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In most cases, it isn’t possible to overdraft a credit card, or spend above your credit limit. If you opt in to over-the-limit charges, it may be possible to exceed your limit. However, “overdraft” usually refers to overdrawing a bank account, not a credit card.

It’s more likely that your purchase will be denied rather than your account “overdrawn.” If the charge does go over the limit, you might get hit with additional fees, and your credit could suffer as a result.

What Does It Mean to Overdraft a Credit Card?

Each time you use your credit card, your balance increases, which is part of how credit cards work. If you aren’t making payments against that balance, it will move closer and closer to your credit limit. Eventually, your balance could get high enough that you run up against that limit.

Usually, though, you won’t be able to go beyond your credit card spending limit. Instead, your card will be declined if you attempt to make a purchase that would put you over the limit. This is the result of the CARD Act of 2009.

Since the CARD Act, you can’t go over your card’s limit unless you specifically opt in to allow overages. In that case, it may be possible to go beyond your credit card’s limit.

The average credit card limit is the U.S. is currently approximately $29,855.

Recommended: When Are Credit Card Payments Due?

What Happens If You Overdraft Your Credit Card

What happens when you try to overdraft your credit card depends on whether you have opted in to over-limit charges. If you haven’t, your card will likely be declined; otherwise, you could incur fees and a hit to your credit.

Declined Transactions

By default, most credit cards today should not allow you to go over your credit limit. Instead, your card will probably be declined.

For example, imagine you have a credit limit of $5,000 with a current balance of $4,800. If you try to spend $250, in most cases it will not result in a $5,050 balance on your card. Because your limit is $5,000, your card will probably be declined when you attempt to complete the transaction for the $250 purchase.

Over-Limit Fees

Since the CARD Act of 2009, you can’t be charged over-limit fees unless you opt in to them. In that case, you will be charged an over-the-limit fee that is usually up to $35. However, the fee is limited to the amount you exceed your limit. For example, if you go $15 over your credit limit, the over-limit fee can’t be more than $15.

The CARD Act also says that banks must disclose over-limit fees in your credit card contract. If for some reason you have opted into over-limit fees, you should be able to opt out of these fees at any time.

Impact on Credit Score

If you go over the limit for your credit card, your credit score might take a hit. While there’s no magic number for credit utilization, the rule of thumb is usually that you should limit your utilization to 30%. Many financial experts suggest keeping it closer to 10%.

Your utilization is your outstanding balances divided by your credit limit. Because your balance for the credit card in question is greater than the limit, your ratio would exceed 100%. That might negatively impact your credit score until you lower the ratio.

One thing to keep in mind is that credit utilization is calculated using all of your outstanding credit. In other words, if you have five different credit cards, your utilization takes all of their balances and credit limits into account. If you have many credit cards and most of them have no balances, going over the limit on one credit card won’t necessarily hurt your credit score significantly.

Either way, it’s best to avoid this situation due to the over-limit fees. This is also why it’s important to discuss spending habits with any authorized users on a credit card to avoid hitting your limit.

Recommended: Pros & Cons of Charge Cards

How to Avoid Overdrafting Your Credit Card

If you go over the limit on your credit card, there are several steps you can take to rectify the situation.

Make Additional Repayments

One of the most important credit card rules is that you should pay more than the minimum amount due each month. Indeed, paying more than you normally pay might be a good idea, especially if the credit card that’s over its limit is a significant part of your total credit picture.

Perhaps you have a minimum payment of $40, and you might normally pay that amount each month. In that case, consider upping your payment to $50 instead. Anything you can pay above the minimum will help you reduce your credit utilization; the more you can pay, the better.

This can also help you from falling into credit card debt, which can be a hard situation to get out of.

