pink credit card with confetti

8 Steps to Build Credit Fast

Your credit score can affect many areas of your life.

A poor credit score can make it harder to buy a car, get a job, purchase a home, rent an apartment, have the utilities turned on, and even get a cell phone.

It can also cost you money, since credit card companies and lenders typically consider your credit score when determining your interest rate.

Fortunately, if your credit is less-than stellar–or you haven’t yet had a chance to establish much, or any, credit history–there are some simple steps you can take to build or boost your score quickly.

While you can’t typically establish exceptional credit overnight, you may be able to improve your credit score in a matter of months by putting a few good credit habits into practice, building a positive payment history, and avoiding credit-damaging mistakes.

Simple Steps to Build Your Credit Faster

Here are some strategies that can help you establish or improve your credit profile ASAP.

1. Understanding What Goes Into Your Score

One of the most commonly used credit scoring models is the FICO® Score .

FICO has five factors it considers when calculating its credit scores.

•  Payment history: 35% of this score is related to your history of payments on credit cards, student loans, mortgages, and other loans. The algorithm looks at the frequency and severity of missed and late payments.
•  Credit utilization: 30% of this score is based on how much of your available credit you are currently using.
•  Length of credit history: The amount of time you’ve had each credit account open makes up 15% of this credit score. That’s why it’s nearly impossible to have perfect credit when you’re new to credit.
•  New credit: 10% of this credit score has to do with opening new credit. (However, opening several new credit accounts at the same time isn’t typically a good way to bump up your score, because that can look like you’re in financial trouble).
•  Credit mix: The final 10% of this credit score is based on the different types of credit you have and how you’ve managed them.

2. Checking Your Credit Report and Disputing any Errors

Credit scores are calculated on the information in your credit reports.

That’s why it’s a good idea to get copies of your credit reports from the three major credit bureaus–Equifax , TransUnion and Experian –and to make sure all the information is accurate.

According to the Consumer Financial Protection Bureau (CFPB), one in five people have an error on at least one of their credit reports.

Everyone is entitled to see their credit reports for free once a year at the government-mandated AnnualCreditReport.com site.

When you get your reports, it’s a good idea to comb through them carefully and to look for any inaccuracies, such as payments marked late when you paid on time, wrong account numbers, incorrect loan balances, or accounts that aren’t yours.

If you find an error in one or all your credit reports, you can reach out to the credit bureaus directly to dispute the information.

If you see accounts in your name that you never opened, and believe you may be a victim of identity theft, you can report it to the Federal Trade Commission at IdentityTheft.gov or 877-438-4338.

A mistake on one of your credit reports could be pulling down your score. Fixing it can help you quickly repair your credit.

3. Paying Bills on Time Every Time

Payment history is the single most important factor that affects your credit scores.

Not only that, a past due payment can stay on your report for seven years.

Setting up autopay, either through each provider or company, or through your financial institution, can be a great way to ensure you never miss a bill.

If you do miss a payment by a few days, all is not necessarily lost, however.

There is generally a small window of time to make up a missed credit card payment before any damage to your credit happens.

That’s because late payments are typically not reported to credit bureaus until the payment is at least 30 days late.

The key is to get it in as soon as you can.

4. Becoming an Authorized User on a Credit Card

If you have no credit or a low credit score, you may be able to build it up by becoming an authorized user of a credit card that the cardholder uses responsibly.

An authorized user has permission to use an account, but does not have any liability for debts.

If a friend or family member adds you as an authorized user to their account, the card issuer will then typically report you as an authorized user to the credit reporting companies.

In this way, you gain a credit history from the credit usage of your friend or family member.

5. Opening a Secured Credit Card

Some credit card companies offer “secured” credit cards, which allow you to build credit history with little risk to the credit card company.

Here’s how it works: You pay a cash deposit up front that is equal to the limit of the card. For example, if you put down a $500 deposit, you would have a $500 limit on the card.

You can then use it like a regular credit card.

Using the secured card responsibly–being mindful of the amount you’ve charged in relation to the card’s limit–and paying your bills in full and on time will all be reported to the credit bureaus.

6. Using your credit card regularly

One way to build credit is to display a history of responsible borrowing.

For that reason, you may want to place monthly bills and other expenses on your credit card–being sure to pay the bill in full each month by the due date.

7. Keeping Credit Card Balances Low

This can help move the needle on credit utilization, or the amount of debt you have compared to the total amount of credit that is available to you, and is expressed as a percentage.

