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A credit card number — that long string of digits on the front or back of every credit card — contains more information than you might think. Though credit card numbers may seem rambling and random, each digit actually has a specific purpose and place. The number you see on a credit card provides information about the individual account holder, the payment network, and the card issuer. It also uses a special formula to help prevent transaction errors and fraud.

Have you ever wondered, “What is my credit card number and what does it represent?” Read on as we break down the significance of each digit and guide you through what you need to know.

What Is a Credit Card Number?

A credit card number is a set of digits — usually 16 — that’s printed on the front or back of a credit card.

It’s important to note that your credit card number is not the same thing as your account number. Your credit card number includes your account number, but it has additional digits (an account number typically has 12), and it provides more information. When you make a credit purchase online or on the phone, you can expect to be asked for your full card number to authenticate the transaction.

Though the information provided by every credit card number is basically the same, the format may differ a bit from card to card: Sometimes the numbers are raised; sometimes they’re flat. And generally, although not always, the digits are divided into four sets of four (xxxx xxxx xxxx xxxx).

The format for credit cards and debit cards is similar — which is why you might pull out the wrong card from time to time.

Who Decides What Your Credit Card Number Is?

Your credit account number is assigned by the financial institution that issues your credit card. But the structure and sequence of the digits in your credit card number must follow a rigid set of standards imposed by the International Organization of Standardization (ISO) and enforced by the American Network of Standards Institute (ANSI).

All card issuers follow these rules, so consumers can use their cards or card numbers no matter where they are in the world.

Credit Card Number Structure

Even if you know what a credit card is and how credit cards work, you may not be familiar with what the numbers on your card mean. Though most credit card numbers have 16 digits, the length may vary. Of the four major card networks, Visa, Mastercard, and Discover card numbers all have 16 digits, while American Express card numbers have only 15. Here’s what those digits actually mean.

The First Number: Industry Identifier

The first digit in a credit card number is known as the Major Industry Identifier (MII), and it can tell you both the industry associated with the card and the payment network.

Payment Network

Most credit cards start with a 3, 4, 5, or 6. These numbers represent the major payment networks, each of which has its own identifier:

•   American Express cards begin with a 3

•   Visa cards begin with a 4

•   Mastercard cards typically start with a 5, but may start with a 2

•   Discover cards start with a 6

Knowing your credit card’s payment network can be useful, because the network determines which merchants will accept the card. Your favorite local market or small boutique might accept credit card payments with a Mastercard, Visa, or Discover card, for example, but they may not let you pay with American Express.

Recommended: When Are Credit Card Payments Due

Industry Association

There are many different types of credit cards. Some credit cards are meant for general use, while others may be geared to a more specific purpose. The MII can tell you which type of industry your card is most associated with. Here’s what some MIIs generally mean:

•   1: Airlines

•   2: Airlines and financial

•   3: Travel and entertainment

•   4: Banking and financial

•   5: Banking and financial

•   6: Merchandising and banking

•   7: Petroleum

•   8: Health care and communications

•   9: Government and other

The Next 5 Numbers: Identification Numbers

The next five digits complete the Bank Identification Number (BIN), or Issuer Identification Number (IIN). This can tell you who the card issuer is.

The credit card issuer is the financial institution that offers the card and manages your account. Some of the largest credit card issuers in the U.S. include American Express, Bank of America, Capital One, Chase, Citi, Wells Fargo, and Discover.

When you apply for a credit card, it’s the issuer who accepts or declines your application. When you make a purchase, you’re borrowing money from the credit card issuer, and when you pay your bill, you’re paying back that money. Any time you check your balance, request a higher credit limit or a lower interest rate, or obtain a replacement card, you’re doing it through your credit card issuer.

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

The Next 9-12 Numbers: Account Identifier

The remaining digits on the card — except for the very last one — identify the account and the cardholder.

