Credit Card Miles vs. Cash Back: Guide to Choosing Between Cash Back and Travel Rewards

Credit cards often offer rewards to incentivize you to apply for a credit card and use it. Cash back cards and miles cards are two common types of rewards cards. The former gives you cash rewards, while the latter offers miles or points that you can use toward a purchase.

Both types of rewards can end up being quite valuable for cardholders. But how do you decide whether you want to earn miles vs. cash back? Here’s a look at cash back vs. travel rewards cards to help you decide which is right for you.

What Are Points and Miles Credit Cards?

Points and miles credit cards are technically two types of rewards cards, a broader category within what a credit card is. Points cards give you points that you can redeem for things like travel, merchandise, or cash back to reward you for your spending. Generally, a point is worth about $0.01, though that varies by card and, in some cases, what you choose to use your points for. For example, you might earn more points for travel than you do when you redeem your points for gift cards.

Miles cards usually offer airline miles associated with an airline’s frequent flyer program. You can earn them by using a credit card that’s co-branded with a specific airline, or a card that’s a more general travel card. With co-branded cards, you can redeem miles with that airline or their partner airlines. Cards that aren’t co-branded may allow you to use your miles with various airlines.

As with points, airline miles are typically worth about $0.01, though the value of each mile might differ depending on when you book your travel and what type of seat you purchase.

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

Pros and Cons of Points and Miles Credit Cards

Before signing up for a miles or points card, it’s important to consider the advantages and disadvantages.

On the one hand, points and miles cards both offer travel-related perks, though miles cards may only offer travel through specific airlines. Cards may also come with bonuses to help incentivize you to apply for a credit card.

However, miles and points cards may charge a hefty annual fee that helps the credit card company offset the cost of providing the rewards program. With co-branded cards, you typically cannot transfer miles to other airlines. Additionally, the value of your miles may vary according to a variety of factors, such as the date you choose to travel or the seat you want to sit in.

Recommended: What is a Charge Card

Pros of Points and Miles Credit Cards Cons of Points and Miles Credit Cards
Reduce the cost of travel. Can’t transfer miles to another airline loyalty program.
Provide travel-related perks. Value of points and miles may vary.
May come with a sign-up bonus. Points and miles cards may charge large annual fees.

What Are Cash Back Credit Cards?

Cash back credit cards offer you cash as a reward for making purchases with the card. For example, your card might offer you up to 3% cash back on all purchases, which means that for every $100 you spend, you’ll receive $2. Cash back cards usually let you redeem your rewards for cash via statement credit, bank transfer, or check.

Cash back cards can be flat-rate cards, meaning you’ll earn a fixed percentage on every purchase. Or, they worked based on a tiered system. For example, some cards will offer you higher rewards for certain purchases, like travel, groceries, or gas. In some cases, cards may have rotating rewards categories that change every few months.

Related: Enjoying Credit Card Bonuses

Pros and Cons of Cash Back Credit Cards

When you consider a cash back card, again consider potential disadvantages in addition to benefits.
On the plus side, cash back cards typically don’t come with steep annual fees. You can redeem your rewards for cash that you can use for any purpose, and the amount you earn is fixed — the value or your reward doesn’t vary by date or other factors as it might with a miles card.

On the other hand, the amount of cash you can earn may be limited, and these cards may not offer many other perks. Cash back cards also typically don’t come with credit card sign-up bonuses that are as big as those offered by miles and points cards, marking another difference between cash back vs. miles cards.

Recommended: Tips for Using a Credit Card Responsibly

Pros of Cash Back Credit Cards Cons of Cash Back Credit Cards
Usually have no annual fees. May offer lower sign-up bonuses.
Rewards can be redeemed for cash. Cash back cards may offer fewer perks.
The value of your reward is fixed. The amount you can earn may be limited.

Similarities Between Cash Back and Points and Miles Credit Cards

Both cash back and points or miles cards offer you rewards based on your spending, and they may offer higher rewards for spending in certain categories. Be aware that some rewards have expiration dates, as well.

Rewards cards often carry higher-than-average interest rates. As a result, you’ll want to make sure that you will be able to pay off your credit card bill on-time and in full when you use your card, given how credit cards work when it comes to interest.

