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

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

What Is a Credit Card PIN?

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

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

How Do Chip and PIN Cards Work?

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

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

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

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

Recommended: What Is a Contactless Credit Card

Credit Card vs. Debit Card PIN

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

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

Recommended: When Are Credit Card Payments Due

Why You Might Need a Credit Card PIN

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

Cash Advances

A cash advance works like a loan from your credit card issuer. There are a few ways to request a cash advance, but one way to do so is by using your credit card at an ATM. You may be required to enter your PIN when requesting a cash advance, and credit cards sometimes have daily cash advance limits. Also, cash advances can be an expensive option; make sure you understand the interest that will be charged.

Credit Card Purchases Abroad

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

Guide to Requesting a Credit Card PIN

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

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

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

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

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

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

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

Another important credit card rule to keep in mind is not to use personally identifiable information in your PIN, such as your birthday or your address. While those might be easier to remember, they can also be easier for a thief to guess. You can learn more about credit cards and how to use them wisely by exploring this credit card guide.

Do All Credit Card Issuers Offer Cards With PINs?

The answer to this question may depend upon your location. In the U.S., for example, most credit cards have at least chip and signature verification, though an increasing number have chip and PIN. While chip and PIN adoption has increased in the U.S., the technology is already fully implemented in much of the rest of the world. Most major banks in the U.S. offer PINs with their credit cards, even if PIN verifications aren’t always required.

Finding Your Credit Card PIN Number

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

Are Credit Card PINs Safe?

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

The Takeaway

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

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

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

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

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

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

How do you get a PIN for your credit card?

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

Can you use a credit card without a PIN?

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

Photo credit: iStock/Ludmila_m

SoFi Credit Cards are 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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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.

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Credit card points are a common incentive for cardholders to actively make purchases on a rewards credit card. Once earned, credit card points can be used toward a redemption option cardholders find worthwhile. This can include travel or a purchase credit toward a good or service.

Take a few minutes to get smart about how credit card points work. Find out how to get credit card points and how to best them to your best advantage.

What Are Credit Card Points?

Credit card points are one of many different credit card rewards that card issuers offer to consumers through a rewards program like SoFi Plus. For instance, a program might offer you two points for every dollar you spend on the card, which you could then redeem for use once you’ve accumulated a certain amount of points.

Points act as a form of currency within a credit card rewards program, designed to entice cardholders into maintaining spending activity on the card. Some reward programs for credit cards are also co-branded to encourage loyalty to a particular brand.

How Do Credit Card Points Work?

Understanding how credit card points work ultimately comes down to knowing how to earn points on credit cards — and then how to redeem them.

Earning Points on Credit Cards

There are a number of ways you may be able to earn points on your rewards credit card account:

•   Everyday purchases: Using a card as your primary payment method for your routine expenses is one way to earn points. Depending on your preferences and the features of other rewards cards in your wallet, you might choose to put purchases, like your morning coffee, groceries, rideshare expenses, and more on the card.

You might also choose to dedicate certain spending categories to a rewards card that offers bonus points toward that purchase. For example, if your rewards card offers 5X points when using your card at the supermarket, you might decide to use the card for grocery costs only.

•   Shopping with credit card partners: Part of finding the right card for you is researching whether the credit card partners with brands and services that you already shop with. For example, some cards partner with ride-sharing services, like Lyft, and offer bonus points for every Lyft purchase put on the card.

Note that some card issuers require you to pre-register for this type of bonus point incentive. You might have to link your rewards card to your Lyft account in order to receive bonus point credit for ride costs, for instance.

•   Sign-up bonuses: If you’re expecting a costly upcoming expense, like a medical bill or home repair, a common strategy to earn credit card points quickly is finding a competitive credit card bonus offer. Sign-up bonuses typically offer a promotional bulk quantity of points after you spend a minimum amount on the card within the first few months of opening the account.