Don’t worry, there isn’t a secret indicator in your card number that tells people how often you’re using your credit card or if you’re paying your bills on time. This part of your card number simply represents what account the card is connected to.

If your card is lost or stolen, or your card number is compromised in a credit card scam, you may notice that the number on your replacement card has changed, even if your account number hasn’t. So if you’re keeping a list of card numbers in a secure place, you may have to update that card number.

Fun fact: Each credit card issuer has approximately 1 trillion potential numerical configurations from which it can create account numbers.

Recommended: Tips for Using a Credit Card Responsibly

The Last Number: Checksum

The last digit of a credit card number is referred to as the “checksum” or “check digit.” Card issuers and payment networks use it to catch errors and help protect against unauthorized card use. (Let’s face it: Even if you follow all the “credit card rules,” things can happen.)

When a card is used for a purchase or payment, this digit is used as part of a mathematical formula called the Luhn algorithm to verify the card’s validity. If the checksum doesn’t work, the transaction is quickly rejected. (If you’ve ever mistyped your card number when shopping online, you’ve seen this algorithm in action.)

Most major networks use the final digit as the checksum. However, if you have a Visa credit card, it may be the 13th digit.

What About the Other Numbers on the Card?

Besides the card number, there are two other sets of digits that also can play a critical role when you use your credit card.

Card Verification Value (CVV)

The Card Verification Value (or CVV number on a credit card) or Card Verification Code (CVC) is also used to protect the card owner. If you do a lot of online shopping, you’re probably very familiar with this three- or four-digit number, which usually is found on the back of a credit card near or inside the signature strip.

On some cards, there may be seven digits in this spot. If this is the case, the first four digits you see are the last four digits of your credit card number. The last three digits in the grouping represent the CVV.

If you have an American Express card, the CVV is a four-digit number located on the front of the card, just above the logo.

The CVV is designed to help protect against identity theft. If you aren’t presenting your card in person during a transaction (because you’re using it online or over the phone), providing the CVV can help prove you’re in possession of the physical card.

Expiration Date

The expiration date offers yet another layer of protection for the card holder. Most businesses require that you provide the credit card number, the CVV, and the card’s expiration date when you make an online purchase.

The credit card expiration date typically appears on the front of the card with two digits for the month and two digits for the year (xx/xx). But if the account number is printed on the back of the card, you’ll likely find the expiration date there.

Even if you never need to use it to make a remote purchase or payment, it can be a good idea to glance at your card’s expiration date from time to time. That way, you can ensure you always have a current card in your wallet.

You’ll also know when it’s time to watch for the arrival of a replacement card. If a new card doesn’t arrive in the month the old card expires, you can call the issuer and immediately take steps to protect yourself if it appears the card has been lost or stolen. (The phone number for customer service is also on your card.)

The Takeaway

At first glance, the number on your credit card might look like a meaningless jumble. But if you take a closer look, you’ll find each digit has a purpose — to provide information, to keep your account secure, and to make the card more user-friendly.

When you’re considering getting a credit card, you also may want to look for additional protections and benefits. With a SoFi credit card, for example, you can receive Mastercard ID theft protection and cell phone protection, and there are no foreign transaction fees. And as a SoFi cardholder, you may be eligible to earn 2% cash back when you redeem it to save, invest, or pay down an eligible SoFi loan.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

Where do I find my credit card number?

Your credit card number may appear on the front or back of your credit card.

Is the credit card number the same as the account number?

No, the two numbers are linked, but they are not the same. Your credit card number includes your account number, but it has more digits, and those extra digits are important to how each transaction is processed.

How long is a credit card number?

A credit card number typically has 16 digits, but the number can vary. American Express uses a 15-digit format for its credit cards.

Can a credit card number be stolen?

Yes. A credit card number can be stolen in multiple ways: through the theft of a physical card, during a data breach, with a card skimmer, or if the cardholder uses an unsecured website or public Wi-Fi when making a credit transaction.

