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Some credit card companies may lower your rate if you ask. Which can be a good thing given that the current average interest rate is currently hovering over 20%. Getting that “yes” answer could be a simple way to shave money off your bill if you don’t pay the balance in full every month.

Given that it can’t hurt to ask, read on to learn more about this topic, including tips for requesting a lower credit card interest rate.

How to Lower Your Credit Card Interest Rate

First, a bit of vocabulary. Your credit card interest rate is also called an annual percentage rate, or APR. Credit card APRs vary across cards and cardholders. The APR that you currently have on your credit card is not set in stone.

It is often possible to lower your credit card interest rate. To do so, you will need to contact your credit card issuer directly. Although the credit card issuer is not required or guaranteed to agree to lower your APR, it is likely worth the time and effort to try. The worst that can happen is they say no, right?

Plus, you might be pleasantly surprised to learn that they can decrease the interest rate a bit. For instance, if you let them know you are shopping for a better rate elsewhere, they might lower your rate a bit to keep your business.

Why Try to Get Your Rate Lowered

If you carry a balance on your credit card, you have to pay the interest on your balance. If you have a high interest rate, it can make it more difficult to get out of debt if you get behind on the payments.

When you make payments on a card with a high interest rate, more of the money will go toward interest, which means it will take longer to pay off the actual balance amount.

Trying to get your rate lowered is actually easier than it may seem. There is no risk to trying, so if you carry a balance on your card, you might as well try to see if you can get your rate lowered.

What Is a Good Interest Rate on a Credit Card?

You have to qualify for the interest rate on a credit card. The credit card interest rate that you wind up with can depend on your credit score, market conditions and the credit card issuer. The average credit card interest rate as of November 2023 according to the Federal Reserve was 22.75%.

Some might say that a good interest rate on a credit card is anything other than that figure. Others might have a particular lower number in mind that they saw advertised by a given financial institution.

Rates change, so it can be smart to check the prevailing percentages before you talk to your card issuer, so you can negotiate more effectively. You may find some promotional credit card interest rates being offered in some cases.

Understanding Your Credit Card Company

While it may seem counterintuitive from how consumers feel, your credit card company may prefer customers who carry a large balance, as opposed to someone who is avoiding interest on credit cards by paying their balance in full every month.

Credit card companies make the most profit from charging interest to people with unpaid balances. If you are one of those people, your card issuer probably doesn’t want to lose you or your balance. This may give you a little leverage for negotiating your APR.

It is also important to know that while credit card companies can agree to lower your APR if you ask, they can also increase your APR for certain reasons.

•   If you are often late on payments, your rate can be hiked up. The credit card company must give you 45 days of advance notice before doing this.

•   Credit card companies are usually not allowed to increase your interest rate on new transactions during the first year of your credit card account, but they can do so after the first year.

How to Negotiate a Lower APR

Learning how to lower APR on your credit card involves learning how to negotiate with your card issuer. To do this, you just need to assess your situation and ask the right person at the credit card company. Here are tips.

Assess Your Situation

Before you approach your card issuer, you should assess your own situation and decide what your goal is. If you have a decent credit score, you may be able to collect competing offers with lower interest rates to bring to your credit card issuer. This may include cards that have credit card promotional interest rates, like balance transfer credit card offers or intro 0% APR offers.

Ask the Right Person

Next, call the customer service number on the back of your credit card. Once you are speaking with a live person on the phone, explain your situation. Tell them about the other offers for lower APRs from other credit card companies, but you would prefer to stick with your current company.

If the customer service representative that you are speaking with says that a lower rate isn’t possible, ask to speak to their supervisor. If they don’t comply with that request, you might hang up and call back again.

What to Do After a Decision

If you were able to get your APR lowered, congratulations. Now, there are a few next steps to take.

•   First, get the credit card issuer’s agreement to lower your rate and the related fine print in writing. Have them mail or email you it.

•   Be sure to read the fine print to understand any conditions that come with the offer. If you have a credit card payment delay or don’t keep your balance under the credit limit, the card issue may be able to raise your APR to the previous rate or an even higher rate.