Recommended: What is the Average Credit Card Limit

Differences Between Cash Back and Points and Miles Credit Cards

The main difference between a cash back credit card vs. miles and points card is how you redeem your rewards. With cash back cards, you received a percentage of your spending, sometimes limited to a maximum amount. You earn points and miles in a similar way. However, their value may change and you may be limited in where you can redeem them.

If you have a co-branded miles card for example, you may only be able to use your miles with that airline. Cards that aren’t co-branded may offer you the chance to redeem points and miles with a variety of companies, such as airlines and hotel brands.

Similarities Between Cash Back and Points and Miles Credit Cards Differences Between Cash Back and Points and Miles Credit Cards
Offer rewards based on spending. Cash back card rewards are redeemed for cash.
May offer greater rewards for spending in certain categories. Points and miles allow you to redeem rewards toward purchases.
Typically has a higher interest rate. Points and miles cards may limit where you can redeem your rewards.

Recommended: How to Avoid Interest On a Credit Card

Is It Better to Get Cash Back or Miles?

Whether or not you choose a cash back card vs. a miles or points card will depend on how much you travel. Travel cards tend to offer better value when you redeem points and miles for travel-related rewards. So if you’re a big traveler, one of these cards may be right for you. However, if you’re more of a homebody, a cash back rewards program may be a better fit.

Other Credit Card Rewards

Cash back or travel rewards isn’t your only choice. There are a variety of other credit card rewards programs you may encounter.

Gas Rewards

Gas cards are typically co-branded with certain gas vendors. Users usually earn points and discounts only on gas purchases. In general, gas cards have relatively high rates of return and don’t charge an annual fee.

Retail Credit Cards

Credit cards that are co-branded with major retail outlets will often offer discounts at that outlet. Rewards might be applied at the point of sale or as regular statement credits.

The Takeaway

Understanding how credit cards allow you to redeem rewards — and how useful those rewards are — is key to deciding which card is right for you. If you’re a world traveler, a miles card might fit the bill. And if you don’t fly frequently, you may be better served by earning cash back on purchases you make in your day-to-day life.

Shop around for the credit card that best suits your needs. A credit card from SoFi offers 2% unlimited cash back rewards and charges no foreign transaction fee. Cardholders earn 1% cash back rewards when redeemed for a statement credit.1

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.1



Take advantage of this offer by applying for a SoFi credit card today.

FAQ

What is the difference between cash back and miles?

Cash back cards allow you to earn back a percentage of the purchases you make. Miles cards allow you to earn miles based on the purchases you make, which you often must use toward airline travel.

Is cash back really worth it?

Cash back rewards can allow you to earn some money back from your everyday spending. However, you’ll want to make sure you can pay off your balance in full each month, as rewards cards that offer cash back tend to have higher interest rates than non-rewards credit cards.

Can you convert miles to cash?

Some cards allow you to convert miles to cash, but users will get the most value from redeeming miles for travel. You can find out whether your card allows you to convert miles to cash by calling your credit card issuer. Find their number on the back of your credit card.

Do cash back or credit card miles have higher interest rates?

Both cash back and travel rewards credit cards tend to have higher interest rates as they’re types of rewards credit cards. In general, rewards credit cards usually have higher interest rates than no-frills cards that don’t offer rewards.


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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.

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, a statement credit, or pay down eligible SoFi debt.

1See Rewards Details at SoFi.com/card/rewards.

Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details, please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, Member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

1Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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Guide to Lowering Your Credit Card Interest Rate (APR)

The annual percentage rate (APR) of a credit card represents how much someone pays in interest on an annual basis if they carry a balance on their credit card. The lower someone’s APR is, the less they would pay in interest. Because of this, it makes sense to try to secure the lowest APR possible.

Keep reading to learn how to lower the APR on a credit card.

What Is Credit Card APR?

A credit card’s APR represents the total cost of borrowing money using a credit card. The APR on a credit card is the interest rate charged to carry a balance. In the case of credit cards, annual fees and other fees like late fees are not added to the APR like they are with installment loans. A credit card can have a fixed or variable interest rate, meaning the rate can either stay the same or change over time based on index rates.

Understanding what APR is can help credit card users know how much they’d need to pay in interest if they don’t pay off their credit card balance in full each month. If they don’t carry a balance, they can avoid paying credit card interest.