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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.

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 .

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.

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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A credit limit is basically what the term suggests: A financial cap on a credit card account that limits how much money the cardholder can borrow from the card issuer. By including a maximum spending amount, the card issuer buys itself some protection against the cardholder borrowing more than they can pay back on an ongoing basis.

There’s more to the story, however, when it comes to credit card limits and how they’re determined. Here’s a closer look at what a credit limit is and what happens if you go over your credit limit.

What Is a Credit Limit?

As mentioned, a credit limit is the maximum amount that you can charge with your credit card, which represents a line of credit. The amount is determined based on information provided in a credit card application, such as the applicant’s credit score, income, and existing debts. Usually, the higher the credit, the higher above the average credit card limit someone will receive.

It’s also important to note that credit card limits aren’t set in stone. A cardholder may receive a higher credit card limit if they make their payments on time and stay well within their credit limit. Conversely, if card payments are late (or worse, not made at all) or if there are other signs of risk, such as nearing or exceeding their credit card spending limit, then the card issuer may decrease someone’s credit limit.

Recommended: What is a Charge Card

Credit Limit and Available Credit

Each purchase made with a credit card is deducted from your total credit limit, resulting in your available credit. For example, let’s say someone has a credit limit of $10,000. If they spend $2,000 at a store that accepts credit card payments, their available credit falls to $8,000. If they were then to make a $1,000 payment, their available credit would increase to $9,000.

Thus, your available credit will fluctuate over time depending on purchases and other transactions you’ve made, as well as any payments, including credit card minimum payments, made on the account. Your credit limit, on the other hand, remains constant regardless of account activity.

Credit Limit and Credit Scores

There’s another good reason to keep your credit card spending in check, and significantly below your card limit — it affects your credit score.

When FICO calculates its benchmark credit scores, it places a significant weight (30% of its total credit score calculations) on credit utilization. Credit utilization ratio compares the amount of credit a cardholder is using to the total available credit they have.

For instance, a card owner may have $10,000 in total available credit, but owe a total of $9,000 on the card. That represents a 90% card utilization, which is considered high and may raise a red flag for lenders as it suggests overspending and potentially an inability to pay. As such, a high credit utilization ratio could result in a lower credit limit for the cardholder, whether that’s a decrease on their existing limit or lower limits offered on new accounts.

It’s usually recommended that cardholders keep their card utilization rate below 30% to avoid negative effects on their credit score. In the above example, that means the cardholder with a $10,000 credit card limit shouldn’t owe more than $3,000 on the card.

How Much of Your Credit Limit Can You Use?

Technically, you can spend up to your credit limit. However, using too much of your total credit can adversely affect your credit utilization ratio, a key factor in determining your credit score.

It’s suggested to keep your credit utilization below 30% — which means using no more than 30% of your overall credit limit. This is why it’s always important to make payments, even if you’re in the process of requesting a credit card chargeback or other dispute.

How Is Your Credit Limit Determined?

The formula for determining a credit card limit depends on which scoring model the card provider uses. Generally, one of three distinct credit limit models is used: credit-based limits, predetermined credit limits, or customized limits.

The Credit-Based Limits

With credit-based limits, card providers leverage your credit score to determine credit limits. In doing so, card companies rely on the same financial formula that credit scoring agencies use to create a credit score — a cardholder’s payment history, credit utilization rate, total length of credit history, credit mix, and any new credit inquiries. Card companies may also take a close look at the card owner’s total annual income, total household expenses, and type of employment.

Basically, the better you are at making on-time credit card payments, curbing household debt, and handling consumer credit, the more likely you are to get a higher credit card limit under the credit-based limits model.

Recommended: When Are Credit Card Payments Due

The Predetermined Credit Limits

This credit limit calculation model relies on a “ladder approach” to determine credit limits. In this scenario, credit card issuers assign a credit limit based on the type of card. In other words, every card in a certain tier — such as an entry-level card or a premium rewards card — would come with the same credit limit rather than the credit limit being determined based on the individual consumer.