•   Knowing what can increase credit card APR is important in this instance. Do educate yourself on this topic.

•   Also, consider using the money that you save on interest toward reducing your credit card debt or other debt. By continuing to make payments in the same amount you were making before your rate was reduced, you can work to reduce debt and improve your overall financial situation.

•   If you were not able to get your APR lowered, you can ask your card issuer about their procedures for rate reduction. There may be a time period for consideration or reconsideration. Or you could look into balance transfer promotions with another company.

Recommended: What’s the Minimum Credit Score Needed for a Credit Card?

Credit Card Tips

If you have a credit card, you should have a general understanding of some of the credit card rules.

•   Honor your bill’s due date with at least the minimum payment. On-time payments are the single biggest contributor to your credit score.

•   One of the most important is to only spend what you can afford, and pay your balance in full each month if you are able to. That way, you won’t even have to worry about the APR.

•   If that’s not possible, keep an eye on your credit utilization ratio, or the percentage of your credit limit that you have accrued. If this figure gets too high, it can negatively impact your credit score.

•   Also take steps if your balance is getting too high. You could look into balance transfer cards, a personal loan to pay off your credit card, or working with a nonprofit debt counselor.

The Takeaway

It is possible (but not guaranteed) to get your credit card company to lower the interest rate on your credit card if you ask. When speaking to a representative, be courteous, come armed with information about prevailing interest rates and other offers, and ask to speak to a supervisor if necessary. A lower APR on your credit card can save you a lot of money if you carry a balance, so it can be worth the time and effort.

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

FAQ

Can I ask the credit card company to lower the interest rate?

Yes, you can always ask the credit card company to lower the interest rate on your credit card. You can call the customer service number on the back of your credit card.

How can I get my credit card interest rate down?

You may be able to get your credit card interest rate lowered by contacting the credit card company directly. You should do research on competing offers to use as examples when speaking with your card issuer. Your credit card issuer may not want to lose you as a customer, so they may be able to offer you a lower interest rate.

Can a credit card company change your interest rate without telling you?

Credit card companies can increase your interest rate, but they must give you 45 days of advance notice. Credit card companies are usually not allowed to increase your interest rate on new transactions during the first year of your credit card account, but they can do so after the first year. The credit card company may want to raise your interest rate if you are often late on payments.

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Photo credit: iStock/Ridofranz

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

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

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If you are wondering how often you can apply for a credit card, the right pace will vary based on the person, their credit score, and the card issuer’s restrictions. While there’s no single hard number when it comes to that query, once every six months is a good pace.

If you have good credit, a more frequent pace can be fine. If you have poor credit, however, you might want to slow things down. Read on to learn the ins and outs of how often you can apply for a credit card.

How Applying for a Credit Card Affects Your Credit Score

If you want to apply for a new credit card, you may be concerned about whether applying for credit cards hurt credit score. Applying for a credit card can affect your credit score in a few ways, including credit utilization, new credit inquiries, the average age of your accounts, and your credit mix. Here’s a closer look.

New Credit Inquiry

There are two types of credit inquiries: hard versus soft credit inquiries. During a soft inquiry, which is also called a soft pull or a soft credit check, a credit card issuer will check your credit, but it won’t affect your credit score.

However, when you apply for a new credit card, the credit card issuer will probably do a hard credit check. Hard credit inquiries do negatively affect your credit score. Every hard inquiry can drop your credit score by up to five points. However, this impact won’t last forever. Hard inquiries remain on your credit report for up to two years but they can only impact your score for 12 months.

Credit Utilization

Credit utilization is the amount of revolving credit you are currently using divided by the total credit available to you. Credit utilization is usually expressed as a percentage. When you open a new line of credit, like a new credit card, your total credit limit increases, and your credit utilization ratio decreases. This can help build your credit score. Experts recommend keeping your credit utilization below 30%.

Credit utilization can affect your credit score. And if you are approved for a new card, when that credit limit is added to your current credit limit, your total maximum will likely increase, which can lower your utilization percentage.

