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Unsecured credit cards, which don’t require a form of collateral to use them, tend to be the most popular kind of credit card. In addition to helping you build credit, these cards often come with perks and benefits, like cash back rewards or free travel insurance.

To decide if an unsecured credit card is right for your financial situation, read on. You’ll learn what an unsecured credit card is, how it works, and the pros and cons of using one.

What Is an Unsecured Credit Card?

When you think of what a credit card is, you’re most likely thinking of an unsecured credit card. An unsecured credit card is a line of credit that gives cardholders the ability to use credit at their whim. In other words, as a cardholder, you can use your credit up to its limit and pay it off continuously, with no end date. Unsecured credit cards get their name since they don’t require a deposit or collateral, unlike secured credit cards.

Depending on the credit card you qualify for, you might be able to receive some additional benefits and perks with an unsecured credit card like cash back rewards.

How Does an Unsecured Credit Card Work?

You’ll receive a credit limit when you open an unsecured credit card. Your credit limit is the maximum credit you can use on this account. You must pay at least the credit card minimum payment each billing cycle if you’ve used the card. Here are some points to know:

•  Your monthly payment will vary depending on how much credit you used during that billing cycle (in fact, some months, you may even have a negative balance on your credit card).

•  If you miss a monthly payment, you’ll likely have to pay a penalty or fee for the infraction.

•  If you make only the minimum monthly payment, your remaining balance (plus accrued interest based on the APR on a credit card) will carry over until the next month.

So, to avoid penalties, fees, and accrued interest, it’s best to pay your balance in full every month.

But, if this isn’t feasible with your budget, aim to pay more than the minimum every month so you can quickly chip away at your total outstanding balance. Just be sure to keep in mind how credit cards work when deciding how much to pay in a given month.

Pros and Cons of Unsecured Credit Cards

Some of the benefits and drawbacks of unsecured credit cards may be obvious. But, to help you determine the risks and rewards of using this type of credit card, here are some pros and cons to get familiar with.

Pros

Upsides of unsecured credit cards include:

•   Higher credit limits: Applicants usually must have a competitive credit score to qualify for an unsecured credit card. For this reason, credit card companies may apply a higher credit card limit since you’ve proved your creditworthiness.

Also, having a higher credit limit can impact your credit utilization ratio, the amount of credit you use compared to the amount of credit you have available. Your credit utilization ratio is used to assess your credit score, and a higher ratio may negatively impact your score. With a higher amount of credit available, it’s easier to maintain a lower ratio.

•   Potential to earn rewards: Many unsecured credit cards offer incentives like cash back or airline miles to encourage cardholders to use their credit. They may also offer additional benefits, such as complimentary airport lounge access or hotel credits. So, when comparing your unsecured credit card options, be sure to look at all perks and rewards that may be offered.

•   Frequently reports credit history to credit bureaus. Since card issuers take on more risk by lending credit to cardholders, they usually report your credit activity to the credit bureaus on a monthly basis.

Your credit usage is another factor used to determine your credit score, so these regular reports can help you assess how well you’re managing your credit. If you’re managing it well, these frequent reports can help your score.

•   An abundance of options: Unsecured credit cards are the most popular type of credit card. Therefore, there’s a vast array of credit card options at your disposal. Because there are so many options, you’ll likely be able to find one suitable to fit your needs.

Cons

While there are many advantages of using an unsecured card, some may come with some downsides, including:

•   Varying approval requirements: Every credit card company usually has different credit card approval requirements, and you’ll generally need a higher score to qualify for an unsecured versus a secured credit card.

For example, some secured credit card requirements are a credit score of at least 580; others may require a score of at least 680. Researching requirements beforehand can help you identify the best cards available that you can qualify for with your credit score.

•   Extra fees: Some unsecured cards may come with extra fees, such as convenience fees, cash advance fees, or foreign transaction fees. Keep in mind that not all cards charge these fees, though, so it’s worth it to compare your options based on your needs. For example, if you travel abroad often, you may want to choose a card that doesn’t have foreign transaction fees.

Pros	Cons
Higher credit limits	May charge additional fees such as convenience fees, balance transfer fees, or cash advance fees
Wide range of credit card options available	Different credit requirements for approval
Rewards such as cash back or miles
Usually report to credit bureaus

Unsecured vs Secured Credit Cards: What Are the Differences?

The most significant difference between unsecured versus secured credit cards is that secured cards require a deposit while unsecured cards don’t. Your deposit on a secured credit card usually dictates your credit limit. Depending on the credit card company and your credit score, your deposit may vary between $200 and $3,000, which is far lower than the average credit card limit.