The more features and amenities a credit card has, the higher the credit limit typically is under this model. For example, a premium credit card with robust benefits and generous cash-back rewards may have a credit limit of $10,000. Meanwhile, a more bare bones credit card for entry-level cardholders may have a credit limit of $500.

The Customized Credit Limits

With customized credit limits, card providers tailor the credit limit to the individual credit card consumer. They may do so in different ways based on different criteria.

For example, one credit card issuer may base its decision on a cardholder’s annual household income, while another may prioritize the number of credit cards an individual already owns, along with their existing credit limits.

In that way, card companies are drilling down into an individual’s financial history and basing their credit limit decision on myriad factors. Once again, the stronger a card candidate’s financial resume, the more likely that individual is to receive a higher credit card limit.

Recommended: Tips for Using a Credit Card Responsibly

Can You Spend Over Your Credit Limit?

In general, credit card companies prevent spending over the credit card limit.

When a cardholder has reached their limit and attempts to use their credit card, the transaction may be declined.

In some instances, however, the card issuer may allow the transaction to go through and instead impose a financial penalty for spending over the credit card limit. According to the Credit Card Act of 2009 (CCA), the card company can’t assess a fee that’s more than the amount spent over the credit limit. So, for instance, if you overspent by $30, your fee couldn’t be more than $30.

Typically, the card owner must opt in to allow for purchases over the credit limit to be approved. The CCA legislation mandates that credit card companies can’t arbitrarily charge an over-the-limit fee without the cardholder’s signed consent. For that reason, most card providers have eliminated over-the-limit fees and simply deny the transaction instead.

Check with your card company to see if it still charges over-the-limit fees. If so, and you object, ask to opt out and focus on keeping your credit card balance well below your card spending limit.

Is It Possible to Increase Your Credit Card Limit?

Credit card limits aren’t static. They can go up — especially if a card customer asks for a credit limit increase — and they can also go down.

Perhaps the easiest way to increase your credit limit is to contact your card provider and ask for a credit limit boost. You can usually make this request over the phone or on the card issuer’s website or mobile app.

Before you make any request for a credit card limit increase, check your credit report to see that your financial health is in good standing, as your card provider will likely treat your request for a credit limit hike like any request for credit. That means a thorough credit check to ensure your credit card payment history is strong, your credit score is good, and your job situation or annual household income hasn’t deteriorated.

The credit card company will review those financial factors and let you know whether or not your request for a credit increase is approved. If you’re denied a higher credit limit, your best recourse is to take some time to improve your credit score and build a stronger credit profile.

In some cases, you can apply for a new credit card with a higher credit limit. However, expect any new card issuer to conduct the same rigorous credit vetting your original card company conducted given how credit cards work.

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

The Takeaway

Credit card companies assign credit card limits to consumers based on one of three typical models. Often, your ability to handle credit and pay it back on a timely basis comes into play when determining how high your credit limit is. If you’d like a higher credit card limit, you can ask your current card issuer if your financial status has improved, or you could consider applying for a new credit card.

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

Can lenders change credit limits?

Yes, lenders can change credit limits — particularly if a credit card holder asks them to do so. But credit limits are unlikely to change for the better unless the cardholder has a solid credit history and financial situation.

What is a normal credit card limit?

That depends on the individual and credit card companies, but the average credit limit for U.S. cardholders was $30,365 in 2020, according to a recent report by Experian . That said, individual credit card limits can vary depending on a variety of factors, and can be as low as $300.

How do I get a high credit card limit?

The best way to get a high credit limit is to display habits that show creditors that you’re a low credit risk. That means paying your bills on time, keeping debt low, and having a robust credit history.

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

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 .

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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

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

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.