Recommended: What is a Charge Card

Ways a Lower Interest Rate Can Help

Having a good APR for credit cards is important for a number of reasons. A lower interest rate can save consumers money. In turn, this can make it easier and faster to pay off debt. This can also help them to improve their credit score.

The higher someone’s interest rate is, the harder it is to chip away at their credit card balance, as the bulk of credit card payments will go toward interest. This is why achieving a lower credit card APR can make escaping high-interest credit card debt easier.

Recommended: How to Avoid Interest On a Credit Card

How to Lower APR on a Credit Card

If someone is interested in lowering their credit card APR, there are steps they can take to try to do so.

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

Apply for a Balance Transfer Card

If someone has a high APR, one option for how to get a lower interest rate on a credit card is to get a balance transfer card with a lower interest rate. They can then transfer their balance from the high-interest credit card to the balance transfer card.

Usually, this new balance transfer credit card can’t be issued by the same company or any affiliates of the original card. Balance transfer cards may offer a 0% APR promotional period. During that period, the cardholder won’t pay any interest, which means all of their payments will go toward paying down the principal.

However, once the promotional period ends, a higher APR will kick in (this is one example of what can increase your credit card’s APR). Additionally, a balance transfer fee may apply to move over the existing credit card balance to the new card. It might make sense to calculate your credit card interest rate on your old card to ensure you’ll save money.

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Negotiate With Your Credit Card Issuer

When it comes to figuring out how to get lower APR on a credit card, it’s possible to simply ask for an APR reduction with a credit card issuer. This strategy may be particularly effective if the cardholder has used their credit card responsibly and consistently paid their credit card bill on time — one of the cardinal credit card rules.

The account holder also can provide a reason why they’re requesting a reduction. They may have experienced a job loss or have unexpected medical bills to pay. Maybe they got a raise and are really motivated to pay off their debt, and having a lower interest rate would help them do that. It’s also possible to leverage new credit card offers with lower interest rates to try to negotiate a current APR down.

Consumers can also ask for a temporary reprieve if the credit card issuer won’t offer a lower rate indefinitely. For example, it may be possible to request a one-year rate reduction of 1 to 3 percentage points.

Low-Interest Credit Cards

If someone can’t quite figure out how to get a lower interest rate on a credit card with their current issuer, they also can step away from using that specific credit card. Instead, they may apply for a low-interest credit card to use in lieu of the card with the higher APR.

Cardholders who have consistently made on-time payments and taken other steps to improve their credit score may be able to secure a new card with a lower interest rate. As an added bonus, doing so can make it easier to negotiate a lower APR with a current credit card.

Some different types of credit cards even reward cardholders for their good behavior by lowering their APR.

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The Takeaway

Can you lower your APR on a credit card? In short, yes.

If someone pays off their credit card balance in full each month, they won’t have to worry about their APR too much. That being said, it’s always smart to try to secure the lowest APR possible in case it’s necessary to carry a balance from time to time.

Having a lower APR on a credit card means the cost of borrowing money is lower. When someone has a lower APR, more of their monthly payments can go toward paying down their principal balance instead of interest. In turn, this can help them pay off their debt faster, save money, and even improve their credit score.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.1



Take advantage of this offer by applying for a SoFi credit card today.

FAQ

How can I reduce my credit card interest rate?

Cardholders have a few different options for figuring out how to lower the interest rate on credit cards. To start, they can try to negotiate a lower interest rate on any current credit cards by calling their issuer and trying to come to an agreement. If that doesn’t work, they can simply apply for a new credit card or a balance transfer card. If they can secure a lower interest rate on a new credit card, they can choose to use that credit card instead. Or, they might take that offer back to their current lender to try to negotiate a lower APR.

Why do credit card issuers charge varying APRs?

Credit card issuers use a consumer’s credit score to help determine what the APR on a credit card should be for a specific consumer. The reason that APRs vary is because credit card issuers give a custom APR to each applicant based on their financial history. Generally, the lower someone’s credit score is, the higher their APR will be.


Photo credit: iStock/Charday Penn

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 .

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

1See Rewards Details at SoFi.com/card/rewards.

1Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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Do All Credit Cards Have PIN Numbers?

Do All Credit Cards Have PIN Numbers?

Credit cards can come with a four-digit personal identification number (PIN). The PIN acts like a password, helping to prevent unauthorized use of your credit card. However, in the U.S., PINs are more often required when using debit cards than when using credit cards.