Average Age of Accounts

The longer the average age of your accounts on your credit report, the higher your credit score will likely be for that category. When you open a new account, it will reduce the average age of your accounts. If you have established credit with multiple accounts that are several years old, a new account opening may not have a significant impact. If all of your accounts are new, adding additional new accounts may have a greater negative impact.

Credit Mix

Lenders like to see that borrowers have a variety of different types of credit. This shows that they can handle different types of payments. The impact of opening a new credit card has on your credit mix will depend on your current credit array. If you already have several credit cards, it may not impact your credit score much. If you don’t have any other existing credit cards, opening up a new credit card could improve your credit mix and therefore help build your credit score.

Recommended: How Many Credit Cards Should I Have?

How Often Should You Apply for a Credit Card

Now, about the question of how often you can apply for a new credit card: While there is no hard and fast rule about how often to apply for a credit card, some experts recommend waiting at least six months between credit card applications.

•   Those with poor credit may need to wait even longer between applications to maximize their chances of getting approved for a new credit card.

•   Those with excellent credit can probably apply for a new card more often, like every three months.

Why You Should Wait Before Applying

Here are some reasons why you should think twice and delay before applying for a new credit card:

•   If you don’t know how to use a credit card responsibly, you may want to consider waiting before applying for a credit card.

Worth noting: If you have bad credit from a maxed out credit card, you may want to work on building your credit score first. Some tips:

•   If your credit utilization ratio is high because you don’t have a high credit limit, you could try implementing the 15/3 credit card payment method. The 15/3 credit card payment method is when you make two payments each statement period instead of one. You pay half of your credit card statement balance 15 days before the due date on your statement, and then make another payment three days before the due date. This additional payment can help lower your credit utilization ratio throughout the month, which can also help improve your credit score.

•   Other reasons you may want to wait before applying for a credit card include if you’re buying or refinancing a home currently, since applying for a new credit card can result in a higher mortgage interest rate or potentially being declined from the mortgage altogether.

•   You should also evaluate the credit card benefits and welcome offer to make sure it is the right fit for you and the best offer that you can get. Credit card sign-up bonuses fluctuate throughout the year. Before applying for a credit card, you should do some research to see what the highest offer has been. If the current offer is significantly lower, consider waiting to apply for that card.

How Many Credit Cards Can You Apply for at One Time

Technically, you can apply for as many credit cards at once as you want. However, you likely won’t get approved for all of them. And you could trigger a slew of hard credit inquiries. So putting in a load of applications likely won’t be worth the negative impact on your credit score.

Credit Card Issuer Restrictions

How many credit cards you can apply for at one time will vary based on the credit card issuer. Each card issuer has its own rules and restrictions about applications. American Express, Bank of America, Capital One, Chase, Citibank, Discover, U.S. Bank and Wells Fargo all have their own issuer restrictions regarding applications, cards and welcome offers.

Credit Card Tips

Once you have been approved for an additional credit card, you need to know how to manage multiple credit cards. Try these strategies to stay in good financial health:

•   Understand your obligations. There are several credit card rules to understand so that you maintain your credit score, while taking advantage of the credit card benefits. One of the more important ones is to always pay at least the minimum amount due on time.

•   When you are issued your credit card, it will have an expiration date. The credit card expiration date is usually three to five years after being issued. You can find the expiration date on the credit card itself. After the card expires, the issuer will usually give you a new card, as long as your account is still active.

•   However, what happens if you don’t use your credit card is that the issuer may close your account. So make sure you are using your credit card.

•   Also, make sure you are using your credit card responsibly. That means keeping an eye on your credit limit, your credit utilization ratio, and when your payments are due.

Recommended: What Is a Credit Card Expiration Date?

The Takeaway

How often you should apply for a credit card will depend on a variety of factors, like your credit history, the card issuer, the current offers available, and more. It can be wise to not apply for new credit cards more often than every six months. And once you have a new credit card, make sure to use it responsibly.

