CB3 Archives | Page 7 of 9

Sep

2022

A Guide to How a Credit Score Simulator Works

A credit score simulator is an online tool that can help you see how certain behaviors and decisions might impact your credit score in the future. It might take your existing credit history into account and how certain actions could affect your credit score.

For example, perhaps you open a new credit card or have an account sent to collections. A credit score simulator would take these marks into consideration and help you estimate the impact they may have on your credit score.

What Is a Credit Score Simulator?

A credit score simulator is an online, interactive tool that can help you assess how certain decisions or events will affect your credit score. Because everyone has a unique credit history, these tools can only help you to estimate the impact of changes to your credit score, rather than making this determination for certain.

Nevertheless, credit simulators can be useful, especially if you are working to improve your credit. There are many actions you could take that may affect your credit score — here are just a few examples:

• Financing a home or car

• Using a balance transfer credit card to consolidate your debt

• Closing a credit card

• Declaring bankruptcy

These are just a handful of the ways your credit score could rise or fall; there are many more examples. With so many possibilities, it can be difficult to predict how changes to your credit history will affect your credit score. Once you know what a credit card is, it quickly becomes apparent how a credit score simulator can help.

How Does a Credit Score Simulator Work?

After gaining an understanding of how credit cards work, you can start to understand how a credit simulator works. Each credit score simulator is different, but there are some commonalities in how they work.

Some start with your current credit score provided by a credit reporting bureau, then let you see how some of the changes mentioned previously would affect your score if you were to make them. While there’s no guarantee they will be completely accurate, they should give you an idea of the potential impact on your credit score.

Other credit score simulators might guide you through several questions about your credit profile. The result estimates your current credit score based on your responses. For example, the myFICO credit score estimator asks you about things like how many credit cards you have, how long ago you opened your first card, and whether you’ve missed a payment.

Recommended: When Are Credit Card Payments Due

How Your Credit Score Is Calculated

Credit score simulators generally use popular credit scoring models to estimate your current or future credit score. For instance, they might use FICO® Score 8 or VantageScore 3.0. These models use certain credit factors to calculate your score.

While each credit scoring model is different, certain behaviors tend to have a positive influence on your credit score, regardless of the model. Typically, some of the factors affecting credit score are:

• Payment history: This is usually one of the most important factors in the calculation of your credit score. To avoid a negative impact on your credit score, you’ll want to avoid being more than 30 days late on any credit card payments.

• Credit utilization ratio: This ratio is simply the total outstanding balance on all of your credit cards divided by their total credit limit. One of the credit card rules is that you should aim to keep this ratio below 30%.

• Derogatory marks: These are items like bankruptcies, tax liens, and collections. It’s best to avoid these altogether if possible, especially since they can stay on your credit report for seven to 10 years.

• Credit age: Creditors like to see that you have a long history of responsible credit use. Thus, your credit score may be slightly more favorable if your oldest credit card is decades old. The same holds true for loans.

What a Credit Simulator Can Do

A credit score simulator can help estimate either your current credit score or what your credit score might be in the future. The result is that they can help you better understand how different actions will increase or decrease your score.

Thus, they can help you prioritize which actions to take. Should you pay off your credit cards quickly, or should you focus more on your loans for now? Credit score simulators can help you answer these questions when the answer isn’t so obvious.

What a Credit Simulator Cannot Do

The main thing that credit simulators cannot do is tell you exactly what credit score you should expect to have at a given point in the future. There are simply too many variables at play to know with absolute certainty what your score will be.

For one, your credit card issuer might use a different credit scoring model. Another possibility is that there are other changes to your credit profile that could impact your score. Perhaps you finish paying off a credit card six months from now, but an emergency suddenly arises that results in you taking out a personal loan.

The fact that there are so many possible scenarios is why we say credit simulators can only help you estimate your score rather than tell you exactly what it will be.

When It Makes Sense to Use a Credit Simulator

It makes sense to use a credit simulator in certain situations. For example, suppose you plan to finance the purchase of a new car. That will certainly have some impact on your credit, but the effect will vary depending on your credit history. A credit simulator can help you estimate what that impact will be.

Credit simulators can also help you decide which actions to prioritize if you have a bad credit score. Many of these possible actions might improve your score, but chances are, some will help more than others. Over time, you can gain a better understanding of which kinds of actions tend to have the largest impact.

