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Credit cards are a convenient method of payment that let you make cashless purchases in-person or online. However, millions of Americans fall victim to credit card fraud, according to the Consumer Financial Protection Bureau.

Identifying fraudulent activity and knowing how to report credit card fraud can help protect identity and your finances. Here’s a closer look at the process of reporting credit card fraud.

What Is Credit Card Fraud?

Credit card fraud is a type of identity theft. When a perpetrator commits credit card fraud, they’re making unauthorized purchases or cash advances using a credit card account that isn’t theirs.

Types of Credit Card Fraud

Fraudsters have developed many types of credit card scams to infiltrate unsuspecting consumers’ credit card accounts.

Account Takeover

An account takeover involves the perpetrator contacting the credit card issuer to make fraudulent changes or requests to gain access to your account. For example, they might claim to be you and request a new credit card issued to their address.

Card-Not-Present (CNP)

Card-not-present, or CNP, credit card fraud occurs when an unauthorized charge is put onto a card account without the physical card being present during the transaction. This might occur during online purchases or other instances when a transaction is performed without the physical card in hand.

Credit Card Skimming

Credit card skimming occurs when a skimmer device is placed onto a legitimate credit card sales terminal. It’s designed to look seamless and authentic. Upon swiping your credit card through the skimmer, the device captures your account data, including your credit card number, PIN, CVV number on a credit card, and more. Perpetrators can then create a copy-cat credit card with your account information encoded into it.

Fraudulent Card Applications

This type of credit card fraud occurs when someone opens a new card account under your name without your consent and/or knowledge. Fraudulent applications might lead to newly opened credit card accounts through pre-approval mailers that are intercepted by fraudsters.

Lost or Stolen Cards

A lost or stolen credit card is another common method of credit card fraud. Unlike CNP, the perpetrator obtains possession of your physical credit card and makes unauthorized charges. If your card is lost or stolen and then used before you realize it’s missing, an unauthorized user can make fraudulent changes in person or online.

Recommended: What is a Charge Card

How to Detect Credit Card Fraud

A key way to uproot credit card fraud is by staying keenly aware of the activity on your existing credit card accounts. For example, with the convenience of automatic payments, it might be easy to ignore reviewing your monthly statement since autopay lets you pay your bills without much effort.

However, if you didn’t notice an unauthorized charge come through because you aren’t keeping track of your transaction activity, it can become that much harder to thwart further fraud. Additionally, routinely reviewing your credit reports can help you flag any new credit card accounts that you didn’t activate.

You might also consider setting up credit card alerts, which can notify you when purchases or cash advances are made using your card. You can set these up through your card issuer’s mobile app and opt to receive a text message, email, or push notification. These frequent updates can help you respond quickly if anything goes awry.

Recommended: Tips for Using a Credit Card Responsibly

How to Report Credit Card Fraud

If you’ve found fraudulent activity on your card account, there are steps you can take to minimize your liability for the unauthorized charges.

Contacting Your Credit Card Issuer

As soon as you notice a fraudulent charge, contact your card issuer’s fraud department immediately. Report the unauthorized charge and explain that it was made without your knowledge or consent.

Typically, the issuer will immediately deactivate the old credit card and reissue you a new card to avoid further unauthorized transactions. If you haven’t done so already, change your online password for the compromised credit card account. Also, change the PIN for your card.

Reaching Out to the Credit Bureaus

Contact one of the three credit bureaus to submit a fraud alert. Doing so requires businesses to verify your identity before opening a new credit account under your name. This fraud alert is free to request and remains active for one year.

The credit bureau you contacted is required to inform the other two bureaus of the fraud alert on your credit. Request a copy of your credit report from each bureau and review them for any other suspicious activity.

Notifying the Authorities

Report credit card fraud to the Federal Trade Commission through its website, IdentityTheft.gov , or by calling 1 (877) 438-4338. By reporting the fraud to FTC authorities, your rights in relation to the fraud are reserved. The FTC will file the report and come up with a recovery plan.

You can also choose to file a fraud report with your local police department. Request a copy of the police report for your records.

How to Protect Yourself From Credit Card Fraud

Following a few practical credit card rules can help you reduce your exposure to potential credit card fraud:

•   Review your credit card statements regularly.

•   Observe your credit card and bank transactions for anything that’s incorrect or potentially fraudulent.

•   Track changes on your credit report.