Requiring a security deposit eliminates some of the creditors’ risks; thus, it can be easier to qualify for a secured credit card than an unsecured credit card. Keep in mind, no matter what type of card you have, you’ll find the most favorable terms if you have good credit, such as a good APR for a credit card. Also, you may have to forgo any rewards while you build your credit with a secured card, as they don’t often offer them.

If you fall behind on your payments, your creditor could cancel your card and send your remaining outstanding balance to a third-party collector with either an unsecured or a secured credit card. However, if you have a secured credit card and your payment is past due, your creditor may keep your security deposit to pay off some of the remaining balance.

Beyond these few items, there is no other real difference between the inner workings of a secured credit card and an unsecured credit card.

•  Each card allows you to make purchases at locations that accept credit card payments.

•  During the billing cycle, you must make at least a credit card minimum payment.

•  Otherwise, you may have to pay fees or penalties with your secured or unsecured credit card.

	Secured Credit Card	Unsecured Credit Card
Requires a refundable deposit	✓	X
Can qualify with poor credit	✓	✓
Can come with rewards	✓	✓
Requires at least a minimum payment every month	✓	✓
Used to make purchases	✓	✓

Who Should Consider an Unsecured Credit Card?

Since there are plenty of unsecured credit card options available, they can suit the needs of many different types of consumers. If you’re in the market for a new credit card, here’s how to decide if an unsecured card is right for you.

The Budgeter

If you’re big on budgeting, you can use an unsecured credit card as a tool to help you as you make a budget and stick to it. Many credit issuers offer online statements or apps that can make it easy to track all of your spending right on your phone.

But, if you’re going to use your credit card for all of your spending, make sure to keep the interest in mind. While unsecured credit cards can help you budget, they can also hinder you if you get into the habit of overspending.

The Frequent Flyer

Do you love spending your time on the move? Many unsecured credit cards provide travel rewards that help you earn free travel experiences. For example, some cards can come with reward points or miles that you can use toward booking airfare or accommodations.

You may also receive additional perks like annual hotel credits, access to airport lounges, or discounts on flights when using miles.

The Business Owner

Unsecured credit cards are also useful for business owners. Business owners can capitalize on the perks of unsecured credit cards like rewards, sign-up bonuses, and other benefits. Also, an unsecured card can provide short-term funding for business growth. Plus, it can help businesses build credit for future financing endeavors.

Of course, benefits and terms will vary depending on the type of card you choose.

Typical Requirements to Apply for an Unsecured Credit Card

When you apply for an unsecured credit card, you must meet certain criteria to qualify. Some common requirements when applying for a credit card include:

•   Be at least 21 years of age. While this is generally the age required to get a credit card, if you’re over 18 and can prove you have an income, you may qualify.

•   Provide proof of income to demonstrate you can make the minimum payments.

•   Be a U.S. citizen or have the authority to work in the U.S.

•   Have an acceptable credit score range per the lender’s requirements.

•   Provide personal information such as your name, age, address, Social Security number, and more.

Keep in mind that all credit issuers have different criteria for approval. Some credit issuers may give you the option to pre-qualify. This way, you can see if you may qualify without submitting a hard inquiry on your credit, which can impact your credit score.

The Takeaway

Unsecured credit cards can come with many perks, such as earning cash back rewards and helping you build credit. But, before you apply for just any old card, make sure to compare your options, keeping the average credit card interest rate in mind, and understand the criteria for approval. Identifying an unsecured credit card that’s suitable for your needs might take a little time, but it’s worth it.

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 good to have an unsecured credit card?

If you can handle an unsecured credit card responsibly, it can help you build credit. Also, it can be a good way to receive additional benefits, such as cash back or other rewards, for completing your daily transactions.

What credit score do I need for an unsecured credit card?

Typically, if you have a credit score of 579 or less, credit issuers may be reluctant to approve your application. To qualify for the most competitive rates and offers, you typically want to have a credit score of 670 or higher.

How long before I can get an unsecured credit card?

If you’re working on building credit and don’t qualify for an unsecured credit card, you may have to start with a secured card. But, the amount of time you must use your secured credit card before you graduate to an unsecured time can vary from a few months to several years. Ultimately, it will depend on factors like your current credit score and the criteria of the unsecured credit card you’re applying for.

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Photo credit: iStock/Zhonghui Bao

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.

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

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It can take between mere minutes and 30 days to be approved for a credit card, and then up to two weeks for it to arrive in the mail. If you want to shorten the timeline and get access to credit ASAP, there are moves that can help you out.

Read on for tips on expediting the process and best practices for using your new card once you get it.

How Long Does It Take to Get a Credit Card Approval?