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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Anyone who’s ever had a credit card knows they have an interest rate, which represents the cost consumers pay for borrowing money. What you may not know is that interest rates come in two forms: fixed and variable interest rates.

Fixed interest rates stay the same over time and are generally tied to your creditworthiness. Variable interest rates, on the other hand, may change over time and are connected to economic indexes. Read on to learn how to determine if the interest rate of a credit card is fixed or variable, as well as why it’s important to know.

What Is Credit Card APR?

A credit card’s annual percentage rate, or APR, represents the cost a consumer pays to borrow money from credit card issuers, represented as a yearly cost. When a cardholder doesn’t pay off their credit card balance in full each month, they’ll owe credit card interest charges on the remaining balance, with the rate based on their APR.

Credit card APRs vary among credit card issuers, individual cardholders, and credit card categories. However, the average credit card interest rate stood at 16.44% APR as of November 2021.

Recommended: What is a Charge Card

Types of Credit Card APRs

Your credit card payment is impacted by what type of APR your credit card has. Let’s have a look at how a fixed rate credit card and a variable rate credit card may affect your credit experience.

Fixed Interest Rate

Fixed rate credit cards have an interest rate that generally doesn’t vary over the course of your credit card contract. Rather than being tied to economic indexes, fixed interest rates are generally determined based on payment history and creditworthiness, as well as any ongoing promotions.

However, just because the term “fixed” is used, doesn’t mean a fixed interest rate can never change. While a fixed rate credit card’s interest rate won’t change based on factors like the prime index, increasing credit card APR can occur if payments are late or missed or if your credit score dips. If that occurs, the credit card company must notify the cardholder at least 45 days before the adjusted rate takes effect.

While fixed rate credit cards offer the benefit of predictability, one downside is that their rates are, on average, higher than variable credit card rates.

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

Variable Interest Rate

A variable rate credit card offers interest rates that can shift over time. There’s a reason for that, as variable card rates are tied to major benchmark interest rates, like the U.S. prime rate.

Since major benchmark rates change, so will variable interest rates. That’s why banks and other major financial institutions often shift rates for things like credit cards, home mortgages, auto loans, and student loans. When major interest indexes change, the rates for loans change with them.

What does that mean for a cardholder? For starters, there’s more risk with variable interest rates. Rates can go up, and credit card payments increase when interest rates rise. Conversely, variable rates may go down, which works in favor of the credit cardholder, who will then pay less in interest.

Credit card consumers should check their credit card contracts for the specific conditions that can trigger a variable rate change. Credit card issuers don’t have to notify you of interest rate changes with variable rate cards, so it’s up to the consumer to keep a sharp eye out for changing interest rates.

When Do Variable APRs Change?

As mentioned, the interest rate on a variable rate credit card changes with the index interest rate, such as the prime rate. If the prime rate goes up, so will your credit card’s APR. Similarly, if the prime rate goes down, your APR will drop.

How often your interest rate changes will depend on which index rate your lender uses as a benchmark as well as the terms of your contract. As such, the number of rate changes you may experience can vary widely, often multiple times a year.

Details on how a card’s APR may fluctuate over time will appear in a cardholder’s agreement, which you can generally find on the card issuer’s website. If you’re unable to locate it, you can request a copy from your card issuer.

Differences Between Fixed and Variable Credit Card Rates

Both fixed and variable credit card rates have pros and cons. Here’s a look at the major differences with a credit card with a variable or fixed interest rate.

Fixed Interest Rate	Variable Interest Rates
The interest rate usually remains the same	Variable rates change on an ongoing basis
Fixed rates are calculated with payment histories in mind	Rates are based on a benchmark index, like the U.S. primate rate
The card provider is required to let you know when the rate does change (usually for late or missed payments)	The credit card issuer is not required to let you know when rates shift

How Credit Card Interest Rates Are Determined

Credit card interest rates are generally determined based on your creditworthiness — meaning, your payment history and credit score — as well as prevailing interest rates and the card issuer and card type. For instance, a bare bones card may have a lower rate than a premium rewards card. Additionally, credit cards can have different types of APRs, such as an APR that applies for credit card charges and another rate for cash advances or balance transfers.