•   Keep your credit card information private.

•   Set up mobile alerts on transactions through your card issuer.

How Credit Card Fraud Can Impact Your Credit

Credit card fraud can do incredible harm to your creditworthiness if it goes undetected. It can result in a sudden uptick in outstanding balances, which impacts your credit utilization ratio and can adversely affect your score.

It can also be problematic to your credit if new credit card accounts were activated under your name without your knowledge. In this scenario, the unauthorized account and charges incurred go unpaid, which can negatively affect your payment history.

Recommended: When Are Credit Card Payments Due

The Takeaway

Reporting credit card fraud is essential to avoid being liable for unauthorized charges or changes to your account. Stay apprised of your credit card activity by reviewing your credit card transactions at regular intervals and routinely checking your credit report for suspicious issues.

If you’re looking for a fuss-free credit card, SoFi has a solution.

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

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

FAQ

What happens when you report credit card fraud?

Upon reporting credit card fraud on your account, the card issuer initiates an investigation into the unauthorized charge or fraudulent claim. It might reissue you a new card to use while it conducts its investigation. It if confirms that fraud occurred, your maximum liability for an unauthorized charge is $50, depending on when you reported the fraud and/or lost or stolen card.

What do I do if I suspect a fraud card?

If you suspect that you were a victim of credit card fraud, immediately contact your card issuer to notify them of the unauthorized activity. Request a copy of your credit report to confirm that no other suspicious activity is associated with your credit. Finally, file an identity theft report through IdentityTheft.gov or with local authorities.

Can the bank find out who used my credit card?

The bank can trace the details of the unauthorized activity. These details include the merchant where the card was fraudulently used as payment; the transaction date, time, and amount; and the buyer’s IP address.

How do I claim credit fraud?

To claim credit card fraud, contact your credit card issuer. You can call the phone number listed on the back of your card or call the issuer’s fraud department directly to report the unauthorized activity and request an investigation.

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Photo credit: iStock/Moon Safari

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.

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.

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.

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.

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With average credit card annual percentage rates (APR) topping 15% as of the second quarter of 2022, according to the Federal Reserve, savvy cardholders are looking for ways to reduce the cost of using a card. Some ways consumers achieve this is through a cash-back rewards credit card or a low-interest credit card.

The distinction between a cash-back vs. low interest credit card is that cash-back cards help you earn a small percentage of your spending back. Conversely, a low-interest credit card tends to charge less interest each month than a high-interest card, which is helpful for cardholders who roll a balance into the next month.

Recommended: Can You Buy Crypto With a Credit Card

What Are Cash-Back Credit Cards?

Credit cards that offer cash-back rewards are designed as an incentive to encourage spending on the card. For every eligible purchase you charge to your card, you’ll receive a small percentage of cash back. Some cards offer 1% cash back, while others offer as much as 8% or more, depending on the program’s rules. You might earn a flat rate across all purchases, or you might earn more in certain spending categories, such as groceries or gas.

You then can redeem your earned cash-back rewards. Redemption options may include a cash payment or a statement credit toward your next bill, or you may be able to redeem the rewards for travel, merchandise, gift cards, and more.

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

What Are Low-Interest Credit Cards?

Low-interest credit cards incur a lower borrowing cost compared to a high-interest credit card. A credit card that charges low interest allows you to pay less for using the card if you carry a balance. This card feature is beneficial for cardholders who repay their monthly balance in increments over time, instead of in full.

The interest rate you qualify for highly depends on your creditworthiness, including your past borrowing habits and credit score. Consumers with strong credit might qualify for promotional no-interest credit cards that charge 0% APR for a limited period. After this period is over, the card’s interest rate increases, based on the cardholder’s credit and qualifications. As such, there are both advantages and disadvantages of no-interest credit cards.

Recommended: How to Avoid Interest On a Credit Card

Differences Between Cash-Back and Low-Interest Credit Cards

Below are the key differences between low-interest vs. cash-back credit cards to keep in mind when choosing a card:

Cash-Back Credit Cards	Low-Interest Credit Cards
You’ll generally need good credit to qualify.	Cash-back rewards offer an incentive for spending.
Cash-back rates vary by issuer.	Advantageous for those who don’t carry a balance.
Savings may be negated when a balance carries over.	Lowest APR offers are reserved for those with strong credit.
Advantageous for those who carry a balance.	Some cards offer a promotional 0% APR for a limited period.
Lowers the borrowing cost for carried-over balances.	Perks may be inconsequential when monthly balances are paid in full.