Other Tools to Monitor Your Financial Health

Credit simulators are not the only thing that can help you monitor your financial health. Here are some other tools to consider:

• Credit score monitoring: While credit simulators can help you estimate how changes to your credit report will affect your score, credit monitoring tools give you credit score updates on an ongoing basis. They can also give you a breakdown of your credit factors and how your score has changed over time.

• Budgeting tools: Budgeting tools are useful because they often let you sync all of your bank accounts and credit cards in one dashboard. You can then see all of your balances in real-time.

• Identity theft protection: If your identity is stolen, it can have a major impact on your credit and your finances as a whole. Thus, it’s not a bad idea to have this protection just in case.

What Makes a Good Credit Score?

It’s tough to overstate the importance of having good credit. Nevertheless, what constitutes good credit will vary from person to person. The general idea is you must show creditors that you are a responsible borrower and that you aren’t going to default on your debt (in this case, your credit card).

This is why things like late payments and high credit utilization can drastically lower your credit score. Late payments suggest you may not be able to reliably make your payments. And a high credit utilization suggests you may have a higher risk of default as you are using a high percentage of the credit available to you.

The Takeaway

Credit score simulators are one tool that can help you assess how different behaviors can affect your credit score. Because they are just simulators, they may not be completely accurate. Still, they can give you an idea of what to expect and help you reach your financial pals.

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

FAQ

Are the changes made by a credit score simulator guaranteed?

In short, no. Credit scores are complex and other factors could affect your score in the meantime. Nevertheless, credit simulators can help you better understand how various changes may affect your credit score.

How long do credit score changes usually last?

How long changes to your credit score last depends on reporting to credit bureaus. Each bureau has its own schedule, but credit card updates usually happen every 30 to 45 days. However, some changes — such as a bankruptcy declaration — can remain on your credit report for as long as 10 years.

How accurate is a credit score simulator?

Credit score simulators should be relatively good at estimating credit score changes based on the information provided or available to them at any given moment. However, credit reports can change frequently, and simulators can’t usually predict what will happen with your credit a day, a week, or a month from now.

Photo credit: iStock/millann

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

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

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

SOCC0722014

Sep

2022

How Long Does a Credit Card Refund Take?

You made a purchase on your credit card and then decided you no longer wanted the item and returned it — but how long does a credit card refund take? Credit card refund times vary based on a number of factors. This includes the speed at which the merchant processes the refund, how soon you requested the refund, and the length of time it takes for your credit card issuer to credit the amount to your account.

If you’re feeling antsy about how long it takes for a refund to appear on your credit card, however, there are ways that you can speed up the process.

How Do Credit Card Refunds Work?

When you make a purchase on a credit card, your credit card issuer pays the merchant and the amount will go onto your account for repayment. Since the issuer technically paid for the purchase, any requests for a refund will go back to the credit card account. In other words, you won’t receive other forms of payment like cash for refunds when you use a credit card since you didn’t directly pay for the purchase.

There are two types of refunds — one for purchases and ones due to fraud.

In the case of purchases, you’ll deal with the merchant with whom you made the purchase. Once the merchant approves the refund, the credit card company will process it. Then, the amount refunded will show up on your credit card statement. The credited amount may not appear in the current billing cycle if you made a return in between billing cycles (the end of a billing cycle also tends to be when credit card companies report to credit bureaus).

As for fraud, these are charges to your account that you didn’t authorize. Most credit card companies will offer some form of fraud protection as long as you notify them within a certain period of time, usually 60 days. Once the issuer is notified of the fraudulent transaction, it will reverse the charges. You’ll then receive a credit for the amount charged, or the charge will get taken off your account completely, assuming you’re not falsely disputing a credit card charge.

Do All Credit Card Refunds Take the Same Amount of Time?

Not all credit card refunds will take the same amount of time. To get an idea of how a particular merchant accepts and processes returns, you can look at the merchant’s refund policy. Some items to note in this statement include:

• Types of refunds offered: Some merchants may be lenient on their return policies, while others may only offer store credit for returns, for instance.

• Refund times: Merchants typically state when they’ll issue a refund, such as within a few business days or weeks.

• How to make a return: Check to see whether you can make a return in person or if you can ship back the item. If you’re shipping, make sure to see if you or the merchant pays for shipping.

After the refund is processed, you’ll need to wait on your credit card company to post the refund or credit to your account. How long this takes will also vary depending on the issuer.

How Long Does a Credit Card Refund Take?

A credit card refund usually takes up to seven business days after the customer makes the request.

Keep in mind that the rules for refunds can vary depending on your credit card issuer and how long it takes the merchant to process the refund. The faster the merchant processes the refund, the faster it will hit your account.

