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Revolving credit is a flexible type of borrowing that allows you to access money as you need it (up to predetermined limit), repay some or all of the balance, and then borrow again. Unlike a one-time loan, revolving credit becomes available again — or “revolves” — as you pay it back. This makes it a convenient option for covering ongoing expenses or handling emergencies.

Common examples of revolving credit include credit cards, personal lines of credit, and home equity lines of credit (HELOCs). Understanding how revolving credit works, how it compares to other types of debt, and how to use it responsibly can help you avoid high-interest debt traps and maintain a healthy credit profile.

How Revolving Credit Works

When you open a revolving credit account, your lender sets a credit limit, which is the maximum amount you can borrow at any given time. You can use all or part of this limit, and you only pay interest on the amount you borrow, not the entire limit.

As you make payments, your available credit increases. For example, if your credit limit is $5,000 and you spend $1,000, you’ll have $4,000 in available credit. If you pay back the $1,000, your available credit goes back up to $5,000.

Revolving credit accounts usually require a minimum monthly payment to keep the account in good standing. If you carry a balance from one statement period to the next, you’ll pay interest on your balance. Annual percentage rates (APRs) vary but can be steep for credit cards.

💡 Quick Tip: With average interest rates lower than credit cards, a personal loan for credit card debt can substantially decrease your monthly bills.

Revolving Debt vs. Installment Debt

Revolving debt is different from installment debt (or non-revolving credit) in a few key ways:

•   Structure: Installment loans (like mortgages, personal loans, or auto loans) give you a lump sum upfront, which you repay in fixed monthly installments over a set term. Revolving credit allows you to continuously borrow and repay within your credit limit.

•   Repayment: Installment loans have fixed payment schedules and, in some cases, there may be a prepayment penalty. Revolving accounts offer variable payments depending on your balance.

•   Interest rates: Revolving credit often has higher interest rates than installment loans, especially unsecured revolving accounts like credit cards.

•   Usage flexibility: Revolving credit is generally more flexible than installment debt, since it lets you borrow as needed without reapplying for a loan. Also, some installment loans are only approved for a specific purpose, such as a car loan or mortgage.

Both types of debt can be useful tools. Which one is a better fit will depend on your borrowing needs. Revolving credit can be a good option for short-term or variable expenses, while installment debt is generally better for large, fixed purchases.

Recommended: Revolving Credit vs Line of Credit

Secured vs. Unsecured Debt

Revolving credit can be either secured or unsecured:

•   Secured revolving credit: With this type of credit, you must pledge an asset as collateral to guarantee repayment. If you fail to make payments according to the loan agreement, the lender has the right to seize and sell the collateral to recover their losses. Examples of secured revolving credit include a HELOC (backed by your home) and a secured credit card (backed by a savings account). Secured revolving accounts often have lower interest rates due to reduced risk to the lender.

•   Unsecured revolving credit: An unsecured debt is not backed by collateral. If you fail to repay the debt, the lender cannot automatically seize a specific asset (like your house or car) to recover their losses. Instead, they rely on your promise to pay. Most credit cards and personal lines of credit are unsecured. Because lenders take on more risk, interest rates on unsecured debts tend to be higher than they are on secured debts.

Types of Revolving Credit

Here’s a look at some of the most popular types of revolving credit.

Credit Cards

You can use a credit card to make purchases, pay bills, or withdraw cash up to your credit limit. If you pay your balance in full each month, you can generally avoid interest charges. If you carry a balance, on the other hand, interest will accrue, often at rates above 20% APR. Credit cards may also offer rewards, cash back, or other perks, making them a potentially valuable financial tool when managed well.

Personal Lines of Credit

A personal line of credit is similar to a credit card but with a few key differences. For one, they typically have a draw period and a repayment period. During the draw period (often two to five years), you can access your credit line and use the funds for virtually any purpose. When you make payments during this period, you free up funds to borrow again. At the end of the draw period, you’ll begin the repayment period. During this period, you no longer have access to the line of credit and must pay off the balance in full.

Home Equity Lines of Credit (HELOCs)

A HELOC is a revolving line of credit secured by your home’s equity, and your home is used as collateral for the credit line. During your draw period (often 10 years), you can borrow up to your credit limit as needed. As you repay your balance, the funds are available to borrow again. After the draw period, you enter the repayment period (usually 20 years).

HELOCs typically have lower interest rates than unsecured revolving credit because they’re backed by collateral. They are often used for home improvements, emergency expenses, or consolidating higher-interest debt. However, because your home is at risk if you default, they require careful consideration.

How Revolving Debt Can Affect Your Credit Score

Revolving credit can have both positive and negative impacts on your credit profile. Here’s a breakdown of the key factors involved in calculating your credit score and how revolving credit can impact each of them:

•   Credit utilization ratio: Your credit utilization ratio measures how much of your available credit you’re using on your credit cards and other lines of credit and is expressed as a percentage. A high utilization (above 30%) can negatively influence your credit file, while keeping it low can have a positive influence.