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

FAQ

How long should I wait to apply for another credit card after being approved?

Some financial experts recommend waiting at least six months between credit card applications. However, there is no hard and fast rule about how often to apply for a credit card. It will vary depending on your credit score and the restrictions from the card issuer.

Do I have to wait six months to apply for another credit card?

Waiting six months between credit card applications is not a defined requirement. If you have poor credit, you may need to wait longer than six months between applications to maximize your chances of getting approved for a new credit card. If you have excellent credit, you can probably apply for a new card more often, like every three months.

How often can I apply for a credit card without hurting my credit?

Each credit card application results in a hard inquiry, which hurts your credit score temporarily. Keep that fact in mind as you consider applying.

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Photo credit: iStock/Eva-Katalin

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.

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If you’re wondering whether you can pay utilities with a credit card, the answer is likely yes. In many situations, you can break out the plastic and charge your electricity, wifi, phone, and other basic expenses.

That said, while using a credit card as your payment method may be the most convenient option for you, there are some factors to consider to make sure you are doing what’s best for your overall financial picture. While it can help you build credit, some bill processors may charge convenience fees. If you carry a balance on your credit card, you may end up paying interest as well.

In these ways, it may not be the most economical nor the most financially wise move to make. Read on to learn how to size up this situation and decide how to pay your utility bills.

What Bills Can You Pay With a Credit Card?

You typically can pay for most bills using your credit card. Some of these include:

•   Rent

•   Car insurance

•   Medical bills

•   Cell phone bills

•   Internet fees

•   Cable

•   Utilities (like electricity and sewage)

•   Subscription and streaming services

•   Taxes

Recommended: How to Build Credit With a Credit Card

Pros and Cons of Using a Credit Card to Pay Bills

Paying utilities with a credit card may seem like a great choice, there are some risks and downsides. Even if the answer to “Can you pay a utility bill with a credit card?” is yes, it may not be the best move. Consider these pros and cons before making your decision.

Pros

First, consider the benefits of using a credit card to pay your utility bill:

•   Potential to build credit score: Most credit cards report your payment activity to all three major credit bureaus — Experian, Equifax, and TransUnion. Paying consistently on time is one of the main factors that could help build your credit score.

•   Earn rewards: Using a cash back or rewards credit card to pay utility bills could help earn a percentage back on your spending or points toward, say, travel. Some cards may earn you higher rewards than others.

•   Help meet reward signup bonuses: Some credit cards offer a sign-up bonus if you can meet a certain spending requirement within a predetermined amount of time. Since you need to pay utilities every month anyway, charging it on a credit card can get you closer to the minimum spending requirements.

•   Convenient way to track spending: By putting your utility payments in your credit card, you can track it through your credit card statements each month, or when logging into your account online.

•   Easily dispute payments: Say you accidentally pressed the payment button twice, or there are some suspicious charges on your utility bill. Using a credit card means you can dispute it through your credit card issuer.

•   Can set up automatic payments: Depending on your utility company, you may be able to authorize automatic credit card payments. It could be helpful to ensure you pay utilities on time.

Cons

Next, review the potential disadvantages of breaking out your plastic to pay your utility bills.

•   Could negatively affect your credit score: Not paying your credit card bill on time could mean your score takes a dip. Plus, if you use your credit card for more than just utility payments, racking up a large balance could affect your credit utilization ratio (the percentage of available credit you’re using on revolving credit accounts). Higher credit utilization could signal to credit scoring agencies and lenders you need to rely on credit in your financial life. As such, could lead to negative affects on your credit score.

•   Potentially pay fees: Some utility companies charge a convenience fee, which is typically a percentage of your bill amount. In most cases, this fee is to help offset the processing fees charged by credit card companies. The cost may not be able to offset any rewards you earn. Fees can also easily add up if you regularly use your credit card for utility payments. Consider carefully whether this payment method is the best financial choice.

•   Possible interest charges: Aside from potential negative effects on your credit score, you’ll end up paying interest on any balances you carry from month to month. Often, the rates are in the double digits and higher which means you end up paying more overall for your utilities.