However, the above timeframe assumes that the merchant agrees to process the refund. If you were to dispute a credit charge, the process of getting a refund could take much longer. Notifying your credit card company as soon as you can is helpful because it could take some time for them to complete their investigation — they have up to 90 days to do so.

Recommended: What is a Charge Card

Factors That Determine How Long a Credit Card Refund Takes

The two main factors that determine how long a credit card refund takes is the type of refund you’re requesting and where you made the purchase.

The Type of Refund It Is

As mentioned before, credit card disputes — whether for fraud or a credit card chargeback request for a product you never received — may take longer compared to refunds for purchases. Plus, you’ll need to make sure you contact the credit card company within 60 days of the billing or fraud dispute. From there, the issuer should have the dispute resolved within two billing cycles, or up to 90 days.

Where You Made Your Purchase

Different merchants have varying refund policies — the longer it takes the merchant, the longer it will take for the refund request to reach your credit card issuer. Here’s a sampling of some of the refund policies at popular retailers:

• Amazon: It can take up to 30 days to process a refund. After an item arrives at the fulfillment center, credit card refunds are typically processed within three to five days. Once a return is processed, the funds will appear in your account, usually within three to five business days.

• Square: Any merchant that uses Square to accept purchases will take two to seven business days to process a refund. It can then take an additional two to seven business days for the refunded amount to appear in your account, resulting in a total credit card refund time of nine to 14 business days.

• Walmart: Refunds tend to take up to 10 business days to process.

How to Speed up the Refund Process

The good news is that there are some ways you can help to speed up the refund process.

Get It There Faster

Some retailers have multiple ways to return items, and certain methods have faster processing times than others. For instance, many major retailers process refunds faster (in some cases, immediately) if you make a return in-person at one of their store locations instead of mailing back the item.

Make Use of Loyalty Benefits and Store Credit

You may be able to receive expedited shipping for returns or faster refund processing times if you belong to a merchant’s loyalty program. Often, you also may be able to get a refund faster if you opt to receive a store credit instead of getting a refund issued to your credit card.

How Does a Refund Affect Your Credit Card Account?

Refunds are typically treated as an account credit. There’s no credit card refund issued in the form of cash since you borrowed the money from the credit card issuer to make the purchase in the first place.

While the purchase is still billed to your account, you’re technically responsible for payment. If you made the purchase, paid it off once the billing cycle ended, and then requested a refund, you’d get a credit to your account. Due to credit card rules, the refund does not count as a partial payment.

No matter how long you wait for a refund, it’s important to manage your account wisely and make sure you’re using a credit card responsibly so you don’t end up overextending yourself. As long as you pay your bill by the due date, you won’t risk hurting your credit score while you’re waiting for your refund.

Recommended: When Are Credit Card Payments Due

Refunds on Rewards and Fees

Credit card companies usually won’t refund any interest or fees you may have paid because you carried a balance for a purchase that you’re now trying to get a refund for. Similarly, if you made a purchase while you were overseas and were charged a foreign transaction fee, you most likely won’t get a refund for that either.

When it comes to rewards, whatever you earned for the purchase will get deducted from your earnings after the refund is processed and posted to your account. You end up with a negative rewards balance if you redeemed all of your points before requesting a refund.

Recommended: Can You Buy Crypto With a Credit Card

The Takeaway

Being aware of how credit refunds work helps you to understand how to keep better track of your credit card statements and rewards earnings. It can also help you to determine which credit cards are better used for certain situations.

Earning rewards is a great way to maximize your credit card purchases.

FAQ

What happens to my rewards if I request a refund?

Your rewards will be deducted from your current balance after your request for a refund is processed.

How long does it take for a refund to appear on a credit card?

A refund may take up to seven days to appear on your credit card statement. However, this timeframe can vary depending on your card issuer, the merchant, and what type of refund request it is.

Are credit card refunds instant?

Credit card refunds typically aren’t instant. This is because it takes time for the merchant and credit card company to process it.

Will a delayed refund hurt your credit?

A delayed refund typically won’t hurt your credit as long as you continue to make on-time payments and are generally responsible with your credit card usage.

Photo credit: iStock/MBezvodinskikh

Sep

2022

Guide to Buying Real Estate With a Credit Card

By Jennifer Calonia | Credit, credit card, Home Ownership | Comments Off

Investing in real estate can be a lucrative endeavor, especially in today’s hot real estate market. But if you don’t have hundreds of thousands of dollars saved in cash to put toward a property, using a credit card to secure a real estate investment might be an option.