Usually, many creditors have an instant approval process if you apply for a credit card online. If you meet the issuer’s approval criteria, you may qualify right away. However, if your requirements are on the borderline, the creditor may have someone review your application by hand, which can take a week or so to complete. This is also the case if you submit your application over the phone or through the mail.

Additionally, even if you meet the requirements, approval could take longer due to security protections. If your credit is frozen, for example, a creditor won’t be able to gather all of your credit information. Therefore, you’ll have to remove the freeze before moving forward with the approval process.

Recommended: Why Credit Cards Get Declined: Reasons and Solutions

How Long Does It Take to Receive Your Card?

Once approved, it can take anywhere between five business days and two calendar weeks to receive your credit card in the mail. Some creditors may allow you to speed up the process free of charge. Others may charge a fee to do so.

If your card is lost or stolen en route or once it arrives, it may take anywhere from three to 14 business days for a new one to get sent out. Like with a new credit card, your creditor might be willing to expedite the process for free or if you pay a service fee.

Meanwhile, what if you’re in the situation of having a credit card that’s nearing its credit card expiration date? You can expect to get a replacement card anywhere from one to two months before it expires. If you haven’t received a new card and your card is about to expire, you should contact your credit issuer.

Recommended: How to Get a Credit Card for the First Time

Getting Your Credit Card Faster

If you’re not satisfied with the standard timeframe for how long it takes for a credit card to arrive, there are ways you can expedite the process.

Preapproval

Creditors often send preapproved credit card offers to consumers who meet their approval criteria. If you don’t receive a preapproval offer in the mail, you also can typically apply online through the creditor’s website. You’ll need to answer a few questions and provide some personal information, and then the creditor will offer preapproval if you qualify.

Credit card companies run soft credit inquiries to determine your qualification status, which will not impact your credit. Preapproval isn’t the final approval, but it still can indicate that you have a good chance of getting approved.

If you choose to move forward after preapproval, you must submit a formal application. At this point, the credit card company will do a hard inquiry, which can temporarily impact your credit.

Instant Approval

Similar to a preapproval, credit card issuers offer instant approvals. With an instance approval, the creditor will run a preliminary check on your credit to see if you meet their approval requirements. If you have a higher credit score, it’s more likely you will qualify instantly.

Credit card companies usually look at your creditworthiness (your history of on-time payments, credit cards usage, etc.), your income, and whether you’re old enough to get a credit card. You’ll be instantly approved for a card if you meet the approval requirements.

Expedited Shipping

Another solution if you’re wondering how fast you can get a credit card is to request expedited shipping. While some companies offer expedited shipping free of charge, others may charge a fee to get your card faster. Again, check with the credit card company to make sure you understand their rules and guidelines around expedited shipping.

Applying for an Instant Use Card

Some credit card companies and retailers offer instant use credit cards. This means that you may apply and be able to use your credit card immediately after approval. You don’t need the credit card in hand to do so.

For example, if you apply for a retail credit card in the store, they may let you use it right there and then. Or, if you apply for an Apple card, you can typically add it to a digital wallet like Google Pay or Apple Wallet for instant use.

You can usually use instant credit cards for your online shopping transactions. However, some co-branded cards may have restrictions on where you can make purchases. Otherwise, these cards are similar to what a credit card is typically.

What to Do If the Card Does Not Arrive Within the Expected Timeframe

If you never received your credit card, call your credit card company right away. You may be able to go to a bank branch to resolve the issue if you applied for a credit card through your local bank.

Credit card companies may allow you to request a temporary credit card until your permanent credit card arrives.

Using Your New Credit Card

Now that you have your new credit card in hand, it’s smart to make sure you know the best practices for using it and fully understand how credit cards work. While using it irresponsibly could impact your credit score and overall financial situation, responsible credit use can help you boost your credit score and leverage perks.

Here are some tips for getting the most out of your credit card:

•   Make timely payments. Your payment history is one factor that credit bureaus use to determine your credit score. Making late payments may ding your credit and cost you a late payment fee. Setting up automatic payments is one of the easiest ways to ensure you make timely monthly payments and avoid penalties.

•   Keep your balance low. Another factor that credit bureaus use to calculate your credit score is your credit utilization ratio. This is the percentage of your credit available you’re using at any given time. Aim to keep your credit utilization ratio below 30% (ideally at or under 10%) to avoid any impacts to your credit score.

•   Pay more than the minimum monthly payment. Only making the minimum monthly payment on your credit card may cause you to carry a balance into the next month, in which case you’ll incur interest. If you continue this cycle, it can make it hard to repay your total outstanding balance due to interest adding up. This is why it’s important to pay off your balance in full when you can.

