Changing a Secured Credit Card to an Unsecured Card

A secured credit card can help you establish credit for the first time or build your credit if you’ve damaged yours with missed payments, defaults, or bankruptcy. While secured credit cards offer many of the same advantages as traditional credit cards, they do have some limitations.

Eventually, those who start out with a secured card may want to switch to a traditional credit card. Here’s a closer look at how to transition from a secured credit card to an unsecured card.

What Is A Secured Credit Card?

A secured credit card requires that you put down a cash deposit, which serves as collateral for the charges you make with the card. Usually, the amount of the deposit is the same as your credit limit. So if you deposit $1,000, you’ll be able to borrow up to that amount.

If you miss payments, the bank can cover their losses by drawing on money from the deposit. That said, making on-time payments is just as important with secured credit cards as it is with traditional cards, especially if you are using the secured card to build credit.

As with traditional credit cards, secured cards require that you make a minimum monthly payment. Beyond that, you can carry a balance from month to month, but you will be charged interest on that balance. Pay your balance off in full each month to avoid interest payments.

Recommended: Differences Between a Secured and Unsecured Credit Card

Benefits of Secured Credit Cards

Secured credit cards offer users and banks a number of advantages.

Easier to Qualify

Because secured cards require users to put down a deposit, banks are taking on relatively little risk. As a result, it can be much easier to qualify for a secured card than it would be a traditional credit card.

Can Help Build Credit

If you have no credit or poor credit, it can be difficult to get approved for credit cards or loans. Making small purchases regularly with a secured card and paying off your bill in full and on time can help you establish credit or rebuild your credit.

If you’re looking to build credit, you may also consider becoming an authorized user on a credit card.

Convenience

You can use secured credit cards anywhere traditional cards are accepted. Secured credit cards allow you to shop in person or online without carrying cash around with you. It’s also difficult to accrue too much debt because you’re limited by the amount of your deposit.

Drawbacks of Secured Credit Cards

Alongside the benefits offered by secured cards, there are limitations to be aware of.

Coming Up With the Deposit

In order to get a secured card, you will have to come up with the cash that will serve as your deposit. That may require you to save for a period of time before you apply.

Once you deposit that cash, you can’t access it while your secured card is in use. That said, your deposit is refundable when you close the account or convert your secured credit card to an unsecured card.

Higher APR

The annual percentage rate (APR) is the interest rate you’re charged when you carry a balance on your card. Secured credit cards may offer higher interest rates than traditional cards, which can end up costing you more money if you carry a balance.

Spending Is Limited

Most credit cards, whether they’re secured or unsecured, have spending limits. For a secured credit card, your limit will depend on the size of the deposit you make, which will typically range from $200 to $2,000. If you’ve only deposited $1,000 and need to replace your transmission for $1,800, you won’t be able to put the repair on your card.

In comparison, the average credit limit across all cards is upwards of $30,000, according to a recent report from the credit reporting bureau Experian®.

What Is an Unsecured Credit Card?

An unsecured credit card is a traditional credit card that does not require a deposit as collateral. Instead, your credit limit is determined based on your creditworthiness. If you fail to pay off your credit card, your card company can send your bill to a collections agency, and your credit score will take a hit.

There are a variety of types of credit cards to choose from when it comes to unsecured cards, including rewards cards and balance transfer cards.

When You Might Keep Your Secured Credit Card Open

The biggest reasons to keep your secured credit card open have to do with the potential implications closing the account can have for your credit score.

For one, closing an account may result in a dip in your credit score. Additionally, closing the account may decrease the age of your credit history, another factor that goes into determining your credit score.

When You Might Upgrade to an Unsecured Credit Card

You may consider upgrading to a traditional, unsecured card if you’re able to manage a secured card responsibly and are looking for a lower APR or a higher credit limit. Ultimately, making the move requires that your credit is in decent shape.

To do so, it’s important that you stick to credit card rules. That includes being sure that you’re not in the habit of overspending, you’re able to pay your bills on time and in full, and you can keep your total purchases lower than your available credit. Experts suggest keeping your total balance at 30% or less of your available credit.

However, whether you can change a secured credit card to unsecured will also depend on your credit card issuer. Not all card companies offer unsecured options that you can upgrade to. In those cases, you’ll need to apply for a new card.