Factors to Consider When Choosing Between Rates and Rewards

Your unique financial situation, borrowing habits, and the features and benefits of a particular card are what you should consider when comparing your options.

Average Balance You’ll Be Carrying Monthly

How credit cards work is that they give you purchasing power up to a limited amount, even when you don’t have the cash upfront. You can choose to repay the debt in one lump payment by your statement due date, which allows you to avoid paying interest charges. Alternatively, you can make installment payments over multiple months, in which case you’ll accrue interest charges.

Not carrying a monthly balance is one of the common credit card rules to try to stick to, but it’s not always possible. For example, you might have had an unexpected injury that resulted in a medical bill that exceeded your cash savings. In this scenario, putting some of that cost on your credit card and making small, monthly payments to repay it might be necessary.

If you don’t have sufficient cash savings or income to confidently repay your monthly balance in full each month, a low-interest card might offer an advantage over a cash-back card.

Recommended: When Are Credit Card Payments Due

Your Average Monthly Spending

Look back at your monthly expenses and think about the total amount you’ll likely put on your credit card each month. For example, you might choose use a credit card to cover everyday expenses, like dining, groceries, and gas. Cardholders who rack up high monthly balances can benefit from a cash-back credit card that offers money back from purchases you’re already making.

The caveat, however, is if you charge more expenses to your card than you can realistically pay back in full by the statement due date. If you roll over any portion of your outstanding balance into the next month, you’ll get charged interest on that amount, which cancels out any cash-back rewards you may have earned.

Recommended: Tips for Using a Credit Card Responsibly

Annual Fees

Some cards — particularly rewards cards that extend high-value benefits and incentives — might charge an annual fee. For example, a cash-back card might offer an annual $300 travel credit and 5% cash back on flight purchases, but charge an annual fee of $550.

If you don’t travel enough to use up the credits and earn more cash back than the annual fee costs, that card might not be the best fit for your lifestyle. You’ll need to assess the total potential dollar value that a card’s benefits, credits, and other incentives offer in comparison to the upfront cost of the card’s annual fee.

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Interest Rate Difference Between Cards

Although all credit card issuers check your credit to determine your interest rate, each card company has its own underwriting criteria. You might receive an interest rate offer for 13.99% APR for one card, and an offer from another card issuer at 11.99% APR, for example. To gauge interest rates, it can be helpful to look at the current average credit card interest rates for a point of comparison.

Regardless of whether you end up with a cash-back credit card vs. low interest credit card, it’s always a good idea to shop around for the lowest interest rate you can get. That way, if you ever need to carry a balance, you can minimize the amount of interest you end up paying.

Guide to Lowering Your Credit Card Interest Rate

Whether you’re shopping around for a new credit card or have an existing card with a high APR, here are some ways to lower your interest rate:

•   Contact your card issuer. If you’ve been a loyal customer and have kept your account in good standing, or if your credit score has improved since you opened the account, your credit card issuer may be willing to reduce your rate.

•   Raise your credit score. Even if you already have good credit, strengthening your credit score can help you secure the most competitive interest rate in the future. Good borrowing habits — like making on-time payments and keeping your credit utilization low — are just some ways that may help your score.

•   Consider a low-interest balance transfer card. If you have a high-interest card with a balance on it, and you have strong credit, a balance transfer card can allow you to move your original balance onto a low-interest card. Before proceeding, always compare the balance transfer fee against your potential savings to confirm that it’s worth it.

Remember, what’s considered a good APR for a credit card is subjective, based on your creditworthiness and other factors. Securing the lowest APR that you qualify for can help you avoid heavy interest charges if you roll over a monthly balance.

Explore SoFi’s Credit Card With Rewards

Ultimately, whether you opt for a cash-back credit card or a low-interest card depends on how you plan to use the card and whether you practice responsible credit card habits. But why choose one or the other when you can explore credit cards with low interest rates and cash-back rewards?

A SoFi Credit Card offers the advantages of a cash-back rewards credit card with the opportunity to lower your APR through responsible credit usage.

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

When is a lower annual interest rate better than a low annual fee?

A lower APR is better if you typically carry a balance from one billing cycle to the next. When you roll over a balance, old and new balances accrue daily interest charges that can cost you more money out of pocket. A low annual fee is something to look for when you’re using a card to earn incentives, like credit card rewards.