Hence, if you live in the United States and don’t often travel abroad, you may not find yourself using a credit card PIN most of the time. Still, it can be helpful to understand their purpose and how to obtain one just in case.

What Is a Credit Card PIN?

A credit card PIN is a four-digit personal identification number used to help verify the integrity of certain transactions that might occur while using a credit card. You might receive a PIN with your new credit card; however, it will probably be mailed separately for security reasons. This way, if someone were to steal your card, they won’t gain access to your PIN along with it.

Credit card PINs offer an added layer of security alongside other measures, such as your signature, the credit card’s EMV chip, or the credit card CVV number. In the United States, chip and signature are the preferred security measures for most types of transactions, but there could still be times when you need a PIN.

How Do Chip and PIN Cards Work?

Chip and PIN generally refers to credit cards that have a microchip that can be inserted into a card reader. As their name suggests, these cards may also require the cardholder to authorize the transaction by entering their PIN.

The use of a microchip and a PIN allows for increased security when compared to credit cards of the past, which only used a magnetic stripe to complete transactions. Also called stripe and signature cards, these older credit cards are considered less secure than chip and PIN credit cards. This is because the magnetic stripe has your card information coded directly into it.

An increase in credit card data breaches called for a more secure solution. That led to the adoption of EMV cards, named for the three organizations that developed the technology — Europay, Mastercard, and Visa. EMV cards would become the chip and PIN cards we know today, later joined by contactless payments.

The main benefit of EMV, or chip and PIN, cards is that they generate a one-time code when inserted into the card reader. Instead of sharing your card number with the merchant, the code is used to process the payment. This process is more secure than using a magnetic stripe because it makes it much more difficult for thieves to attempt to steal your credit card information.

Recommended: What Is a Contactless Credit Card

Credit Card vs Debit Card PIN

There’s little difference between a credit card PIN and a debit card PIN. Both are four-number codes that you use to verify transactions in some situations.

At least in the U.S., the most notable difference between credit vs. debit card PINs is that debit card transactions require a PIN more often than credit card transactions do. In other countries, the use of PINs for credit card transactions could be more common.

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

Recommended: When Are Credit Card Payments Due

Why You Might Need a Credit Card PIN

The two scenarios in which you’re most likely to need a credit card PIN are when requesting a cash advance and when traveling outside the U.S.

Recommended: How to Avoid Interest On a Credit Card

Cash Advances

A cash advance works like a loan from your credit card issuer. There are a few ways to request a cash advance, but one way to do so is by using your credit card at an ATM. You may be required to enter your PIN when requesting a cash advance, and credit cards sometimes have daily cash advance limits.

Recommended: What is the Average Credit Card Limit

Credit Card Purchases Abroad

European credit cards often use chip and PIN technology, which can help keep your money safe when traveling abroad. That means you could be required to enter your PIN, even for purchases. For instance, automated kiosks in Europe may only work with foreign credit cards if you provide a PIN.

Guide to Requesting a Credit Card PIN

Whether or not you think you’ll need a credit card PIN, you can request one from your card issuer just in case you do end up needing it in the future. Keep in mind that your card issuer may have sent you a PIN when they shipped your new card. However, as mentioned earlier, the PIN likely was not sent in the same envelope as your credit card for the sake of security.

If you aren’t able to locate a PIN that was sent with your card, you can request a new one in the following ways:

•   On your bank’s website. Some banks allow you to request a new PIN while logged in to your account. To do so, you can search your bank’s website for information on requesting a PIN for a credit card.

•   By phone. Some banks require you to call to request a PIN on a credit card. If that’s the case, or if you simply prefer to call, your card issuer should provide a support number. They likely won’t issue you a new PIN over the phone but will instead mail it to the address on file.

•   At a bank branch. If your bank has branches nearby, then you should be able to request a PIN by visiting a branch and asking them to reset it for you.

•   At an ATM. If you know your existing PIN and simply want to change it, you might be able to change your credit card PIN by visiting an ATM.

If you request a new PIN either online or by phone, it should be mailed to your address on file. Thus, you should make sure your address is up to date before requesting a PIN.

Another important credit card rule to keep in mind is not to use personally identifiable information in your PIN, such as your birthday or your address. While those might be easier to remember, they can also be easier for a thief to guess.