•   Payment history: Making regular, on-time payments on a revolving credit account adds positive information to your payment history. Late or missed payments, on the hand, can do significant credit damage.

•   Length of credit history: Lenders often view a longer history of responsible credit management as a positive indicator of your creditworthiness. Keeping revolving accounts open and in good standing over many years can have a favorable impact on your credit profile.

•   Credit mix: Your credit mix describes the different types of credit accounts you have. A healthy mix of revolving and installment accounts can positively influence your credit.

Bottom line: If you max out your credit limits or fall behind on your payments, revolving credit can adversely impact your credit. However, if you consistently pay on time and keep your credit utilization ratio low, a revolving credit account can benefit your credit file over time.

Tips for Managing Revolving Debt

If you’re struggling to manage credit card (or other revolving credit) balances, these strategies can help you get ahead of your debt and potentially save money on interest.

Budget Strategies

Making some shifts in your budget can help you pay down your balances systematically. Two strategies to consider:

•   The debt avalanche: This method focuses on paying off the debt with the highest interest rate first, while making minimum payments on the rest. Once the highest-rate debt is cleared, you target the next-highest, and so on. This minimizes total interest paid and can save you money over time.

•   The debt snowball: Here, you target the debt with the smallest balance first, regardless of interest rate. After paying off the smallest debt, you apply its payment amount to the next smallest, and so on. This approach provides quick wins, which can boost motivation and momentum.

Debt Consolidation

If you have multiple high-interest debts, consider consolidating them into a single loan, such as a personal loan, with a lower interest rate. This can simplify repayment and potentially reduce interest costs. An online debt consolidation calculator can help you determine how much you could potentially save by taking out a personal loan and using it to pay down your current balances.

💡 Quick Tip: Some personal loan lenders can release your funds as quickly as the same day your loan is approved.

Balance Transfer

A balance transfer involves moving your revolving debt from one credit card to another card that has a lower or 0% introductory APR. This can save money on interest, but be mindful of transfer fees and the length of the promotional period.

Credit Counseling

Working with a nonprofit credit counseling agency can be a good way to get free or low cost help with managing revolving debt. A certified counselor can help create a debt management plan, negotiate lower interest rates, and provide education on responsible credit use. This can be a good option if you’re struggling but want to avoid more damaging solutions like bankruptcy or settlement.

Debt Settlement

If you’re struggling with high-interest revolving debt and have exhausted other solutions, you might consider debt settlement. This involves negotiating with creditors, typically through a third-part debt settlement company, to accept less than the full amount owed. While this can reduce your total debt, it typically hurts your credit and should only be considered as a last resort before bankruptcy.

The Takeaway

Revolving credit offers flexibility and convenience, which can make it a handy tool for managing expenses and building credit. However, its easy access and potentially high interest rates mean it can also become a financial burden if mismanaged.

By understanding the differences between revolving and installment debt, knowing the types of revolving credit available, and following sound debt management practices, you can make revolving credit work for — and not against — your financial health.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Are revolving credit and revolving debt the same thing?

Revolving credit and revolving debt generally refer to the same thing — a type of debt where you can draw funds as needed, repay the money, and then borrow it again. This differs from installment debt, where you borrow a fixed sum of money and agree to pay it back over a set period through regular, fixed payments. Revolving credit or debt comes with credit limits and typically has variable interest rates. With this type of credit, you only pay interest on what you borrow, not the entire credit line.

Does revolving debt hurt your credit score?

Revolving debt can affect your credit in positive and negative ways, depending how it’s managed. If you carry large balances or max out cards, it will increase your credit utilization rate (how much available credit you’re using) and suggest higher credit risk to lenders. Missing payments or paying late can also negatively impact your credit file. However, if you keep credit utilization low and make on-time payments consistently, having revolving debt can strengthen your credit profile over time.

How can I reduce my revolving debt quickly?

To reduce revolving debt quickly, focus on paying more than the minimum each month and target high-interest balances first (the avalanche method) to save on interest. You can also try the snowball method — paying off smaller debts first — for quicker wins. Another option is to consolidate balances with a lower-interest personal loan or a balance transfer card with a 0% annual percentage rate (APR). This can reduce costs and help speed repayment.

What is a good credit utilization ratio for revolving accounts?

A good credit utilization ratio is generally below 30%, meaning you’re using less than 30% of your total available credit. For example, if your combined credit limit is $10,000, you’ll want to try to keep balances under $3,000. Credit scoring models often reward lower usage because it signals responsible credit management and less risk of default.

Can you have too much revolving credit?