Are there credit cards with low interest and cash back?

Yes, there are credit card options that offer a low interest rate to qualified applicants, as well as cash-back rewards. However, you’ll generally need to have good credit in order to qualify for the most competitive rates offered by low-interest rewards credit cards.

How can I choose between low APR and rewards?

Consider your credit history and score to determine whether you meet the minimum qualifications for a credit card’s lowest APR. Also, examine your general credit card habits, like whether you often roll over a balance and what your monthly spending habits are like. Compare those details against the costs of carrying a card, like annual fees and the APR you’re offered.

Is it better to find a credit card with low or high interest?

Finding a credit card that offers a low interest rate is always the better move. The lower your APR, the less you’ll pay for borrowing on credit if you decide to carry a balance month to month.

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Photo credit: iStock/AsiaVision

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.

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.

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.

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There’s also a lot of important information in a credit card statement. Specifically, you’ll find details about rates, fees, transactions, payments, and any changes to your card’s rules and regulations. All of the fine print might look overwhelming, but if you spend some time learning how to read your credit card statement, it will become easier to navigate. In fact, you may even find it helpful in understanding how to manage your credit.

Keep in mind that every credit card provider’s statement looks a bit different, though they’ll share some similarities. In other words, your statement might look a bit different from our high-level overview of a credit card statement’s components. Still, this guide can serve as a jumping-off point to better understanding a credit card statement.

How to Read a Credit Card Statement

Below you’ll find an overview of each of the major sections of a credit card statement, as well as what important information you can find there.

Account Summary

This section is an overview of all of the transactions that have taken place on your credit card account during a billing period. Here are some key pieces of information you’ll find in the Account Summary section of your credit card statement:

•   Your name and mailing address: While this is information you already know, it’s important to make sure it appears accurately on your statement.

•   Your account number: The entire account number may appear, or the statement may only list the last four digits.

•   The billing cycle’s dates: You’ll see your credit card statement closing date and the length of your billing cycle, which impact how interest is calculated. The statement will only reflect activity from the current billing cycle. This means your statement may show different numbers than what you see when you look at your account online, which may include transactions that occurred after the credit card statement cycle closed (this is the difference between a credit card statement vs. current balance).

•   The previous balance: This is the previous month’s remaining account balance.

•   The new balance: This figure takes into account all of the activity for that billing cycle. Additional purchases, interest charges, fees, balance transfers, credits, or payments are either added or subtracted to the previous balance to determine this balance. If, for whatever reason, you were credited more than you owe, that would result in a negative balance on a credit card.

•   Your credit limit and available credit: This is where you’ll find your overall credit limit, as well as how much of that remaining limit is available for your use.

Recommended: What is the Average Credit Card Limit

Payment Information

In this section, you’ll find information on what is owed for the billing cycle. If you look at no other section on your credit card statement, you’ll probably want it to be this one. Here’s what you’ll find there:

•   Your new balance: This is how much you’ll owe on this particular statement. If you pay this amount in full, you can typically avoid accumulating interest charges.

•   Minimum payment: This section will include information on your minimum payment for the month. You must pay this amount to avoid late fees and negative reporting to the credit agencies.

•   Payment due date: If you fail to make the minimum monthly payment by your payment due date, you may be charged a late fee. Missing a payment might also trigger a higher penalty annual percentage rate (APR) and potentially negatively impact your credit score.

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

Late Payment Warnings

Credit card statements typically have sections that state what happens in the event that a minimum monthly payment is not received by the due date listed. The late payment warning generally includes information on the penalty APR (if applicable) and the late payment fee.

Minimum Payment Warning

The minimum payment warning section explains how long it will take to pay off a credit card balance and how much interest you’ll owe if you make only the minimum payment. While it’s possible to pay off a credit card balance by only making minimum payments, the process can be slower and more costly in the long run when you factor in compound interest.

The minimum payment warning section may include details for an expedited payment schedule, such as three years, or 36 monthly payments. This can serve as a useful comparison if you’re unsure of just how much you’ll save in interest charges by making more than the minimum monthly payment.

Another way to explore interest costs over different repayment periods is by using a credit card interest calculator.