Guide to Upgrading from a Secured Card to Unsecured Credit Card

If you’re looking to upgrade to an unsecured card, make sure you’re following these steps.

Monitor Your Credit Score

Many credit cards require that you have at least a good credit score to qualify. That means, you’ll need a FICO® score of 670 or higher. Not only are you more likely to qualify for a card with a higher score, you’ll also be more likely to secure more favorable terms and lower interest rates.

If you’re considering trying to convert a secured credit card to an unsecured card, monitor your credit score regularly. You might check with your card issuer to see if they offer you free access to your credit score.

Making the Minimum Monthly Payment

Getting approved for a change from a secured credit card to an unsecured credit card requires displaying responsible credit card behavior. Ideally, you’d avoid interest payments by paying off your credit card in full every month. But if that’s not possible, be sure you are making at least your minimum monthly payment, as payment history is one of the biggest determinants of your credit score. On-time payments are a big part of using a credit card responsibly.

Managing All Your Accounts Responsibly

Before opening an unsecured credit card, make sure you’re able to make other debt payments on time as well. This includes student loans, car payments, or a mortgage. If you’re not displaying good credit behavior elsewhere, that will show up on your credit report and potentially hurt your chances of qualifying for an unsecured credit card.

Limiting the Number of Credit Accounts You Open

Opening new accounts requires a hard inquiry, which will result in a temporary dip in your credit score. Additionally, if you open too many new accounts in a short period of time, it can lower the average age of your credit accounts, which is another factor that influences your credit score.

Ideally, you’ll avoid activities that will cause your credit score to drop as you’re trying to work toward being able to qualify for a secured credit card. A better score will improve your chances of getting approved.

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

The Takeaway

A secured card is an important tool for building or rebuilding credit. However, once you’ve established healthy credit card habits and good credit score, it may serve you to switch from a secured to unsecured credit card.

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

FAQ

Can I upgrade my secured credit card to unsecured?

Some lenders will allow you to change a secured credit card to an unsecured card. However, others will require that you apply for a new card.

How long does it take to convert a secured credit card to an unsecured one?

To move from a secured credit card to an unsecured one can take anywhere from several months to a couple of years. How long it takes will depend on the credit card issuer’s policies as well as what your credit score was when you opened the account.

Does converting a secured credit card to an unsecured card hurt your credit score?

Closing your secured card to open a traditional credit card may cause your credit score to take a temporary dip. However, you shouldn’t notice a huge impact.

Do all credit card issuers allow the conversion from a secured to unsecured card?

Not all credit card issuers will convert a secured card to an unsecured card. More often than not, you’ll have to close your secured account and open a brand new card.


Photo credit: iStock/Ridofranz

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

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

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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A Guide to Credit Card Grace Periods

A Guide to Credit Card Grace Periods

Your credit card’s grace period is the length of time that starts at the end of your billing cycle and ends when your payment is due. During this period, you may not have to pay interest on your balance — as long as you pay it off in full by your payment due date.

While a lot of credit cards have a grace period, not all of them do. Here’s a look at how grace periods on credit cards work and how you can take full advantage of them.

What Is the Grace Period on a Credit Card?

Credit cards allow you to borrow money over the course of a one-month billing cycle, during which you may not need to pay interest. The end of your credit card billing cycle is also called your statement date. That’s when your monthly credit card statement is sent to you in the mail or becomes available online. Credit card payments are due on the payment due date, about three weeks later. The time in between these dates is what’s known as the grace period.

During this time, you won’t be charged any interest on the purchases that you made during the billing cycle. However, because of how credit card payments work, you must pay off your credit card balance in full by your payment due date in order to avoid interest payments. At the very least, you must make your minimum payment, and you’ll then owe interest on whatever balance you carry into the next month.

Recommended: What Is a Charge Card?

How Credit Card Billing Cycles and Grace Periods Work

Grace periods on credit cards are different from the grace period for other loan products. For example, the grace period for a mortgage lasts about 15 days. If your payment is due on the first of the month, you’d have until mid-month to make your payment before it’s considered late and you’re charged potential late fees.