Request a Credit Limit Increase

Another way to reduce your credit utilization is to request a credit limit increase. For instance, if you have a total credit balance of $5,000 and a total credit limit of $10,000, your utilization is 50%. If you currently have a credit card you don’t use often with a limit of $3,000 and no balance, your utilization there is 0%. Your total credit utilization is therefore $5,000 out of $13,000, or 38.5%.

You could request an increase to that unused card’s limit to $5,000. In this case, your total credit limit becomes $15,000, and $5,000 out of the new combined $15,000 limit brings your utilization down to 30%. Hence, even if your balances stay the same, your credit utilization ratio will drop.

Contact Your Provider

Sometimes, credit card issuers will increase your credit limit automatically, such as you if you’ve used your credit card responsibly over time. If not, you can call your card issuer and ask them to increase your credit limit. Usually, it’s best to do this after you’ve had the card for at least a few months.

When you make the request, the credit card issuer may review one or more of your credit reports. Keep in mind that this could result in a hard inquiry into your credit history; these checks cause a temporary dip in your credit score. The card issuer may also request proof of income, employment status, or monthly rent or mortgage payments.

Recommended: Tips for Using a Credit Card Responsibly

The Takeaway

It usually isn’t possible to overdraft a credit card. Your card is typically declined if you try to charge above your credit limit. You may be able to go over the credit limit, but only if you opt in to over-limit fees. If you do opt in, your credit could take a hit, and you might have to pay additional fees if you exceed your credit card’s limit.

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

FAQ

Do credit cards allow overdrafts?

Credit cards usually do not allow overdrafts. In fact, “overdraft” is usually a banking term that refers to your checking or savings account balance dropping below $0. With credit cards, it may be possible to go over the limit if you opt in to over-limit fees.

Can you overdraft with no money on your card?

With credit cards, your balance increases as you make purchases. Hence, in this scenario, it would only be possible to overdraft a credit card if a single purchase would put you over the limit. And even then, you must have opted in to over-limit charges; otherwise, the transaction will simply be declined.

Can you overdraft a credit card at an ATM?

In most cases, you won’t overdraft a credit card at an ATM. You might be able to overdraft when requesting a cash advance, but even then, it may not be possible unless you have opted in to overdraft protection.

How can you ask for a credit limit increase?

Sometimes, credit card companies will increase your limit automatically. If that doesn’t happen and you want an increase, you can call your credit card issuer directly and ask for an increase.

Photo credit: iStock/AsiaVision

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

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A lifeline checking account is a basic bank account that features minimal fees and other cost-cutting elements, making it more accessible to first-time bank-account holders and those at lower income levels. These accounts can be, as the name indicates, a lifeline for those who are seeking firmer financial footing.

For example, a lifeline checking account may have no monthly maintenance fees, minimum balance requirements, or minimum opening-deposit requirements. Or they may have very low fees and requirements However, there are sometimes trade-offs to these sorts of accounts.

What Is a Lifeline Account?

A lifeline checking account is a bank account designed specifically for underbanked and low-income customers that often features no account fees. These accounts typically also offer additional consumer protections such as free overdraft coverage.

Having access to a bank account is an important step toward financial wellness. Without one, safely saving significant amounts of money and paying bills can become much more difficult. Recognizing this, some jurisdictions have laws in place requiring banks to offer low-cost accounts to consumers. For example, New York passed a law in 1994 requiring banks in the state to offer lifeline checking accounts to any customers who might want them.

Furthermore, the increase in digital-first and online banks has increased the public’s access to low-cost banking products. Online banks don’t have the same kind of costly overhead as banks that operate brick-and-mortar branches. For that reason, they’re typically more easily able to offer accounts with minimal fees, which may result in more affordable, accessible banking for more customers.

Recommended: How to Avoid Monthly Account Fees

How Do Lifeline Accounts Work?

Lifeline checking accounts work a lot like any checking account does. You open the account, deposit money into it, and then use those funds to pay bills and make day-to-day purchases. You can do so by using bank transfers, a debit card, or cash you withdraw from the bank or an ATM.