After payment history, this is typically the second most important factor that influences your score.

The rule of thumb is to use no more than 30% of your total credit at any time. This includes access to all credit lines, as well as the percentage on individual cards.

One way to do this is make multiple payments on your credit card throughout the month.

If you’re able to keep your utilization low, instead of letting it build toward a payment due date, it could quickly benefit your score.

8. Keeping Credit Cards Open

It might seem to make good financial sense to close credit cards you never or seldom use.

But from a credit score perspective, it may not be a wise move.

That’s because closing a credit card means you lose that card’s credit limit when your overall credit utilization is calculated, which can lower your credit score.

A better bet might be to keep the card open and to use it occasionally so the issuer won’t close it.

The Takeaway

A credit score in the good to excellent range could provide you access to the most competitive interest rates for loans and credit cards, and also make it easier to rent an apartment, get a cell phone, and land a new job.

Some ways to improve your score quickly include having active open accounts that you are consistently paying on time, keeping your loan balances low, and disputing any errors on your credit reports.

Building good credit is also a matter of establishing good financial habits, such as tracking your spending (so you don’t come up short at the end of the month), and make sure all of your bills are posted by their due dates.

One move that can help you stay on top of your finances is signing up for SoFi Checking and Savings®.

SoFi Checking and Savings is a checking and savings account that allows you to earn competitive interest, spend, and save–all in one account. And you’ll pay zero account fees to do it.

SoFi Checking and Savings also allows you to track your weekly spending right from the dashboard in the SoFi Checking and Savings app.

You can also use the app to set up all of your bill payments to help ensure that payments are never missed or late.

Check out everything a SoFi Checking and Savings checking and savings account has to offer today!



SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi Money® is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member
FINRA / SIPC .
SoFi Securities LLC is an affiliate of SoFi Bank, N.A. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
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.

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.

SOMN21007

Read more

Credit Card—and Credit Card Debt—FAQs

If you’re having trouble getting out of credit card debt, you’re not alone. According to the Federal Reserve Bank of New York’s Center for Microeconomic Data , household debt is higher than ever before. In the last quarter of 2019, household debt increased by $193 billion (1.4%). This marked the 22nd quarter in a row that household debt increased.

The current total is $1.5 trillion more than the country’s previous household debt peak in the third quarter of 2008. And credit card balances increased by $46 billion.

While these statistics provide a snapshot-view of what’s happening in many households across the United States, what probably matters most to you is finding ways to manage your own debt. To help, this post will provide some answers to frequently asked questions about credit cards and associated debt.

What Are (some of) the Benefits of Having a Credit Card?

There are a variety of advantages when it comes to credit cards, including that you:

•   don’t need to carry as much cash with you
•   can track your purchases
•   can make larger purchases
•   can benefit from reward programs and other discounts
•   can build your credit score with responsible use
•   have access to emergency funds when needed
•   can use your card to secure a hotel room, rental car, and so forth

Although this is not intended as a complete list of benefits, and credit cards are not for everyone, it does contain many of the significant advantages of having a credit card.

What Are (some of) the Disadvantages of Having a Credit Card?

Although the convenience of credit cards is significant, it’s possible for these cards to become a little bit too convenient. Some people believe that as long as they can make their minimum monthly payments on their credit card debt, they’re in good financial shape. In reality, though, making minimum payments isn’t usually enough. Typically, it can cause debt to increase because of compounding interest.

For example, let’s say you’ve got a balance of $5,000 on your credit card; the interest rate is fixed at 16.71%, and you’re paying $100 monthly. At that pace, it would take you five years-plus to pay off your original debt of $5,000, with an additional $3,616 in interest alone. That’s a simplified hypothetical, but if you’d like to get an idea of how much you may be paying back on your own credit card debt, you can use SoFi’s credit card interest calculator.

Another disadvantage of credit cards is that your account numbers can be stolen, leading to potentially serious identity theft problems. Plus, these thieves can use your account information to rack up charges and it can be a real hassle to address this issue.

Choosing the Right Credit Card for Your Situation?

Those who use a credit card responsibly might find it worthwhile to check around to find a card that offers the rewards they’d use and benefit from. These rewards can include frequent flyer miles, loyalty points, cash back, and so forth.

If you don’t typically pay off your balance in full each billing cycle, however, then credit card rewards might not be worth it since they typically have higher rates or annual percentage rates (APRs).