Recommended: Does Paying Utility Bills Build Credit?

Should You Pay Bills With a Credit Card?

Paying bills with a credit card can be a smart choice if you’re looking to build your credit and earn rewards. It does mean you need to be mindful of your credit behavior before doing so, or else you could face consequences such as excessive fees and interest charges.

For instance, perhaps you consistently pay your credit card bills each month (ideally the entire balance) and like the buffer you get between the grace period and when the payment is due.

In this case, you may be able to reap the benefits of using a credit card. However, if you get charged a convenience fee each time (and you have multiple bills to pay) and can only afford the minimum credit card payment, then you may want to reconsider using credit cards.

Whatever your choice, be sure to check the terms of your credit so you know when your due date is and other charges such as the interest rate and late fees.

How to Pay Utilities With a Credit Card

There are several options to pay utilities with a credit card, including directly through the utility company or through a third-party processing company. Each option typically asks you to sign up for an account online and verify information such as your address and other personal details. To pay, simply follow the prompts presented to you on the screen. There may be an option to select to charge your utility bills each month automatically.

Before pressing the “submit” button, look for information indicating any convenience fees you’ll pay in dollar amounts. Some utility companies also accept credit card payment by phone — call to check to see if this is an option for you, if you like. You want bill pay options to suit your needs, not just those of service providers.

Recommended: How to Pay Your Bills When You’ve Lost Your Job

How On-time Utility Payments Can Improve Your Credit

Utility payments aren’t directly reported to the three major credit bureaus, so they don’t necessarily have an effect on your credit. However, if you use a method of payment that does report to the credit bureaus — like credit cards — then it could have an effect.

For instance, if you consistently make on-time credit card payments, credit bureaus will report the positive behavior. Credit scoring agencies may look at this behavior more favorably and build your score as a result.

There are some credit bureaus that report your utility payments, but not all do. If you need the answer, you can look at your annual free credit report to learn more.

Tips to Paying Bills With a Credit Card

Whenever you pay by credit card, you’ll want to use your plastic responsibly and carefully. This holds true for paying utility bills by credit card, too. Here are some pointers.

•   Monitor your bank account to ensure there’s enough money when you pay your credit card bill, or you could risk overdraft or NSF fees.

•   Be sure to make at least the minimum credit card payment to prevent late fees and negative impact on your credit report.

•   Check to see whether any convenience fee is worth it or is offset by any rewards you earn.

•   Watch your credit utilization to prevent it from going too high.

•   Monitor your credit card transactions, and report any fraudulent activity.

The Takeaway

In many cases, you can pay for utilities with a credit card. But you’ll need to weigh whether this is the best move for you. It might be a way to conveniently take care of bills, earn rewards, and build your credit. Or it could lead to more credit card debt, interest payments, and convenience fees.

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

Is it better to pay utilities with a credit card or bank account?

The choice to pay with a credit card or bank account depends on your financial situation and preferences. There are benefits to using a credit card such as earning rewards and tracking your payments, but you may have to pay a convenience fee for the privilege. And you could accrue more high-interest debt if you can’t pay the full balance each month.

Can I pay my mortgage and utilities with a credit card?

In most cases, you can pay your utilities with a credit card. Unfortunately, most mortgage companies don’t allow you to pay your monthly payments with a credit card. There may be third-party processing companies that allow you to do so, but you’ll most likely pay a convenience fee.

Is paying a bill with a credit card considered a cash advance?

No, paying a bill with a credit card isn’t considered a cash advance. However, some aspects of using payment apps, like PayPal and Venmo, may be treated that way.

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Photo credit: iStock/miniseries

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 .

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If you’re considering a new credit card, frequent travelers may benefit from using a credit card with Priority Pass. Depending on the airport you happen to be in, you may be able to access lounges in the Priority Pass network. That could give you a welcoming lounge to relax, work, game, or even sleep in, plus food, drink, and other perks when traveling.

