Credit Card Processing: What Is It and How Does it Work?

Credit Card Processing: What Is It and How Does it Work?

When you swipe, tap, or otherwise use your card to pay for a purchase, credit card payment processing is set into motion to authorize and complete the transaction. On the surface, credit card processing may seem instantaneous, but in reality, it’s a complex, multi-step process. It also can be expensive for a merchant, which is why some may have a minimum requirement for a credit card payment or a discount for cash.

Read on to learn about what credit card processing is and the different ways it can work.

What Is Credit Card Processing?

Credit card processing refers to the series of operations so that a charge can get authorized and a merchant can be paid when a consumer pays with a credit card. It is a critical part of how credit cards work to make payments.

While the process takes only seconds, it involves multiple steps and entities as well as fees. The costs associated with credit card processing are incurred by the merchant, but they can be passed along to consumers through credit card surcharges or a slightly higher price of goods.

Stages of Credit Card Processing

The time between tapping your credit card and being asked if you’d like a copy of your receipt are action-packed. While the steps may not impact you directly as a consumer, being familiar with them can help you understand what happens if a payment is declined or you’re prompted to re-enter your information (and have a generally better grasp of what a credit card is).

Payment Authorization

When a credit card is tapped or swiped, authorization occurs. The merchant collects the payment information, such as the CVV number on a credit card.

This information is then sent to the credit card processor, who then sends it to the card network. From there, the information is passed to the issuing bank, which confirms the consumer has the funds or credit to complete the transaction.

Sometimes, a merchant may conduct preauthorization. This is a common practice at hotels, where a small amount is charged and held. It may also occur at gas stations.

At this point, the merchant still does not actually have the money. An authorization functions as a kind of IOU, confirming to the credit card company and the merchant that your credit line can cover the charge. (This is another reason it can be beneficial to pay more than your credit card minimum payment each month, as it will free up more of your available credit.)

Payment Settlement

Settlement occurs when money transfers from the issuing bank to the merchant bank through the card network, and the funds are then deposited into the merchant’s account. This process generally takes several days from the point of sale.

The amount deposited into the merchant account is minus any fees that are deducted from the merchant’s payments. Fees may get deducted once a month for all activity that’s taken place during the previous cycle, or the merchant may opt to have them deducted every time settlement occurs.

From the cardholder’s perspective, this is the point in the process when a charge on their credit card account may shift from “pending” to “posted.”

Recommended: What is a Credit Card CVV Number?

Who Are the Players in Credit Card Processing?

Credit card processing depends on a chain of connections to get the job done. Here’s who’s doing what when it comes to credit card processing.

The Cardholder

When you choose to pay with a card, you trigger credit card payment processing. Because different cards charge merchants varying fees, you may find that not all merchants take all cards. If you know there’s a card that is frequently not accepted, this could be a consideration when you apply for a credit card.

The Merchant

The merchant accepts credit card payments in exchange for the goods or services they provide. They have control over which credit card processing services or processing system they use. Often, a processing system is combined with a point of sale (POS) system — the actual mechanism by which a person enters their payment information.

The Merchant Bank

The merchant bank, also known as the acquiring bank, is responsible for sending the card and transaction information to the credit card network. Once approved, funds are deposited into the merchant account, minus any processing fees. The merchant bank may also provide equipment for credit card transactions, such as card readers.

The Issuing Bank

The issuing bank is also known as the cardholder’s credit card issuer. It authorizes the card information, pays the merchant bank, and charges the cardholder for the purchase. It may also attach fees, including international transaction fees, to the purchase.

The Payment Processor

The payment processor is the vendor that facilitates communication between the merchant bank and the issuing bank. It essentially manages all of the processes that have to occur between a card being swiped and a payment being deposited into a merchant’s account. The processor will charge a fee for this service.

The Card Association

A credit card issuer or card association is the card brand on the credit card, such as Visa, Mastercard, Discover, and American Express. You may also hear this called a credit card network. While a credit card is attached to a specific bank, it also has a specific brand; in the case of Discover and American Express, they are both card networks and card issuers.