If you often carry a balance on your credit cards, then it could make sense to shop around for the best interest rate. These cards probably won’t have all of the extras that come with reward cards, but they could help you accrue less interest.

If you’re just building your credit or need to repair your credit score, a secured card may be worth considering. This functions like a typical credit card except that you’d need to put a deposit into the bank to serve as a backup.

If you close the account with your credit in good standing or you improve your credit to the degree that you’d qualify for an unsecured credit card, then the deposit is returned.

As another option, you can load a prepaid credit card with a certain amount of money, through cash, direct/check deposits, or online transfers from a checking account. You can use that card until the funds are used up.

Although this can make sense in certain circumstances, perhaps because of a challenging credit history, this type of card doesn’t help you to build or repair credit, and can come with plenty of fees.

Fees for prepaid credit cards can include a monthly fee, individual transaction fees, ATM fees, reload fees, and more. If you go this route, compare options to get the best deal.

Here’s the bottom line on this FAQ. What’s most important is to find a credit card that dovetails with your needs and usage patterns.

Using a Balance Transfer Credit Card

Balance transfer cards can allow you to consolidate your credit card debt onto a card that, for an introductory period, comes with a low or zero-interest rate. Sometimes, these low-to-no-interest credit cards make good sense.

For example, if you have a balance on a high interest credit card and you are anticipating a bonus or tax return in a couple of months, then it can make sense to pay off the high interest card with a zero-interest one, and then pay off that credit card with your bonus or tax return before the introductory period is up.

Or, if you want to make a larger purchase and have planned your budget in a way that allows you to pay off the balance during your zero-interest period, that might also work out well.

Problems with no-interest credit cards can include that, if you don’t pay off the balance in your introductory period then the card reverts to its regular interest rate that can be quite high. Plus, in some cases, if you don’t pay off the entire balance within the introductory period, you’ll owe interest on the original balance transfer amount.

Sometimes, there are balance transfer fees that can make this strategy more expensive than if you hadn’t transferred a balance in the first place.

If you have outstanding credit card debt that you aren’t paying in full each month—and if a balance transfer credit card doesn’t seem like the right strategy for you—here’s another idea to consider: a credit card consolidation loan.

What Is a Credit Card Consolidation Loan?

A personal loan, sometimes referred to as a credit card consolidation loan, is an unsecured installment loan with fixed or variable interest rates. It is ideally repaid in the short term (e.g., three to five years), and it can be used to consolidate credit card debt and hopefully offers a lower interest rate than your current credit card(s)interest rate. Your loan payments include both principal and interest.

OK, a credit card loan’s correct name is a credit card consolidation loan, which is just another name for an unsecured personal loan. How is a personal loan different from other types of loans?

A personal loan is an unsecured loan. Unlike a mortgage, there is no collateral attached to or “secured” for a personal loan. For example, if you take out a mortgage loan, your home becomes the collateral for your mortgage. If you default on your mortgage, your lender can then own your home.

With most personal loans, there is no underlying collateral required. When a loan has no collateral, it means it’s unsecured. Since the lender assumes more risk with an unsecured loan (given there isn’t a home to repossess should a borrower default), the interest rate on a personal loan is usually higher than the interest rate on a secured loan.

Considering a Personal Loan?

If you have credit card debt and want to lower your monthly payments and get a better interest rate than you currently have, a personal loan can be worth considering, since it can enable you to consolidate your credit card debt. Instead of paying off multiple credit card balances, consolidating your credit card debt into a personal loan means you can just make one convenient monthly payment.

Over the last year, the average credit card interest rate has hovered around 10% is just a small bump, however, and taking on more debt is not typically ideal—especially if you start adding to the credit card(s) balance(s) you zeroed out with a personal loan. . Personal loans can come with lower rates, especially for borrowers with strong credit histories and income, among other factors that vary by lender.

Credit scores are typically one of the main factors considered by lenders when reviewing applications for personal loans. So, it can make sense to know your score before you apply; in general , a FICO® Score between 740-700 is considered “very good” while 800-850 is considered “exceptional.” .

To get a rough estimate of how much you might be able to save by consolidating your credit card debt with a personal loan, you can take a look at SoFi’s personal loan calculator.

In sum, a personal loan can help you by offering a lower interest rate than what you have for your existing credit card debt. The interest rates on personal loans are often much lower than the interest rates on credit cards.