•   Only use your card when it’s within your budget. Using your credit card for purchases like gas and groceries can help you build credit (as long as you can pay it off). However, using it for large items or impulse buys may lead you to rack up a lot of debt, which could be hard to dig out of. When using your card, make sure it’s within your budget to pay off your purchases.

The Takeaway

Getting a credit card can be a great way to build credit and earn rewards on purchases. Approval can take minutes or up to 30 days, and it can take anywhere from five to 14 days to receive your card. If you need to make a large purchase immediately, you may be able to request expedited shipping when you’re approved for a credit card, so you receive it sooner. You might alternatively apply for an instant use credit card, which could enable you to make charges to the credit card right away.

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 days does it typically take to get a credit card?

The application and approval process can take minutes or up to a month: It can take anywhere from five business days to two calendar weeks to receive your card. If you apply through the mail or over the phone, it can take longer for your card to arrive.

Can I use my credit card before it arrives?

If you get approved for an instant use card, you can usually use it immediately. However, some restrictions may apply depending on the card you choose.

What is the earliest I can get a credit card?

Some companies offer expedited shipping, which can help you get your credit card within two business days. Keep in mind that you may have to pay a fee for expedited shipping depending on the card issuer.

Why was my credit card delayed?

If you’re on the borderline for meeting approval requirements, such as for income or credit score, it can take longer to receive a decision on your credit card application and thus to receive the card. It can also take longer to get your credit card if you mailed in your application as opposed to filling it out online.

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Photo credit: iStock/everydayplus

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.

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

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

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When you swipe, tap, or otherwise use your card to pay for a purchase, credit card payment processing is set into motion to authorize and complete the transaction. On the surface, credit card processing may seem instantaneous, but in reality, it’s a complex, multi-step process. It also can be expensive for a merchant, which is why some may have a minimum requirement for a credit card payment or a discount for cash.

Read on to learn about what credit card processing is and the different ways it can work.

What Is Credit Card Processing?

Credit card processing refers to the series of operations so that a charge can get authorized and a merchant can be paid when a consumer pays with a credit card. It is a critical part of how credit cards work to make payments.

While the process takes only seconds, it involves multiple steps and entities as well as fees. The costs associated with credit card processing are incurred by the merchant, but they can be passed along to consumers through credit card surcharges or a slightly higher price of goods.

Stages of Credit Card Processing

The time between tapping your credit card and being asked if you’d like a copy of your receipt are action-packed. While the steps may not impact you directly as a consumer, being familiar with them can help you understand what happens if a payment is declined or you’re prompted to re-enter your information (and have a generally better grasp of what a credit card is).

Payment Authorization

When a credit card is tapped or swiped, authorization occurs. The merchant collects the payment information, such as the CVV number on a credit card.

This information is then sent to the credit card processor, who then sends it to the card network. From there, the information is passed to the issuing bank, which confirms the consumer has the funds or credit to complete the transaction.

Sometimes, a merchant may conduct preauthorization. This is a common practice at hotels, where a small amount is charged and held. It may also occur at gas stations.

At this point, the merchant still does not actually have the money. An authorization functions as a kind of IOU, confirming to the credit card company and the merchant that your credit line can cover the charge. (This is another reason it can be beneficial to pay more than your credit card minimum payment each month, as it will free up more of your available credit.)

Payment Settlement

Settlement occurs when money transfers from the issuing bank to the merchant bank through the card network, and the funds are then deposited into the merchant’s account. This process generally takes several days from the point of sale.

The amount deposited into the merchant account is minus any fees that are deducted from the merchant’s payments. Fees may get deducted once a month for all activity that’s taken place during the previous cycle, or the merchant may opt to have them deducted every time settlement occurs.

From the cardholder’s perspective, this is the point in the process when a charge on their credit card account may shift from “pending” to “posted.”

Recommended: What is a Credit Card CVV Number?

Who Are the Players in Credit Card Processing?

Credit card processing depends on a chain of connections to get the job done. Here’s who’s doing what when it comes to credit card processing.

The Cardholder

When you choose to pay with a card, you trigger credit card payment processing. Because different cards charge merchants varying fees, you may find that not all merchants take all cards. If you know there’s a card that is frequently not accepted, this could be a consideration when you apply for a credit card.

The Merchant

The merchant accepts credit card payments in exchange for the goods or services they provide. They have control over which credit card processing services or processing system they use. Often, a processing system is combined with a point of sale (POS) system — the actual mechanism by which a person enters their payment information.

The Merchant Bank

The merchant bank, also known as the acquiring bank, is responsible for sending the card and transaction information to the credit card network. Once approved, funds are deposited into the merchant account, minus any processing fees. The merchant bank may also provide equipment for credit card transactions, such as card readers.