Yes, it’s possible to have too much revolving credit. While a high credit limit offers a potential safety net and might positively impact your credit file (by lowering your credit utilization ratio), it also comes with some potential downsides. One is that having access to multiple open credit lines can tempt overspending. Another is that lenders may view high credit limits as a potential risk, since you could potentially utilize all that credit. This could make it harder to qualify for loans and credit with favorable terms in the future.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q325-013

While paying off your credit cards can have a positive effect on your credit profile, this isn’t always the case. Depending on the strategy you use to wipe away your debt, you could (inadvertently) do some damage to your scores. This could make it harder to get a mortgage, car loan, or even a rental agreement in the future. Here’s what you need to know to pay down your credit obligations while protecting your credit.

What Not to Do: Ignoring Credit Card Debt

When it comes to credit card debt, the consequences of avoidance and procrastination are steep, both to your financial well-being and to your credit scores. Here’s a look at the potential fallout.

•  Interest charges will pile up: Generally, the longer you avoid paying down your debt, the more interest will accrue. The average interest rate on credit cards as of July 2025 is 20.13%. This means that even if your debt isn’t growing through new purchases, interest alone can make your balance balloon over time.

•  Late fees and credit damage: Credit card issuers usually charge fees if you don’t make the minimum payment by the due date. After 30 days of no payment, your issuer will likely report the missed payment to the credit bureaus, which can do significant damage to your credit profile.

•  Debt collection and legal consequences: Ignoring credit card debt for too long could lead to the debt being sent to a collection agency, a third party that can be aggressive in pursuing repayment. In extreme cases, your creditors might sue you, potentially leading to wage garnishment or seizure of personal assets.

Best Ways to Pay off Debt Without Hurting Credit

When managed carefully, paying off debt can actually have a positive impact on your credit profile. The key is to use tactics that reduce your balances without negatively impacting your payment history, credit utilization, or credit mix.

Consolidate Credit Card Debt

Credit card consolidation involves combining multiple debts into a single loan, such as a debt consolidation loan, ideally with a lower interest rate. This approach can make repayment more manageable and may reduce the total interest you pay. You’ll still need to make consistent monthly payments, but streamlining your bills into one can reduce your chances of missing a due date.

As long as you make on-time payments, your credit profile may benefit from the reduced credit utilization and positive payment history.

Balance Transfer

A balance transfer involves moving high-interest credit card debt to a new card with a lower interest rate — ideally one with a 0% introductory annual percentage rate (APR). This strategy can give you a temporary break from interest charges, allowing you to pay off the principal more quickly.

To avoid credit score harm, don’t close old cards after transferring the balance — doing so can reduce your available credit and increase your utilization ratio. It’s also important to pay off the balance before the promotional period ends, or you may face high interest rates (again). Some balance transfer cards offer a 0% APR for as long as 20 months.

Automate Payments

Late or missed payments are among the biggest threats to your credit scores. Automating payments ensures your minimums are paid on time every month, which protects your payment history, a key factor in your credit score.

You can set up automatic payments through your bank or directly with your credit card issuer. You can always make additional manual payments to reduce the balance faster.

Debt Snowball vs. Debt Avalanche Payoff Strategies

One of the best ways to pay off debt without hurting credit is to use a DIY payoff plan. Here are two popular strategies for whittling down multiple debts:

•  Debt avalanche method: Here, you make extra payments on the credit card with the highest interest rate first, while making minimum payments on the others. Once the highest-rate card is paid off, you funnel those extra funds toward the card with the next-highest rate, and so on. This strategy minimizes the amount of interest you’ll pay over time.

•  Debt snowball method: With this approach, you put extra payments toward the card with the smallest balance first, while making minimum payments on the others. When that card is cleared, you focus on paying off the next-smallest balance, and so on. This gives you quick wins and a psychological boost, which can help you stay motivated.

Negotiating and Settling Credit Card Debt

Sometimes, repayment in full isn’t realistic. In those cases, negotiating with your creditor may provide relief while minimizing damage to your credit.

Workout Agreement

With this arrangement, the credit card company may agree to lower your interest rate or temporarily waive interest altogether. They may also be willing to take additional steps to make it easier for you to repay your debt, such as waiving past late fees or lowering your minimum payment.

Because this agreement is informal and not reported as negative to credit bureaus, it can help you pay off debt without hurting your credit, provided you uphold your end of the deal.

Debt Settlement

In a debt settlement, the credit card company agrees to accept less than the full amount you owe, forgive the rest, and close the account. While this might seem appealing, a debt settlement comes with consequences. A settled debt becomes a negative entry on your credit report, where it can stay for seven years. You’ll want to consider debt settlement as a last-resort option, and also be cautious of third party settlement companies that charge high fees or make unrealistic promises.

Hardship Agreement

Some card issuers offer a hardship or forbearance program for borrowers who are experiencing a temporary financial setback, such as a job loss, illness, or injury. Under these programs, the company may agree to lower your interest rate, even temporarily suspend payments. Keep in mind that the issuer might freeze your account while you’re enrolled, which means you won’t be able to use your card. Also, if the plan extends your repayment term, it could increase the total amount of interest you pay.

While a hardship program typically doesn’t impact your credit, it could if the card issuer decides to close your account or lower your available credit.