The card association collaborates with card issuers, merchants, and processors to help facilitate transactions. It will also receive part of the fee for a credit card transaction, called an interchange fee.

Charges Associated With Credit Card Processing

Just like consumers have to worry about APR on a credit card, merchants have to consider charges associated with credit card processing. Many merchants bake the cost of credit card processing fees into their payment structure.

Payment Processing Fees

The processing fee for a credit card transaction goes to the processor, which is the company that is responsible for accepting the credit card payment and sending the information to the payment network.

Interchange Fees

Interchange fees go to the issuing bank. These fees are generally a percentage of the transaction, plus a standard flat-fee per transaction. The amount of interchange fees can vary depending on the type of card used, whether the transaction was completed in-person or online, the amount of the transaction, and the type of business that the merchant is.

Service Fees

Also known as an assessment fee, a service fee is a monthly fee that is charged by the payment network. The amount of this fee can depend on the merchant’s transaction volume as well as their calculated risk level.

Types of Credit Card Processing Models

Beyond the various fee types, there are different types of pricing models that a credit card processing company may offer. While this won’t matter much on the consumer side, a business should consider which pricing model might work best. These options generally aren’t as straightforward to evaluate as identifying a good APR for a credit card.

Flat Rate

With this credit card processing model, the processor charges a fixed fee for all credit and debit card transactions. This rate will include interchange fees. This model keeps things simple; a business owner knows how much will be charged. However, credit card fees can be higher under the flat rate model.

Tiered

In a tiered model, the fee charged per credit or debit card transaction will depend on its classification. Often, this processing model will have the following tiers: qualified, mid-qualified, and non-qualified, with qualified having the lowest fees and non-qualified having the highest. Because of all the nuances, this model can be complex and potentially confusing for merchants.

Interchange Plus

This is the most common credit card processing model for pricing. With this model, fees are kept separate, making this a transparent and often cost-effective method. The merchant is charged a percentage of the transaction plus a fixed fee per transaction, with the wholesale fee and the markup fee clearly distinguished.

Subscription

With the subscription pricing model, which charges a flat monthly fee, one has to sign up for this service. Merchants will also pay a low per-transaction fee, as well as a very small payment processor fee. Monthly fees tend to be more than the transaction fees in this model, making it most suitable for businesses with high sales volumes.

Recommended: How Do Credit Card Companies Make Money?

Selecting a Credit Card Processor

Picking a credit card processor is an important choice for a business and one that should involve an assessment of what your business needs and what different credit card processors offer.

•   Just as you’d consider average credit card interest rates if you were choosing a credit card, you’ll want to think over the fees different credit card processors charge.

•   Look at what the fee model is, as different models may be more suitable depending on the type of business. Also consider what cards the processor will allow you to accept.

•   Review the processor’s reliability and customer service availability. You might also think about additional features that are offered, such as a bundled or integrated point-of-sale system or a guarantee of next-day funds.

The Takeaway

Understanding credit card processing is helpful even if you’re not a merchant or entrepreneur. Once you know the costs of credit card processing, you may have insight into why some merchants may give cash discounts, for instance.

However, although fees are involved in these transactions, there are benefits to cardholders for using cards to complete their purchases, such as rewards and protections.

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

How much does credit card processing cost?

On average, credit card processing can cost anywhere from 1.5% to 3.5% of the transaction amount. The exact cost will depend on a number of factors, however, including the banks, the credit card network, and the payment processor involved. Merchants’ costs can also depend on the credit card processing model they choose.

Is credit card processing secure?

Yes, it is generally secure. Credit card processing security has come a long way, with innovations on both the processing end as well as the credit card companies that create systems for security, whether people buy in-store or online.

Can I lower my credit card processing fees?

Yes, there are a number of ways you can explore to lower your credit card processing fees. Comparing processors and credit card processing models can be one way to secure lower fees. You might also apply a surcharge to pass on costs to customers. Or, you could simply ask your current processor if there’s any room to negotiate fees.