This means that if you consolidate your credit cards into one lower-rate loan, for short and fixed term, you could reduce the total interest you’d pay on the debt and have an opportunity to pay off your debt more quickly.In some circumstances, adding a personal loan could also be beneficial for your credit score.

Why? Because having a mix of credit types can help your score; with the FICO® Score, for example, your “credit mix” accounts for 10% of your base score—and, if you consolidate your credit card debt (considered “revolving” credit) with a personal loan (“non-revolving” credit) and you keep your credit card open, you now have a mix of revolving and non-revolving forms of credit.

10% is just a small bump, however, and taking on more debt is not typically ideal—especially if you start adding to the credit card(s) balance(s) you zeroed out with a personal loan.

Borrowing a Personal Loan

Applying for a personal loan with SoFi is typically a simple and fast process. Loan eligibility takes into consideration a few different personal financial factors, including credit history and income . If you’re interested in applying for a personal loan with SoFi, you can review the eligibility requirements for more information—and see your rates in just two minutes, before you even apply.

SoFi offers loans up to $100,000 with low fixed interest rates, no prepayment penalties and no fees required. SoFi also offers unemployment protection to qualifying members who lose their job through no fault of their own. If you have questions while applying for a loan online, you can contact SoFi’s live customer support 7 days a week.

Interested in exploring a credit card consolidation loan with SoFi? Learn more.


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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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

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

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.


PL17107

Read more
pink credit card torn mobile

How to Cancel a Credit Card

Credit card debt is an increasingly severe problem in the U.S. As Americans become more dependent on their small plastic cards, the amount of debt seems to just get bigger. And bigger.

According to Experian , the average American has a credit card balance is almost $6,200. Along with individual and household debt, the total amount of credit card debt in the U.S. has reached its highest level ever.

Whether debt has got you down, or you’re wanting to consolidate your existing credit cards and opt for ones that have the best perks and benefits for your circumstances, the question of canceling a credit card can be an extremely sticky one.

Many of us find ourselves wondering the best course of action to reduce credit card debt without affecting credit score, and the concern is valid.

While closing an account may play a role in getting a better handle on any existing debt, it’s important to understand ways to cancel a credit card in a way that doesn’t end up setting you back even more.

Ahead are some common steps that are typically needed to be taken in order to fully cancel a card, including sending a written confirmation and keeping a watchful eye on your credit report after you’ve put through a cancelation request.

Do You Really Need to Cancel?

It can be tempting to cancel cards or close accounts when things get overwhelming. But sometimes this may not be the best option.

In many cases, canceling a credit card can actually damage one’s credit score. In fact, canceled accounts may remain on a credit history for several years after the date they are closed. (With a card in negative standing, it will remain on your credit history for up to seven years, and a cancelled card in positive standing typically remains for 10 years.)

It’s important to take the time and analyze your motivations behind canceling an account before you actually do. After all, it may be smarter to simply cut up or hide a credit card rather than officially canceling.

As always, the decision is up to you, but it’s helpful to take these considerations into account before finalizing a decision that may have a long-lasting impact on your credit health and your long-term financial future.

Closing One Account at a Time

If you’ve decided that canceling your card is the best way to go for you, there are some things you may want to keep in mind before getting started.

First of all, when it comes to canceling credit cards, it’s important to remember that not all of them are created equal.

Depending on the exact reasons that led you to wanting or needing to cancel a card, you may want to consider a few things before pulling the trigger.

For example, if you’re thinking of canceling a card, you may want to consider canceling new ones instead of old ones to avoid impacting your credit score.

In the world of credit, older, more established credit in good standing is looked upon more favorably than new, and so you may want to keep this in mind when choosing which card you would like to cut.

On top of this, some credit cards may offer more appealing rewards programs for your lifestyle than others, so you may want to take stock of the perks that come with each card before deciding which one you want to stop using.

Paying Off or Transferring Your Balance

Depending on the total amount of credit you have available, closing a card account with a high credit limit could run the risk of damaging one’s credit score.

If you are carrying high balances on other cards or have active loans, this damage could be especially noticeable, since your debt-to-credit ratio (also called your credit utilization ratio) may affect your credit score. (Typically, you’d want to stay at 30% or below.)

If you’re planning on canceling a credit card, you will likely want to ensure that you’ve paid off any remaining balances on that account. If you fail to do so, you may end up having to pay interest charges on any remaining balance.

If you normally carry a balance from one month to another, you may need to take extra care to pay the full statement balance before canceling a card in order to make sure there is no money left in your balance and avoid future interest charges.