What Is the Statute of Limitations on Credit Card Debt?

The statute of limitations on debt governs how long a creditor or collection agency can sue you for nonpayment of a debt. The statute of limitations on credit card debt varies from state to state, but is typically between three and six years. Once the statute of limitations has passed, debt collectors can’t win a court order for repayment.

Even if your credit card debt is past the statute of limitations, however, it doesn’t magically disappear. Negative entries — such as late or missed payments, accounts sent to collections, and accounts not paid as agreed — generally stay on your credit report for seven years. These negative marks can lower your credit scores, making it hard to qualify for new credit cards and loans with attractive rates and terms in the future.

Does Credit Card Debt Consolidation Hurt Your Credit?

Debt consolidation can cause a temporary dip in your credit scores, mostly due to the hard inquiry from the loan application and the new account appearing on your report. However, the long-term effects are often positive if you manage the new loan responsibly.

By reducing your credit utilization ratio and maintaining on-time payments, debt consolidation can have a net positive effect on your credit profile over time. The key is to avoid racking up new balances while paying off the consolidated loan.

How to Consolidate Credit Card Debt Without Hurting Your Credit

The right strategy can help you consolidate debt while protecting or even building your credit.

Consider Debt Consolidation Options

Start by exploring the types of consolidation available — personal loans, balance transfer credit cards, and home equity loans/lines of credit (HELOCs) can all be used to pay off your credit cards and streamline repayment. It’s important to compare interest rates, terms, and fees to find the best fit for your situation.

An online debt consolidation calculator can show you exactly how much interest you could save by paying off your existing credit card (or cards) with a new loan or line of credit.

Get Prequalified

Before applying, see if you can prequalify for a consolidation loan. Prequalification uses a soft credit inquiry and won’t impact your score. It can give you an idea of the interest rate and terms you might receive and help you make an informed choice before formally applying for the loan.

Stop Using Your Credit Cards

Once you consolidate your balances, it’s a good idea to stop or limit use of your consolidated cards. While it’s wise to keep those accounts open (to maintain your credit history and limit), continuing to run up balances on those cards can lead to even more debt, undermining the purpose of consolidation and damaging your credit utilization ratio.

Pay Bills On Time

Payment history is generally the most important factor in your credit scores — it makes up 35% of your overall FICO® credit score. So paying your consolidated loan or transferred balance on time is critical. Even a single late payment can lead to a negative mark on your credit reports and undo some of your progress.

Set up reminders or automate payments to stay on track and build positive credit habits.

Recommended: FICO Score vs Credit Score

The Takeaway

Credit card debt can be a major financial burden, but it doesn’t have to ruin your credit or your financial future. By facing your debt and adopting a planned approach, you can gradually reduce what you owe. Whether you choose to use a paydown strategy (like avalanche or snowball), negotiate with creditors, or explore a consolidation loan, there are various strategies to help you regain control of your finances while protecting — and ultimately building — your credit.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Can paying off credit card debt improve my credit score?

Paying off credit card debt can have a positive impact on your credit profile. It lowers your credit utilization ratio (the percentage of available credit you’re currently using), which is a major factor in your credit scores. A lower utilization rate suggests responsible credit management. Making consistent, on-time payments while reducing debt also adds to your positive payment history, which is another key factor in your scores.

Will settling credit card debt hurt my credit?

Settling credit card debt can negatively impact your credit, at least temporarily. When you settle a debt for less than the full amount owed, it may be reported to the credit bureaus as “settled” rather than “paid in full.” This status indicates that you didn’t repay the full debt and the entry can remain on your credit report for up to seven years. However, settling is still better than leaving debts unpaid or going into default.

How long does credit card debt stay on your credit report?

Negative information related to credit card debt — such as late payments, charge-offs, and collection accounts — generally remains on your credit report for seven years. However, positive information — like closed accounts paid as agreed — can stay on your report for up to ten years, helping your credit history. Active accounts in good standing stay on your report as long as the account is open and the lender is reporting it to the credit bureaus.

Is using a personal loan to pay off credit cards a good idea?

Using a personal loan to pay off credit cards can be a smart move if the loan offers a lower interest rate. This strategy, known as debt consolidation, can simplify payments and reduce interest costs. It can also improve your credit utilization ratio (the percentage of available credit you are currently using), which is factored into your credit scores. However, it’s important to have a solid repayment plan and avoid taking on more credit card debt, or the benefits could be short-lived.

What is the best way to pay down high-interest credit card debt?

One of the best ways to pay down high-interest credit card debt is using the avalanche method. This involves making extra payments on the card with the highest interest rate while making minimum payments on others. Once that card is paid off, you funnel the extra payment to the card with the next-highest rate, and so on. This minimizes the total interest paid over time. Another good option is to transfer your balances to a card with 0% introductory APR or a lower-interest personal loan. Whichever method you choose, consistent, above-minimum payments and avoiding new debt are key to getting ahead.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q325-007

If you have unmanageable credit card debt, you might consider credit card debt settlement, a process where you negotiate with your credit card company or a debt collector to pay off less than the total amount owed. The creditor agrees to forgive a portion of the debt in exchange for a lump-sum payment or a payment plan.