Photo credit: iStock/Demkat

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

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woman holding dog in office

Budgeting For a New Dog

The United States is more than a little dog crazy: The percentage of households with a canine stands at 44.6%, meaning almost one out of two have a pooch. Owning a dog can be one of life’s great pleasures, whether you choose a tiny Chihuahua puppy or a mega, full-grown Great Dane as your new best friend.

But amid imagining all the cuddles and sloppy kisses, many prospective dog parents aren’t fully prepared for the expense of owning a pet.

This can indeed be an important question because not only can dog ownership be a major personal commitment, it can also be a considerable financial investment,g too. The initial first-year investment has been estimated at between $1,135 and $5,155.

If you’re considering bringing home a new pooch, here’s the information you need to know about budgeting for a dog and how much it’s likely to really cost.

8 Costs of Owning a Dog

It’s easy to fall in love with an adorable dog and feel as if you just must make it yours ASAP. But it’s wise to do a little research first about potential bills before bringing home your pooch.

Doing so can not only prepare you for the costs of pet ownership but potentially save you money on your pet as well. Knowing the expenses involved can help you budget, prioritize, and comparison-shop as you move ahead with getting your new best friend. Read on for eight costs that are likely to crop up.

💡 Quick Tip: Banish bank fees. Open a new bank account with SoFi and you’ll pay no overdraft, minimum balance, or any monthly fees.

1. Adoption Costs

The initial cost of adopting a dog can vary greatly depending on if the dog comes from a shelter or purchased from a breeder. As a range, however, Animal Humane Society sets its standard dog and puppy adoption fees between $255 to $414.

The fee cost varies, as some dogs (such as purebreds) are in higher demand and the organization needs to cover the cost of caring for animals who may take longer to adopt out (such as older dogs).

At many pet rescues, adoption fees also cover the cost of extra services, like a pet physical exam, deworming, spaying or neutering, or common vaccinations.

Adoption vs Buying

If you’re wondering how adoption costs compare to buying a dog, consider that purchasing a Goldendoodle from a breeder costs an average of $2,200. What’s more, buying a pet from private breeders often does not come with the extra services that some non-profit rescues cover. So, if an owner is considering the breeder route, the out-of-pocket cost of future medical visits may be one more dollar sign to add to the eventual pet budget. This can help you know how much to allocate towards your new companion so you can avoid ending up with credit card debt.

Recommended: How to Wire Money

2. Food and Treats

Some of the tiniest puppies can morph, in just a few months or years, into heftier eating machines. Young puppies can grow quickly. And, all that fast growth can mean they’ll eat…A lot.

So, food and treats can also play a significant role in your personal budget when you bring home a furbaby. Individual dog budgets can vary based on the size of the pooch and type of food each owner opts to feed their pet. Food choices might include dry kibble, wet food, a raw food diet, or some mix of each.

What to feed a dog is all a personal choice between the owner and their veterinarian. However, if someone is looking to estimate the potential cost of feeding a new dog, estimates range from $250 to $700 for food and treats. This will vary with what kind of food you buy (organic? bulk?), where you live, and how much your pet eats.

Recommended: Ways to Save Money on Food

3. Toys

Toys may seem like a silly little add-on, but they can play an important role in puppy development and adult dogs’ mental stimulation.

Toys can help dogs fight boredom when they are left at home alone and comfort them if they’re agitated. (With toys to gnaw on, dogs may be less likely to turn to shoes for a midday distraction.) Rather than investing in pricey toys, a simple tennis ball will satisfy many dogs. And, a dog owner can grab a can of three, fun-to-chase tennis balls on Amazon for about $4.

However, the cost here can also depend on just how quickly an individual dog chews through the balls. Some doggos do a great job of tearing them apart. So, a pet owner may want to budget a small amount, say $50 or $75 a year or so, to buy their pooch some toys.