Another factor that can impact credit card rates is promotional offers. Sometimes, credit card issuers may offer low or no interest periods. After that period ends, the card’s standard APR will kick in, and the card’s rate will go up.

Once determined, how and why a credit card’s interest rate changes over time depends on whether the interest rate is fixed or variable. A fixed rate will generally stay the same, though it may increase if payments are late or missed, or if the cardholder’s credit score takes a dive. Meanwhile, variable rates fluctuate depending on current index rates.

Recommended: Tips for Using a Credit Card Responsibly

Reducing Interest Charges on Credit Cards

Perhaps the easiest way to reduce interest charges on credit cards is to pay your statement balance in full each billing cycle. By doing so, you’ll avoid incurring interest charges entirely.

Of course, this isn’t always feasible. If you may end up carrying a balance and want to decrease how much a credit card costs, there are ways to do so. For one, you can call your credit card issuer and request a lower rate. Of course, for this to be successful, you’ll likely have needed to stay on top of payments and have a history of responsible credit card usage.

Perhaps the surest way to secure a better interest rate on your credit card is to improve your credit score. In general, lower interest rates are awarded to those who have higher credit scores and follow the credit card rules, so to speak. You can improve your credit score by making your payments on time, every time, and by keeping your credit utilization ratio (how much of your available credit limit you’re using) well below 30%. You might also avoid applying for new credit accounts, which results in hard inquiries and temporarily lowers your score.

And if you simply feel in over your head with credit card debt and a skyrocketing APR, you may choose between credit card refinancing or consolidation as potential solutions.

Recommended: When Are Credit Card Payments Due

Fixed vs Variable Interest Rate Cards: Which Is Right for You?

In a word, choosing between a fixed rate or variable rate credit card comes down to whether you prefer stability or risk versus reward.

A fixed rate credit card offers a known quantity — a rate that stays the same over time, as long as you pay your credit card bill on time. On the other hand, a variable rate credit card offers an element of risk and reward. If the rate goes up, the cardholder usually spends more money using the card. If card rates go down, however, the cost of using the card usually goes down, too, as interest rates are lower.

Of course, cardholders can largely negate the impact of credit card interest rates by paying their bills in full every month. Of, for those who don’t quite feel ready to tackle the responsibility, there’s always the option of becoming an authorized user on a credit card of a parent or another responsible adult.

The Takeaway

As you can see, it’s important for a number of reasons to know whether a credit card is fixed or variable. Fixed interest rates offer more predictability (though there’s no guarantee they’ll never change), but rates also tend to be higher compared to variable rates. With variable rates, your interest rate will fluctuate over time based on market indexes.

As you shop around for credit cards, interest rate is critical to pay attention to. With the credit card offered by SoFi, for instance, you can secure a lower APR by routinely making on-time payments. Learn more about getting a credit card with SoFi today.

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

Do all credit cards have fixed interest rates?

No, actually most credit cards come with variable interest rates tied to major interest rate indexes. That connection to interest rate changes enables card companies to keep rates competitive on a regular basis.

How do I get notified of an interest rate increase?

By law, credit card companies must notify cardholders in writing at least 45 days ahead of an interest rate change taking effect. Card companies are not allowed to change interest rates during the first year an account is open.

Can I control whether I have a fixed or variable interest rate?

Yes, you can opt for a fixed or variable rate credit card, but know that most credit cards come with variable rates. It’s tougher to find a fixed rate card, but banks and credit unions, which are more likely to offer both, are a good place to start your search.

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Photo credit: iStock/AlekseiAntropov

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 .

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

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.

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Opening a business checking account isn’t much different from opening a personal account, but it’s an important step when it comes to running your business. A business account can help you keep your personal finances separate from your professional transactions. This, in turn, can make growing your credibility and completing your taxes easier, among other benefits.