Recommended: What is a Charge Card

Rewards Summary

If you carry a rewards credit card, arguably the most fun section to review on a credit card statement can be the rewards summary. Here’s what you can find detailed in this section:

•   Prior rewards balance: This shows your rewards accrual from spending in prior billing cycles.

•   Rewards earned this period: This shows how many points or miles were accumulated over the most recent billing period through using a credit card.

•   Rewards redeemed: This will show the amount of rewards you’ve redeemed that statement period, if any.

•   Rewards available for redemption: This portion details how many points or miles you’re currently able to redeem, whether for cash or travel.

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Credit Counseling Notice

Your credit card statement may include information for nonprofit credit counseling. If you’re having a difficult time managing your credit, you might consider using this resource. These programs are typically long-term solutions, however, and may not be able to help if you’re in immediate risk of missing a payment.

If you are unable to make a payment, call your credit card company and ask about your options. Credit card companies may have ways to help.

Recommended: When Are Credit Card Payments Due

Notice of Changes to Interest Rates and Other Changes

If an action on your account triggers some sort of change to the account, there is usually a section dedicated to explaining this change (or potential change). For example, if a missed payment triggers the penalty APR rate, you must be notified of the change.

Similarly, if there are any other major changes to your account, rates, or fees, you may find more details in this section.

Recommended: How to Avoid Interest On a Credit Card

Transaction Charges

This section is a list of all of the transactions that occurred during a billing cycle, including:

•   Purchases

•   Returns

•   Any other activity that would affect the running balance on a credit card

Additionally, each transaction typically includes the following information:

•   The vendor

•   The date the transaction was made

•   The date the transaction was posted to the account

•   The dollar amount of the transaction

Note that this section will only include information from the transaction period. Transactions that happened after the billing cycle will be included in the next period’s statement.

You may want to consider making a regular habit of checking your transactions each month to look for any errors or potentially fraudulent activity. If something looks suspicious, report the activity to your credit card company.

Fees and Interest Charges

Credit card statements typically have a section dedicated to fees and interest charges. In this section, you may find the following:

•   Interest charges by type of transaction: You may be charged a different interest rate for purchases than for balance transfers or cash advances, for instance. This section will break down the APR for each transaction type.

•   Interest charge calculations: In this section, you’ll be provided with the calculation for how interest was charged on each type of transaction.

•   Year-to-date total of all fees and interest: Credit card statements may also include a total of all fees and interest charged for the current year.

The Takeaway

As you can see, your credit card statement contains a wealth of information. Learning how to read a credit card statement can ensure you have all of the details you need to be an informed cardholder. Plus, understanding a credit card statement can help you learn how to better manage your credit and take advantage of all that your card has to offer.

Perhaps one of the most exciting credit card statement sections to review is the rewards summary — but you need a rewards credit card for that to be included. If you’re looking to earn rewards through your everyday spending, consider a cash-back rewards card like the SoFi 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.

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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.

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

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.

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

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Applying for credit cards isn’t something you should take lightly because it absolutely can hurt your credit score. One credit card application can ding your score by just a few points, but multiple applications could raise red flags for lenders and drag down your credit score accordingly.

Still, while applying for a credit card can hurt your credit, there are a number of potential pluses to credit cards, from allowing you to build your credit history to earning rewards. Here’s how to navigate the effects of applying for credit on your credit score, as well as some alternatives to consider if you don’t think your score can currently weather it.

Hard vs Soft Credit Inquiries

To understand how applying for a credit card can hurt your score, it’s first important to know the difference between hard and soft credit inquiries.

A hard inquiry, also known as a hard pull or hard credit check, generally occurs when a lender is determining whether to loan you the funds you’ve applied for. This might happen if you’ve applied for a mortgage or a new credit card, for example.

On the other hand, a soft inquiry, or soft credit pull, tends to happen when someone runs a credit check to gather information without the express purpose of lending you money. For instance, a credit card issuer may do a soft pull in order to make a preapproval offer, or a potential employer might perform a soft inquiry as part of the application process. A soft credit inquiry also may happen when you check your credit report.

Perhaps the most important difference between a hard pull vs. a soft pull is how it impacts your credit scores. While hard credit inquiries show up on your credit report and affect your score, soft inquiries do not. Further, while soft pulls can be done without your consent, creditors need your approval to do a hard inquiry.

How Applying for Credit Cards Can Hurt Your Score

While your credit score won’t take a huge hit when you apply for a credit card, it will get dinged. Why? When you apply for a credit card, the card issuer will perform a hard inquiry to determine whether you’re a good candidate to lend money to.