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4. Pet Sitters or Walkers

Taking a vacation with a pet? Then pet sitting isn’t an expense. But for many people who work outside the home or travel without Fido, it may be a good idea to consider a dog walker or pet sitter. This person can be a trusted friend or family member, a neighbor, a kid down the street, or a professional service.

Even if it’s a friend, a new pet owner may want to budget in some dollars to pay this person. Doggie daycare can run $40 or more per day (higher in certain areas, such as major cities), so it can be helpful for owners to know how many days each month they might need a dog sitter.

Also, if you are taking a vacation and aren’t traveling with your pet, know that a typical pet sitter will charge at least $30 a day to attend to your pup.

5. Incidentals

A lot of smaller expenses can come with owning a dog. Incidentals to budget for include things like, collars, leashes, dog beds, cleaning supplies, crates, pet bath products, and the all-important groomer. Many pet owners like buying their dogs clothes, which can add up as well. It can be wise to build in another cushion in a pet budget to cover the above-mentioned items, too.

Pet I.D. tags and registering a pet with the city are extra costs to bear in mind. (For reference, it can cost between $8.50 and $34 a year to obtain a dog license in New York City.)

💡 Quick Tip: An emergency fund or rainy day fund is an important financial safety net. Aim to have at least three to six months’ worth of basic living expenses saved in case you get a major unexpected bill or lose income.

6. Medical Visits

Dogs, like humans, need regular medical check-ups, so “How much will it cost?” is a wise question to ask when budgeting. Just like a human exam, dogs need blood drawn to check for diseases, routine vaccinations to prevent disease, and a general physical exam once a year to make sure their health is in working order.

The cost of health care for a dog can vary greatly depending on where the person and the pup live (and the age or breed of the dog). Recent estimates say routine visits can cost anywhere from $50 to $250, and overall vet costs can run from $700 to $1,500 or more per year.

Beyond vet visits, pet parents may also want to add in a budget for preventative medicine. Depending on where an owner lives, a veterinarian could recommend a monthly flea and tick medication, along with regular heartworm medication, to prevent the dog from becoming afflicted. Flea and tick meds can range from $40 to $200 a year while heartworm medication averages $5 to $15 a month, and treatment, if your pet is diagnosed, can cost $400 to $1,000.

7. Pet Insurance

While pet insurance won’t cover routine veterinary visits, it could come in handy if an emergency occurs with the pup.

For example, a new dog could eat something that causes it to get sick — like, ingesting pieces of a chew-toy or snatching food with bones in it off an owner’s plate (or street).

Many pet insurance plans will cover a portion of medicines, treatments (including surgeries), and medical interventions that aren’t tied to a pre-existing condition.

Paying monthly for pet insurance, while the dog is young, could save an owner hundreds or thousands of dollars as a dog continues to age as well. (Generally, pet insurance costs less when a dog is younger). This kind of policy typically costs between $38 and $56 per month.

Pet insurance may cover things like ingesting harmful items or food, accidents, urgent care, and — in some cases — preventative medicine. The cost of pet insurance can vary significantly by your pet’s breed, age, and any other health history.

8. Emergency Fund

It can be wise to save up an emergency fund for pet-related expenses. Things just tend to happen with dogs around. They can accidentally knock things over with their tails, swallow objects. and need an emergency vet visit. Dogs can do a lot of damage in a short amount of time (ahem, chewed up leather shoes).

But, guess what? Having some financial discipline can be worth it for a lick on the face, a little playtime, and coming home to a happy dog. Planning ahead for a pet budget can help new owners focus on those tail-wagging moments with Fido instead of stressing over canine costs.

The Takeaway

More than 44% of US households have dogs as pets, which shows how beloved they are. But before you get a pet, it’s important to know the costs involved (which can add up to thousands per year) and budget wisely. Saving in advance can make adopting and then caring for a dog easier. You might look for a high-yield checking and savings account to help your money grow for this purpose.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


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FAQ

How much does it cost to buy a new dog?

Costs can vary tremendously. Adoption fees are often estimated at between $255 to $414, and buying a dog from a breeder can run into the thousands.