Do All Credit Card Issuers Offer Cards With PINs?

The answer to this question may depend upon your location. In the U.S., for example, most credit cards have at least chip and signature verification, though an increasing number have chip and PIN. While chip and PIN adoption has increased in the U.S., the technology is already fully implemented in much of the rest of the world.

Most major banks in the U.S. offer PINs with their credit cards, even if PIN verifications aren’t always required.

Finding Your Credit Card PIN Number

When you were approved for your new credit card, you might have received a separate mailer with your credit card PIN along with relevant information about using it. If you never received your PIN or you lost it, you probably won’t be able to find your credit card PIN by logging into your account. Usually, you’ll either need someone to reset it for you at a bank branch or ask to have a new PIN mailed to your address on file.

Are Credit Card PINs Safe?

Chip and PIN credit cards tend to be much safer than their magnetic stripe counterparts of the past. This is because chip and PIN credit cards do not share your credit card number; instead, they generate a unique, one-time code to verify the transaction. Hence, schemes that worked in the past, such as credit card sniffing, are much less likely to succeed with chip and PIN credit cards. This helps you keep your data safe, along with your money.

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The Takeaway

With the adoption of EMV, credit cards may have a PIN, but purchases don’t often require them in the United States. However, your card issuer may have sent you a PIN when you were approved for a new card. Chip and PIN technology makes credit cards more secure so you can feel more confident about your purchases.

Of course, you have many options when considering new credit cards. One card equipped with all the latest security technology is the SoFi credit card. Not only will your purchases be secure, but you can earn 2% unlimited cash back rewards.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.1



Take advantage of this offer by applying for a SoFi credit card today.

FAQ

What if my credit card company does not allow chip-and-PIN purchases?

Most credit card companies should allow chip-and-PIN purchases, or at the very least, chip and signature. All U.S. merchants were asked to begin accepting EMV chips by October 2015. While there’s no federal law requiring EMV compliance at the moment, it is considered industry-standard. As a result, most credit card issuers have already adopted EMV standards.

Can I use the same PIN for all credit card transactions?

Some card issuers might allow this, but others may not — it depends on the banking institution. For example, your card may not allow you to use the same PIN for cash advances that you use for purchases. If that is the case, you will need to remember two different PINs.

How do you get a PIN for your credit card?

Card issuers will often send you a PIN when you apply for a new credit card. However, if you lost your PIN or don’t recall receiving one, you can try requesting one from your bank. You may be able to request a PIN via online banking; if that isn’t possible, other options include asking for one on the phone or visiting a bank branch.

Can you use a credit card without a PIN?

Whether you can use a credit card without a PIN depends on the kind of transaction you’re making. For example, if you are in the U.S. and requesting a cash advance with your credit card at an ATM, it is unlikely that you will be able to do that without a PIN. Purchases, on the other hand, often don’t require a PIN in the United States.


Photo credit: iStock/Ludmila_m

1See Rewards Details at SoFi.com/card/rewards.

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.

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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

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

1Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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Is Your Credit Card Spending Limit Too High?

The credit limit on a credit card is the maximum amount you can spend before needing to repay it. You can request a credit limit increase, but credit card issuers sometimes automatically increase the credit limit of those who have improved their credit scores or who have shown to manage credit well. But is a higher spending limit a good thing? It may not be for everyone’s financial situation. Here’s how to know if your credit card spending limit is too high.

How Does My Credit Card Spending Limit Work?

Credit cards are a form of revolving debt, which means that there is an upper spending limit, but the credit can be repaid and used again. It revolves between being available to use, being unavailable because it’s being used, and being available to use again after it’s been repaid.

A credit card issuer typically bases the credit limit on factors such as the applicant’s credit score, income, credit history, debt-to-income ratio, and others. However, every credit card company is different in what it considers and how much emphasis it places on each component.

There may be multiple types of credit limits on the same credit card, e.g., a daily spending limit or cash advance limit.

Why Your Credit Card Issuer Increased Your Spending Limit

Your spending limit isn’t set in stone, though. Even if you haven’t specifically requested a credit limit increase, your credit card issuer may automatically increase the credit limit on your card.

There are various reasons this might happen.

•   Your credit has improved, resulting in a higher credit score.

•   Your income has increased.