This is not how credit card grace periods work. The grace period for revolving credit — which is what a credit card is — comes before the payment due date. As such, credit card grace periods don’t protect you from late fees. Rather, they give you a period of time in which you can avoid interest payments.

If you miss the date when credit card payments are due, your payment is considered late. Late payments may trigger penalties, and they can have a negative effect on your credit score if they’re reported to the credit reporting bureaus.

Limits on Credit Card Grace Periods

Credit card companies are not required to offer their customers a grace period. However, many of them choose to do so.

Federal law requires credit card companies to send you a bill within 21 days of the payment due date, meaning you’ll get at least three weeks’ notice of how much you owe for your previous billing cycle (after the credit card closing date). However, the amount of time you’ll have for your grace period will vary by lender.

Credit card grace periods typically only apply to purchases. That means if you’ve used your credit card for a cash advance, for example, you’ll have to start paying interest on the date of the cash advance transaction.

Recommended: Tips for Using a Credit Card Responsibly

How Long Is the Typical Grace Period for a Credit Card?

Typically, grace periods last at least 21 days and up to 25 days.

You can find out how long your grace period is by checking your cardholder agreement. The length of your grace period should be listed alongside fees and your annual percentage rate (APR). You can also call your credit card company and ask them directly.

You may also have a longer grace period for special promotions. Those can be as long as 55 days.

What Types of Transactions Are Eligible for Credit Card Grace Periods?

As mentioned above, generally only purchase transactions are eligible for the credit card grace period. Cash advances — which allow you to borrow a certain amount of money against your line of credit — typically are not eligible. They will start accruing interest the day you make the transaction.

Similarly, if you transfer a balance from one credit card to another, you’ll start to accrue interest on that balance immediately. The only exception is if you have a balance transfer credit card with a 0% introductory rate for a period of time. If you pay off the balance during that period, you won’t owe interest. However, interest will accrue on whatever remains of your balance at the end of that period.

Taking Maximum Advantage of Your Credit Card’s Grace Period

If you pay off your credit card bill in full each month, you’ll avoid accruing credit card interest. Even carrying a small balance will disrupt your grace periods. If you do, you’ll owe interest on the remaining amount, and all of the new purchases that you make in the next billing cycle will accrue interest immediately as well.

To take full advantage of your credit card’s grace period, plan your purchases accordingly to ensure you’re able to pay your bills in full and on time. For example, if you’re going to make a large purchase, you may want to do so close to the first day of your billing cycle. That way, you’ll have the full cycle (about four weeks), plus your grace period (about three weeks), to pay off your purchase without owing any interest.

Can You Lose Your Credit Card’s Grace Period?

It is possible to lose your credit card grace period if you don’t make on-time payments in full each month by the payment due date. If you lose your grace period, you’ll be charged interest on the remaining portion of your balance. In the new billing cycle, you’ll also owe interest on any new purchases on the day the transaction takes place. This can lead to you falling into a debt cycle, which isn’t easy to get out of. (It’s wise to educate yourself on what happens to credit card debt when you die, too.)

Luckily, issuers usually restore grace periods once you’ve paid your outstanding balance and are back to making full on-time payments for a month or two.

The Takeaway

Your credit card grace period is an important tool that can save you money on interest if you pay off your balance in full each month. If you don’t pay your balance in full each month, you could lose this privilege temporarily. As such, you’d end up owing interest on your previous remaining balance and any new purchases.

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 grace period for credit card payments after the due date?

Credit card grace periods occur before the payment due date. Payments made after that date are considered late. After the due date, cardholders will owe interest on their balance. Further, they may lose their grace period until they can pay their balance off in full for one or two months.

What happens if you are one day late on a credit card payment?

Being one day late on a credit card payment can still trigger late fees, interest, and potentially the loss of your grace period. Late payments may also be reported to the credit reporting bureaus, which can have a negative impact on your credit score.

What is the typical grace period for a credit card?

Federal law requires that credit card companies provide your bill at least 21 days before your next payment due date. The length of the grace period can vary depending on the credit card issuer, though they typically last 21 to 25 days.


Photo credit: iStock/Moyo Studio

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

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

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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, plus any fees. 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 you money. In turn, this can make it easier and faster to pay off debt. Doing so is one way you can help build your credit score.