What is the monthly cost of owning a dog?

The costs of owning a dog can vary greatly, from $40 to $290 a month, depending on factors such as the dog’s breed, age, health, and your location.

Can pet insurance save me money?

Pet insurance can save you money, but it really depends on your particular pet, the policy, and your specific situation. If the premiums and out-of-pocket insurance costs exceed what you expect to spend on your pet’s care, it may not be a wise buy.


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As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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What Is Credit Card Protection? How It Works

The Ultimate Guide to Credit Card Protection and How to Use It

Beyond making purchases more convenient, credit cards can provide a number of additional and valuable layers of protections. For instance, they can help cover you if you are traveling abroad, buying something pricey or if you were to lose your job or otherwise become unable to pay your bills. Some credit card protections, like travel insurance, are perks of the card included in the annual fee. For others, like credit card payment protection, you may have to opt in and pay an additional fee.

Read on to learn more about the types of credit card protection that are available, how they work, and when they may be worth it.

What Is Credit Card Protection?

Credit cards may offer various forms of protection in their perks and benefits. These protections can help protect your purchases and ensure you don’t pay for charges that aren’t yours.

They can also help you in a dispute with a vendor. For example, if you ordered an item that never made it to you and the merchant won’t give you a refund, you could invoke a credit card chargeback with your credit card company.

Perhaps the most common form of protection associated with the term “credit card protection” is credit card payment protection insurance. This is an insurance plan that you can opt into for a monthly fee that would offer protection if something were to happen that prevented you from paying your bills.

Recommended: Charge Cards Advantages and Disadvantages

Types of Credit Card Protection

Read on for more details on the various forms of credit card protection.

Fraud Protection

One basic benefit of a credit card is typically fraud protection, and this can be why people use credit cards over debit cards or cash. If someone were to steal your credit card number or your physical card, fraud protection shields you from being responsible or liable for charges.

Under the Fair Credit Billing Act (FCBA), creditors cannot “take actions that adversely affect the consumer’s credit standing until an investigation is completed.” This means that all credit card companies will launch an investigation if fraud occurs. During this time, you will not be held liable for the charge in question (though make sure to make your credit card minimum payment so you don’t incur late fees or ding to your credit during the investigation).

Some credit card companies may go beyond that and offer even more fraud protection, including $0 liability. (The FCBA caps liability in case of fraud at $50 if the thief presents the card. The liability is $0 if the card is not physically present, as in the case of someone stealing a credit card number and using it online).

While fraud protection can offer peace of mind, it’s also important to be proactive about recognizing fraud. If you lose your credit card, call your issuer to have the card frozen. And always let your issuer know ASAP if you notice a charge that isn’t yours.

Return Protection

Return protection is another form of purchase protection offered by some credit cards. It allows you to return an item for a set period of time defined in your membership agreement. This return window may offer more leeway than that of the merchant you made the purchase from (for example, 90 days instead of 30 days.)

There are exclusions to what can and can’t be returned. Further, there also may be a cap on the cost of the item being returned, as well as an annual cap per card, though it depends on how your credit card works specifically.

Price Protection

Have you ever bought something, only to see the item go on sale a week later? That’s where credit card price protection comes in. With this perk, you may be able to receive a refund for the difference in price if you purchased the item with your card.

Generally, it’s your responsibility to track price drops. And your issuer may have certain terms, such as limiting the protection to price drops within a set time period. Price protection also may exclude certain types of purchases, such as tickets to sporting events or concerts.

Purchase Protection

Similar to return protection, purchase protection can help protect you if purchases are lost or damaged or if services aren’t rendered or delivered as expected. Generally, you would bring the issue up with the merchant or service provider. But if they don’t initiate a refund, then you can dispute the charge with your credit card company. This process initiates what’s called a credit card chargeback.

There may be limitations and exceptions to purchase protection. It can be a good idea to talk directly with the merchant before reaching out to your credit card company.

Travel Insurance

Travel insurance can be a big reason to put a trip on a credit card. In fact, some card issuers offer insurance as a perk for using the card.