•   The credit card issuer wants to retain you as a customer by offering a higher credit limit.

By increasing your credit card spending limit, the credit card issuer may have hopes that you’ll carry a balance on your card.

One stream of revenue for them is interest charges and fees. If you carry a balance, rather than paying your balance in full each month, you’ll be charged interest on the outstanding amount. And if you fail to make at least the minimum payment due or pay the bill late, you’ll likely be charged a late fee.

Both interest charges and fees are then added to the balance due on the next statement, and themselves incur interest. Essentially, you’ll be paying interest on interest.

Pros of a High Credit Card Spending Limit

For some people, and for their financial needs or goals, there may be practical reasons for having a high credit card spending limit.

•   It can be helpful in an emergency situation. Even if you’ve accumulated an emergency fund or rainy day fund, there might be instances when you need more than that. For instance, if your refrigerator suddenly stops working, you’ll probably want to replace it sooner rather than later. Large appliances can cost several thousand dollars to purchase and have installed.

•   Having a high credit limit while using a small percentage of it can lower your credit utilization rate. Your credit utilization rate is the relationship between your spending limit and your balance at any given time. If your limit is $10,000, and your balance is $1,500, your credit utilization is 15%. Generally, the lower your credit utilization rate, the better.

•   If you have a rewards credit card, having a higher spending limit on it could mean reaping greater rewards, whether that’s cash back, miles, or another type of reward. Being financially able to pay the account balance in full each month is key to making the most of this strategy.

Cons of a High Credit Card Spending Limit

As attractive as the benefits might sound, there can be drawbacks to having a high credit card spending limit.

•   You might be tempted to spend because you can, even if you can’t pay your credit card balance in full at the end of the billing period. This will result in purchase interest charges being added to the unpaid balance, and interest will accrue on this new, larger balance. It can become a debt cycle for some people.

•   Having a high credit limit and using a large percentage of it can increase your credit utilization rate. This rate is one of the most important factors in the calculation of your credit score — it accounts for 30% of your FICO® Score, and is considered “extremely influential” to your VantageScore®. It’s generally recommended to keep your credit utilization rate to 30% or less.

•   Requesting an increase in your credit card spending limit could cause your credit score to decrease slightly. The credit card issuer might do a hard credit inquiry into your credit report, which can mean a ding of a few points to your credit score, depending on your overall credit. It’s usually a temporary drop, but if you’re planning to apply for a loan or other type of credit, it could make a difference in the interest rate you’re offered.

What Happens if You Go Over Your Spending Limit

The Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) put consumer protections against unfair credit card practices into place. One of the stipulations in this Act is that credit card issuers cannot charge an over-the-limit fee unless the card holder opts into an agreement for charges above the credit limit to be paid.

If you choose not to opt in to this agreement, any charges you try to make that exceed your credit card spending limit will be denied.

If you do opt in, the excess charges will be paid, but the credit card issuer may charge a fee for covering the overage amount. Generally, the first-time fee can be up to $25. If you exceed your spending limit a second time within six months, you could be charged up to $35. The fee can’t be larger than the amount you went over your credit limit by, though. So, if you charge a purchase that’s $100, but you only have $90 of available credit, the over-limit fee would be $10.

Before you opt in to an agreement like this, the credit card issuer must tell you what potential fees there might be. They must also provide you with confirmation that you opted in.

If you opted in to an over-the-limit agreement, but no longer want it, you can opt out at any time by contacting your credit card issuer’s customer service department.

Recommended: Maxed-Out Credit Card: Consequences and Steps to Bounce Back

Taking Control of Credit Card Debt

A higher spending limit can be a good thing if it’s used responsibly. Looking for a credit card that has more favorable rewards or offers perks that your current credit cards don’t have could be a good option for managing your debt.

The SoFi Credit Card may be one to explore. Its cash-back rewards could go toward debt payments, helping you pay down your debt. SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back rewards when redeemed for a statement credit.

If you’re struggling with credit card debt and a higher credit card spending limit is not an option for your financial situation or comfort level, another possible option could be to consolidate high-interest credit card debt with a personal loan.

With a credit card consolidation loan, all your balances are merged into one new loan with just one monthly payment and one interest rate instead of several. This new interest rate could end up being lower than the rates on your current individual credit cards, which could lower your monthly debt payment. Also, a personal loan is installment debt, which means there will be a payment end date. Credit cards are revolving debt with no firm end date.