There is a main difference between lifeline and other accounts. Many typical checking accounts assess monthly maintenance fees or require a certain minimum balance to be maintained. These requirements may be waived in a lifeline account (or, if they’re still in place, the dollar amounts will be low).

Of course, bank accounts with higher fee structures do sometimes come with additional benefits that may make the fees worthwhile to certain customers. For example, with a lifeline checking account, you may not be able to use paper checks — or head into a physical bank to interact with a live teller. Still, for those whose choices are limited by financial circumstances, lifeline checking accounts can be… well, a lifeline. They’re also useful for anybody who’s hoping to minimize the amount they spend on banking.

Examples of Lifeline Checking Accounts

Lifeline checking accounts, or low-cost accounts that serve as lifeline checking accounts, are offered by many different financial institutions, including big box banks, regional credit unions, and online banks.

For example, as of early June 2024, BankFinancial offered a Lifeline Checking account that features overdraft protection services, free in-network ATM transactions, and a $0 minimum daily balance requirement. It charged a $5 monthly service charge — which is still pretty minimal in the world of brick-and-mortar banks. Wells Fargo’s lowest-cost checking account also assessed a $5 monthly service fee, though this cost is waived for account-holders between ages 13 and 24. The minimum opening deposit was $25, and there was no required minimum balance.

Pros and Cons of a Lifeline Checking Account

Like any other financial product there are both pros and cons to keep in mind when you’re considering a lifeline checking account.

Pros:

•   Low costs make these accounts more accessible to a wide range of consumers

•   Lifeline checking accounts can help any money-savvy account holder save more of their money

Cons:

•   Lifeline checking accounts may come without features considered “basic” by many, such as paper checks

•   Many lifeline accounts are offered by online banks, which don’t give account holders the option to bank in person

Being able to pay lower fees and keep more of your cash is a tremendous help to those who are just starting their banking lives and trying to manage their money or individuals who are earning a lower income. Lifeline accounts can play an important role when a person has limited cash.

But only you can determine what kind of banking products are right for you. To help you decide, here’s how the benefits and downsides of lifeline accounts stack up side by side.

How Can I Qualify for a Lifeline Checking Account?

If you’re ready to open a low or no fee bank account, here’s some good news: In general, qualifying for a lifeline checking account is pretty easy. You’ll just need to provide your proof of residence and other identifying and demographic information, and provide whatever minimum opening deposit is required, if there is one.

That said, some banks will look into your banking background before allowing you to open an account. For instance, they may use ChexSystems, which is a reporting agency that consolidates information about consumers’ banking behaviors. It’s kind of like a credit report, but for your interactions with banks. A poor ChexSystems record can make it impossible to qualify even for some low-cost accounts. However, there are still second-chance checking accounts out there that can provide the banking products you need while your ChexSystem record improves.

What Can I Do If I Cannot Find a Lifeline Account?

Fortunately, with the proliferation of online banking, lifeline-like checking accounts are pretty much everywhere — it’s simple to search for them online. It’s always a good idea to verify the validity of any online bank accounts you find, however, and to ensure that the accounts are FDIC-insured. That means you don’t have to worry about losing your hard-earned money if the bank goes out of business or loses revenue.

The Takeaway

Lifeline checking accounts are low-cost accounts that make it possible for people with lower incomes or those who are new account seekers to get the checking capabilities they need. These accounts often feature no or low fees and minimal beginning balances. The downside is that they may skip some banking basics, like paper checks. Fortunately, in our increasingly online world, this isn’t a deal-breaker. It may well be a trade-off that’s worthwhile to secure the convenience of a checking account.

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

FAQ

Are there benefits for lifeline checking accounts?

Along with their low fees, some lifeline checking accounts do come with extra benefits such as free overdraft protection or ATM fee waivers.

Can I open a checking account with no money?