Putting your large purchase on a new card accelerates your point earnings, but make sure you can pay your monthly statements in full to avoid interest charges — one of the important credit card rules to abide by in general. If you allow your balance to roll over into the next month, it can cut into the value of a sign-up points bonus.

•   Referral points: When you refer a friend to your rewards credit card program, some card issuers offer a referral bonus. Typically, you’ll receive a referral bonus reward, and your friend also receives bonus points if they meet certain spending requirements on their new card. Referral points vary by credit card, but it’s another option for cardholders who want to earn points on credit cards while giving friends a bonus perk, too.

Redeeming Points on Credit Cards

Users can typically redeem credit card points in various ways. Common options to redeem credit card rewards points, depending on your card’s redemption choices, include:

•   Flights

•   Hotel stays

•   Car rentals

•   Statement credits

•   Cash back

•   Gift cards

•   Merchandise

•   Online retailers

•   Special experiences

•   Charitable donations

Redemption often takes place through the card issuer’s app or website, or through the issuer’s dedicated rewards program website.

Types of Credit Card Rewards

Credit cards offer different types of rewards options. The common “currencies” are points, miles, and cash back.

Reward Points

You can earn credit card points by making purchases on your rewards card. Some credit card products offer a flat rate per dollar spent on your card, while others offer bonus points toward a spending category.

For example, a card might offer tiered bonus points at a rate of 5 points per dollar at restaurants, 3 points per dollar toward every gasoline purchase, and 1 point per dollar on everything else.

Miles

Miles are a common reward unit that’s typically used among travel credit cards and airline-branded rewards cards. Depending on the mileage rewards program, you’ll typically earn bonus miles when charging travel-related expenses on your rewards credit card. Some credit cards also let you earn miles on non-travel purchases at a lower mile-per-dollar rate.

This type of credit card reward is ideal for regular travelers who often fly to their destination and are interested in using credit card rewards to travel for less. If you prefer flying on a specific airline, a branded rewards credit card can help you earn miles toward a future flight, in addition to other redemption options, like hotel stays or goods. General rewards mileage cards can be redeemed in a similar way, but it’s not restricted to a particular carrier.

Cash Back

Credit cards that offer cash back rewards let you earn a percentage of cash back based on the amount you spend. This can typically be redeemed as statement credit to reduce how much you owe on your monthly credit card bill, which can be part of using credit cards responsibly. Or it can be redeemed as cash sent directly to you. Some cash back credit cards let you redeem cash back rewards as credit toward a purchase through one of the issuer’s partners.

If you’re not an avid traveler, a cash back card can be a straightforward option to earn and redeem rewards. Many card issuers offer a flat-rate rewards model that offers an easy-to-remember cash-back percentage on all card purchases.

How Much Are Credit Card Points Worth?

The value of each credit card point is generally 1 cent. However, reward valuations vary between credit card reward programs and can also differ based on how you choose to redeem them.

For example, your credit card points could be worth 1 cent when you redeem them for cash or gift cards, but worth 1.25 cents when you redeem them for travel-related options, such as flights or dining. Keep in mind that these amounts can vary widely, so it’s important to understand the terms and conditions of your credit card.

Recommended: Tips for Using a Credit Card Responsibly

Getting the Most of Your Credit Card Points

Below are a few helpful ways to maximize your credit card points. Learn more about credit cards by exploring this credit card guide.

•   Stay on top of bonus categories. Some rewards credit cards offer rotating bonus spending categories that temporarily increase the points you can earn per dollar spent on the card. These types of cards often require you to “enroll” in the bonus category, so familiarize yourself with your card’s bonus calendar.

•   Be aware of bonus limits. Read the rules of your rewards program, including thresholds on the maximum dollar amount that’s eligible for bonus rewards.

•   Calculate if the annual fee is worth it. Before signing up for a rewards credit card, review your spending habits over the last year. Note the spending categories and amounts you’ve spent. Based on this information, calculate whether the card’s rewards program and benefits — like TSA PreCheck credit and other perks — exceed the annual fee you’d spend each year.