The Takeaway

A higher credit card spending limit may or may not be a positive thing, depending on your financial situation. You may have requested a credit limit increase or your credit card issuer may have automatically increased your spending limit because of factors such as an improved credit score or increased income, among others. But if the amount of credit you’ve been approved for results in poor financial decision making or increased debt, your credit card spending limit may be too high.

Multiple high-interest credit cards could be consolidated into one new personal loan. A SoFi Personal Loan is a fixed-rate loan with interest rates that may be lower than the rates on your current credit cards.

Transferring multiple balances to a credit card that has more favorable rewards or offers perks that your current credit cards don’t have could be another option for managing your debt.

The SoFi Credit Card may be one to explore. Its cash-back rewards could go toward debt payments, helping you pay down your debt. SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back rewards when redeemed for a statement credit.1

Learn more about the SoFi Credit Card


1See Rewards Details at SoFi.com/card/rewards.

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


The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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

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

SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, a statement credit, or pay down eligible SoFi debt.

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What Is a Prepaid Credit Card and How Does It Work?

What Is a Prepaid Credit Card and How Does It Work?

A prepaid credit card is a type of credit card onto which you load money in advance. You can use the card to make purchases online or at brick-and-mortar stores or to withdraw money at ATMs.

While they have “credit card” in the name, prepaid credit cards are actually quite different from a standard credit card. Wondering how does a prepaid card work exactly? Let’s take a closer look at what a prepaid credit card is, the different types of prepaid cards, and the pros and cons of having one.

What Is a Prepaid Credit Card?

As mentioned before, a prepaid card is a card on which you load money ahead of time, similarly to how you would with a gift card. Some of the same credit card issuers that offer traditional credit cards may offer prepaid credit cards.

The amount you load onto the prepaid card is the maximum amount you can spend on the card, similar to a credit limit. For instance, if you load $200 onto the card, you can spend up to $200.

You can use the card to make purchases or withdrawals from an ATM. Prepaid cards might also be used for government benefits or for payroll.

Many prepaid credit cards are also called prepaid debit cards or stored-value cards. While they may look just like a credit card and bear the logo of a major credit card company like Visa or Mastercard, they’re not actually credit cards.

Because you’re not borrowing from a line of credit, you won’t have to worry about accruing debt, making a minimum payment by a due date, or owing interest. Your activity also will not be reported to the credit bureaus, meaning it won’t affect your credit score or history.

Recommended: What is a Charge Card

Types of Prepaid Credit Cards

There are two main types of prepaid credit cards: open-loop and closed-loop. Here’s how they differ.

Open-Loop

An open-loop prepaid credit card can be used anywhere that accepts the credit card network that the card is within. For instance, if your open-loop prepaid credit card has a Visa logo, then your prepaid card will be accepted at any merchant, location, or ATM where Visa cards are accepted.

Closed-Loop

Also known as a single-purpose card, a closed-loop prepaid credit card can only be used to make purchases from a single retailer or a group of stores. For instance, you may only be able to use the card when you shop at a particular grocery store chain. Closed-loop prepaid credit cards usually don’t have a credit card network logo on them.

How Does a Prepaid Credit Card Work?

You can use a prepaid credit card to make purchases and take out money at ATMs, just as you can get cash from a credit card. Each transaction you make using the prepaid card will reduce the total balance you have available. So, for instance, let’s say you loaded a total of $500 onto your card. Then, you make a purchase for $150. You would have $350 remaining to spend with your card.

Though it depends on the prepaid credit card, you may be able to reload additional funds onto your card. You can do so by depositing money from a bank account or paycheck, reloading the card at a retail location using cash, or buying a reload pack to add a certain amount to your card.

Advantages of a Prepaid Credit Card

Let’s look at some of the benefits and risks of prepaid debit cards, another common name for prepaid credit cards. Here are some of the upsides to weigh if you’re considering getting one.

Doesn’t Require a Credit Check

A credit check isn’t required to open a prepaid card. As such, it may be an option available to those with lower credit scores or a thin credit history. Further, getting a prepaid credit card won’t require a hard credit inquiry, which can ding your credit.

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

Provides a Safe Alternative to Cash

A prepaid credit card is a safe, easy alternative to using cash. Depending on the network, a prepaid card might come with liability protections similar to those offered by debit cards.