Yes! Although it’s not true of all lifeline checking accounts, some come with a $0 opening deposit minimum, which means you can start the account even if you don’t have any cash on hand right now.

Which banks are best for low income?

Whether your income is low or high, looking for a minimal fee structure is the best way to save money — in banking and beyond. Typically, online banks may offer lower fees and higher interest rates than bricks-and-mortar financial institutions.

Photo credit: iStock/gorodenkoff

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.

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

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

3.30% APY
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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It’s certainly a frustrating experience to be denied a checking account. The problem could be with your past banking history, an error on your bank reports, or a mistake you made filling out your application, among other reasons. Once you find out what the issue is, you can take steps to remedy the situation and hopefully get approved for a bank account.

A checking account serves as a hub for many people’s financial life. It’s where your paycheck is likely deposited and how you pay your bills. Here’s the information you need to move forward when you can’t open a bank account.

Reasons Why You Can’t Open a Bank Account

There are a few common reasons that can cause you to be unable to open a bank account.

Negative Information on ChexSystems

Typically, banks don’t pull your credit score when you apply for an account. They do, however, usually look into your prior checking account activity via ChexSystems, the most popular banking reporting agency. ChexSystems provides a score reflecting how well you previously handled your banking life. The banks use this information to decide whether to qualify you for a checking account.

Negative items on your ChexSystems report may result in you being denied a checking account. They can cause banks to consider you a high-risk customer for financial services. Negative information can include:

•  Forced account closures

•  Bounced checks or overdrafts

•  Suspected fraud or identity theft

•  Unpaid fees or negative bank balances from a current or closed accounts

•  Too many account applications submitted over a short period

These negative marks on your record can last up to five years.

Errors on Your ChexSystems Report

Just as you may have credit report errors, so too can your ChexSystems report have mistakes. This could trigger your bank account application to be rejected, even if your past checking account management was good.

You can obtain a copy of your ChexSystems report once a year or whenever your application for a bank account is denied based on the report. (Keep in mind that applying for a bank account too many times counts as a black mark against you. If you get rejected, it’s probably a good idea to investigate your banking report vs just putting in more applications.) You’ll find details below on how to access your report.

Bankruptcy

If you have filed for bankruptcy, the bank will likely find out. In fact, there is often a question about bankruptcy on an account application. The bank could decide that your past bankruptcy means you are too much of a risk to offer you a bank account.

Typically, your borrowing capacity will be significantly limited by bankruptcy, as will the number of financial institutions willing to provide you with financial services, such as a checking account.

Your Identity Can’t Be Verified

An application for a bank account may be rejected because there are mistakes on it and/or the information entered does not match the documents you submitted. For example, if you have recently moved, the verification source may not recognize your new address, or you might have answered security questions incorrectly when prompted by the verification system.

Here are other reasons your identity might not be verified:

•  Your submission had an error or typo (perhaps in your Social Security number)..

•  Your credit profile may contain erroneous information.

•  Your credit report could be frozen if there is suspicion of fraud or identity theft.

•  Your documents may have expired.

•  Your documents may be unreadable.

•  You may have submitted a phone number that is not associated with your address.

•  Your proof of identity, such as a copy of your driver’s license or passport, and the information typed into an application don’t match.

What to Do After You’ve Been Denied Opening a Bank Account

If you’ve been denied a checking account, you may well want to apply elsewhere immediately. But a word of warning: Doing so could cause your application to be rejected because you are requesting too many new accounts too often. To maximize your chances of success, take the following steps before you reapply.

1. Find Out Why Your Application Was Denied and Ask the Bank to Reconsider

By law, the bank should tell you why your application was denied. Regardless of the bank’s information from a reporting agency, the bank makes its own decisions when approving account applications. You may be able to overturn the bank’s decision depending on the circumstances. It’s probably worthwhile to make that request.

For instance, in the case of a typo on your application information or a very old issue with an unpaid overdraft fee, you might be able to get the bank to reconsider.