However, since there are different levels of access with Priority Pass, it’s important to understand what exactly the program offered involves, and whether it may make sense to become a member. Finding the right credit card can involve considering a variety of factors, so arm yourself with this intel.

What Is Priority Pass?

Priority Pass is a company offering a network of over 1,400 airport lounges, restaurants, and other services in 148 countries. Different features at qualifying airport lounges include free drinks and food, wifi, spa treatments, showers, and sleeping areas.

You can join Priority Pass with an annual membership, with different access tiers based on how often you travel. Some credit cards — typically luxury travel ones — offer free Priority Pass membership just for being a cardholder. That can make your time preflight or during a layover feel like a posh experience.

Depending on your membership, you may be able to bring guests free of charge into lounges.

Benefits of Priority Pass

There are an array of credit card rewards, such as cash back vs. miles. Here, a closer look at what you’ll enjoy if you get Priority Pass with your credit card.

Airport lounges within the Priority Pass network are popular with travelers because there are no requirements to access them other than being a member vs. some lounges that require you to fly with a certain airline on a specific class to gain access. Other benefits include worldwide access, luxury amenities, and complimentary food and drink. Here’s a closer look.

Airport Lounges

There are over 1,400 airport lounges worldwide, with many offering access within three hours of your flight. Though specific features differ between lounges, you can typically expect perks like complimentary food and beverages, wifi access, comfortable seating, workstations, and alcohol at select lounges. Some airport lounges may even allow you to pre-book or reserve lounge access so you’re guaranteed a spot when you arrive.

Restaurant Access

Priority Pass members also have access to a network of restaurants at select airport terminals. You will receive a credit to go towards a meal at participating restaurants, which can be a great way to save money on food. Depending on where you dine, there may also be promotional offers on occasion. Any amount you spend over the credited amount you will need to pay out of pocket. To receive the credit, you’ll typically present your Priority Pass card to a restaurant staff member and your boarding pass information.

Private Suites

How’s this for a perk? Select airports also offer private sleeping areas for you to rest, helpful if you’re between long haul flights. Most commonly, you’ll access through Minute Suites available at select locations. Members receive access to a private room which may include blankets, a workstation, white noise machine, and a daybed sofa if you want to take a nap.

Game Lounges

Some Priority Pass locations also offer lounges with gaming features. Called Game Space, these are locations where members can relax and play at various gaming stations with offerings for different ages. This might help time seem to pass a little more quickly before your flight.

Free Guests

Priority Pass members can take guests into lounges with them, often without an additional fee. Children are also allowed and may either count as an additional guest or be allowed in completely free of charge.

Recommended: How Do Credit Card Payments Work?

Why Get a Priority Pass Credit Card

Getting a credit card with Priority Pass access opens you up to a possible better travel experience than if you were to travel without lounge access. Many credit cards offer Priority Pass Select, a membership tier offering you access to certain airport lounges, restaurants and other experiences through the Priority Pass network.

You don’t need to pay an additional membership fee — your credit card’s annual fee typically should suffice. Priority Pass memberships can run up to several hundred dollars per year. If your credit card annual fee is around the same price, it may be worth it signing up for a card that offers Priority Pass as part of its rewards, especially if you can access other perks that more than offset the cost.

Examples of Credit Cards that Offer Priority Pass Membership

Credit card reward offers and perks can change quite often. Currently, these are among the credit cards that offer Priority Pass membership:

•   Capital One Venture X Rewards Credit Card

•   Chase Sapphire Reserve

•   Citi Prestige Card

•   The Platinum Card and Marriott Bonvoy Brilliant Card, both from American Express

•   Bank of America Premium Rewards Elite Card

Recommended: Guide to Automated Credit Card Payments

Pros and Cons of Paying for Priority Pass vs as a Priority Pass Credit Card Perk

There are both benefits and drawbacks to paying for Priority Pass membership yourself or getting on through

Pros

First, consider the advantages of getting Priority Pass as a credit card benefit.

•   Squeeze value out of card: Getting a credit card with Priority Pass membership included can help you to maximize the value of your card. As you evaluate credit card rewards, you want the benefits to more than offset the fees you pay.