This guide provides more information about negotiating a credit card debt settlement.

The Difference Between Secured and Unsecured Debt

First, take a closer look at the type of debt a credit card typically is. When a credit card company issues a credit card, it’s offering you credit. It’s taking a chance on getting its money back, plus interest. It’s more than likely that the credit card you have is considered unsecured.

Unsecured debt isn’t connected to any of your assets that a credit card company can seize in the event that you default on your payments. Essentially, the credit card company is taking your word for it that you are going to come through with the monthly payments.

Secured debt works a bit differently. They’re backed by an asset, like your car or home. If you default on a secured debt, your lender could seize the asset and sell it to pay off your debt. Mortgages and auto loans are two common types of secured debt.

Credit Card Debt Negotiation Steps

The process of negotiating credit card debt usually begins when you have multiple late or skipped payments — not just one. A good first step is to find out exactly how much you owe, and then research the different options that may be available to you. Examples include a payment plan, an increase in loan terms or lowered interest rates.

Once you have that information, you’re ready to negotiate. You can start by calling your credit card company and asking for the debt settlement department. Or, you can send a note by email or regular mail.

You may have to go through a number of customer service reps and managers before striking a deal, but taking the initiative can show creditors that you are handling the situation honestly and doing what you need to do.

When you do reach an agreement, be sure to get the agreed-upon terms in writing.

Types of Credit Card Debt Settlements

Here are some options when it comes to credit card debt settlement.

Lump Sum Settlement

This type of agreement is perhaps the most obvious option. Essentially, it involves paying cash and instantly getting out of credit card debt. With a lump sum settlement, you pay an agreed-upon amount, and then get forgiveness for the rest of the debt you owe.

There is no guarantee as to what lump sum the credit card company might go for, but being open and upfront about your situation could help your cause.

Workout Agreement

This type of debt settlement offers a degree of flexibility. You may be able negotiate a lower interest rate or waive interest for a certain period of time. Or, you can talk to your credit card issuer about reducing your minimum payment or waiving late fees.

Hardship Agreement

Also known as a forbearance program, this type of agreement could be a good option to pursue if your financial issues are temporary, such as the loss of a job.

Different options are usually offered in a hardship agreement. Examples include lowering interest rate, removing late fees, reducing minimum payment, or even skipping a few payments.

Why a Credit Card Settlement May Not Be Your Best Option

Watching your credit card balance grow each month can be scary. Depending on your circumstances, a settlement may be the best solution for you.

However, it’s not without its drawbacks. For starters, a settlement may result in your credit card privileges being cut off and your account frozen until a settlement agreement is reached between you and the credit card company.

Your credit score could take a hit, too. This is because your debt obligations are reported to the credit bureaus on a monthly basis. If you aren’t making your payments in full, this will be noted by the credit bureaus.

That said, by negotiating a credit card settlement, you may be able to avoid bankruptcy and give the credit card company a chance to recoup some of its losses. This could stand in your favor when it comes to rebuilding your credit and getting solvent again.

Recommended: Personal Loan Interest Rates

Solutions Beyond Credit Card Debt Settlements

Personal Loan

Consolidating all of your high-interest credit cards into one low-interest unsecured personal loan with a fixed monthly payment can help you get on a path to pay off the credit card debt. Keep in mind that getting this kind of loan, often called a credit card consolidation loan, still means managing monthly debt payments. It requires the borrower to diligently pay off the loan without missing payments on a set schedule, with a firm end date.

For this reason, a personal loan is known as closed-end credit. A credit card, on the other hand, is considered open-end credit, because it allows you to continue to charge debt (up to the credit limit) on a rolling basis, with no payoff date to work towards.

Recommended: Guide to Unsecured Personal Loans

Transferring Balances

Essentially, a balance transfer is paying one credit card off with another. Most credit cards won’t let you use another card to make your payments, especially if it’s from the same lender. If your credit is in good shape, you can apply for a balance transfer credit card to pay down debt without high interest charges.

Many balance transfer credit cards offer an introductory 0% APR, but keep in mind that a sweet deal like that usually only lasts about six to 18 months. After that introductory rate expires, the interest rate can jump back to a scary level — and other terms, conditions, and balance transfer fees may also apply.

Credit Consumer Counseling Services

Credit consumer counseling services often take a more holistic approach to debt management. You’ll work with a trained credit counselor to develop a plan to manage your debt. Typically, the counselor doesn’t negotiate a reduction in debts owed. However, they may be able to have your loan terms extended or interest rates lowered, which would lower your monthly payments. (Note that extending a loan term typically results in more interest paid over the life of the loan.)

A credit counselor can also help you create a budget, offer guidance on your money and debts, provide workshops or educational materials, and more.