The specifics of credit card travel insurance depend on the card issuer, but it may include insurance for lost luggage or coverage for trip interruption or cancellation. In general, these insurance policies may not be as comprehensive as a standalone policy, but they can provide some peace of mind when planning a trip.

Car Rental Insurance

Car rental insurance is another type of insurance offered as a credit card perk. If you rent a car with the credit card, the card may provide insurance protection in case of damage. Generally, this includes collision/loss damage waiver coverage.

Car rental insurance through your credit card may allow you to forego the (sometimes pricey) insurance options offered by the car rental agency. However, as with any insurance policy, it’s a good idea to read the fine print to know exactly what is and is not covered.

How Credit Card Protection Works

Most protections are part of the overall perks and benefits of the card. But credit card payment protection is a little bit different. It’s generally an opt-in program that offers protection if you are no longer able to pay your credit card bill. The protection offered can be short term, such as for a life event like a change in employment, or long term, extending for 12 to 24 months in the event of a job loss or hospital stay.

Usually, credit card payment protection carries an additional monthly fee. Also note that payment protection doesn’t let you off the hook from paying the bill down the road. Rather, for a set period of time, your credit card issuer would offer a break on making payments or lower your minimum payments due, as well as pause any fees. Your issuer will continue to report your account in good standing during that time.

Tips to Keep Your Credit Card Safe

Protection programs can give you peace of mind. But losing a credit card or dealing with fraudulent activity can be stressful regardless of what protections you have in place. It can also potentially open the door to identity theft, which could potentially harm your credit.

That’s why it’s smart to set up some smart security behaviors. Read on for some tips for how to keep your credit card safe.

Practice Credit Card Protection From Day One

When you’ve applied for a credit card, keep an eye out for the card to arrive in the mail. It should come in between five and 14 days; your issuer may provide a timeline.

If you don’t receive your card within that time period, call your issuer. They will issue you a new one. And as soon as you do get your card, follow the steps to set it up for use.

Keep Your Account Number Private

Don’t write down your credit card account number, expiration date, and CVV. Don’t share this information with anyone else. Also consider whether or not you want to save payment information online. While it can be convenient, it could leave your information vulnerable. If you are using your credit card to make a payment, make sure that you are doing so through an encrypted service.

Keep Your Information Current

Make sure that the email address, mailing address, and telephone number on file with your card issuer are up to date. By doing so, you will be aware of any communication between you and your card issuer. Further, this will prevent a new card from being delivered to the wrong address.

Be Careful With Your Receipts

While federal law prohibits how much credit card information is on receipts, this may not be true in other countries. If you’re traveling abroad, it may make sense to be even more mindful about how you dispose of receipts. Don’t leave them lying around.

Secure Your Devices and Networks

Being mindful of how and when you use your credit card online can help you avoid fraud. Using your own network, rather than public WiFi, can be one security step. It can also be helpful to check that a website uses encryption for payment and that it’s a secure site.

Protect Yourself Online

When you’re using a credit card for payment, it’s important to be cyber-savvy. Credit card scams to try to obtain your information or your credit card number are not uncommon.

You’ll want to be on the lookout for phishing attempts. If a merchant or bank asks you to email your credit card number, call the merchant directly. Know that banks will never ask for sensitive information over email. Also be on the lookout for requests to “verify” your information via email or text. Again, these may well be scams designed to get your account information.

Additionally, pay attention to any odd links, misspellings (such as Citii for Citi), or emails that include a link. Instead of following the link within the email, consider manually typing in the URL of a website.

Check Your Account Often

It can be good to get in the habit of regularly checking your credit card balance. Doing so a few times a week, instead of just waiting for a statement to come out, can alert you to fraud as soon as it happens. And remember, a fraudster could steal your information even if your physical card has always been in your possession.

Report Lost Cards and Fraudulent Activity Right Away

If you see something odd on your credit card balance, let your card issuer know right away. The same goes if you can’t find your credit card.