You may also want to take some time to brush up on your knowledge of credit card utilization, as it can be important to understand when it comes to canceling your credit cards smartly.

In order to lessen the negative impact of closing one of your credit card accounts, you may want to pay off all of the balances you carry on all of your cards first.

If you cancel a card while carrying zero balances on all your cards, your credit utilization rate should stay at zero, so even if you cancel a card and remove its balance, your rate shouldn’t be impacted.

Contacting a Credit Card Company

Once you’ve paid off your credit card balance, you will want to contact your credit card company to put through your request to close your account.

Sometimes, you will be able to cancel a credit card without making a phone call. It may be helpful to look up how to cancel a particular credit card online to see if your credit card company offers this option.

In most cases, you will want to contact your credit card company by phone. Usually, your customer service number will be printed on your credit card.

From there, you’d inform your credit card company that you are canceling your card. Keep in mind that some companies require you to speak to a customer service representative in order to complete this process, while others are more flexible.

It’s helpful to know that credit card representatives may be trained to try to convince you to keep your account open. Remember that you have the right to close your account at any time.

Before you hang up the phone, you may want to ask your representative for their name so that you can include it along with your written notice of cancelation.

Sending Written Confirmation

Once you’ve called and canceled your card, you may choose to mail a written confirmation letter to your credit card company. This can be a good option in order to protect yourself generally, but also in the event that the customer service representative made a mistake while putting through your card cancelation request.

In the letter, you would write things like your name, phone number, address, and account number as well as the details from the call you had with your credit card representative. If you got their name, you may want to also include it here.

You might choose to also state that you’d like your credit report to show that the account was closed at your request.

If you choose to mail a letter, consider sending it via certified mail so that you can ensure the company receives it, and make sure to keep a copy for your records.

Keeping an Eye on Your Credit Score

When canceling credit cards, patience is key. From the moment you begin the process to the moment your credit card is officially canceled, it may take one month or even longer, depending on the company.

After your account has officially been canceled, you may wish to keep tabs on your credit report to ensure that your credit card has in fact been listed as closed.

If, for some reason, the card is still marked as open, you may need to get back in touch with your credit card representatives and, possibly, repeat some or all steps in this process.

Know that it can sometimes take several weeks for changes to show up on your credit card report. For this reason, it’s good practice to get into the habit of checking your credit score regularly, whether or not you’ve recently closed a card.

Of course, if you did just cancel a card, you may want to wait a month or so to see whether or not closing your account impacted your credit score.

Keep in mind that, every twelve months, you can get one free copy of your credit report online through AnnualCreditReport.com . Some credit card companies may also offer apps that allow you to check your score for free.

Destroying Your Card

Once you’ve confirmed that your card is canceled, then you’re almost done with the process.

If you’ve ensured that the account is in fact closed, then you can officially destroy your card in the manner of your choosing.

Though cutting up a credit card may provide a feeling of freedom and catharsis, it’s important to be careful to choose a method that makes sure the information on your card is not recoverable.

If you have access to a shredder, shredding your card may be the most efficient and secure way of destroying it.

If you’re using scissors, make sure that you properly cut up all the identifying pieces of information on the card, including your signature, the expiration date, CVV number, and the credit card number itself.

From there, ensure you properly dispose of the shards. For an added layer of security, consider throwing them away in more than one garbage can.

Maintaining a Healthy Relationship with Credit

Despite the array of credit card-related woes many Americans experience, it is possible to leverage credit cards in a healthy and productive way.

Depending on your needs and financial circumstances, finding ways to use credit to your advantage is a great way to ensure that you don’t wind up with more debt than you can handle.

A credit card cancelation can often offer an opportunity to take stock of the way you’re using credit, and establish better practices moving forward.

Once you’ve familiarized yourself with your credit utilization, and taken a look at the rewards you are currently signed up for, you may choose to go about things differently in the future.

One of the best ways to help you keep tabs on your credit is to build a practice of checking your balance and your credit score regularly.

This may look like downloading an app that lets you see all of your savings, checking, and credit card accounts in one place, or just getting into the practice of logging into all of your account on a regular basis.

Whichever way you choose to go about it, there are several strategies you can try out that may help you to keep your credit in check.

From leveraging balance transfers to using the snowball method to help pay off any debt balances you currently have, there are ways to help you get your credit card debt and finances under control—regardless of whether or not you decide to get rid of some of that seemingly precious plastic.