Many credit counseling agencies are nonprofit and offer counseling services for free or at a low cost. You can search this list of nonprofit agencies that have been certified by the Justice Department.

The Takeaway

When credit card debt starts to become unmanageable, negotiating a credit card debt settlement may be an option to consider. There are different types of settlement options to consider. Understanding what’s available to you — and what makes sense for your financial situation and needs — can help you make an informed decision. If a settlement isn’t right for you, there are other solutions, such as a personal loan or credit counseling services, that may be a better fit.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

What percentage of debt will credit card companies settle for?

Credit card companies may settle for repayment of a reduced amount of the total debt, often between 20% and 80% of the outstanding balance. The exact percentage varies based on factors like the age and amount of the debt and the account holder’s ability to demonstrate financial hardship.

Can I negotiate a credit card settlement?

To negotiate credit card debt settlement yourself, decide what you can afford to pay and offer to settle with the creditor in a lump sum or installment plan. The creditor is not obligated to negotiate, but you may be successful.

Will creditors accept a 50% settlement?

Some creditors may accept 50% of the amount owed as part of a debt settlement. Others may want 75%–80% of what you owe. It can make sense to start low with your first offer and negotiate from there.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q325-025

A credit card can be a useful financial tool and offer a number of perks, from the opportunity to build your credit to the chance to rake in lucrative rewards. However, using a credit card responsibly is key to enjoying those benefits. Otherwise, a credit card could harm your financial well-being rather than help it.

Using a credit card responsibly involves sticking to basic rules like making on-time payments and avoiding practices such as spending more with your card than you can afford to pay off. By learning some tips for how to use a credit card responsibly, you can make the most out of this financial tool.

How Do Credit Cards Work?

A credit card is a payment card that offers access to a revolving line of credit. You can tap into this credit line for a variety of purposes, including making purchases, completing balance transfers, and taking out a cash advance. Cardholders can borrow up to their credit limit, which is largely determined based on their creditworthiness and represents the maximum amount they can borrow.

It’s necessary to make at least a minimum payment by the due date each month in order to avoid a late fee. However, to avoid paying interest entirely, cardholders must pay off their balance in full each month; interest accrues on any balance that rolls over from month to month.

Many credit card companies charge compounding interest, which means that not only will you owe interest on any outstanding balance, you’ll also end up paying interest on the interest. That’s because this interest is calculated continually, then added to your balance, and it may be compounded daily. You may be shocked to see how much credit card interest you’ll pay if you only make the minimum payment each month.

Understanding Your Statement

A crucial component of knowing how credit cards work is understanding your monthly credit card statement. Your statement contains a number of important pieces of information about your credit card account, including:

•   Your account information

•   Your account summary, including your payment due date

•   All purchases made with the card

•   Your total credit card balance

•   The minimum payment due

•   When the credit card payment is due

•   Your available credit

•   Interest charges

•   Rewards summary

Many of these details are key to know in order to ensure you’re using a credit card wisely. For instance, knowing your payment due date will ensure you make your payment on time, avoiding any late fees and a ding to your credit score.

Checking on your available credit can help you ensure you’re not using too much of your credit, which can drive up your credit utilization rate and subsequently drag down your score.

10 Tips For Using a Credit Card Responsibly

To make the most of your credit card, here are several credit card rules to keep in mind — as well as some guidance on what credit card behavior to avoid.

1. Avoid Making Too Many Impulse Purchases

To use a credit card responsibly, you want to avoid overspending with it. How many purchases are “too many” depends upon how much your impulse buys cost and how easily they fit into your budget. Say you know you can pay off your credit card balance and otherwise meet your monthly expenses and savings and other financial goals. That’s an entirely different situation from one in which your impulse purchases are too costly to promptly pay off and/or prevent you from meeting other financial responsibilities or goals.

If you enjoy making spontaneous buys, you may consider including this as a line item in your monthly budget and then sticking to it. This could add enjoyment to your life without causing financial problems down the road.

2. Use the Right Credit Card

There are a variety of different types of credit cards, and depending on how you plan to use your credit card, one option may make more sense than another. Some credit cards are there to help you build your credit, while others pay out generous rewards.

Selecting which card is right for you requires a look at your financial habits and current situation. For example, if you know that you often end up needing to carry a balance, then it may make sense to find a card that prioritizes low interest rates. Or say you’re a frequent vacationer — in that case, you might benefit from a travel rewards card.

3. Take Advantage of Benefits Offered

Interested in another way to use your credit card responsibly? Signing up for eligible rewards programs like SoFi Plus can help cardholders make the most of their card.

Also know that each type of credit card may have slightly different reward programs. See what the full range perks offered by your card are — and if you’re not sure, check the card’s website or ask the credit card company for specifics. For example, you might need help understanding what unlimited cash back really means in terms of how you might benefit.