Hard inquiries can lower your credit score because a new application can represent more risk for the card issuer. According to FICO, a hard credit inquiry will generally affect your score by less than five points. Those with few accounts or a thin credit history can experience a greater impact on their score. Additionally, multiple inquiries within a short period of time can exacerbate effects on your credit score.

Hard pulls stay on your credit report for two years, though their impact on your credit scores typically vanishes after a year. It’s important to note that your score will see an impact whether or not you’re approved, as the hard inquiry is conducted either way.

Should You Apply for Multiple Credit Cards at Once?

Simply put, no. This is a bad idea for your credit score. While it might make sense to apply for more than one job at a time, that’s not the way to go with credit cards. Instead, you should approach applying for credit cards strategically.

By applying for several cards over a short period, you might send the signal that you’re desperately seeking funds and headed for — or already in — trouble. You’ll appear risky to lenders and that will likely be reflected by a dip in your credit score.

Of course, this doesn’t mean you can’t have multiple credit cards. You’ll just want to take your time and space out your acquisitions. If you get rejected for a card, pause to figure out why, and then take steps to address the suspected weak spots. Once you’ve had time to build your credit, consider trying again.

How Often Can I Apply for a Credit Card Without Hurting My Credit?

Per Experian, one of the three major credit bureaus, it’s wise to wait at least six months in between credit card applications. If you apply for a number of credit cards within a few months, you could see more than the usual ding to your score that new credit inquiries typically cause. While the effects may be brief, Experian states that you could see a “potentially significant drop” in your score.

While six months is the minimum waiting period suggested, how often it’s appropriate to apply for new credit cards also depends on your financial specifics. For instance, if your application was denied due to your credit score and you still haven’t improved it, then it may not make sense to apply again, even if six months have passed. Similarly, you might not choose to apply for a new card if you know you have another big lending application coming up, such as for a mortgage.

On the other hand, if you have a strong credit profile, your score may not take as much of a hit if you decide to apply for another card sooner to try to cash in on generous rewards or a hefty welcome bonus offer. Those who don’t yet have a credit history and are beginning to build a credit profile may also find it’s worthwhile to wait less time between applications.

Recommended: What is the Average Credit Card Limit

Can Applying for Credit Cards Help Your Score?

There are two sides to a coin and so it goes with applying for credit cards — there can be some upside when you apply for a new card.

This is partly because opening a new account effectively increases your credit limit. In turn, this can lower your credit utilization ratio, which is your outstanding balances compared to your overall credit limit. Credit utilization accounts for 30% of your credit score and is second in importance only to your payment history.

Another potential plus to opening a new card is that if you make on-time payments on your new card, your positive payment history can build your score over time. However, if you’re a credit card newbie and still working on establishing credit, you may not see the uptick in your score as quickly. This is because FICO requires you to have at least one account that’s been open for six months and one account that’s been reported to the credit bureau within the last six months to qualify for a credit score.

If you don’t already have a handful of credit card accounts, a new card also can positively impact your score because it’s adding another revolving account to your lineup. While your mix of account types only comprises 10% of your credit score, credit scoring models do look at this.

Recommended: When Are Credit Card Payments Due

Does Applying for a Credit Card and Not Getting Approved Hurt Your Credit?

Your credit will be affected whether or not you’re approved for a credit card. That’s because when you submit a credit card application, a hard credit inquiry is conducted to determine if you’re eligible. The effects of that hard pull will apply regardless of the results.

However, your credit won’t face any consequences for the fact you were denied a credit card. That information won’t be reflected in your credit score, nor will it show up on your credit report.

Recommended: Tips for Using a Credit Card Responsibly

Things to Consider Before Applying for a Credit Card

Before you rush to apply for credit, make sure you’re ready. Here’s what to consider doing prior to applying.

•   Check your credit report: The first step is to get a copy of your credit report. To get your free report each year, go to AnnualCreditReport.com . As you review your credit report, look for any errors. If there are any, take steps to fix them before you approach a credit card issuer. Also check to see if you’ve had any other recent hard inquiries.

•   Consider any other upcoming credit applications: Be mindful about what’s on your horizon before moving forward with applying for a new credit card. For example, if you think that you will be applying for a mortgage or car loan soon, you may not want to apply for a card and rack up multiple inquiries at once. It may make sense to get your mortgage or car loan first and wait for a little while to go after the credit card.