The higher your interest rate is, the harder it can be to chip away at your 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 you are interested in lowering your credit card APR, there are steps you can take to try to do so.

Apply for a Balance Transfer Card

If your card has a high APR, one option for how to get a better rate can be a balance transfer card with a lower interest rate. You can then transfer your 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, you won’t pay any interest, which means all of your 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.

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.

You can also provide a reason why you’re requesting a reduction. You may have experienced a job loss or have unexpected medical bills to pay. Maybe you got a raise and are really motivated to pay off your debt, and having a lower interest rate would help you 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 one to three percentage points.

Low-Interest Credit Cards

If you can’t quite figure out how to get a lower interest rate on a credit card with your current issuer, you could also step away from using that specific credit card. Instead, you might 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 build 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.

The Takeaway

If you pay off your credit card balance in full each month, you won’t have to worry about your 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. More of your monthly payments can go toward paying down the principal balance instead of interest. In turn, this can help you pay off your debt faster, save money, and even build your credit score.

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 can I reduce my credit card interest rate?

You have a few options for lowering the interest rate on a credit card. You can try to negotiate a lower interest rate on any current credit cards by calling your issuer and trying to come to an agreement. If that doesn’t work, you can apply for a new credit card or a balance transfer card. If you can secure a lower interest rate on a new credit card, you can choose to use that credit card or take that offer back to your 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 .

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Guide to Credit Card Annual Fees

A credit card annual fee is the price that some cardholders pay to use a certain credit card. While there are plenty of credit cards on the market that don’t come with an annual fee, the credit cards that charge an annual fee tend to have better cardholder perks that can outweigh the cost of the annual fee if the card is used optimally.

Keep reading for more insight into annual fee credit cards.

What Is a Credit Card Annual Fee?

Annual fees are costs charged by many (but not all) credit card issuers to help finance their service, including cardholder perks, such as travel credits and free checked luggage on flights.

The amount of an annual fee factors into how much a credit card costs overall, and it varies from card to card. Credit card annual fees can start as low as around $39 and go as high as thousands of dollars for luxury credit cards.

Usually how credit cards work is that cards with sky-high annual fees also offer a lot of extra perks to make the credit card worth the money. For instance, the cardholder may gain exclusive access to airport lounges, credits towards rideshares, or be able to tap into competitive introductory reward bonuses.

However, there are cases where an annual fee is charged for credit cards designed for consumers with low credit scores. These credit cards don’t offer great rewards, and instead give consumers with poor credit a chance to build their credit by using credit cards responsibly. Eventually, the goal is for the cardholder to positively impact their credit so they can qualify for credit cards with lower interest rates and better perks.

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

How Do Credit Card Annual Fees Work?

When you pay the annual fee on a credit card varies depending on your card issuer. Credit card issuers either charge annual fees on either a yearly basis, or they may divide the fee up into smaller monthly installments.

If your fee is charged once a year, then it usually will appear on your first statement after you open your account. You’ll then get charged every 12 months thereafter. In the instance an annual fee is divided into smaller monthly payments, these will get included on the monthly statement the cardholder receives.

You pay your credit card annual fee just like you’d pay any other credit card charges listed on your monthly statement.

Which Credit Cards Typically Have an Annual Fee?

There are three main types of annual fee credit cards you might consider.

Reward Cards

Credit cards that can offer a high-value rewards structure or that have a strong introductory bonus often come with an annual fee. If the card is used strategically, it’s possible to earn enough credit card rewards to cancel out the cost of the annual fee and other cardholder fees. You may earn rewards like cash back, travel points, or discounts on specialty purchases.

Premium Credit Cards

A premium credit card that offers luxe perks like private airport lounge access or a travel concierge is likely to charge an annual fee to use the card. If you’re considering one of these cards, make sure to crunch the numbers to make sure you’ll use enough of the perks to offset the cost of the annual fee.

Secured Credit Cards

A secured credit card is designed to help consumers with bad credit scores build their credit. These cards require a deposit to “secure” the card, and that amount also usually serves as the card’s credit limit. On top of the deposit, secured credit cards often carry an annual fee.

For some, the cost of a secured card may be worth it for the opportunity to build their credit score, which can make it easier to qualify for lending opportunities in the future. Still, make sure it’s within your budget.