2. Check Your Banking Report

You can obtain a copy of your ChexSystems report once a year and whenever you are denied a bank account if the report is the cause of your rejection. Visit the ChexSystems’ website or call 800-428-9623.

3. Look for Errors and Fraudulent Activity

Read the report from ChexSystems carefully, looking for fraudulent activity or mistakes in information such as your name, address, phone number, or Social Security number. For any errors, contact the agency, and be ready to provide supporting information to ensure the issue gets corrected.

4. Clean Up Your Report

Look at the negative actions on your report and fix them; you can file a dispute for anything erroneous by going to the ChexSystems website. Pay off any debts and unsettled fees. Ask to have the negative activity removed. Otherwise, it can stay on your report for up to five years.

Consider Alternative Solutions

If you have been denied a bank account and can’t quickly resolve the issue, here are a couple of workarounds to consider:

Second-Chance Checking Account

Some banking institutions offer a second-chance account to those denied a traditional checking account. A second-chance account typically provides limited services. It may set a cap on debit card usage, not provide paper checks, and not enable overdraft protection. Nevertheless, this kind of account can help improve your financial life if managed responsibly.

Also worth noting: These accounts often come with higher-than-usual fees, but you may be able to upgrade a second-chance account to a regular checking account within a year or two if you pay the fees and maintain a positive balance. These accounts can help you on your path to building a solid banking history.

Prepaid Debit Cards

If you need a way to spend on daily expenses and pay bills without a bank account, prepaid debit cards could be a good solution. You load a dollar value onto these cards (they’re available at many retailers, such as gas stations and supermarkets), and you can then tap or swipe to use the funds.

Make sure you’re aware of any fees you might incur when using or reloading your card, and know that the usage of these cards isn’t reported. In other words, it won’t build your credit score or your banking history in any way. But it can be a valuable stop-gap measure when you don’t have a bank account and need a convenient way to transfer funds.

Recommended: How Often Should You Monitor Your Checking Account?

The Takeaway

Having your application for a bank account denied is an upsetting experience that can definitely limit your financial life. The root of the problem could be that ChexSystems or another consumer reporting agency has indicated that you are a high-risk customer. Or your application could be rejected because mistakes were made or your identity couldn’t be verified. By taking steps to remove errors and repair damage, you’ll be on the road to get the account you need to keep your financial life humming along.

When you’re ready to apply for a checking account again, check out what SoFi has to offer.

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

FAQ

Why am I getting denied to open a bank account?

There are several reasons you could be denied a bank account, including mistakes on your application, negative activity on your checking account history, or errors on your ChexSystems or similar report.

Can you get a bank account if you have committed fraud?

If you have committed fraud, you will likely have a negative history with ChexSystems, and you will likely have your bank account application declined. However, you might get a second chance checking account. If you maintain a positive balance and pay the monthly fees, you can probably upgrade to a regular checking account within a year or two.

Can a bank refuse to let you open an account?

Yes; banks can decide whether or not they want to offer an account to an applicant. They might deny an account if you have negative activity (such as unpaid overdraft fees and account closures) on your ChexSystems report or if there’s a mistake on your application. Banks are, however, required by law to explain why they reject your application.

Photo credit: iStock/skynesher

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

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.

SOBK-Q224-1897302-V1

Understanding exactly what it means to be an authorized user on a credit card account is important for both the cardholder and the credit card authorized user. There are some rules and restrictions involved, but in general, becoming an authorized user on a solid cardholder account can help build an authorized user’s credit history and potentially boost their score. However, it is the primary cardholder who is responsible for the debt.

Here’s what you need to know on this topic, including the process of adding an authorized user to a credit card.

What Is an Authorized User?