The Issuing Bank

The issuing bank is also known as the cardholder’s credit card issuer. It authorizes the card information, pays the merchant bank, and charges the cardholder for the purchase. It may also attach fees, including international transaction fees, to the purchase.

The Payment Processor

The payment processor is the vendor that facilitates communication between the merchant bank and the issuing bank. It essentially manages all of the processes that have to occur between a card being swiped and a payment being deposited into a merchant’s account. The processor will charge a fee for this service.

The Card Association

A credit card issuer or card association is the card brand on the credit card, such as Visa, Mastercard, Discover, and American Express. You may also hear this called a credit card network. While a credit card is attached to a specific bank, it also has a specific brand; in the case of Discover and American Express, they are both card networks and card issuers.

The card association collaborates with card issuers, merchants, and processors to help facilitate transactions. It will also receive part of the fee for a credit card transaction, called an interchange fee.

Charges Associated With Credit Card Processing

Just like consumers have to worry about APR on a credit card, merchants have to consider charges associated with credit card processing. Many merchants bake the cost of credit card processing fees into their payment structure.

Payment Processing Fees

The processing fee for a credit card transaction goes to the processor, which is the company that is responsible for accepting the credit card payment and sending the information to the payment network.

Interchange Fees

Interchange fees go to the issuing bank. These fees are generally a percentage of the transaction, plus a standard flat-fee per transaction. The amount of interchange fees can vary depending on the type of card used, whether the transaction was completed in-person or online, the amount of the transaction, and the type of business that the merchant is.

Service Fees

Also known as an assessment fee, a service fee is a monthly fee that is charged by the payment network. The amount of this fee can depend on the merchant’s transaction volume as well as their calculated risk level.

Types of Credit Card Processing Models

Beyond the various fee types, there are different types of pricing models that a credit card processing company may offer. While this won’t matter much on the consumer side, a business should consider which pricing model might work best. These options generally aren’t as straightforward to evaluate as identifying a good APR for a credit card.

Flat Rate

With this credit card processing model, the processor charges a fixed fee for all credit and debit card transactions. This rate will include interchange fees. This model keeps things simple; a business owner knows how much will be charged. However, credit card fees can be higher under the flat rate model.

Tiered

In a tiered model, the fee charged per credit or debit card transaction will depend on its classification. Often, this processing model will have the following tiers: qualified, mid-qualified, and non-qualified, with qualified having the lowest fees and non-qualified having the highest. Because of all the nuances, this model can be complex and potentially confusing for merchants.

Interchange Plus

This is the most common credit card processing model for pricing. With this model, fees are kept separate, making this a transparent and often cost-effective method. The merchant is charged a percentage of the transaction plus a fixed fee per transaction, with the wholesale fee and the markup fee clearly distinguished.

Subscription

With the subscription pricing model, which charges a flat monthly fee, one has to sign up for this service. Merchants will also pay a low per-transaction fee, as well as a very small payment processor fee. Monthly fees tend to be more than the transaction fees in this model, making it most suitable for businesses with high sales volumes.

Recommended: How Do Credit Card Companies Make Money?

Selecting a Credit Card Processor

Picking a credit card processor is an important choice for a business and one that should involve an assessment of what your business needs and what different credit card processors offer.

•   Just as you’d consider average credit card interest rates if you were choosing a credit card, you’ll want to think over the fees different credit card processors charge.

•   Look at what the fee model is, as different models may be more suitable depending on the type of business. Also consider what cards the processor will allow you to accept.

•   Review the processor’s reliability and customer service availability. You might also think about additional features that are offered, such as a bundled or integrated point-of-sale system or a guarantee of next-day funds.

The Takeaway

Understanding credit card processing is helpful even if you’re not a merchant or entrepreneur. Once you know the costs of credit card processing, you may have insight into why some merchants may give cash discounts, for instance.

However, although fees are involved in these transactions, there are benefits to cardholders for using cards to complete their purchases, such as rewards and protections.

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 much does credit card processing cost?

On average, credit card processing can cost anywhere from 1.5% to 3.5% of the transaction amount. The exact cost will depend on a number of factors, however, including the banks, the credit card network, and the payment processor involved. Merchants’ costs can also depend on the credit card processing model they choose.

Is credit card processing secure?

Yes, it is generally secure. Credit card processing security has come a long way, with innovations on both the processing end as well as the credit card companies that create systems for security, whether people buy in-store or online.

Can I lower my credit card processing fees?

Yes, there are a number of ways you can explore to lower your credit card processing fees. Comparing processors and credit card processing models can be one way to secure lower fees. You might also apply a surcharge to pass on costs to customers. Or, you could simply ask your current processor if there’s any room to negotiate fees.

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Photo credit: iStock/Demkat

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.