There are ways to execute this investment approach. However, there are also serious caveats to consider before moving forward with using a credit card to invest in real estate.

Can You Buy Real Estate With a Credit Card?

You can’t purchase a physical real estate property outright with a credit card the way you would when using a credit card to buy lunch or a new television. One reason for this is because a typical consumer credit card likely doesn’t offer a credit line large enough to cover the entire home price.

Even if you do qualify for a credit line to cover all or a significant portion of the home price, you’ll face another challenge. The title company or real estate agency that’s facilitating the deal requires that payment is provided using bank-certified funds — such as a cashier’s check, certified bank check, or wire transfer — to finalize your investment transaction. Given what a credit card is, it won’t meet those standards.

How to Finance Real Estate Investments With a Credit Card

While you can’t swipe your credit card to purchase real estate, there are ways that you can leverage your credit card to help fund your real estate investments.

Recommended: When Are Credit Card Payments Due

Through a Cash Advance

If you have a high enough credit limit, a viable way to buy real estate with a credit card is by getting a cash advance against your card. By doing this, the funds you borrow from your credit card will become quickly available for use on a real estate investment, which might be helpful if you’re buying real estate in a red-hot market.

Keep in mind that fees typically apply for cash advances. Typically, you’ll pay a fee in the range 3% to 5% of the transaction amount, depending on your particular card.

Also know that cash advances typically come with interest rates that are higher than the card’s standard annual percentage rate (APR). Plus, interest begins to accrue immediately rather than at the end of the grace period like it does on regular credit card purchases.

Recommended: What is the Average Credit Card Limit

For Related Real Estate Costs

Some investors also use credit cards to invest in real estate by using their card for renovation project expenses. If you purchased a low-cost investment property and want to update it for passive rental income, for example, you might be able to invest in your property by putting charges for contractors and materials on your credit card.

Recommended: What is a Charge Card

By Using Credit Card Rewards

Another unconventional approach to buying real estate with credit cards is directly redeeming earned rewards as cash. Cash redemption values are typically lower compared to redeeming rewards toward travel, for example, but this approach can still unearth the capital you need to invest in your next property.

This strategy is particularly effective if you’ve already amassed years of rewards through a business credit card, and are willing to pool earned rewards from your personal credit card rewards programs, too.

Recommended: Can You Buy Crypto With a Credit Card

Advantages of Using a Credit Card to Invest in Real Estate

Although buying real estate with a credit card is an unconventional approach, there are some benefits in doing so. In particular, the advantages include that:

• You can invest faster: If you don’t have a lump sum of cash savings ready, it might take years to save up enough capital to get your foot into real estate investing. Using a credit card to invest in real estate can help you realize your investment goals faster.

• You’ll have fewer costs at closing: Since you’re not financing through a mortgage lender, there are fewer fees to worry about. Unlike when buying a home as your primary residence through a mortgage loan, costs like origination fees, appraisals, and escrow fees aren’t a required part of a real estate investment transaction done in cash.

• You might earn rewards in the process: Most card issuers don’t let you earn credit card rewards from cash advances. However, you can accelerate your rewards earnings by using your card for spending associated with your property investment. For example, materials and contractor costs for renovation projects, like a kitchen update or a room addition, can help you rack up rewards faster.

Downsides of Using a Credit Card to Buy Real Estate

There are major disadvantages to using a credit card to invest in real estate. If you’re considering how to buy rental property with credit cards, keep in mind the following drawbacks:

• You’ll have a hard time using credit cards directly to invest in real estate: A notable downside to buying real estate with credit cards is that you’ll likely be unable to throw a credit card onto the table to close a real estate transaction. You’ll have to undergo the extra step of getting a credit card cash advance. But be aware that card issuers might set a lower available limit for cash advances and will impose a higher APR. Plus, you’ll pay cash advance fees.

• You’ll face high interest rates: If you have to draw a cash advance against your credit card to buy real estate, you’ll face expensive APRs, compared to other financing sources, like a personal loan. According to the latest Federal Reserve data, the average credit card rate across all account types is 15.13%. By comparison, the average personal loan rate for a 24-month term is 8.73%.

• You’re taking on a lot of risk: How credit cards work is that they let you purchase goods and services, even if you don’t have the cash to cover the full amount, immediately. The caveat, however, is that you’ll need to repay the amount either in a lump sum when your statement is due or over time.