The requirements to open a business checking account tend to vary, depending on the financial institution and other factors like your location and business entity. But, in most cases, it’s generally a straightforward process to start one.

Let’s take a closer look at:

•   What a business checking account is

•   How it works

•   How to open a business checking account.

What Is a Business Checking Account?

If you have a personal checking account, you may wonder, “What is a business checking account anyway? Do I really need a separate account?” Let’s get those questions answered. A business checking account is similar to a personal checking account in that you have flexibility in your day-to-day banking. Depending on the type of account, you may be offered features such as unlimited transactions, a debit or ATM card, and check-writing capabilities.

In some cases, you may even be able to earn interest. But, and this is important, business checking accounts are meant to house a company’s funds. Therefore, there may be different features and requirements to maintain the account. Check with a few banks to get acquainted with the details.

Now, for that second question — “Do I need a separate business account?” — the answer is probably “yes” if you own a business. Even a brand new, currently part-time endeavor may need a small business account. In terms of a business vs. personal checking account, you want to keep that biz income separate for tax purposes and to gain legitimacy for your enterprise. Also, if you need to be paying employees or vendors, a business account is the way to go, so as not to get those kinds of transactions mixed up with, say, your home-loan payments and other personal expenses.

How Does a Business Checking Account Work?

Business checking accounts are quite similar to personal checking, but they typically have different limitations, fees, and balance requirements. For instance, business checking accounts may come with higher bank fees, especially if your business deals with a large amount of transactions. In that same vein, there may also be higher minimum balance requirements to waive monthly fees or to earn interest.

That’s not to say they aren’t budget-friendly options. Many online business checking accounts are being offered to smaller businesses or sole proprietors, though they may not offer interest earnings.

You can use a business checking account to conduct transactions such as bill paying, receiving funds, and writing checks. In many cases, you may even be able to order debit cards for you and your employees to withdraw money and make purchases. The primary account holder (such as the business owner) can set ATM withdrawal limits and spending limits for employee cards.

Can Anyone Open a Business Checking Account?

Almost anyone can open an bank account as long as they have the right type of documentation. In general, you’ll need to prove that you own a business. Now, what if you’re a sole proprietor or an independent contractor (say, a gig worker)? Even if you don’t have the usual kind of paperwork, you may still be able to open a business checking account. However, you’ll probably need to speak with the bank to see how you can do so.

What You Need to Open a Business Checking Account

The types of documentation you’ll need to provide depends on the bank at which you’re opening a business bank account and also on your legal business entity. Typically, sole proprietors will only need to provide their personal information, whereas LLCs and corporations will need documentation about the company and details from each of the majority owners.

Here’s a list of what kind of identification and documentation you’ll most likely need to provide to start your account. This applies whether you are heading to a bricks-and-mortar branch or opening an online business checking account:

•   Personal information: Financial institutions will require some form of government-issued photo ID such as a driver’s license or passport. If you have multiple business owners, then banks may require personal details of each owner.

•   Employer Identification Number (EIN): Every business should have an EIN, though sole proprietors and single-member LLCs may be able to submit their Social Security number in their application.

•   Business details: You’ll need to provide your business name, address, and, if applicable, your DBA (doing business as) name. In many cases, you’ll also need to disclose the industry your business falls under.

•   Documentation: Depending on your business entity, you’ll have to provide your business name registration certificate, business license, articles of organization, partnership agreement, and operating agreements.

•   Opening deposit: To finalize your business account opening, you may be required to deposit a certain amount of money. Check with your financial institution to determine what that amount would be.

Do I Need Revenue to Open a Business Bank Account?

Most banks don’t require you to be earning revenue in order to open a business checking account. That means if you’re starting a business, you don’t need to wait until you earn a certain income to open that account. So it can be a smart move to put opening your business checking as one of the first items on your to-do list when you start your enterprise. As long as you have the required documentation needed, you should be able to open an account.