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

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

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The Federal Reserve’s recent data says the average credit card interest rate is 21.47%, which is a high number by most standards. If you never carry a balance or take out cash advances, it may not be a big deal for you, but if you do, it’s worth paying attention to the average credit interest rate. Doing so could help you anticipate and potentially budget for increased interest payments.

Here, you’ll learn more about credit card interest rates and how they can impact your financial life.

What Is the Average Credit Card Interest Rate?

The average interest rate for credit cards is 21.47%, as mentioned above, as of the start of 2024. Rates have been steadily increasing in recent years — in November 2021, the average rate for credit cards was 14.51%, and back in November 2017, for example, it was 13.16%.

Keep in mind, however, that the interest rate for your credit card could be higher or lower than this average depending on factors such as your credit profile, given how credit cards work. So what’s a good annual percentage rate (APR) for you may be different from what a good APR for a credit card is for someone else, as you’ll learn in more detail below.

Interest Rates by Credit Quality Types

Credit card interest rates, or the APR on a credit card, tend to vary depending on an applicant’s credit score. The average interest rate for credit cards tends to increase for those who have lower credit scores, according to the CFPB’s most recent Consumer Credit Card Market Report.

The report measures what’s called an effective interest rate — meaning, the total interest charged to a cardholder at the end of the billing cycle.

Credit Quality	Effective Interest Rate
Deep subprime (a score of 579 or lower)	23%
Subprime (a score of 580-619)	22%
Near prime (a score of 620-659)	20%
Prime (a score of 660-719)	18%
Prime plus (a score of 720-799)	15%
Super prime (800-850)	9%

What this table shows is that the lower your credit score, the more you will be paying in interest on balances you have on your credit cards (meaning, any amount that remains after you make your credit card minimum payment).

Keep in mind that these rates don’t include any fees that may also apply, such as those for balance transfers or late payments, which can further increase the cost of borrowing.

Recommended: Revolving Credit vs. Line of Credit, Explained

Interest Rates by Credit Card Types

Interest rates may vary depending on the type of credit card you carry. In general, platinum or premium credits have a higher APR — cards with higher interest rates tend to come with better features and benefits.

Type	APR Range
No annual fee credit card	20.64% – 27.65%
Cash back credit card	21.06% – 27.78%
Rewards credit card	20.91% – 28.15%

Prime Rate Trend

The prime rate is the interest rate that financial institutions use to set rates for various types of loans, such as credit cards. Most consumer products use the prime rate to determine whether to raise, decrease, or maintain the current interest rate. That’s why for credit cards, you’ll see the rates are variable, meaning they can change depending on the prime rate.

As of March 6, 2024, the prime rate is 8.50%. On March 17, 2022, the prime rate was 3.50%. This can be considered an example of how variable this rate can be.

Delinquency Rate Trend

Credit card delinquency rates apply to accounts that have outstanding payments or are at least 90 days late in making payments. These rates have fluctuated based on various economic conditions. In many cases, rates are higher in times of financial duress, such as during the financial crisis in 2009, when it was at 6.61%.

As economic conditions rebound or the economy builds itself up, delinquency rates tend to go down, as consumers can afford to make on-time payments. According to the Federal Reserve, the delinquency rate for the fourth quarter in 2023 was 3.20%, up from 2.34% a year earlier and 1.63% for the same time period in 2021. This may be due to the pandemic, when consumers were more wary of discretionary spending or from negotiating payment plans with creditors.

Credit Card Debt Trend

Credit card debt has risen from its previous levels of $926 billion in 2019 and $825 billion at the end of 2020. It has climbed to $1.129 trillion for the fourth quarter of 2023, a new high.

This shows an ongoing surge in credit card debt, and these statistics can make individual cardholders think twice about their own balance and how to lower it.

Recommended: How Does Credit Card Debt Forgiveness Work?

Types of Credit Card Interest Rates

Credit cards have more than one type of interest rate. The credit card interest rate that applies may differ depending on how you use your card.

Purchase APR

The purchase APR is the interest rate that’s applied to balances from purchases made anywhere that accepts credit card payments. For instance, if you purchase a pair of sneakers using your credit card, you’ll be charged the purchase APR if you carry a balance after the statement due date.

Balance Transfer APR

A balance transfer APR is the interest rate you’ll be charged if you move a balance from one credit card to another. Many issuers offer a low introductory balance transfer APR for a predetermined amount of time.

Penalty APR

A penalty APR can kick in if you’re late on your credit card payment. This rate is usually higher than the purchase APR and can be applied toward future purchases as long as your account remains delinquent. This is why it’s always critical to make your credit card payment, even if you’re in the midst of requesting a credit card chargeback, for instance.