Recommended: What Is the Average Credit Card Limit?

How Are Credit Card Annual Fees Charged?

As briefly mentioned above, some credit card issuers charge the annual fee once a year, while others split up the annual fee into smaller monthly installments.

The annual fee shows up on the credit card statement alongside normal credit card charges, and the cardholder pays the annual fee as part of that month’s credit card bill. Remember that even if you have an authorized user on a credit card, it’s still the primary cardholder’s responsibility to make payments, which includes any fees.

Avoiding Credit Card Annual Fees

If you’re trying to avoid credit card fees, it’s entirely possible to avoid paying annual fees. There are plenty of credit cards on the market that don’t charge an annual fee at all.

If someone is interested in a credit card with an annual fee, such as a premium rewards card, they can try to get the first year’s annual fee waived. Some credit card issuers offer to do this from the get-go. However, if someone is an existing cardmember with the issuer and their introductory offer doesn’t include waiving the first year’s fee, they can request a one-time waiver.

Before signing up for a credit card with an annual fee, it’s important to evaluate your spending habits. You want to ensure that you can comfortably afford to cover the annual fee for the credit card. Also investigate whether you’ll earn enough benefits from the card to justify the cost of the annual fee.

The Takeaway

Annual fees are often charged by credit card issuers to cover the cost of their services and perks. Fees can range from around $39 to thousands of dollars for ultra-premium cards, and it can be wise to review them carefully and make sure you are comfortable paying them. It may be possible to avoid these fees by negotiating with your card issuer or qualifying for this reward.

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 you pay the annual fee on your credit card?

If someone has an annual fee credit card, the annual fee will appear on their credit card statement. The fee may appear every 12 months or in smaller increments on a monthly basis. The cardholder then pays this fee as a part of their monthly bill in addition to any other purchases they made with the credit card during that billing cycle.

How can I avoid paying annual fees on my credit card?

Alongside choosing a credit card that doesn’t charge an annual fee (there are plenty of options on the market), a consumer may be able to get the first year of an annual fee waived as a new cardholder incentive. It only makes sense to open a credit card with an annual fee if the account holder’s spending habits line up with the rewards structure of the credit card. That way, they can earn enough cash back, miles, or other perks to outweigh the cost of the annual fee.

Do all credit cards have annual fees?

There are tons of great credit cards on the market that don’t come with annual fees. There’s never a reason to pay an annual fee if someone decides that’s not a good use of their money.


Photo credit: iStock/Rudzhan Nagiev

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

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

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Is There a Statute of Limitations on Debt?

Statute of Limitations on Debt: Things to Know

A statute of limitations is a state law that limits the period during which a creditor or debt collector can bring action in court to enforce a contract, such as a loan agreement or note. This means a creditor may not be allowed to sue a borrower in court to force them to pay a debt after the period has expired.

However, the statute of limitations on debt isn’t a wait-it-out solution that simply erases debt once it’s been owed for a few years. There may still be consequences to failing to pay back debts once the statute of limitations for debts has expired — and statutes of limitations don’t apply to some debts, including federal student loans. Here’s what you should know about statutes of limitations on debt.

What Is The Statute of Limitations on Debt?

Essentially, a statute of limitations on debt puts a time restriction on how long a creditor or debt collector is able to sue a borrower in state court to enforce the loan agreement and force them to repay the outstanding debts. In practice, this means that if a borrower chooses not to pay a debt, after the statute of limitation runs out, the creditor or debt collector doesn’t have a legal remedy to force them to pay.

To be clear, just because the statute of limitations has expired, it doesn’t mean that the borrower no longer owes the money, even though it does mean that the lender may not be able to take them to court for non-payment. The borrower will continue to owe the money borrowed, and their non-payment could be reported to the credit bureaus, which would then remain on the report for as long as allowed under the applicable credit reporting time limit. (For further evidence of how long debt can stick around, you might consider what happens to credit card debt when you die.)

Statutes of limitations don’t apply to all debts. They don’t, for example, apply to federal student loans. Federal student loans that are in default may be collected through wage or tax refund garnishment without a court order.

How Long Until a Debt Expires?