•   Don’t plan to ditch your old cards: Just because you hope to get a new card, don’t start canceling the other cards in your wallet. Remember, length of credit history makes up 15% of your credit score. By canceling old cards, you’d also reduce your total available credit, which could drive up your credit utilization ratio if you have hefty balances on other cards.

•   Think about why you want to apply for a credit card: Lastly, have a little talk with yourself. A credit card rule of thumb is just because you can get a credit card doesn’t mean you need one. If you already have a credit card, what’s driving you to apply? How are you managing your existing credit card? If you’re not 100% sure you’ll be able to pay off the balance in full each month, think twice about getting it. When balances linger from month to month, it becomes costly due to interest racking up.

Recommended: How to Avoid Interest On a Credit Card

Alternatives to Credit Cards

If you’re worried about the effects that applying for a credit card may have on your credit score, know that you have other options. Instead of getting a credit card, you may also consider the following alternatives for financing:

•   Debit card: If you’re simply looking for another way to easily make purchases and avoid carrying around a wallet full of cash, consider a debit card. While a debit card does not allow you to build your credit score, applying for one does not require a hard pull and is often as easy as opening a bank account. Do note that debit cards tend to have less robust security protections compared to credit cards though.

•   Loan from a family member or friend: If you’re wary of weathering a hard credit inquiry right now, consider approaching a close family member or friend about borrowing the funds you need. Make sure to clearly agree to the terms of the loan agreement, including when you’ll pay back the money. Also realize the potential implications for your personal relationship if you don’t make good on paying this person back.

•   Salary advance: Another option may be to ask your employer if you can borrow funds from a future paycheck. This can allow you to borrow money in a pinch without needing to go through the formal credit application process. Employers typically won’t charge fees or interest, though you may have to pay an administration fee or interest if your employer relies on a third party for the service.

Recommended: What is a Charge Card

The Takeaway

Applying for a credit card may be a simple process in terms of filling out the forms, but that doesn’t mean it’s something to take lightly. It can have very real effects on your credit score due to the fact that a formal application requires a hard credit inquiry. Thus, applying for a credit card is always something you should consider carefully and do responsibly.

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

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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.

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When it comes to improving your credit score, the term credit utilization should be on your radar. That’s because it’s one of the major factors that can affect your overall score. The lower your credit utilization — meaning the less of your total available credit you’re using — the higher your credit score could be.

Here’s a closer look at how credit utilization affects credit score, from how much lowering your credit utilization will affect your score to how long credit utilization affects a score.

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

What Is Credit Utilization and Why Does It Matter?

Credit utilization is the percentage of your overall credit limit that you use on your revolving credit accounts — most commonly, credit cards. In other words, it’s how much of your available credit you’re using.

Credit utilization is one of the most important factors that scoring models look at when calculating your credit score, since it suggests the risk you could pose as a borrower. The lower your credit utilization, the more it will appear that you can handle debt or use a credit card responsibly. Thus, a lower utilization rate is reflected in a higher credit score.

To calculate your credit utilization, add up all of your credit card balances and then divide that amount by your overall credit limit across your credit cards. For example, let’s say you have three credit cards, with an overall credit limit of $15,000. You’re carrying a balance of $4,000 across all of those cards. Using the previously explained equation, your credit utilization would be around 26%.

Recommended: What is the Average Credit Card Limit

Factors That Affect Your Credit Score

Aside from your credit utilization, there are other factors that affect your credit score. These include:

•   Payment history: Another major factor aside from credit utilization is whether you pay your credit and debt accounts on time. If you consistently make on-time payments, the more creditworthy you’ll appear, and this will reflect on your score.

•   Credit history length: Credit scoring models typically take into account how long your current accounts have been open. They may even consider how long it’s been since you’ve used certain kinds of accounts. Generally, a longer credit history is a positive thing for your credit score.

•   Credit mix: Having different types of accounts may demonstrate to lenders how you handle different kinds of debt.

•   New credit: Opening multiple credit accounts or having a series of hard inquiries could signal to lenders that you pose a greater risk as a borrower. As such, it may negatively impact your credit score.

Recommended: When Are Credit Card Payments Due

How Credit Utilization Affects Your Credit Score

Your credit card utilization accounts for 30% of your FICO credit score, which is the scoring model used by the majority of lenders.