The Takeaway

Accruing credit card points, miles, or cash back can be worthwhile as long as you use your card responsibly and select a rewards card that fits your lifestyle. Before putting your earned rewards toward a high-dollar purchase, or applying earned cash rewards to your monthly statement, keep your objective in mind.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

Do credit card points expire?

Typically, credit card points don’t expire. However, your points might expire if your credit card account is closed, falls into bad standing, or after a period of inactivity. Different cards have varying rewards program terms and conditions, so check with your card issuer to see if your credit card points have an expiration timeline.

Do credit cards with rewards have higher interest rates?

Rewards credit cards tend to have higher interest rates compared to regular credit cards. Cardholders with a positive credit history and strong credit score generally qualify for lower interest rates compared to those with a low credit score.

What is the use of earning reward points on my credit card?

Earning rewards points on your credit card allows you to get something in exchange for the spending you do with your credit card. For example, depending on your rewards program, you can redeem credit card points as a cash back reward or put them toward future travel or other purchases.

Photo credit: iStock/stefanamer

SoFi Credit Cards are 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.

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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Some credit cards offer a promotional interest rate, as low as 0% APR, for purchases and/or balance transfers. Often, these promotional interest rates are offered for a limited period of time when you apply for a new card, though some issuers offer promotional rates for existing cardholders as well.

If you have a large purchase coming up, or an existing credit card balance that you want to transfer over, these cards can save you a significant amount of interest. You’ll just want to make sure to pay off the full balance by the end of the promotional period, as your interest rate will likely jump significantly when your promotional APR (annual percentage rate) expires.

What Are Credit Card Promotional Interest Rates?

A credit card promotional interest rate is an interest rate that is offered for a limited amount of time, as a promotion. During the promotional period, you’ll be charged a lower interest rate than your typical interest rate.

It’s common for credit cards to offer these introductory promotional interest rates for new members when you open a credit card account. However, it’s also possible for issuers to offer promotional interest rates to existing cardholders.

Recommended: How to Avoid Interest On a Credit Card

How Credit Card Promotional Interest Rates Work

One common scenario for how credit card promotional interest rates work is that an issuer might offer a 0% promotional interest rate on purchases and/or balance transfers for a certain period of time. When you’re using a credit card during the promotional interest period, you won’t pay any interest.

It’s important to note that there are two major types of promotional interest rates, and they vary slightly. With a 0% interest promotion, you won’t pay any interest during the promotional period. If there’s any balance remaining at the end of the promotional period, you’ll begin paying interest at that time. With a deferred interest promotional rate, on the other hand, you’ll pay interest on any outstanding balance back to the date of the initial purchase.

Benefits of Credit Card Promotional Rates

As you may have guessed, there are certainly upsides to taking advantage of credit card promotional interest rates. Here’s a quick look at the major benefits; you can learn more by consulting this credit card guide.

Low Interest Rate During the Promotional Period

One benefit of credit card promotional interest rates is the ability to take advantage of a low or even 0% interest rate during the promotional period. Having access to these promotional rates can give you added flexibility as you plan your financial future.

Ability to Make Balance Transfers

One possibility to maximize a credit card promotional rate is if you have existing consumer debt like a credit card balance. By using a balance transfer promotional interest rate, you can transfer your existing balance and save on interest. This can help lower the amount of time it takes to pay off your debt.

Can Pay For a Large Purchase Over Time

If your credit card has a 0% promotional interest rate on purchases, you can take advantage of that to pay for a large purchase over time. That way, you can spread out the cost of a large purchase over several months rather than needing to pay it off within one billing period.

Just make sure to pay your purchase off completely before the end of the promotional period to avoid paying any interest.

Drawbacks of Credit Card Promotional Rates

There are downsides to these offers to consider as well. Specifically, here are the drawbacks of credit card promotional interest rates.