An authorized user is someone that the primary cardholder — the individual who owns the credit card account and is responsible for charges to the card — has authorized to use their card. Some points to know:

•   Unlike a primary cardholder, an authorized user on a credit card is not subject to credit checks and other credit card issuer requirements in order to use the card. However, the individual — who is often a spouse, child, or other family member — must meet the card issuer’s age requirements.

•   The primary cardholder may have to pay a fee to add the authorized user. The number of authorized users allowed on each card varies depending on the credit card issuer.

•   An authorized user may get a card with their name and the primary cardholder’s account number on it that they can then use. Or, they can simply use the primary cardholder’s card to make purchases.

•   Authorized users may have access to the cardholder’s account information, such as their credit limit, available balance, and fees. They can make payments, report lost or stolen cards, and initiate billing disputes.

•   However, and this is important, any charges made by an authorized user are ultimately the responsibility of the primary cardholder. Authorized users also generally can’t close an account, add another authorized user, or change the card’s PIN, credit limit, or interest rate.

Recommended: Tips for Using a Credit Card Responsibly

Responsibilities of an Authorized User

Even though authorized users are allowed to make monthly payments, they’re not responsible for payments — no matter how much they may have spent on the card. Rather, the responsibility of making on-time monthly minimum payments always falls to the primary cardholder.

In many cases, primary cardholders will work out some type of payment system under which an authorized user can reimburse the primary cardholder for their share of the bill. With this system, the primary cardholder can keep track of credit card charges and more easily spot unusual or potentially fraudulent activity on the card as well as credit card chargebacks.

Additionally, a system can ensure payments are made on time and that any spending on the credit card is done responsibly.

In other cases, authorized users may make their payments directly to the credit card issuer. With this arrangement, however, the primary card holder still holds the ultimate responsibility of making the minimum monthly payment on time.

Recommended: When Are Credit Card Payments Due

Authorized User vs. Joint Credit Card

It’s easy to confuse authorized users with joint credit card holders. But there are some key differences between the two.

•   With a joint account, both cardholders are legally responsible for making payments. With an authorized user, only the primary cardholder is responsible for the debt.

•   Joint cardholders also must meet credit card issuer requirements, such as a minimum credit score, and go through the application process in order to get the card. This is not true for joint holders of a credit card.

•   Joint accounts are commonly used by partners who share their finances. Not all credit card issuers allow joint accounts though, and they are becoming less common. Authorized users, however, are more widely accepted.

Benefits of Having an Authorized User on Your Credit Card

There are compelling reasons why you may want to either become an authorized user or add an authorized user to your credit card account. Here are the benefits for both parties involved.

Benefits for the Authorized User

Becoming an authorized user can help someone to establish their credit and build their credit scores if the primary cardholder has a history of on-time payments and low credit utilization (in other words, not charging cards to the max). This can be especially helpful for teenagers and young adults who may not yet have had the opportunity to establish a credit record.

Most credit card issuers will report authorized user credit activity to the credit bureaus, thus building a credit history for the authorized user. The primary cardholder can check with their credit card issuer to see if authorized user’s activity is being reported and if the card issuer has all of the relevant information necessary to do the reporting.

If the issuer does report, all of the details of the card will be included in the authorized user’s credit history, including the credit limit, the amount of credit being used, and payment history.

By the same token, if the primary cardholder misses payments or makes late payments, this could negatively impact the authorized user’s credit score.

Benefits for the Primary Cardholder

Building credit for the authorized user can also benefit the primary cardholder who’s looking to help a child or other family member establish themselves financially. By helping the authorized user establish a good credit record, the authorized user will be more likely to qualify for their own credit card sooner and potentially secure lower interest rates and access to better rewards.

Plus, cardholders have the benefit of knowing that a child or other user has access to a credit card in an emergency or other situation where funds are immediately necessary.

Adding or Becoming an Authorized User on a Credit Card

Only a primary cardholder can add an authorized user to their card. To do so, you’ll generally go through the following steps:

1.    Notify your credit card issuer. Let your card issuer know that you would like to add an authorized user to your card. In most cases, you can do this over the phone or by filling out a form online.