The length of the statute of limitations is determined by state law. State statutes of limitations on debt typically vary from three years to more than 10 years, depending on the type of debt and when the contract was entered into.

Figuring out exactly which state’s laws your debt falls under isn’t always as simple as you might imagine. The applicable statute of limitations may be determined by the state you live in, the state you lived in when you first took on the debt, or even the state where the lender or debt collector is located. The lender may even have included a clause in the contract you signed mandating that the debt is governed by a specific state’s laws.

One commonality in every state’s statutes of limitations on debt is that the “clock” does not start ticking until the borrower’s last activity on the relevant account. Say, for example, that you made a payment on a credit card two years ago and then entered into a payment plan with the debt collector last year but never made any subsequent payments. In that case, the statute of limitations clock would start on the date that you entered into the payment plan.

In this example, simply entering into a payment plan counts as “activity” on the account. This can make it confusing to determine if the statute of limitations has expired on your old debts, especially if you haven’t made a payment in a long time.

It may be possible to find out what the statute of limitations is by contacting the lender or debt collector and asking for verification of the debt. Remember that agreeing to make a payment, entering a payment plan, or otherwise taking any action on the account — including simply acknowledging the debt — may restart the statute of limitations.

After the statute of limitations on the debt has expired, the debt is considered time-barred.

Types of Debt

As mentioned, the length of the statute of limitations on debt can vary depending on the type of debt it is. To know which timeline applies, it helps to understand the different types of debt.

Written Contract

A written contract is an agreement that is signed in writing by both you and the creditor. This contract must include the terms of the loan, such as how much the loan is for and how much monthly payments are.

Oral Contract

An oral contract is bound by verbal agreement — there is no written contract involved. In other words, you said you would pay back the money, but did not sign any paperwork.

Promissory Notes

Promissory notes are written agreements in which you agree to pay back the amount of money by a certain date, in agreed upon installments and at a set interest rate. Examples of promissory notes are student loan agreements and mortgages.

Open-Ended Accounts

Open-ended accounts include credit cards and lines of credit. With an open-ended account, you can repeatedly borrow funds up to the agreed upon credit limit. Upon repayment, you can then borrow money again.

Statute of Limitations on Debt Collection

Each state has its own statute of limitations on debt collection. Here’s a breakdown of the varying timelines by state:

Statute of Limitations For Debts By State and Type of Debt

State Written Contract Oral Contract Promissory Note Open-Ended Account
Alabama 6 6 6 3
Alaska 3 3 3 3
Arizona 6 3 6 3
Arkansas 5 3 5 5
California 4 2 4 4
Colorado 3 3 3 3
Connecticut 6 3 6 3
Delaware 3 3 3 3
District of Columbia 3 3 3 3
Florida 5 5 4 4
Georgia 6 4 4 4
Hawaii 6 6 6 6
Idaho 5 4 5 4
Illinois 10 5 10 5
Indiana 6 6 6 6
Iowa 10 5 10 5
Kansas 5 3 6 3
Kentucky 15 5 10 5
Louisiana 10 10 10 3
Maine 6 6 6 6
Maryland 3 3 6 3
Massachusetts 6 6 6 6
Michigan 6 6 6 6
Minnesota 6 6 6 6
Mississippi 3 3 3 3
Missouri 10 6 10 5
Montana 8 5 5 5
Nebraska 5 4 5 4
Nevada 6 4 3 4
New Hampshire 3 3 6 3
New Jersey 6 6 6 6
New Mexico 6 4 6 4
New York 6 6 6 6
North Carolina 3 3 3 3
North Dakota 6 6 6 6
Ohio 8 6 6 6
Oklahoma 5 3 5 3
Oregon 6 6 6 6
Pennsylvania 4 4 4 4
Rhode Island 10 10 10 10
South Carolina 3 3 3 3
South Dakota 6 6 6 6
Tennessee 6 6 6 6
Texas 4 4 4 4
Utah 6 4 4 4
Vermont 6 6 14 3
Virginia 5 3 6 3
Washington 6 3 6 6
West Virginia 10 5 6 5
Wisconsin 6 6 10 6
Wyoming 10 8 10 6

Statutes of limitations on certain old debts may prevent creditors or debt collectors from suing you to recover what you owe. However, it’s important to realize that debt statutes of limitations don’t protect you from creditors or debt collectors continuing to attempt to collect payments on the time-barred debt, such as in the case of credit card default. Remember, you still owe that money, whether or not the debt is time-barred. The statute of limitations merely prevents a lender or debt collector from pursuing legal action against you indefinitely.