Even if you’re 99% sure your card is somewhere in your house or car, it can be a wise idea to contact your card issuer. In some cases, they can freeze your card. This means that you’ll be able to unfreeze it once you’ve found it, without getting a new card and a new card number.

Recommended: When Are Credit Card Payments Due?

What Does Credit Card Payment Protection Cover?

In general, credit card payment protection insurance has restrictions regarding when it applies, and it may require documentation.

Some reasons you may be able to request long-term credit card payment protection may include:

•   Job loss

•   Disability

•   Hospitalization

•   Death of a child, spouse, or domestic partner

•   Leave of absence (for family or child care, or for military duty)

•   Federal or state disaster

Meanwhile, you may be able to get short-term protection for the following reasons:

•   Marriage

•   Divorce

•   Graduation

•   Childbirth

•   Adoption

•   Retirement

•   New job and job promotion

•   A move to a new residence

Situations that may not qualify for payment protection include incarceration or voluntarily leaving your job, such as to pursue higher education.

Pros and Cons of Payment Protection

Is payment protection right for you? That depends. The opt-in program usually costs an additional fee. Plus, while paying your full balance each month is ideal, you could potentially pay the credit card minimum payment if you were going through hard times to keep your account in good standing, though your annual percentage rate (APR) would still apply.

In many cases, it may make sense to focus on bringing down your balance so your minimum payment is relatively low. That way, if the worst were to happen, you might still have enough room in your budget to manage minimum payments.

Pros of Payment Protection Cons of Payment Protection
Gives you a breath on monthly payments Will incur an additional monthly fee, adding to your balance
Offers peace of mind May be other assistance options with no added cost
Helps protect your credit in the event you can’t make payments Generally limited to two years of assistance
Pauses your credit card’s fees Limits on what qualifies for protection insurance to kick in

Is Credit Card Payment Protection Worth It?

Weighing the pros and cons of credit card payment can help you assess whether it makes sense for you. If you carry a very high balance and are in the process of paying it down, payment protection may give you peace of mind — especially if you don’t have a good APR for a credit card. But keep in mind that you could potentially switch to minimum payments during a hard time and still maintain your payment history.

To decide if credit card payment protection is right for you, it’s important to read the fine print and assess how these credit card fees would impact your overall financial outlook. Also take into consideration your current financial situation, your savings account balance, and the general stability and security of your job and lifestyle.

Credit Card Protection Scams and How to Avoid Them

As credit cards offer protection, scammers see opportunities — and these can be tailored, beyond just credit card skimming. There are several credit card protection scams that may target card holders, including:

•   Phone scams offering loss protection for a fee. Some scammers have been calling people and telling them they may be liable for charges beyond $50 on their credit card. They then try to get people to buy loss protection and insurance programs. If you get this call, know that credit cards include fraud protection at no additional fee — plus, your liability is limited to $50 by law. Call your credit card company if you have any questions about its fraud protection programs.

•   Scams claiming your account has been compromised. In this case, the scammer will ask you to provide personal details, such as your credit card number, claiming your account has been compromised. Don’t ever give sensitive credit information over text or via email. If someone calls claiming to be your credit card company, call the company directly from the number on the back of the card. Scammers can mask their true phone number and make it appear as if they are legit.

•   Fraudulent text alerts. Scammers also may send text messages asking for your CVV number on a credit card to “fix” a security problem or “verify” or “update” your account. A real credit card company would never ask for this information nor send text messages like this.

•   Fake account protection offers. Any account protection should come directly from your credit card company, not from a third party. If you receive these offers, don’t take them up on it.

The Takeaway

Credit card protection can be one of the great benefits of using a credit card. While some credit card protections are standard, including fraud protection, it can be helpful to consider what protection offers are most important to you before paying for additional services.

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 there limits to credit card payment protection?

There may be limits on what qualifies for credit card payment protection, and your issuer may need to see proof of hardship. Further, there may be a time limit on how long credit card payment protection is offered.