•   Save on travel costs: Even if you don’t spend much time in airports, you can save money when traveling with the free meals feature at select Priority Pass restaurants.

Cons

Next, consider the potential disadvantages of getting Priority Pass with your credit card.

•   Fees: No matter if you have a credit card with airport lounge access or pay for a Priority Pass membership out of pocket, you probably have to pay an annual fee one way or another to gain access.

•   Charged for guests: Depending on the membership tier (even for memberships attached to a credit card), you could be charged for each guest that enters with you. If you’re using your membership that’s included with your credit card, you may want to ask if guests are free, or else you may get a “surprise” charge on your next statement. This can be important when traveling on a budget as a family too.

•   Select benefits: Not all Priority Pass memberships are the same. Ones attached to credit cards may change at any time, so you’ll need to ask what is included and what’s not. For example, some restaurants may not offer perks or discounts if you hold a certain credit card.

Priority Pass Tips

There are several ways to get the most out of your Priority Pass membership, whether or not you pay for it out of pocket or get one through a credit card.

•   To enroll out of pocket, head to the Priority Pass website and select the membership tier you want, and pay for the annual fee. You will need to provide details such as your name and address. Once paid, Priority Pass will send your membership card in the mail — you can activate the card online.

•   If you signed up for a credit card with Priority Pass access, you will also need to activate it. Depending on your credit card, you may need to activate your membership by first logging into your credit card account and selecting the correct link to follow the appropriate prompts.

Other tips to get the most out of your Priority Pass membership include:

•   Look up lounges in advance: When planning your flight itinerary and comparing airfare options, it can be wise to look at what layovers are available to you. If flights with similar itineraries are around the same price, consider booking one with better lounge access during your layover. Also check what lounge access you may have when coming back on your return flight. Some airports may also have more than one lounge, so pick one that seems like the best fit.

•   Prebook when possible: Some locations allow you to reserve a spot at an airport lounge. If it’s during peak travel season or you want to guarantee a place, pre-booking can increase the chances you don’t have to wait.

•   Check to see what benefits you have: Priority Pass Select memberships can vary, so it’s better to check ahead to see what you get. Same goes even if you’re paying for a different membership tier out of pocket.

•   Check benefits for authorized users: Some credit cards with Priority Pass memberships don’t allow authorized users the same access, whereas some do.

The Takeaway

Getting a credit card with Priority Pass membership can be beneficial, but only if you use this perk. You may also pay a higher annual fee since luxury credit cards are typically the only ones offering this type of benefit. If you’re not a frequent traveler, you may be better off with another credit card. You could likely pay out of pocket for the occasional use of a lounge.

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

What is the advantage of having a Priority Pass?

Priority Pass can make spending time in airports more comfortable and affordable. Having Priority Pass allows you access to over 1,400 airport lounges, restaurants, and services in over 148 countries.

Do you need your credit card with Priority Pass?

In most cases, you don’t need your credit card when accessing a Priority Pass lounge. You will need your membership card and your boarding pass.

Does Priority Pass give you free lounge access?

Yes, Priority Pass can give you free lounge access to over 1,400 airport lounges globally.

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

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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Time decay, as it relates to options trading, has to do with an option contract’s loss of value as it nears its expiration date. There are numerous variables in the mix when it comes to time decay, but knowing the basics of what the terms means, and how it can affect an investment strategy, can be important for investors.

What Is Time Decay?

Time decay is the loss of an option’s value as it gets closer to expiration. An option’s time value refers to the extent to which time factors into the value — or the premium — of the option. Time decay accelerates, or declines more quickly, as the expiration date gets closer because investors have less time to exercise the contract.

For options traders, understanding the power of time decay is important whether you’re buying call options or put options. Here are the basics you need to know.

💡 Quick Tip: If you’re an experienced investor and bullish about a stock, buying call options (rather than the stock itself) can allow you to take the same position, with less cash outlay. It is possible to lose money trading options, if the price moves against you.