Debt collectors may continue to contact you about your debt. But under the Fair Debt Collection Practices Act, debt collectors cannot sue or threaten to sue you for a time-barred debt. (Note that this act applies only to debt collectors and not to the original lenders.)

Some debt collectors, however, may still try to take you to court on a time-barred debt. If you receive notice of a lawsuit about a debt you believe is time-barred, you may wish to consult an attorney about your legal rights and resolution strategies.

Disputing Time-Barred Debt With Debt Collectors

If a debt collector is contacting you to attempt to collect on a debt that you know is time-barred and you don’t intend to pay the debt, you can request that the debt collector stop contacting you.

One option is to write a letter stating that the debt is time-barred and you no longer wish to be contacted about the money owed. If you’re unsure, it may be possible to state that you would like to dispute the debt and want verification that the debt is not time-barred. If the debt is sold to another debt collector, it may be necessary to repeat this process with the new collection agency.

Remember, even though a collector can’t force you to pay the debt once the statute of limitations expires, there may still be consequences for non-payment. For one, your original creditor may continue to contact you through the mail and by phone.

Additionally, most unpaid debts can be listed on your credit report for seven years, which may negatively affect your credit score. That means that failing to pay a debt may impact your ability to buy a car, rent a house, or take out new credit cards, even if that debt is time-barred.

Statute of Limitations on Student Loan Debt

Statutes of limitations don’t apply to federal student loan debt. If you default on your federal student loan, your wages or tax refunds may be garnished.

If you have federal student loan debt, you may consider managing your student loans through consolidating or refinancing. This can help you decrease your loan term or secure a lower interest rate.

Borrowers who hold only federal student loans may be able to consolidate their student loans with the federal government to simplify their payments.

Those with a combination of both private and federal student loans might consider student loan refinancing to get a new interest rate and/or loan term. Depending on an individual’s financial circumstances, refinancing can potentially result in a lower monthly payment (though it may also mean paying more in interest over the life of the loan).

All borrowers with federal loans should keep in mind that refinancing federal loans can mean relinquishing certain benefits, like forbearance and income-based repayment options.

Statute of Limitations on Credit Card Debt

The statute of limitations on credit card debts can generally range anywhere from three years to 10 years, depending on the state. However, the laws in the state in which you live aren’t necessarily what dictates your credit card statute of limitations. Many of the top credit issuers name a specific state whose laws apply in the credit card agreement.

How Long Does the Statute of Limitations on Credit Card Debt Last?

Here’s a look at how long can credit card debt be collected through court proceedings for each state in the U.S.:

Statute of Limitations on Credit Card Debt By State

State Number of years
Alabama 3
Alaska 3
Arizona 6
Arkansas 5
California 4
Colorado 6
Connecticut 6
Delaware 3
District of Columbia 3
Florida 5
Georgia 6
Hawaii 6
Idaho 5
Illinois 5
Indiana 6
Iowa 5
Kansas 3
Kentucky 5 or 15
Louisiana 3
Maine 6
Maryland 3
Massachusetts 6
Michigan 6
Minnesota 6
Mississippi 3
Missouri 5
Montana 8
Nebraska 4
Nevada 4
New Hampshire 6
New Jersey 6
New Mexico 4
New York 6
North Carolina 3
North Dakota 6
Ohio 6
Oklahoma 5
Oregon 6
Pennsylvania 4
Rhode Island 10
South Carolina 3
South Dakota 6
Tennessee 6
Texas 4
Utah 6
Vermont 6
Virginia 3
Washington 6
West Virginia 10
Wisconsin 6
Wyoming 8

Effects of the Statute of Limitations on Your Credit Report

The statute of limitations on credit card debt doesn’t have an impact on what appears on your credit report. Even if the credit card statute of limitations has passed, your debt can still appear on your credit report, underscoring the importance of using a credit card responsibly.