Looking for a way to manage credit card debt? With SoFi Personal Loans, you can consolidate with a potentially lower interest rate.


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

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

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


SOPL19079

Read more
colorful cash and cards mobile

What Is a Cash-Back Credit Card?

You might have heard the phrase “there’s no such thing as free money.” You may also have heard that “money doesn’t grow on trees,” but we’re pretty sure money is still made of paper. While cash back from your credit card isn’t exactly free money, using credit wisely can be beneficial.

How Does a Cash Back Perk Work?

Cash back is the rebate of the credit card world. The money that you get back, depending on the card and the deal you’ve gotten, may come in the form of a check, statement credit, or deposit with your financial institution.

With points, you might end up with $10 off your next Starbucks purchase; but you might actually prefer The Coffee Bean and Tea Leaf, so a Starbucks card may hold no value for you. With a cash-back reward, you typically get to decide how you want to spend the money: your mortgage, your lunch, your boyfriend’s birthday present, or even your credit card debt.

While some credit card companies offer a flat cash-back rate, other cards offer some combination of a flat cash back rate, and a specialized cash back rate for certain categories (often ones you can choose).

Card holders may be eligible to receive varying amounts—typically a percentage of spending in a certain category, e.g., dining, hospitality, airlines, or groceries.

But choosing a cash-back card with the best rewards isn’t so simple. There are many different kinds of cash-back rewards which may be available.

What’s Available

•   Cash back on a monthly, quarterly, or annual basis.

•   The cash back could be for any kind of purchase or for particular purchases in certain categories like dining, gas, groceries, etc. Sometimes it might be a combination of these two with higher rates of return on certain categories.

•   Timed spending bonuses: If you spend a certain amount within a certain prescribed time you may be eligible for even more cash back than the base amount.

•   Certain cards might also offer non-cash benefits like flight upgrades or extended warranties on purchases made with that card.

Why Do Cash Back Rewards Even Exist?

How is this even possible? Getting paid to spend money sounds like the kind of job you invented when you were twelve—it couldn’t possibly be real.

It turns out that the money you’re getting back comes from some very real places. Of course, credit card companies will try to get you sign up with them instead of their competitors. It’s dog-eat-dog out there. Credit card companies have since come up with a variety of tools to attract customers, and cash back is a common reward.

But where does the money come from? If you’ve ever been asked to fulfill a credit card minimum purchase amount you know where it comes from. The $10 minimum at the cafe is not there entirely to keep you adding extra shots to your morning latte (although you’re totally going to anyway).

The Pros

With so many kinds of credit cards out there, why would you consider a cash-back card?

•   Credit cards with cash-back rewards might actually help you earn more money than a low-interest-rate checking account with a debit card. Some checking account interest rates can often be less than 1% APY. Getting 5%—or more—cash back on your purchases is a lofty difference. Credit card spending, though, is still spending—not saving—an important difference to keep in mind when making purchases. Buying within a budget is still an important consideration.

•   Some cash-back cards offer sign-up bonuses or bonuses for spending over a certain amount or in a certain categories. When used responsibly, these types of bonuses could be used for special purchases a buyer might not have been able to afford otherwise. Two tickets to Paris please!

•   Consumers with credit scores of 740 and higher are typically the ones who qualify for cards with the highest cash-back rewards, which could be up to 6% when purchasing items from designated categories. Yet another reason to pat yourself on the back for your high credit score.

The Cons

Okay, so maybe some of the maxims are correct. Nothing in life is free and money doesn’t grow on trees. Like anything good in life, there can be a downside (we’re looking at you, cupcakes).

•   Many cash-back programs actually come with a maximum on rewards. While it seems that the more you spend the more you get, eventually you might just be spending more.

•   Some cash-back credit cards have annual fees. While this may seem small compared to the money you’ll be getting back, it might be worth it to do the math and make sure the pros outweigh the cons before you are convinced that this card is worth your spending power. Some cards with hefty fees reward the cardholders with perks beyond the cash-back bonus.

•   Like any other credit card, if the balance due is not paid on time, there are typically interest charges and fees added to the principal balance. That amount may negate any cash-back rewards you earned during that statement cycle.

•   Perhaps the biggest con: Choosing and managing a credit card can be complicated. Lots of homework, (i.e., research online, with your bank, has to go into this one before you may feel ready to commit to this endeavor. With occasional fees and sometimes hard-to-acquire gains, your research is key to making sure you find one that works for your spending habits. Cash-back credit cards can pay off, but it might take some digging to find the right one.