Deferred Interest

You need to be careful if your credit card promotional rate is a deferred interest rate, rather than a 0% interest rate. Because of how credit cards work, with a deferred interest rate promotion, you’ll pay interest on any outstanding balance at the end of the promotional period — back to the date of the initial purchase. This amount will get added to your existing balance, driving it higher.

Penalty Interest Rates

You still have to make the minimum monthly payment on your credit card during the promotional period. If you don’t make your regularly scheduled payment, the issuer may cancel your promotional interest rate. They may even impose an additional credit card penalty interest rate that’s higher than the standard interest rate on your card.

May Encourage Poor Spending Habits

Establishing good saving habits and living within your means is an important financial concept to live by. While it may not always be possible, it’s generally considered a good idea to save up your money before making a purchase. While a 0% interest promotional rate means you won’t pay any interest, it can contribute to a mindset of buying things you don’t truly need.

Recommended: Tips for Using a Credit Card Responsibly

How Long Do Credit Card Promotional Interest Rates Last?

By law, credit card promotional interest rates must last at least six months, but it is common for them to last longer. You may see introductory interest rates lasting 12 to 21 months, or even longer.

Regardless of how long your promotional period lasts, make sure you have a plan to pay your balance off in full by the end of it. Credit card purchase interest charges will kick in once your promotional period is over.

Zero Interest vs. Deferred Interest Promotions

Both 0% interest rates and deferred interest rates are different kinds of promotional rates where you don’t pay any interest during the promotional period. However, they come with some key differences:

What to Consider When Getting a Card With a Zero-Interest or Deferred Interest Promotion

One of the top credit card rules is to make sure you pay off your credit card balance in full, each and every month. But if you’re carrying a balance with a promotional credit card rate, you’ll want to make sure you understand if it’s a 0% rate or a deferred interest promotion.

With a 0% promotional rate, you’ll start paying interest on any balance at the end of the promo period. But with a deferred interest promotional rate, you’ll pay interest on any balance, back-dated to the date of the initial purchase.

In either case, the best option is to make sure that you have a plan in place to pay off the balance by the end of the promotional period.

Paying off Balances With Promotional Rates

You’ll want to have a gameplan for how to pay off your balance before the end of the promotional period. That’s because at the end of the promotional period, your credit card APR will increase significantly.

If you still are carrying a balance, you will have to start paying interest on the balance. And if you were under a deferred interest promotional rate, that interest will be calculated back from the initial date of purchase.

Watch Out for High Post-Promotion APRs

Using a 0% promotional interest rate can seem like an attractive option, but it can lull you into a false sense of financial security. You should always be aware that the 0% interest rate won’t last forever. Your interest rate will go up at the end of the promotional period, and if you’re still carrying a credit card balance, you’ll start paying interest on the balance.

Exploring Other Credit Card Options

There are some other credit card options besides getting a card with a promotional interest rate. For instance, you might look for a credit card that offers cash back or other credit card rewards with each purchase.

Before focusing on credit card rewards or cash back, however, you’ll want to make sure that you first focus on paying off your balance. Otherwise, the interest that you pay each month will more than offset any rewards you earn.

If you’re carrying a balance, you can also attempt to get a good credit card APR by making on-time payments and asking your issuer to lower your interest rate. By simply securing a good APR, you won’t have to worry about it expiring and then spiking like you would with a promotional APR.

The Takeaway

Some credit cards offer promotional interest rates to new and/or existing cardholders. These promotional interest rates could be a 0% interest rate for a specific period of time, or a low interest rate to encourage balance transfers.

While taking advantage of promotional interest rates can be a savvy financial move if you have existing consumer debt or need to make a large purchase, you’ll want to make sure you have a plan to pay off your balance in full before the promotional period ends. That way, you avoid having to pay any interest. Shop around and consider offers from different credit card providers before you make a decision.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

Will my interest rate spike after a promotional deal ends?

Credit card promotional interest rates generally last only for a specific number of months before the interest rate on the card rises. Credit card providers make money by charging interest on balances that are not paid off. So, while your credit card may charge 0% or a lower promotional rate for a period of time, the interest rate will rise once the promotional period is over and will apply to any outstanding balance on the card.