Cash Advance APR

A cash advance has its own separate APR that gets triggered when you use your card at an ATM or bank to withdraw cash, or if you use a convenience check from the issuer. The APR tends to be higher than the purchase APR.

Introductory APR

An introductory APR is an APR that’s lower than the purchase APR and that applies for a set amount of time. Introductory APRs may apply to purchases, balance transfers, or both.

For instance, you may get a 0% introductory APR for purchases you make for the first 18 months of account opening. After that, your APR will revert to the standard APR. (Note that the end of the introductory APR is completely unrelated to your credit card expiration date.)

Factors That Affect Interest Rate

When you apply for a credit card, you may notice that your interest rate is different from what was advertised by the issuer. That’s because there are several factors that affect your interest rate, which can make it higher or lower than the average credit card interest rate.

Credit Score

Your credit score determines how risky of a borrower you are, so your interest rate could reflect your creditworthiness. Lenders tend to charge higher interest rates for those who have lower scores. Your credit score can also influence whether your credit limit is above or below the average credit card limit.

Credit Card Type

The type of credit card may affect how much you could pay in interest. Different types of credit cards include:

•   Travel rewards credit cards

•   Student credit cards

•   Cash-back rewards credit cards

•   Balance transfer cards

Most likely, the more features you get, the higher the interest rate could be. Student credit cards may have lower interest rates, but that may not always be the case. That’s why it’s best to check the APR range of credit cards you’re interested in before submitting an application.

The Takeaway

The current average credit card interest rate is 21.47%, according to data from the Federal Reserve. However, your rate could be higher or lower than the average APR for credit cards based on factors such as your creditworthiness and the type of card you’re applying for. Your best bet is to pay off your entire balance each month on your credit card so you don’t have to worry about how high the interest rate for a credit card may be. That way, you can focus on features you’re interested in.

With whichever credit card you may choose, it’s important to understand its features and rates and 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

What is the average credit card interest rate?

The average interest rate for credit cards is 21.47%, according to the latest data from the Federal Reserve for the fourth quarter of 2023.

How do you get a low credit card interest rate?

You may be able to get a low credit card interest rate by building your credit score, as this will encourage lenders to view you as less risky. Otherwise, you can also aim to get a credit card with a low introductory rate, though these offers are generally reserved for those with good credit. Even if the APR is temporary, it could be beneficial depending on your financial goals.

What is a bad APR rate?

A bad APR is generally one that is well above the average credit card interest rate. However, what’s a good or bad APR for you will depend on your credit score as well as what type of card you’re applying for.

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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.

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

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Credit cards are handy financial tools, thanks to the credit card issuers who offer, provide, and manage them. A credit card issuer is a type of financial institution that supplies credit cards to consumers.

Read on to learn more about how these businesses operate.

What Is a Credit Card Issuer?

Credit card issuers are financial institutions responsible for making credit cards, managing the application and approval process for credit cards, and keeping credit card accounts running smoothly. If you needed to check your credit card balance, pay your bill, or request a replacement credit card, you’d turn to your credit card issuer.

Recommended: Guide to Credit Card Purchase Protection

How Credit Card Issuers Work

The financial institutions that offer credit cards can be lending institutions, banks, credit unions, or fintech companies. The cardholder borrows money from the credit card issuer each time they make a purchase, and when they pay their credit card bill, they’re paying the credit card issuer back for some or all of the credit they have used. This makes credit card issuers integral to what a credit card is.

A credit card issuer is the one to determine an applicant’s credit card interest rate and limit, the type of cardholder benefits offered, and the fee structure for the credit card. Generally, credit card issuers aren’t the ones to process merchant transactions, but they do decide whether to approve or decline a charge.

When questions about their credit card arise, account holders can call the number on the back of their credit card to connect with their credit card issuer’s customer support line.

Why Are Credit Card Issuers Important?

Understanding why credit card issuers are so important can help consumers to better manage their relationship with their credit card issuer and choose the right credit card for their needs once they’re old enough to get a credit card.

The issuer is responsible for determining a credit card’s terms and features. All credit card issuers have different policies, customer support approaches, and types of rewards offerings. Before choosing a credit card, it’s helpful to carefully research not just how a credit card works but how the credit card issuer runs its operations, in terms of fees and rates you will be subject to.

Recommended: How Do Credit Cards Work?

Common Credit Card Issuer Fees

What the fees look like for a specific credit card will vary by credit card issuer, but the following credit card issuer fees are fairly common to come across.

Annual Fees

An annual fee is a charge that’s paid once a year for having the credit card. These fees can often range from $95 to $500 or more per year. Not all cards charge this fee, but those that do tend to come with more valuable perks and rewards.