If you successfully buy real estate with a credit card, you’re legally liable for that debt and must repay it based on the rate and terms of your credit card agreement. This holds true regardless of whether your investment turns a profit. Plus, if you choose to pay back the funds you borrowed over many months, you’ll incur exorbitant interest charges in addition to the principal balance.

Recommended: How to Avoid Interest On a Credit Card

Factors to Consider Before Using Your Credit Card to Invest in Real Estate

After assessing the pros and cons of investing in real estate using a credit card, also consider the following factors that might impact your investment:

• Whether you’ll need additional funding sources: If your credit card doesn’t provide a sufficient amount for your real estate investment, you’ll need to seek funds elsewhere.

• What the local real estate market is like: Whether your goal is buying a property to flip and sell, or buying rental real estate, do your homework. This includes finding a desirable neighborhood and a suitable property, as well as assessing renovation projects and other repairs necessary to set your investment up for profitability.

• If you can repay your credit card bill: At best, consider your credit card as a short-term loan tool. Plan to put profits you’ve earned toward paying down your debt ASAP.

Alternatives to Buying Real Estate With Credit Cards

If you don’t have hard cash stowed away for your next real estate investment, but aren’t ready to leverage your credit cards for the investment, you have a couple of other options:

• Personal loans: A personal loan is another financing option, particularly if you have strong credit. It offers a higher borrowing limit and longer repayment timeline compared to a credit card. Also, as mentioned earlier, personal loan interest rates are generally lower than credit card APRs.

• Personal savings: Another option is using cash and avoiding credit cards and other methods of borrowing altogether. If you have personal savings that you can tap into or are willing to hold off on investing in real estate until you’ve built up enough savings, you can potentially avoid costly finance charges.

The Takeaway

Tread carefully when using a credit card (i.e. borrowed money) to fund any investment, including real estate. Adhering to important credit card rules — like staying on top of your credit utilization and paying your credit card statements in full — can help you avoid going into debt for your investment.

If you’re looking for a possible real estate investment card, a SoFi Credit Card lets you earn rewards from eligible purchases.

FAQ

How can I buy rental property with a credit card?

If done strategically, you can use a credit card to buy rental property either through a credit card cash advance or by using the credit card to finance renovations on an investment property flip.

Can I use a business credit card to buy real estate?

Yes, you may be able to use a business credit card to invest in real estate. Doing so separates the debt from your personal credit profile, so the high credit utilization on the business credit card doesn’t affect your personal credit score.

Is it a good idea to buy real estate with a credit card?

Whether buying real estate with credit cards is a good idea depends on your investment risk tolerance. A credit card might work as a short-term funding option, but plan on repaying the debt with your profits quickly to avoid an underwater investment.

Photo credit: iStock/SDI Productions

Sep

2022

A Guide to Reopening a Closed Credit Card

By Sarah Li Cain | Credit, credit card | Comments Off

If you’re wondering, ‘Can you reopen a closed credit card?,’ the answer is that it depends. More specifically, the reason why your credit card account was closed in the first place will make a difference, as well as whether your specific credit card issuer allows the reopening of closed accounts.

Though your request may get denied, it’s still worth asking to reopen a closed credit card account if you really want to do so. Let’s take a look at why your account may be closed and how to reopen a closed credit card account.

Can You Reopen a Closed Credit Card?

Whether or not you can reopen a closed credit card will depend on several factors, including:

• The reason why your credit card is closed

• Whether your credit card issuer allows cardholders to reopen accounts

• How long ago the credit card account was closed

For instance, if the issuer closed your credit card account due to nonpayment, you most likely won’t be able to reopen it, given what a credit card is and the risk a lender assumes. However, if you chose to close the account yourself and now regret the decision, you may be able to get the credit card reinstated.

Why Your Credit Card May Be Closed

There are several reasons why your credit card may be closed, such as:

• Your account was inactive: If you haven’t used your credit card in a number of months or years, your issuer may decide to close a credit card due to inactivity.

• Your account was considered delinquent: Most issuers will close your account if you haven’t been paying your bills, or are in default. Although the account is closed, you’ll still owe the amount borrowed when closing a credit card with a balance.

• Your credit score dropped: Though not always the case, if a credit card issuer notices red flags, such as a sharp drop in your credit score or major negative remarks on your credit report, it may choose to revoke your card.

• You didn’t agree to the new terms: Sometimes credit card issuers update their terms and conditions and need you to agree to them before continuing to use the new card. If you don’t agree to the terms, your card may be closed.