How does a promo APR work?

Promotional APR offers are generally put forward by credit card companies as a way to entice new applicants. Cards may offer a 0% introductory APR for a certain number of months on purchases and/or balance transfers. Once the promotional period is over, your interest rate will rise to a normal level.

Should you close a credit card with a high interest rate?

Having a credit card with a high interest rate will not negatively impact your credit or your finances so long as you aren’t carrying a balance. So, simply having a high interest rate is not a reason, in and of itself, to close a credit card. But if you have a balance on a credit card with a high interest rate, you might want to consider doing a balance transfer to a card with a promotional 0% interest rate while you work to pay it off.

Is my credit card’s promotional rate too good to be true?

Promotional interest rates are a legitimate marketing strategy used by many credit card companies. While you shouldn’t treat them as a scam, you also need to make sure that you are aware of the terms of the promotional rate and how long the rate is good for. Make a plan to completely pay off your balance by the end of the promotional period before your interest rate increases.

Photo credit: iStock/Jakkapan Sookjaroen

SoFi Credit Cards are 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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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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If you fall significantly behind on your credit card payments, your account may get sent to collections. Credit card debt collection is the process where creditors or third-party collection agencies pursue repayment of significantly overdue credit card balances, typically 120 days to 180 days late.

Some credit card issuers have in-house collection departments, but often they will close your account and assign or sell your debt to a third-party collection agency. This agency will then contact you to try to collect on the debt. Here’s a closer look at what happens when credit card debt goes to collections.

What Are Credit Card Collections?

Credit card collections is the process lenders and third-party agencies use to recover unpaid debt.

If you’re familiar with using a credit card, you’ll know that card issuers allow you to make purchases with the promise of eventual repayment. But if you don’t make even the credit card minimum payment for many months in a row, the credit card company may eventually send your debt to collections in an effort to recoup the money you owe.

When Are You at Risk of Credit Card Debt Collection?

While there is no standard timeline, credit card debt typically moves to collections after 120 to 180 days of nonpayment.

However, the warning signs often appear much earlier — most notably when a cardholder can only manage the minimum monthly payment. Because interest rates now average over 20% and typically compound daily, balances can become unmanageable fast. While recent proposals aim to cap credit card interest rates, a steadily climbing balance remains a clear indicator of financial distress.

💡 Quick Tip: Wherever you stand on the proposed Trump credit card interest cap, one of the best strategies you can use to pay down high-interest credit card debt is to secure a lower interest rate. A SoFi personal loan for credit card debt can provide a cheaper, faster, and predictable way to pay down debt.

How Do Credit Card Collections Work?

Credit card debt collection results from not paying your credit card bills. The best way to use credit cards is to always pay the full statement balance by the payment due date. If you’re unable to do that, you’ll want to at least make the credit card minimum payment to keep your account in good standing and avoid late fees.

If you don’t make any payments toward your credit card balance for around four to six months, the credit card company may start the credit card collections process. At this point, a third-party debt collector may assume responsibility for trying to get you to repay what you owe, relying on the contact information the credit card company has on file to get in touch.

Credit Card Debt Collections Process

Credit card companies will typically begin the credit card debt collections process by attempting to contact you directly to pay off the debt. If you haven’t made any credit card payments recently, the bank will likely reach out via email or certified letter. If you still don’t make any payments or arrange for a payment plan within 30 to 90 days, they’ll likely send the debt to collectors.

Many card issuers do not have the staff or business model to engage in a long-term credit card collection process. That’s why they will often hire a third-party company to do the actual debt collection. In many cases, they will simply sell the debt to a collection company for less than it’s worth. Either way, the collection agency will then try to collect on the debt. There are currently over 5,000 third-party debt collection companies in the U.S.