Before signing up for a credit card with an annual fee, it’s important to crunch the numbers to see if the rewards that come with using the credit card (like cash back or travel points) will outweigh the cost of the fee. Even if you get a good APR for a credit card, a high annual fee could make the offer less sweet.

Late Payment Fees

Late payment fees apply when someone is past due on paying their bill. Usually, these fees go up each time a payment is missed. The late fee won’t ever cost more than the minimum payment due on the payment the cardholder missed, but these fees can still add up. The current average fee is $32, but it may soon be lowered to $8, pending legislation.

Balance Transfer Fees

When someone transfers their credit card balance from one card to another (usually to a balance transfer card with a lower interest rate), they can potentially owe a balance transfer fee. This fee can be either a percentage of the transferred amount or a fixed fee.

While consolidating debt through a balance transfer can make it easier to pay off credit card debt, make sure to take into consideration any fees involved.

Foreign Transaction Fees

Making purchases when traveling abroad can lead to paying a foreign transaction fee, which is usually around 1% to 3% of the purchase.

However, there are plenty of credit cards — especially travel rewards credit cards — that don’t charge foreign transaction fees. If someone travels internationally often, they could save a lot by choosing a credit card with no foreign transaction fees, which is worth considering when applying for a credit card.

Credit Card Issuer vs Credit Card Payment Networks

It’s easy to confuse credit card issuers and credit card payment networks. While a credit card issuer creates and manages credit cards, a credit card payment network is the one that processes transactions between credit card companies and merchants.

Here are the key differences between credit card issuers and credit card payment networks:

Credit Card Issuer	Credit Card Payment Network
•   Creates and manages credit cards •   Accepts or declines credit card applicants •   Determines fees, credit card APR, credit limits, and rewards •   Approves and declines credit card transactions	•   Processes transactions between credit card companies and merchants •   Creates the digital infrastructure that facilitates credit card transactions •   Charges an interchange fee •   Determines which credit cards can be used with which merchants

Differences Between Credit Card Issuers and Co-branded Partners

A co-branded partner is a merchant that works with a credit card issuer to create a co-branded credit card with their name on it. This is a common arrangement with store, airline, and hotel credit cards.

Here’s a breakdown of how credit card issuers and co-branded partners differ:

Credit Card Issuer	Co-Branded Partner
•   Responsible for creating and managing credit cards •   Decides whether to accept or decline credit card applicants •   Determines card specifics, like fees, interest rates, and rewards •   Approves and declines credit card transactions	•   Works with a a credit card issuer to create a co-branded card •   Uses co-branded card created by issuer to increase sales and attract new customers •   Can use co-branded card to deliver value to loyal customers

Finding the Credit Card Issuer Number

If someone looks closely at their credit card, they’ll be able to learn a lot about their credit card issuer, including what their credit card issuer number is and how to contact their issuer.

Credit Card Issuer Phone Number

It’s always possible to learn how to contact a credit card issuer by going to their website, but cardholders also can find their card issuer’s phone number on the back of their credit card or on their monthly statements.

Credit Card Issuer Identification Number

To find a credit card issuer number, all a cardholder has to do is look at the string of numbers on a credit card. The first six to eight digits on the card represent the Bank Identification Number (BIN), or the Issuer Identification Number (IIN). This number is what identifies the credit card issuer. The following digits on the card are what identify the cardholder.

Examples of Some Major Credit Card Issuers

There are many different credit card issuers, but these are some of the biggest ones in the U.S.:

•   American Express

•   Bank of America

•   Capital One

•   Chase

•   Citi

•   Discover

•   U.S. Bank

•   Wells Fargo

The Takeaway

When you’re choosing a credit card, looking at the credit card issuer matters. This is the financial institution that creates and manages credit cards, determines a card’s fees, interest rate, and rewards offerings, and also approves (or denies) credit card applicants. Knowing that you have a well regarded issuer with fair policies is an important step in securing a credit card that suits your needs.

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

FAQ

How do I know my credit card issuer?

If someone is unsure of who their credit card issuer is, they can look at the credit card number on their card. The first six to eight digits on a credit card — called either the Bank Identification Number (BIN) or the Issuer Identification Number (IIN) — identify the card issuer.

What is the difference between a credit card issuer and a credit card network?

Credit card networks, unlike credit card issuers, are the party that processes the credit card transaction directly with merchants. Credit card networks have digital infrastructure that allow them to facilitate transactions between merchants and card issuers in exchange for an interchange fee.

What do credit card issuers do?

Credit card issuers create, distribute, and manage credit cards. They decide what the interest rates and fees of a credit card are, who is approved for one and how much they can spend, and how the card’s rewards structure works.

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Photo credit: iStock/Luke Chan

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.

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

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

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