Once you know what perks are available, you can use them strategically. You may discover that the card(s) you have don’t provide the best benefits for you. For example, maybe your card offers one of its highest rewards rates for gas purchases, but you don’t do much driving. In that case, you might be better served by a rewards card that offers a flat rewards rate or that prioritizes a category in which you’re a frequent spender.

Finally, if you’re earning rewards points, it’s also important to consider the best way to use them. Sometimes it’s possible to get a bigger bang for your buck if, say, you use your rewards points at an approved store rather than opting for cash back.

4. Sign Up for Automatic Payments

To avoid missing payments or making them late, consider signing up for automatic payments or autopay. By enrolling in autopay, you’ll regularly have money transferred from a linked account each month in order to cover the amount due (or at least the minimum payment required).

Another option is to sign up for automatic reminders about payment due dates (by text, for example, or by email). You can do this through the credit card company or via a calendar app.

What’s most important is coming up with a plan that works best for you to ensure you make your payments on time. Otherwise, you could face late fees and adverse effects to your credit score.

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

5. Regularly Check Your Statements

Mistakes do happen on credit card statements and, unfortunately, fraudulent activities could impact your account. Check your statement every month to ensure that you made all the charges that appear, and that any payments you’ve made are accurately reflected.

If something is missing, review the statement dates to see if the transaction may have happened right after the statement cut-off date, for instance. If something seems off, contact your credit card company for clarification. In the case of any potentially fraudulent activity, it’s important to report credit card fraud to your credit card company immediately.

6. Pay More Than the Minimum

You’ve just read about how credit card interest works, so you’ll remember that only making the minimum payment doesn’t get you out of paying interest. To avoid credit card interest charges, you’ll need to pay off your monthly statement balance in full.

Understandably, this isn’t always possible, but even then, it still helps to pay as much above the minimum as you can afford to. This will at least cut down on the outstanding balance that accrues interest.

7. Don’t Close Out Old Cards

While it might seem logical to close out an older credit card you’re no longer using, you’ll want to think twice before you cancel a credit card. That’s because doing so can negatively impact your credit.

For starters, canceling a credit card will lower your credit utilization rate, which compares your total outstanding balance to your overall available credit limit. Closing out a card will cause you to lose that card’s credit limit, thus lowering the amount of credit you have available.

Closing an old card could also have an impact if the card in question is one of your older accounts. Another factor that contributes to your credit score is the age of your credit. By closing out an old account, you’ll lose that boost in age.

That being said, there are scenarios where it might make sense to close a card, such as if it charges a high annual fee. Just be mindful of the potential effects it will have on your credit before moving forward.

8. Maintain a Low Credit Utilization Rate

Another key tip for responsible credit card usage is to avoid maxing out your cards. Instead, aim to keep a lower credit utilization rate — ideally below 30%. The lower you can keep this utilization rate, the better your credit score is likely to be. Some financial experts advise keeping your utilization below 10% of your limit.


💡 Quick Tip: Aim to keep your credit utilization — the percentage of your total available credit that you’re using at any given time — below 30% (or lower). This could help you to maintain a strong credit score.

9. Avoid Unnecessary Fees

Another part of using a credit card responsibly is being aware of all of the fees you could face, and then taking steps to steer clear of those costs. Your credit card terms and conditions will spell out all of the fees associated with your card, as well as the credit card’s APR (or annual percentage rate) and the rules of its rewards program.

Many credit card fees are pretty easy to avoid. For instance, if you’ll incur a fee to send money with a credit card, simply avoid doing that and look for an alternative route. Similarly, you can avoid late payment fees by making on-time payments, and over-the-limit fees by not maxing out your credit card.

10. Avoid Applying for Too Many Cards

As you get into the swing of things with using your credit card, you may feel tempted to keep acquiring new cards, whether to keep on earning rewards or to capitalize on enticing welcome bonuses. But proceed with caution when it comes to applying for credit cards.

Applying for credit cards too frequently can raise a red flag for lenders, as it may suggest that you’re overextending yourself and desperate for funding. Plus, each time you submit an application for a credit card, this will trigger a hard inquiry, which can ding your credit score temporarily. Consider waiting at least six months between credit card applications.

The Takeaway

When used responsibly, credit cards can be helpful for a whole slew of things, from making online purchases to helping to build your credit. The key phrase to keep in mind is “when used responsibly.” To stay on top of your credit cards, tips like signing up for automatic payments, watching your utilization ratio, making the most of the rewards programming, and using the right type of credit card for your needs are all important.

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

FAQ

What are tips for effective credit card use?

Some ways to use credit effectively include paying your bill in full each month, never missing a payment due date, keeping your credit utilization low, and maximizing available rewards and perks.

What is the 2 3 4 rule for credit cards?

What is known as the 2 3 4 rule for credit cards refers to how a person should apply for new cards. This guideline says that the limits are typically for no more than two cards in 30 days, three cards in 90 days, and 4 cards in 120 days. If you go over those numbers, the credit bureaus may think that you are seeking too much credit.

What is the #1 rule of credit cards?