Features of Credit Card Debt Collections

When debt goes to collections, a collector will typically contact you via phone, email, or mail to recover the debt. They must abide by the Fair Debt Collection Practices Act (FDCPA), which prohibits them from contacting you before 8 a.m. or after 9 p.m, contacting you by email or text message if you ask them to stop, or contact you at work if you tell them not to.

In addition, a debt collector must give you “validation information” about the debt either when they first communicate with you or within five days of the first contact. By law, they must provide the following details:

•   The collector’s name and mailing address

•   The name of the original creditor you owe

•   How much money you owe, written out to include interest, fees, payments, and credits

•   Steps to take if you don’t think it’s your debt

If you need help understanding your rights or how to handle credit card debt in collections, you might consider working with a nonprofit credit counseling service.

What Is a Collection Lawsuit?

If debt collectors are not successful in using phone calls, letters, or emails to collect on a debt, the next step is often a lawsuit. A collection lawsuit is a civil legal action filed by a creditor against a debtor to recover unpaid, delinquent, or defaulted debt. A court judgment in their favor can lead to wage garnishment, bank account freezes, or property liens.

However, debt collectors cannot sue you for “old” debt if it has passed the legal time limit, known as the statute of limitations. The statute of limitations on consumer debt can range anywhere from two to 20 years, depending on the state. The timeline may start on the date you made the last payment or the first missed payment — this also varies by state.

Once the statute of limitation expires, the debt is considered “time-barred” and collectors no longer have the legal right to take you to court.

Responding to a Collection Lawsuit: What to Know

It’s important to respond to a collection lawsuit promptly, as ignoring the summons can result in an automatic loss (default judgment). You typically need to respond in writing by a date specified in the court papers, either personally or through your attorney.

You may also need to show up in court, even if you don’t believe you owe the debt. By showing up to court, the debt collector will have to prove that you owe the debt, the amount is correct, and they have the legal right to sue you to collect on the debt. If they can’t, you may have the debt vacated. You may also be able to have the debt discharged if it’s past your state’s statute of limitations.

If you’re unsure how to handle a debt collection lawsuit, you may want to consult a debt relief lawyer.

What Happens If You Don’t Respond to a Collection Lawsuit?

If you don’t respond to a collection lawsuit, it’s possible that the judge will issue a default judgment against you. A default judgment means that the plaintiff (the debt collector) automatically wins, since the defendant (you) did not respond to the lawsuit. In that case, the debt collector now has the legal right to garnish your wages and/or attempt to go after the money in any of your bank accounts.

How a Debt in Collection Affects Your Credit

Once a credit card issuer sends your debt to collections, they will typically close your account and the collection is usually reported as a separate account on your credit report, where it can stay for up to seven years.

A collection account on your credit report is considered a negative entry and can negatively impact your scores, though its impact diminishes over time.

If you pay the debt in collection, the collector may update your account status to “paid” on your credit report. While paid collections can still impact your credit scores, some newer scoring models do not consider paid collection accounts when calculating your score.

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

Guide to Dealing With Credit Card Debt in Collection

If you have credit card debt in collections, it’s important to immediately request a debt validation letter to confirm the debt is yours and accurate. It’s also a good idea to check your state’s statute of limitations for suing on debt, and keep in mind that paying or promising to pay a time-barred debt can reset this clock.

You can check the validity of the debt by looking at your credit reports. If the debt is yours and it’s not time-barred, you might offer to pay a reduced, lump-sum amount in exchange for marking the debt “settled in full.” You’ll want to be sure to get any agreements in writing before making a payment.

Taking Charge of Your Finances

If you’re worrying about credit card debt collections, you may feel like your finances have spun out of your control. Here are some tips to take charge once again:

•   Only spend what you can afford to pay off: One of the best tips for using a credit card responsibly is to avoid making purchases that you won’t be able to pay off each month. This will stop your spending from spiraling into debt.

•   Always try to pay off your credit card in full: While not always easy to do, paying your full statement amount each month allows you to avoid paying interest on your purchases and accumulating debt and can positively impact your credit file.