How Time Decay Works

The rate of change in the time value of an option is known as theta. For traders who buy options with the intention of holding them until expiration, theta usually isn’t of great concern. That’s because traders who hold contracts until the expiry date are hoping that the underlying security moves so far in their favor that the reward in terms of intrinsic value will outweigh any loss in extrinsic value.

But traders who want to close their options position prior to expiration may be more concerned about time decay. Because the security will have less time to move in their favor, the potential profit from intrinsic value is reduced, and the potential loss of extrinsic value becomes greater.

While both intrinsic and extrinsic value are important for options traders of all kinds, the type of options trading strategy a trader is using can influence which factors they put more emphasis on.

Understanding Options Pricing

Time decay isn’t a difficult concept, but it does require a quick refresher about how options are traded and priced.

Four of the main variables that impact the price of an option are:

1.    The underlying price and strike price

2.    Time left until expiration

3.    Implied volatility

4.    Time decay

The underlying price, strike price, and expiration date of the options contract are the main factors that determine its intrinsic value, while implied volatility and time decay are the factors that determine its extrinsic value.

•   Intrinsic value. An option’s intrinsic value refers to the option’s value at the time of expiration, which depends on the price of its underlying security relative to the strike price of the contract. In other words, whether the option is in the money, out of the money, or at the money.

•   Extrinsic value. Extrinsic value refers to how time can impact the option’s value, i.e. its premium. As the expiration date of the options contract approaches, there’s less time for an investor to profit from the option, so time decay or theta, accelerates and the option loses value.

Interest rates can also affect options prices, but this is more of a macro factor that doesn’t have to do with the specific contract itself.

Thus, time value represents the added value an investor has to pay for an option above the intrinsic value. Options are sometimes referred to as depreciating or wasting assets because they tend to lose value over time, since the closer the option is to expiration, the faster its time value erodes.

Recommended: Popular Options Trading Terminology to Know

How to Calculate Time Decay

The rate of an option’s time decay is measured by theta.An option with a theta of -0.05 (theta is expressed as a negative value) would be expected to fall about $0.05 each day until expiration, but this would likely accelerate during the days and weeks leading up to the expiry date.

Greek values like theta are constantly changing, and can therefore be one of the most difficult factors to take into account when trading options.

Example of Time Decay of Options

Imagine an investor is thinking about buying a call option with a strike price of $40. The current stock price is $35, so the stock has to rise by at least $5 per share for the option to be in the money. The expiration date is two months in the future, and the contract comes with a $5 premium.

Now imagine a similar contract that also has a strike price of $40 but an expiration date that is only one week away and comes with a premium of just $0.50. This contract costs much less than the $5 contract because the stock would have to gain almost 15% in value in one week to make the trade profitable, which is unlikely.

Thus, the extrinsic value of the second option contract is lower than the first, because of time decay.

How Does Time Decay Impact Options?

Option time decay is pretty straightforward in principle. Things can be more complicated in practice, but in general, options lose value over time. The more time there is between now and the expiry date of the option, the more extrinsic value the option will have. The closer the expiry date is to the current date, the more time decay will have taken effect, reducing the option’s value.

The basic idea is that because there’s less time for a security to move one way or the other, options become less valuable the closer they get to their expiration dates. This isn’t a linear process though. The rate of time decay accelerates over time, with the majority of decay occurring in the final month before expiration.

💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

The Takeaway

If you think about it, the time value of an option is similar to other things that have a value which is time dependent. A fresh loaf of bread, a new car, a newly built home — these items would have an intrinsic value, but you might also pay a premium when they’re at full value.

As time passes, though, consumers will pay less for loaf of bread that isn’t fresh — or a car or home that’s older — because time has eroded some of the value. Similarly, as an option gets closer to its expiration date, it too loses value owing to the effects of time decay or theta.

Qualified investors who are ready to try their hand at options trading, despite the risks involved, might consider checking out SoFi’s options trading platform. The platform’s user-friendly design allows investors to trade through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.

Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

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Photo credit: iStock/Tatyana Azarova

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SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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