Unfortunately, at the end of the day, there’s no free lunch. Credit card companies are in the business of making money and they rely on your debt to fund their businesses.

Using credit wisely—and reaping all the rewards—typically means paying the balance due in full each billing cycle. Getting to that point can take some time, though.

See how using cash back from a SoFi Credit Card can help you pay off debt and boost your investments.



New and existing Checking and Savings members who have not previously enrolled in direct deposit with SoFi are eligible to earn a cash bonus when they set up direct deposits of at least $1,000 over a consecutive 25-day period. Cash bonus will be based on the total amount of direct deposit. The Program will be available through 12/31/23. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC.

SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 3/17/2023. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet




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

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

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.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


SOPL19062

Read more
woman on laptop with credit card mobile

When Should You Cancel a Credit Card?

If you’ve been thinking about canceling one of your credit cards, you may have heard that you should keep it open.

If so, you might be wondering, “Why? Is it bad to cancel a credit card?”

The answer, as with most finance-related matters, is that it depends on your specific situation, including the reasons you’re thinking about closing that card.

Perhaps, for example, your credit card company has changed its terms in a way that’s not acceptable to you, or you just want to simplify your finances by having fewer credit cards in your name.

“Can I cancel a credit card?” is, of course, different from “Should I cancel a credit card?” Keep reading to find out the difference between the two, some pros and cons, and other considerations.

Note that this is just an overview of common tips, questions, and hypotheticals. Only you can decide for yourself what makes the most sense for your unique financial situation.

Times When You Might Consider Canceling

If a credit card is costing you money, maybe because of annual fees, then you might be thinking about closing that card, especially if you don’t really use it. Before you do, it’s possible to the credit card company to see if the fees can be waived. There is no guarantee that the answer will be yes, but it doesn’t hurt to ask.

Maybe you find yourself putting impulse purchases on this card and you can’t pay the balance off in full at the end of the month. Then you may decide to cancel the card to get your debt under control.

Or you may learn about a card that offers great rewards you could benefit from, whether that’s cash back, loyalty points, frequent flyer miles, or something else.

So you might decide that a reward credit card would be better suited for your needs and you’re thinking about closing your current card and using this one instead.

That may be the right choice for you. Note, though, that reward cards typically have a high annual percentage rate (APR), so if you don’t pay your balance off in full each month, this may not be the best fit.

Here’s another scenario. Let’s say that your credit card has a high interest rate. Does it make sense to shop around for a better one and transfer the balances? What about applying for a zero interest credit card?

More About Zero Interest Credit Cards

You’ve probably seen offers for no interest credit cards and may think that you should apply for one and transfer your balance from a high interest credit card to this one. And, in certain circumstances, that may make sense for you.

If, for example, the new credit card would give you a six-month introductory window to pay off your balance or at least significantly pay it down at zero interest, you might end up saving a nice amount of money on interest.

On the other hand, the interest rate will go up after the introductory period—and it’s possible that it would be higher than your current credit card. So be mindful about this process and investigate the specifics before transferring your balances.

There are other potential problems. Sometimes, if you don’t pay the entire balance off during the introductory period, the company collects interest on the entire principal, even if your remaining balance is close to zero. So, in this case, nothing was really free about this credit card, and it may end up costing you more money in interest.

In addition, sometimes there are fees attached to the transfer. When that’s the case, typical fees might be about 3% of the balances you’re transferring, with some as high as 5%—and, if the zero interest credit card you’re considering has fees of 5%, that’s $500 on a $10,000 balance!

Circling back to the main issue, if you decide to transfer your balances to a no interest credit card, should you cancel your old one?

If you keep both the old card and the new one, and end up using both of them, you may end up in more debt than if you hadn’t done the transfer in the first place. There is no one right strategy to take, so it’s important to create a plan that works for you.

So, can you cancel a credit card? Of course you can. But, the more important question may be whether you should—and to help you make your decision, here are some common reasons you might not want to cancel that card.


Struggling with high-interest
credit card debt? A personal loan
could help get you back in control.


Before You Cancel

Having debt and managing it responsibility—including credit card debt—can be seen as a plus by creditors. And if you cancel a credit card, under certain circumstances, it can have a negative impact on your credit.