Reopening a Closed Credit Card Account

If you decide you want to reopen a closed credit card, here’s how you do it.

Review the Reason for the Account Closure

Assuming you didn’t contact the credit card company to cancel a credit card yourself, you’ll need to determine the reason why the issuer did. It’s most likely due to one of the five reasons mentioned above.

Consider when you last used the credit card, whether you’ve had to agree to new terms, or if you were behind on payments. Credit card issuers may not notify you when the account is closed, so if you’re unsure of the exact reason why, it’s best to contact them.

Gather Relevant Documentation

Before asking the credit card issuer to reopen your account, it’s best to be as prepared as possible so you’re as efficient as you can be. For one, you’ll need to ensure that you have the credit card account number — you can find it on your physical credit card or a previous credit card statement.

If you were delinquent on your account, you may need to provide other forms of proof, like that you’ve paid back the credit card balance you’d owed. Your card issuer may also want other information like your full name, address, and Social Security number.

Contact Your Card Issuer

Finding the best number to call can be as simple as checking the back of your physical credit card or looking up the issuer’s phone number on their website. Otherwise, you can try calling your credit card issuer’s general customer service number and asking to be transferred to the relevant department.

When you request to reopen the account, you may be asked to provide a reason why you want to do so. Additionally, you may need to address any concerns or issues that caused your account to get closed. For instance, if your card was closed because you didn’t agree to new terms, then you’ll need to do so.

If your request is approved, you should receive information about the account, such as whether the account number is the same and if you can keep any rewards you’d earned before the account closure. Some issuers may conduct a hard credit inquiry to make sure you can still qualify for the credit card in question.

Things to Know When Reopening a Closed Credit Card

If you’re reopening an account you held previously, you might find some differences in how a credit card works. Here’s what to look out for specifically if you reopen a closed credit card.

Fees and Interest Rates May Be Different

The annual percentage rate (APR) and fees for the credit card may have gone up or down. Before you reopen your account, it’s best to check all of the card’s terms and conditions to determine whether you want to proceed.

Recommended: How to Avoid Interest On a Credit Card

Your Credit Limit Might Be Lower

Depending on the issuer and other factors like your credit score, your credit limit may be lower than the original amount you were approved for. You may have to wait a few months or demonstrate that you can adhere to key credit card rules, like consistently make on-time payments, before you’re approved for a larger credit line.

Recommended: What is the Average Credit Card Limit

You May Lose Out on Previously Unused Rewards

If you’d racked up rewards before closing your credit card account, you may not be able to access any unused points or miles after your credit card gets reopened. However, it doesn’t hurt to ask the credit card issuer if it can reinstate the rewards — though remember there’s no guarantee it will happen. This is why checking your credit card balance and your rewards balance is important to do before closing out a credit card account.

How Long Does a Closed Account Stay On Your Credit?

How long a closed account remains on your credit report will depend on whether it’s based on a negative remark. For accounts that were in good standing, the closed account can remain on a credit report for up to 10 years and will generally help your credit score. However, if the closure was due to an adverse remark, such as delinquency, it could remain on your report for up to seven years.

How Closing a Credit Card Can Hurt Your Credit

The decision to close a credit card can weigh negatively on your credit score. Specifically, here’s how closing a credit card affects your credit:

• Increases your credit utilization: Once a credit card is closed, your overall credit limit is lowered. This increases your credit utilization ratio — the percentage of your total available credit that you’re currently using — even if your credit card balance remains the same.

• Decreases your credit mix: Though it may not affect your credit score that much, closing a credit card means there may not be as many different types of credit in your credit history. If so, this could affect your score negatively depending on the other types of accounts you have.

• Potentially lowers the average age of your credit accounts: If the closed credit card account was one of your oldest accounts, it could lower the age of your credit history. This can negatively affect your credit score.

Reopening a Closed Credit Card Account vs Getting a New Credit Card

Although there may be advantages to reopening a credit card, such as accessing a high credit limit or offered perks, you’ll have to open a new one if your issuer refuses your request. You might also look into getting a new card instead of going back to your old one if you think you could access better rewards or more favorable terms than your closed card offered.

Whatever your needs and credit score are, it’s best to do some research to find a card that you have a high chance of qualifying for and that offers features you want.

When Not to Reopen a Closed Account

Sometimes, it’s better to leave a closed credit card account closed. Instead, you could use the account closure as an opportunity to search for a better credit card that may have a lower interest rate or offer better rewards, for instance. You could even look into options offered by the same credit card issuer.