Unpaid debts typically remain on your credit report for seven years, during which time they’ll negatively impact your credit (though its effect can wane over time). So, for instance, if the state laws of Delaware apply to your credit card debt, your statute of limitations would be four years. Your unpaid debt would remain on your credit report for another three years after that period elapsed.

This is why it’s important to consider solutions, such as negotiating credit card debt settlement or credit card debt forgiveness, rather than just waiting for the clock to run out.

How to Know If a Debt Is Time-Barred

To determine if a debt is time-barred — meaning the statute of limitations has passed — the first step is figuring out the last date of activity on the account. This generally means your last payment on the account, though in some cases it can even include a promise to make a payment, such as saying you’d soon work on paying off $10,000 in credit card debt.

You can find out when you made your last payment on the account by pulling your credit report, which you can access at no cost once per year at AnnualCreditReport.com.

Once you have that information in hand, you can take a look at state statutes of limitation laws. Keep in mind that it might not be your state’s laws that apply. If you’re looking for the statute of limitations for credit card debt, for instance, check your credit card’s terms and conditions to see which state’s laws apply.

Figuring out all of the relevant information isn’t always easy. If you’re unsure or have any questions, consider contacting a debt collections lawyer, who should be able to assist with answers to all your credit card debt questions.

What to Do If You Are Sued Over a Time-Barred Debt

Even if you know a debt is time-barred, it’s important to take action if you’re sued over it. You’ll need to verify that the statute of limitations has indeed passed, and you’ll need to come forward with that information. It may be helpful to work with an attorney to help you respond appropriately and avoid any missteps.

If you do end up going to court, it’s critical to show up. The judge will dismiss your case as long as you can prove that the debt is indeed time-barred. However, if you don’t show up, you will lose the case.

How to Verify Whether You Owe the Debt

If you’re not sure whether a debt you’ve been contacted about is yours, you can ask the debt collector for verification. Request the debt collector’s name, the company’s name, address and phone number, and a professional license number. Also ask that the company mail you a validation notice, which will include the name of the creditor seeking payment and the amount you owe. This notice must be sent within five days of when the debt collector contacted you.

If, upon receiving the validation notice, you do not recognize the debt is yours, you can send the debt collector a letter of dispute. You must do so within 30 days.

The Takeaway

Statutes of limitations on debt create limits for how long debt collectors are able to sue borrowers in a court of law. These limits vary by state but are often between three to 10 or more years. Once the statute of limitations on a debt has expired, the debt is considered time-barred. However, any action the borrower takes on the account has the potential to restart the statute of limitations clock.

While borrowing money can leave you in a stressful situation where you’re waiting for the clock to run out, it can also help you build your credit profile and access new financial opportunities.

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 I still owe a debt after the statute of limitations has passed?

Yes. The statute of limitations passing simply means that the creditor cannot take legal action to recoup the debt. Your debt will still remain, and it can continue to affect your credit.

Can a debt collector contact me after the statute of limitations has passed?

Yes, a debt collector can still contact you after the statute of limitations on debt passes as there isn’t a statute of limitations on debt collection. However, you do have the right to request that they stop contacting you. You can make this request by sending a cease communications letter.

Additionally, if you believe the contact is in violation of provisions in the Fair Debt Collection Practices Act — such as if they are harassing or threatening you — then you can file a complaint by contacting your local attorney general’s office, the Federal Trade Commission, or the Consumer Financial Protection Bureau.

When does the statute of limitations commence?

The clock starts ticking on the statute of limitations on the last date of activity on the account. This generally means your last payment on the account, but it also could be when you last used the account, entered into a payment agreement, or made a promise to make a payment.

After the statute of limitations has passed, how do I remove debt from my credit report?

Even if the statute of limitations has already passed, debt will remain on your credit report for seven years. At this point, it should automatically drop off your report. If, for some reason, it does not, then you can dispute the information with the credit bureau.

What state’s laws on statute of limitations apply if I incur credit card debt in one state, then move to another state?

If you’re unsure of what the statute of limitations on credit card debt is, the first thing to do is to check your credit card agreement. Which state you live in may not have an impact, as many credit card companies dictate in the credit card agreement which state court will preside.


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.

This article is not intended to be legal advice. Please consult an attorney for advice.

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