The top rule for credit cards and responsible usage is to always pay your balance in full and on time. This will allow you to avoid high-interest credit card debt.

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

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UltraFICO® is a scoring model that includes banking activity not normally factored into your credit score. By incorporating information from your savings and checking accounts, you may be able to build your FICO credit score and, in turn, your chances of getting approved for credit, as well as qualifying for better rates.

The most widely used credit scoring model is the FICO® score which tells lenders how much risk you represent as a borrower. Your score is important because it can determine what financial products and services, as well as interest rates, you can qualify for. If you have a low (or no) score, however, you may be able to positively impact it using the UltraFICO® Score.

Here’s what you need to know about UltraFICO.

How Does UltraFICO Work?

UltraFICO is a tool that allows you to voluntarily include banking activity not normally considered by the credit bureaus in your credit score calculation.

To understand how UltaFICO works, it helps to understand how your FICO credit score is calculated. While FICO keeps their exact methodology under wraps, your score, which can range from 300 to 850, is primarily based on the following criteria:

•   Debt payment history (35% of your score) This looks at whether you make your debt payments on time. Late payments can negatively impact your score. So can accounts in collections or a bankruptcy.

•   Credit utilization (30%) Also known as amounts owed, this is how much of your available revolving credit you’re currently using. Utilizing less of your available credit at any one given time is generally better than using more. Ideally, you want to aim to use 30% or less of your available credit.

•   Length of credit history (15%) Having a longer history with creditors is better than being new to credit.

•   New credit (10%) Applying for new credit cards or loans (and initiating a hard credit pull) can temporarily lower your score. For this reason, it’s a good idea to research credit card offerings and eligibility requirements before applying for one.

•   Credit mix (10%) Having a mix of different types of credit (such as a credit card and an installment loan like a mortgage) can positively influence your score.

The UltraFICO scoring model expands the information included in your credit score by considering such factors as:

•   Length of time you’ve had your bank accounts open (checking, savings and money market)

•   Your activity in those bank accounts

•   Proof that you have cash in those accounts (ideally, at least $400)

•   Whether your overdraft often

•   If you have direct deposit of your paycheck

How Do You Get an UltraFICO Score?

If you apply for new debt, such as a credit card or personal loan, and are denied because your score is low or you don’t have enough credit history to generate a FICO Score, you can ask the lender to pull your UltraFICO score. You might also ask a lender to pull your UltraFICO score if you are offered a credit card or loan with a high interest rate in the hopes of getting a better offer.

In some cases, a lender might invite you to participate in the UltraFICO scoring process after you submit an application for a credit card or loan. This is most likely to happen if your score is on the edge of acceptance or there simply isn’t enough information in your credit report to generate a FICO score.

If a lender offers UltraFICO, you will be directed to a secure site to answer questions about your banking relationships. By doing this, you’re allowing the credit bureau to look at your checking, savings, and money market accounts in order to try to get the boost you need to qualify for credit.

Recommended: How to Apply for a Personal Loan

Who Will UltraFICO Benefit?

The UltraFICO score was designed to broaden access to credit for those who are just starting to build their credit profile, as well as those who are those who are trying to reestablish their credit after financial challenges. They also say that the new scoring model will be able to help borrowers who are near score cut-offs, giving them access to credit they wouldn’t otherwise qualify for.

While UltraFICO isn’t likely to dramatically change the outcome of your credit card or loan application, it might be enough to build your score into the next higher range which may make a difference if you were on the borderline of acceptance.

You’ll want to keep in mind, however, that UltraFICO is only available through some lenders. In addition, only Experian® offers UltraFICO. Your credit reports with the other two consumer credit bureaus — Equifax® and TransUnion® — won’t be affected by this service.

You can, of course, look into other ways to build your credit score, such as reducing your credit utilization ratio and always making debt payments on time.

Recommended: Typical Personal Loan Requirements

The Takeaway

Your credit score can make or break your ability to get a credit card, mortgage, or any type of personal loan. It can also determine the interest rate you’re offered, which can make a big difference in the total cost of a loan. The scoring model UltraFICO could help build your FICO score if you have consistently maintained positive bank account balances. However, it’s not offered by all lenders and creditors, so it isn’t always an option. Fortunately, there are other ways to positively impact your credit profile, such as keeping your credit utilization low, and always paying debt (such as your credit card bill or personal loan installment) on time.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

What is an UltraFICO score?

An UltraFICO score is a type of credit score that incorporates data from your bank accounts (checking, savings, and money market) to possibly positively impact your standard FICO score. It may benefit individuals who don’t have much of a credit history or have scores in the lower ranges.

Is UltraFICO from Experian or TransUnion?

UltraFICO is only available through Experian, not through TransUnion or Equifax.

How rare is it to have an 800 credit score?

Perhaps surprisingly, an 800 credit score is not extremely rare, but it’s still considered exceptional. Almost one out of four Americans have credit scores in the 800-850 range, which is considered excellent.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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