Plus, there are some valid reasons for when to cancel your credit card, like if it had an unnecessarily high annual fee. In those instances, it’s likely not worth second guessing your decision.

Alternatives to Consider If You Can’t Reopen Your Account

If you can’t reopen your account, you’re not out of luck. Here are some other options to consider in this scenario:

• Consider applying for a different card with the issuer. One option is to see what other cards your issuer offers and open one of those instead. Before submitting an application, check to see what the terms and conditions are and whether it has the features you’ll want and need.

• Take steps to improve your credit. If your account was closed due to delinquency, you can focus for a few months on making on-time payments or taking other steps to build your score. Then, you could try again to reopen your card or simply apply for a different one.

• Apply for easier-to-get funding sources. If you need funding, you can also consider applying for a secured credit card, which is backed by a security deposit that serves as collateral. Secured credit cards tend to be easier to qualify for due to the deposit you’ll make.

Using Your New Credit Card Responsibly

Whether you’re reopening a closed credit card or applying for a new one, using a credit card responsibly is critical. By doing so, you can ensure that you remain in good standing with your credit card issuer and continue to build your score over time. Here are some tips for responsible credit card usage:

• Don’t spend more than you can afford to pay off each month.

• Always try to pay off your balance in full to avoid incurring interest charges.

• Make sure to submit payments on-time (setting up automatic payments can help).

• Regularly review your credit card statements and credit report to check for any errors or indications of fraudulent activity.

Recommended: When Are Credit Card Payments Due

The Takeaway

Reopening a credit card is as simple as contacting your issuer. However, whether or not you’ll get your request fulfilled will depend on the reason your account was closed and how long it’s been since you last used the card.

FAQ

Can you reopen a closed credit card due to inactivity?

You may be able to reopen a credit card closed because of inactivity. However, whether you can do so will ultimately depend on your credit card issuer and their policies on reopening credit cards.

Can you reopen a closed credit card due to nonpayment?

In most cases, you probably won’t be permitted to reopen a card that got closed due to nonpayment. You may be able to if you can demonstrate to your credit card issuer that you’ve paid back the balance due and can be responsible with payments.

Will I get back my rewards if I reopen a closed credit card?

You most likely won’t be able to get your rewards back. Still, it doesn’t hurt to ask your credit card issuer just to make sure.

Do all credit card issuers allow you to reopen closed credit card accounts?

Many credit card issuers won’t allow account reopening, though some do. To find out if yours does, you’ll need to contact them directly.

Photo credit: iStock/insta_photos

Sep

2022

Guide to Using a Credit Card Like a Debit Card

By Jennifer Calonia | Budgeting & Goals, Credit, credit card | Comments Off

When making a cashless payment at checkout, you might be prompted to select whether you want the purchase processed as a credit or debit card transaction. Some debit cards with a credit card network logo can be processed as a credit payment, but the reverse — processing a credit card as a debit transaction — isn’t possible.

Still, it can make sense to use credit cards like a debit card. Understanding the difference between a credit card and debit card can help you to make strategic purchasing decisions with your credit card.

Recommended: What is a Charge Card

Can You Use a Credit Card Like a Debit Card?

In terms of being a convenient, cashless payment method, a credit card can be used in-person or online in a similar way as a debit card. Credit cards require you to insert, swipe, or tap the card on a payment processing device to initiate a transaction. If used online, you can enter your credit card information into the payment field at checkout in the same way you would with a debit card payment.

However, there are also significant differences between a credit card and debit card. The most notable distinction is where the funds come from. When you use a credit card, the money is drawn from your card’s available credit line, and you might get charged additional fees and interest on your purchase.

In contrast, a debit card draws the funds you already have in an associated checking or savings account. Also, in certain situations where the final total amount might vary, such as at the gas pump, the processor might request that your card issuer place a temporary hold on your debit card funds to ensure you have enough funds to cover the transaction.

Recommended: How to Avoid Interest On a Credit Card

Reasons You May Want to Use a Credit Card Like a Debit Card

Although credit cards offer numerous advantages when used responsibly, there are valid reasons to prefer using a credit card as a debit card. This may include:

• To avoid overspending. Debit cards, particularly when you’ve opted out of overdraft protection, help you to avoid spending more than you can afford to pay back. With a debit card, you can only use the funds already in your associated account, which is a tactic you could try with a credit card as well.