Since lenders look at your credit score to assess your creditworthiness, having a low credit utilization is key. That’s because if you’re using most of your available credit, it suggests to lenders that you could be a greater risk. A high utilization rate could signal to lenders that you may be stretched too thin financially and need to rely too much on credit, and therefore could have a hard time paying back what you borrow.

Your credit score is also dependent on other factors, such as the number of credit cards you have. For example, if you have one credit card with a low limit, having a high credit utilization may affect your score more compared to someone with multiple credit cards and high credit limits. Same goes for someone with a lengthy credit history that’s been mostly excellent, compared to someone who has no or a limited credit history.

All this to say: Credit utilization is an important factor in determining your credit score, but there are other aspects as well, such as your payment history.

Tips for Managing Your Credit Utilization and Credit Score

By managing your credit utilization, you can improve or maintain a better credit score. The following are a few effective tactics to do so.

Keeping Your Credit Utilization Rate Under 10%

Though keeping your credit utilization under 30% can help to improve or maintain your credit score, the lower it is, the better.

While you may be tempted to keep it at zero, that may not be as helpful as you think. A 0% credit utilization could signal that you’re not using your credit regularly. Since lenders want to see how you currently manage accounts, it will be hard to approve you for a loan if they see you’re not using any.

Instead, consider charging smaller amounts on your credit card and trying to keep your utilization rate to under 10%, which is a benchmark for achieving a high score. That way, you should be able to afford to pay the balance and show creditors you’re using credit regularly.

In addition to keeping your overall utilization below 10%, you’ll want to make sure that your utilization on each of your credit cards is also below that percentage. In many cases, credit utilization may refer to your per-card utilization.

Your best bet would be to look at your current credit card spending limit for each card and then aim to keep each card’s balance to no more than 10% of that amount. So if you have two credit cards with limits of $3,000 and $5,000, respectively, you wouldn’t want to charge more than $300 to the first card and $500 to the second.

Recommended: What is a Charge Card

Asking for a Higher Credit Limit

Getting a higher credit limit can lower your credit utilization even if you maintain the same balance on your cards. It also gives you more wiggle room — if you need to carry a balance on a credit card, you won’t have to worry as much about a big increase in your credit utilization.

When it comes to asking for a credit limit increase, issuers tend to look more favorably to those who have maintained good credit history, whose income went up, and even those who have less debt. If you do make a request, some credit card companies may conduct a hard credit inquiry, which could temporarily affect your credit score.

Making Payments Twice in a Month

By paying your credit card twice a month, your balance will remain lower. It will also increase the chances of your credit card issuer reporting that lower amount to the credit bureaus.

This could mean that your calculated credit utilization is lower, therefore increasing your chances of seeing a positive effect on your credit score. Plus, it will help you avoid racking up excessive credit card debt, which can have a negative impact on your score.

Recommended: How to Avoid Interest On a Credit Card

Keeping Your Credit Cards Active

It may be tempting to close a credit card that you don’t use anymore. However, if you do so — or if you don’t use a credit card for a while and the card is closed automatically — your credit utilization will automatically go up. This is true even if your balance is still the same, as your overall credit limit is now lower.

Instead, consider keeping that card open, even if you make a small purchase on it every few months.

Recommended: Can You Buy Crypto With a Credit Card

The Takeaway

Credit cards are useful tools, helping you make purchases, earn rewards, and build your credit. In order to reap the positive benefits, make sure to use your credit cards responsibly — including by keeping your credit utilization low. Given how credit utilization affects credit score, it may be worth exploring ways to manage your current utilization in order to lower it.

One way to lower your credit utilization is to increase your overall credit limit, which you can do when you get a credit card. If you’re looking for a credit card that suits your needs, consider SoFi’s 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

What is a good credit utilization ratio?

A good credit utilization ratio is 30% or lower. Ideally, you should aim to maintain a credit utilization ratio of around 10% to show lenders you’re responsible with credit.

How long does credit utilization affect credit score?

Your credit utilization won’t affect your credit score forever. As long as you take the steps to lower it, you can see improvements within a short amount of time.

How much will lowering my credit utilization affect my credit score?

Lowering your credit utilization can have a major impact on your credit score. That’s because credit utilization makes up around 30% of your credit score calculation with most scoring models.

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Photo credit: iStock/Ridofranz

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.

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.

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.

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