2.    Have the necessary information on hand. You may need the name, Social Security number, date of birth, and contact information for the authorized user you intend to add to the card.

3.    Check what will get reported to the credit bureaus. It’s important to find out if the card company will report credit information about the authorized user to the credit reporting bureaus. This will help the authorized user to establish a credit history.

4.    Determine if you’ll get a card for the authorized user in their name. If so, this second credit card will get sent to you. From there, you can decide if you want to give the card to the authorized user or only have them use your card.

Recommended: What is the Average Credit Card Limit?

Removing an Authorized User on a Credit Card

A primary cardholder can remove an authorized user from their card at any time. Simply call or go online to request a change.

Keep in mind that the authorized user may see a change in their credit score if they are removed. This is because credit score calculations take into account both the age of credit accounts and the number of open accounts, both of which may decrease when an authorized user drops off the card of someone with a more established credit history.

What Are the Next Steps After Becoming an Authorized User?

As mentioned above, authorized users and primary cardholders will want to come up with a solid plan. Specifically, they’ll want to discuss how the card can be used, how much the authorized user can spend, and when and how the authorized user will make payments (either to the cardholder or directly to the card issuer).

Making payments on time is extremely important to help avoid late fees and credit score dings for both the primary cardholder and the authorized user.

How to Monitor Your Credit as an Authorized User

If you’re an authorized user eager to build credit, it can be helpful to monitor your credit report to make sure your activity is being accurately reported. You can retrieve a free copy of your credit report each year from all three credit bureaus — Experian®, TransUnion®, and Equifax® — through AnnualCreditReport.com.

It’s also important for both the authorized user and the primary cardholder to be cautious and mindful about how their activity can affect one another’s credit, which is something credit monitoring can help keep in check. Irresponsible credit usage by either party can have implications for the credit of both the primary cardholder and the authorized user.

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

The Takeaway

Authorized users are typically added to an account held by a family member or other responsible adult. They have access to the card’s buying potential, it’s the primary cardholder who is responsible for the debt. It’s important for both parties to keep in mind that while their credit usage has the potential to build their credit, it can also cause damage if payments are late or credit is maxed out.

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

FAQ

How many authorized users can I add to a single card account?

Each credit card issuer has different rules concerning the number of authorized users permitted. You’ll find this information in the terms and conditions for your credit card. Some credit card issuers charge a fee for each authorized user added on your account.

Is credit activity reported to the credit bureau for an authorized user?

In most cases, credit card issuers report activity to the credit bureaus for an authorized user as well as the primary card holder. Building credit in this way can be a benefit of becoming an authorized user. Check with your credit card issuer to find out if authorized user credit activity is reported.

Does adding someone as an authorized user help their credit?

Building your credit record can be a big benefit of becoming an authorized user, especially if the primary cardholder has a good credit rating and continues to make on-time payments. In order to build your credit record, however, the credit card issuer needs to report your activity to the credit bureaus.

Photo credit: iStock/cokada

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

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

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

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

What Is Credit Card Rental Car Insurance?

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

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

Understanding Your Credit Card’s Coverage for Rentals

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

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

Primary Coverage

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

Secondary Coverage

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

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

Recommended: How Much Auto Insurance Do You Need?

How Does Credit Card Rental Insurance Work?

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

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

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

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

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

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

Questions to Ask Your Credit Card Issuer

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

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

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

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

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

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

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

Recommended: When Are Credit Card Payments Due

Guide to Choosing the Right Credit Card for Car Rental Insurance

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

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

Other Ways Your Card Can Protect You When You Travel

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

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

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

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

The Takeaway

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

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

FAQ

Do you need a credit card to rent a car?

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

Do all credit cards have car rental insurance?

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

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

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

Photo credit: iStock/g-stockstudio

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

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

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