewards and possibly lower your APR through on-time payments.

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.

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.

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