•   Address any debt head on: If you find yourself in the position of having credit card debt, one of the best things you can do is acknowledge your situation and make a plan to pay off your credit card bill. Start a budget, cut expenses if needed, and use any monthly surplus amount to pay down your debt. It’s also smart to stop spending on your credit card until you’ve reduced or eliminated any outstanding balance.

Recommended: When Are Credit Card Payments Due?

The Takeaway

If you miss making a credit card payment for many months in a row, your card issuer may send you debt to collections. Often, this means that your account will be managed by a third-party agency. This can significantly harm your credit for up to seven years and may even result in a collection lawsuit. Understanding your rights under the FDCPA and proactively addressing debt issues (before they go to collections) can help you regain control of your financial health.

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FAQ

What happens when credit card debt goes to collections?

When credit card debt goes to collections, the creditor or a third-party collection agency will contact you to try and recover the overdue balance. This may happen after you’ve missed payments for 120 to 180 days. The collector must provide validation information about the debt and abide by the Fair Debt Collection Practices Act (FDCPA). The collection account will appear on your credit report for up to seven years, and can negatively affect your credit scores. If a collector cannot recoup what’s owed, they may file a collection lawsuit, which could result in a court judgment allowing for wage garnishment or bank account levies.

Can a debt collector force me to pay?

A debt collector cannot legally force you to pay a debt. They are permitted to contact you to request payment, and, if the debt is still within the statute of limitations, they can file a lawsuit. If they win the lawsuit and obtain a court judgment, that judgment can legally allow them to garnish your wages or freeze your bank accounts to recover the debt. However, they must always follow the rules of the Fair Debt Collection Practices Act (FDCPA).

How long can credit card debt be collected?

The length of time a credit card debt can be collected depends on your state’s statute of limitations, which dictates how long a creditor has to sue you. This period can range from two to 20 years, typically starting from the date of your last payment or first missed payment. Once the statute of limitations expires, a collector can no longer take legal action against you, though they may still attempt to collect the debt.

Do debt collections affect your credit score?

A debt in collections can negatively affect your credit and remains on your credit report for up to seven years. Since payment history is the most significant factor in credit scoring, a collection account is a serious negative mark. Paying the debt may help, as some modern scoring models disregard paid collection accounts.

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At some point, there may come a time when you need to ask the question: Does filing for unemployment benefits affect your credit score? The answer is no, fortunately.

Losing your job can be like a kick in the stomach. It can deflate you and leave you scrambling to figure out what to do next. The last thing that many people need, in addition to firing up a job search, is a hit to their credit score, too. If you do lose your job, many financial professionals will tell you that the first thing you should do, if you qualify, is to file for unemployment so that you still have some income as you revise your resume and start interviewing.

The good news, again, is that you don’t need to worry about a potential ding to your credit. More information below!

Why Your Credit Score Matters

Your credit score is, in a sense, your financial reputation. It can give lenders or creditors a quick and easy summary of your creditworthiness — or, how likely it is you will pay back a loan on time and in full. Everyone has a credit report, and you can think of your credit score as a truncated version of your credit report.

Your credit score matters because it’s used by lenders to gauge how risky you are as a borrower. It’s used to measure not only whether a lender would be willing to give you a loan, but how much they’d charge you for the privilege — or what the effective interest rate would be for borrowing.

When it comes to some of life’s bigger purchases, such as a car or a home, that can be very important. A couple of percentage points can mean that a borrower ends up paying tens or even hundreds of thousands of dollars more in interest over the years. As such, when a lender sizes up your credit application and takes a look at your credit score, the higher your credit score is, the better.

But what factors affect your credit score? It’s a mixture of things: your payment history, total debt balances, credit utilization, credit history (how long you’ve had accounts), credit mix, and inquiries from lenders.

Recommended: Should I Sell My House Now or Wait?