Doesn’t Necessitate a Bank Account

You won’t need a bank account in order to get or use a prepaid debit card. Unlike debit cards, prepaid credit cards don’t require you to draw funds from a bank account, though if you do have one, you have the option to deposit money from your checking or savings account.

Won’t Cause You To Go Into Debt

Since you’re using money that’s already been uploaded to the card, you won’t have to worry about running a balance on your credit card. Further, you won’t have to worry about making payment due dates, one of the cardinal credit card rules, or the possibility of incurring interest if you can’t pay off your balance in full.

Recommended: When Are Credit Card Payments Due

Disadvantages of a Prepaid Credit Card

While there are a number of positives to prepaid debit cards, there are disadvantages worth considering as well.

Can Carry High Fees

Fees are probably the biggest drawback of a prepaid credit card. Many prepaid credit cards come loaded with fees, which can include the following:

•   Activation fees

•   Monthly maintenance fees

•   Reloading or card replacement fees

•   Purchase fees

•   ATM fees for transactions or balance inquiries

•   Check deposit fees

•   Declined transaction fees

•   Inactivity fees

•   Foreign transactions fees

•   Customer service inquiry fees

Just as you would consider how much a credit card costs before applying for you, do the same due diligence on prepaid card fees before getting one.

Does Not Boost Your Credit Score

Prepaid credit cards aren’t actually credit cards, which offer a revolving line of credit. Because they aren’t a form of credit, your activity is not reported to the credit bureaus. In turn, they aren’t a way to build your credit.

Offers Fewer Fraud and Liability Protections

While prepaid credit cards might come with some fraud and liability protections, they typically don’t have the full suite of protections that standard credit cards offer. Instead, their protections, if offered, may be more akin to those offered by debit cards, which are generally weaker than those of credit cards.

Recommended: How to Avoid Interest On a Credit Card

Alternatives to Prepaid Credit Cards

Besides prepaid credit cards, here are a few other options you might consider:

•   Gift cards: A gift card can be used at particular merchants or retailers. There are also gift cards offered by credit card networks, such as Visa or Mastercard, that you can use anywhere these networks are accepted. Like a prepaid credit card, you don’t need a bank account to get a gift card, though using one won’t help you boost your credit. Unlike prepaid credit cards, gift cards don’t typically carry any fees aside from potentially a one-time activation fee.

•   Debit cards: Another option you might consider is a debit card. These do typically require a bank account, however. Like a prepaid card, you’re only using the funds available in the account connected to the card. As such, getting a debit card does not involve a credit check nor will you have to pay interest since you’re not borrowing funds. There may be fees involved though.

•   Secured credit cards: If you have a low credit score or a thin credit profile, a secured credit card — one of the different types of credit cards available — can help boost your credit if you’re using the credit card responsibly. Secured credit cards require a deposit, and the deposit amount is usually the same as the card’s credit limit. Secured credit cards usually have lower fees than prepaid cards, but they do have interest fees. Plus, a credit check is required.

Recommended: What is the Average Credit Card Limit

The Takeaway

Contrary to its name, a prepaid credit card isn’t actually a credit card. You aren’t accessing a line of credit with a prepaid card, and you can’t build credit. Instead, you load cash onto the prepaid card, which effectively acts as your credit limit. You can then use the funds to make purchases or withdraw money from an ATM.

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

FAQ

Do prepaid cards require monthly payments?

Prepaid cards can have a monthly maintenance fee. The amount of this fee varies, typically ranging from $10 to $15 a month. The money is drawn from the existing balance on your card.

Do prepaid cards cost money?

Prepaid cards usually do have fees. This may include an activation fee, ATM fees, reload fees, and foreign transaction fees, among others. Before getting a prepaid credit card, make sure to check what fees are involved.

Is an account needed for a prepaid credit card?

Are you wondering, ‘Can you get a prepaid credit card without a bank account?’ The answer is yes. A bank account is not required for a prepaid credit card.

Do prepaid cards help build your credit?

Prepaid credit cards do not help you to build credit. That’s because they’re not actually credit cards and don’t offer a revolving credit line. In turn, your payment history isn’t reported to the three credit bureaus.


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 .

Photo credit: iStock/towfiqu ahamed
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