• To avoid finance charges or extra fees. Debit cards generally incur few charges. Additionally, they do not accrue interest since debit transactions are immediately pulled from your deposit account, in contrast to how credit cards work.

• To amass rewards without debt. The potential to earn rewards is an appealing part of what credit cards are, but “chasing points” can be a risky game if you overspend. The ability to use a credit card like a debit card can help keep your spending in check while earning rewards.

Tips for Using a Credit Card as a Debit Card

You can’t technically process a credit card payment as a debit card purchase. But if your purchasing strategy is to use a credit card as your go-to payment method instead of a debit card, remember the following tips and credit card rules:

• Don’t spend more than you can afford.

• Do pay your monthly credit card statement in full.

• Don’t be late or skip a payment.

• Do explore credit card rewards programs to earn incentives on purchases you already make.

• Don’t forget to review annual percentage rates (APR) and fees associated with your card.

• Do use a credit card for online payments for greater fraud protection.

Recommended: When Are Credit Card Payments Due

Pros and Cons of Using a Credit Card Like a Debit Card

The benefits of credit cards in comparison to debit cards vary since they’re two distinct banking products. However, each payment option has its own pros and cons.

	Pros	Cons
Credit Card	• Offers greater purchasing power • Can buy items now and pay for them later • Helps build your credit • Potentially zero liability for unauthorized charges	• Can accumulate burdensome debt • Late and missed payments adversely affect your credit score • Can incur interest charges and fees
Debit Card	• Avoids debt by using cash you already have • No additional interest charges on purchases • Can request cash back at checkout	• Buying power is limited to the funds you have • Insufficient funds may lead to overdraft fees • Doesn’t help build credit • Fewer protections with fraudulent charges

Pros

Cons

Credit Card

• Offers greater purchasing power

• Can buy items now and pay for them later

• Helps build your credit

• Potentially zero liability for unauthorized charges

• Can accumulate burdensome debt

• Late and missed payments adversely affect your credit score

• Can incur interest charges and fees

Debit Card

• Avoids debt by using cash you already have

• No additional interest charges on purchases

• Can request cash back at checkout

• Buying power is limited to the funds you have

• Insufficient funds may lead to overdraft fees

• Doesn’t help build credit

• Fewer protections with fraudulent charges

Alternatives to Using a Credit Card Like a Debit Card

If you’re averse to using a credit card in a traditional sense, there are a few alternatives payment options that are akin to a debit-style transaction:

• Prepaid credit card. A prepaid credit card requires you to “load” the card with funds, which then becomes your card’s available credit line. It gives you the convenience of a credit card, but taps into cash you already have, which is similar to a debit card. Note that prepaid cards often incur fees for various types of activity.

• Cash-back rewards debit cards. If you want the perks of a credit card, like cash-back incentives, but in the form of a debit card, a cash-back debit card might be an option. These limit you to spending the funds you already have on deposit, but let you earn cash back when you use the card.

Recommended: Can You Buy Crypto With a Credit Card

The Takeaway

Using a credit card like a debit card ultimately boils down to only spending on your card with funds you already have. Since a credit card is essentially a loan, it’s easy to accumulate overwhelming debt, plus interest charges, if you’re overspending. If you can comfortably afford to repay your credit card transactions in full each month, using your credit card in lieu of a debit card can provide access to valuable benefits, like earning rewards, enhancing fraud protection, and positively impacting your credit.

A great place to start is using a credit card that lets you earn rewards, like the SoFi credit card.

FAQ

Can I transfer money from my credit card to my bank account?

No, you can’t transfer money from your credit card to your bank account. A bank account is a deposit vehicle for your available cash; this cash can be accessed using a debit card. Conversely, a credit card is a financial tool that lets you access a credit line that you need to repay.

Can I use my credit card like a debit card at an ATM?

Yes, you can use your credit card like a debit card to get a cash advance at an ATM. Be warned that this is a costly option. Credit card cash advances typically have a different limit compared to your purchase limit, and charge a higher APR with no grace period. Plus, you’ll owe a cash advance fee.

Can I use a credit card as a debit card with no interest?

Possibly. You might be able to use a credit card like a debit card for everyday transactions without incurring interest, if you pay every billing statement in full each month. Rolling over a balance month to month, however, will cause you to incur interest charges.

Is it better to use a debit or credit card?

Whether using a debit or credit card is a better option depends on the types of purchases you’re making and your borrowing habits. For example, credit cards are generally safer when shopping online, but buying on credit can get out of control quickly, if you’re not careful.

Photo credit: iStock/filadendron