Benefits of a Business Checking Account

Opening a business checking account comes with a myriad of benefits, including:

•   Liability protection: If you use a personal checking account for business purposes and have legal issues, it’s more likely that a court will have the right to go after your personal assets. That’s because it doesn’t look like you’re operating a separate business. Opening a business account generally shields you from this potential issue, especially if you’re registered as an LLC or corporation.

•   Tax simplification: Having a business checking account allows you to completely separate your personal and business finances. That way, it can help you include all the transactions you need to file your taxes accurately and efficiently. Plus, it’ll be easier to scrutinize your expenses to see whether you can identify further deductions.

•   Credibility: Your business may be taken more seriously if you used a business checking account. Your clients or vendors may be more likely to trust you if your payments or checks are coming from an account with your business name on it. These types of accounts also help when you decide to apply for small business financing or credit card. In other words, establishing your business could show business credit bureaus you’re serious enough of an entity to create a credit report for your company.

•   Potential future growth: Having a business checking account can help prevent any potential hiccups down the road, such as having to find ways to make payroll for your employees.

Things to Consider When Choosing a Business Checking Account

Many banks offer different business checking accounts suited to a variety of needs, so it’s important to look at the following features when making your decision. There’s probably an account available that fits your needs just about perfectly:

•   Fees: Most business checking accounts charge monthly maintenance fees. You may be able to have them waived, but you’ll need to meet certain requirements such as maintaining a certain balance.

•   Interest rates: In general, interest rates for business checking accounts are lower when compared to savings or money market accounts. However, you may still be able to earn a small return on your deposits. Assuming the fees may be higher for interest-bearing accounts, do some calculations to determine whether the APY makes it worth paying them.

•   Transaction limits: Business checking accounts tend to come with deposit and withdrawal limits per month. If you go over a certain limit, you may be required to pay an additional fee.

•   Bundled services: Some business checking accounts may offer unlimited employee debit cards, dispense free checks, or waive fees if you sign up for a business credit card or merchant services.

Do You Need a Business Checking Account?

Getting a business checking account is a smart move for anyone looking to launch and grow their business. Even if you’re the only employee (and plan to be for a long time), having this type of account still makes sense.

However, if you’re running a side business, are a gig worker, and don’t intend on venturing away from your full-time job, it might not be necessary. As long as you keep meticulous records to ensure you know what your business transactions are, you may be able to get away with only having a personal account. Note the use of the word “may.” If your business grows or just keeps chugging along for a number of years, you may at a later date regret not having gotten a separate business account. It can simplify and clarify your finances.

The Takeaway

If you’ve started or are running your own biz, it’s a smart idea to open a separate account to differentiate your business and your personal transactions. Applying is typically quite straightforward, involving presenting identification and other business documents. In return, you’ll get the flexibility, legitimacy, and services you need to conduct business professionally. Plus, you’ll keep your enterprise separate from your personal finances and avoid confusion.

If you’re looking to rev up your personal banking, however, give SoFi a look. Open linked Checking and Savings with direct deposit, and you’ll have access to your paycheck up to two days early, you won’t pay any account fees (including no overdraft fees) and you’ll earn a competitive APY.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

What is the difference between a personal and business checking account?

Both types of accounts are similar, except business checking accounts are meant for corporations and business owners, and they feature services that cater to professional needs.

What is the purpose of a business checking account?

The purpose of a business checking account is to facilitate banking for businesses with needs like paying vendors and employees and paying for supplies. It also separates personal and business assets for liability purposes. What’s more, a business account provides a company with more legitimacy.

What makes an account a business account?

Business accounts are designed for professional needs, which may mean many more transactions than a personal account typically engages in, as well as ways to pay employees and vendors. They may have merchant services too, which incorporate credit and debit card payments.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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