Unemployment Won’t Appear on Your Credit Report

You may be concerned that if you lose your job, filing for unemployment may affect your credit score. But there’s no cause for concern. Not only will filing for unemployment not affect your credit score, it also won’t appear on your credit report. Your credit report contains information relating to your past borrowing activity, not your employment status.

Unless there’s been a change in your credit history — say, you apply for a new line of credit or close an old credit card — your credit report won’t change. That said, your credit report may contain information relating to past employers, but the only things that should have an effect on your credit score are items relating to financial accounts.

That may become an issue if, for example, you were issued a company credit card at a previous job. But for most people, your employment status, or past employers, aren’t likely to have an impact on your credit report or credit score.

Remember: Your credit score is a snapshot of your financial reputation, not your employment status!

How Unemployment Can Affect Credit Scores Indirectly

With all of that in mind, your employment status — or filing for unemployment — may have an effect on your credit score in an indirect way.

As mentioned, your employment status isn’t a part of your credit score’s calculation, and neither is whether or not you received unemployment assistance. It’s really all about paying back, or down, your debts on time and on schedule. However, if you do lose your job and file for unemployment, you may find yourself in an income crunch. Your unemployment check is most likely going to be smaller than the paycheck you’re accustomed to receiving, and that may make it difficult to keep up with your payments.

You may also be tempted to start using your lines of credit more while unemployed as a way of making ends meet. For example, you might start using your credit card at the grocery store as a way of keeping money in your bank account, with the thought that you’ll pay off your balance once you get another job and a regular paycheck again. Some individuals may also look into personal loans for unemployed persons, too.

One of these options may suit your situation. However, they may also increase your credit utilization and overall debt, which can lower your credit score.

Finally, if you find that you can’t keep up with your minimum payments due to the resulting cash crunch of losing your job, that, too, will ding your credit score. That’s why it’s important to maintain a line of communication with lenders. If you can’t make your payment, let them know, and they may be willing to work with you. Tools like a money tracker app may be helpful as well.

Remember, if you do have a company credit card or some other type of financial account with an employer and you lose your job, that credit line could be severed. That, too, could affect your credit score, as it ultimately lowers your total available credit.

Recommended: What Is the Difference Between Transunion and Equifax?

How to Protect Your Credit Score When Unemployed

To protect your credit score while unemployed, the most important things you can do are to try to keep your debt balances low and to keep an open line of communication with your creditors. Of course, a loss in income will probably spur you to change your spending habits by cutting back in certain areas. But in terms of maintaining your credit score, the best course of action is to keep doing what you’re doing: making your payments.

That means continuing to make your payments (at least the minimum) as scheduled. And, since it bears repeating, if you’re going to struggle to make those minimum payments, call your lender and let them know. Some will be willing to make accommodations, such as offering forbearance, extensions, or deferred payments, although there’s no guarantee.

If you feel that you need more help, you can also work with a credit counselor to help you evaluate your options and even negotiate with your lenders. You may also want to set up free credit monitoring, too, so that you can see any changes to your score.

The Takeaway

If you lose your job and file for unemployment, there shouldn’t be a direct effect on your credit score. That said, there may be indirect factors that could lower your score. The most important thing you can do to maintain a strong credit score is to keep making your payments and try to keep your debt balances to a reasonable level.

And remember that if you’re really struggling, it may be worth it to reach out to a professional for personalized advice.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Can I apply for a credit card while I’m unemployed?

It’s possible to get a credit card while unemployed, but keep in mind that a creditor’s main concern is whether or not you can make your payments. As such, your approval for a credit card may hinge on your income and other debts or financial obligations.

What if my credit score goes down?

Credit scores go up and down all the time, but if you do experience a fall in your credit score while unemployed, you’ll likely know why — and it’s probably because you missed payments or saw your credit utilization go up. The good news is that you can always work on increasing it again.

What personal information does your credit report include?

The short answer? A lot of it. That includes your name, aliases, birth date, Social Security number, address (and former addresses), phone number, and possibly your employment history, among other things.

Photo credit: iStock/sorrapong

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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