Is your credit utilization rate under 30%? That can show lenders you can use credit responsibly. A credit utilization rate is the percentage of available credit you’re currently using—so if you cancel a credit card, the amount of credit you have available to you will go down by the amount of the unused credit on that card.

For example, a credit card with a credit limit of $10,000 and a $2,000 balance on it, then there’s $8,000 of available credit on that card. Cancel that card and that $8,000 available credit vanishes, which causes overall credit utilization rate to go up.

Another factor in your overall credit score is the average age of accounts. If you cancel an older card in your name, this can lower the average age of your accounts, though even closed accounts remain on your credit report for seven to 10 years.

•   If you do decide to cancel a card, good rules of thumb include:

•   Before canceling a card, continue to make payments on time until the balance is paid in full.

•   Check credit scores afterward to make sure no errors occurred.

•   Avoid closing several of them at once, because this could look suspicious to creditors.

Contact the company to find out exactly what needs to be done to close the account. Simply cutting up your card isn’t actually closing it. If there is an annual fee associated with the card, you could still be charged that amount.

Using the Credit Cards You Keep Open

If you decide to keep all or some of your credit cards open, these ideas could provide guidance on their use.

Once your credit-worthiness is established, you might start receiving credit card offers. Maybe a whole lot of them. And when you go into a store, you might be asked if you’d like to apply for one of their credit cards—and they might offer you discounts and other perks to say yes.

Each time you apply for a credit card, however, it can trigger a credit inquiry that’s called a “hard pull” or “hard credit inquiry.” If this happens too often in a short amount of time, it could affect your credit score.

Does a credit card offer cash advances? If so, you might want to check the APR you’d pay if you’re considering a cash advance. It’s likely to be several points higher than paying for a specific purchase with the card. If you use your credit card at an ATM, you may also need to pay a fee, so it’s often better to use a debit card or write a check when you need cash.

Another option is to contact your credit card company and ask for a better interest rate/APR. A 2018 poll for CreditCards.com showed that 56% of the people who asked got a thumbs up to their request. And 70% of those who asked to have their annual fee waived or lowered got a positive response.

Managing Credit Card Debt

Perhaps you’re trying to determine how much credit card debt is too much for you. If so, then having the ability to make the minimum payment each month typically isn’t the best benchmark, because paying only the minimum can cause your debt to grow because of compounding interest.

It can make sense to use the concept of credit card utilization to determine if you’re being smart with your credit card management.

As another check, you could calculate your debt-to-income ratio, especially if most of your debt is credit card debt. If it’s higher than you’d like, this may mean it’s time to take action on your credit card debt.

Your debt-to-income ratio shows how much of your pretax income goes toward paying monthly debt—and when it’s high, some lenders might be reluctant to lend to you or may charge a higher interest rate. They might decline to lend you any money at all.

If you decide that it’s time to pay off your credit card debt, there are many methods and strategies out there, including the snowball method. Steps include the following:

•   Choose the account with the smallest outstanding balance to pay off first.
•   On other accounts, pay the minimum amount due to avoid late fees.
•   With your targeted account, pay as much as possible with the goal being to pay it off as soon as you can.

Once that account is paid off, select the next account with the lowest balance and repeat the process, but add the amount you were paying on the initial balance (thus, the snowball).

This can be an effective method of paying off credit card debt because it builds momentum and creates incremental financial victories, but it doesn’t address interest rates. So it’s important to factor in higher-interest debts before embarking on a strategy like this one.

Whether you choose to use the snowball method or another strategy to manage and pay down debt, at the heart of it all is effective budget tracking.

Tracking what you spend could help you decipher where you’re overspending—and, with today’s virtually frictionless spending, that’s easy to do. Sometimes, people who start to track their spending for the first time discover they’re actually spending hundreds of dollars more in certain categories than they realized.

Until you have financial benchmarks to monitor, it can be hard to make meaningful changes in your spending and saving habits. With accurate tracking, though, you may find yourself feeling inspired to eliminate some expenses (perhaps unused online subscriptions) and reduce others (maybe your cell phone bill).

Although this might initially feel tedious, it could give you the freedom to spend your money on what really matters to you.

Taking Out a Personal Loan

Another option to help crush your credit card debt could be an unsecured personal loan. Taking out a credit card consolidation loan could help consolidate your debt and get it back under control.

SoFi offers personal loans with low rates and no fees required. Get started and check your rate in 1 minute.


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.

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.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


SOPL19075

Read more
TLS 1.2 Encrypted
Equal Housing Lender