Is there a time limit on credit card payment protection?

Generally, issuers have a time limit for credit card protection policies. These vary between issuers, but may be as short as several months or as long as two years, depending on the circumstances.

Should I get credit card payment protection insurance?

Credit card protection insurance may incur an additional fee, unlike other protection options offered as part of your overall perks and benefits within your card. That fee can add to your balance. If your credit card balance is at or near $0, credit card payment protection insurance may not be necessary.


Photo credit: iStock/9dreamstudio

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

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How to Send Money Using a Credit Card: All You Need to Know

How to Send Money Using a Credit Card: All You Need to Know

If you need to send money with a credit card, there are several ways you can complete the transaction, including taking a cash advance, using a peer-to-peer (P2P) app, or using a money transfer service. While it’s convenient to send money by credit card, it may be costly and it could impact your credit.

Before you transfer money, here’s a rundown on how to send money with a credit card and what you need to know about doing so.

Transferring Money From a Credit Card to a Bank Account or Debit Card

You usually have three methods to choose from in order to send money by credit card. Here’s a breakdown of how each one works.

1. Cash Advance

The first way you can send money using a credit card is through a cash advance, which is one of the ways credit cards work. Essentially, a cash advance is like a personal loan that you can use to pay bills or make purchases.

Since you’re borrowing money from your creditor, the cash advance will begin accruing interest immediately. Also, you must pay a fee. Therefore, it’s best to be timely when repaying the loan amount.

Depending on your credit card issuer, you may have several options for taking a cash advance, including:

•   Visiting an ATM

•   Requesting a convenience check

•   Going to a bank branch in person

•   Getting a cash advance from a loan agency (though you’ll need a credit card PIN for the agency to distribute the funds, which is different from the CVV number on a credit card)

If you’re requesting a cash advance from your local bank, they may allow you to visit a bank branch and deposit the funds directly into your bank account. A convenience check works similarly to a traditional check, except the funds come from the line of credit on your credit card instead of directly from your bank account. You can then deposit the money into your bank account or use it to pay for another expense.

2. Peer-to-Peer Applications

Another option is to download a P2P app like Venmo, Cash App, or PayPal. Then, you can link your account to your credit card and send money to another receiver.

It’s important to note that all P2P apps have different requirements for sending funds, and they can charge a fee to do so. For example, if you choose to use the Cash App to send money with a credit card, you’ll pay a 3% fee.

3. Money Transfer Services

Lastly, you could use a money transfer service to send money by credit card. For example, Western Union allows customers to pay for a money transfer using a credit card. You can do so via the app, in person, or online. But, like the other solutions for transferring money with a credit card, a money transfer service may charge a fee.

You may also be able to transfer funds from your credit card to your bank account through your bank.

Banks vs Money Transfer Providers for Credit Card Payments

Here’s a difference to consider if you are deciding between how a bank vs. money transfer service may look at credit card payments.

•   Usually, if you decide to transfer money using your bank, your creditor will categorize the transfer as a cash advance. Your creditor will charge a fee, and if you’re sending the money internationally, you also may have to pay a foreign transaction fee. A cash advance interest rate — which is usually higher than the average credit card interest rate for purchases — will also apply.

You can request that the cash advance get directly deposited into your bank account, or you can take the cash advance from an ATM or request a convenience check. Once you receive the funds or the check, you can deposit the money into your bank account.

•   On the other hand, when you use a money transfer service, you will link a credit card to your account. This gives you the ability to send money, often within minutes. However, depending on the company, you may have to pay a fee for the transaction. Creditors generally treat this transaction just like any other purchase transaction, meaning the purchase APR on a credit card will apply.

Things to Consider When Transferring Money From a Credit Card

Although using credit cards to send money is a convenient solution, it’s not always advisable. When you have the choice, using cash or your savings is a better option since you can avoid paying high fees or going into debt that might not be easy to shake (here’s what happens to credit card debt when you die, for instance).

But, if you find yourself in a bind and have limited options, you may need to send money with a credit card. Before you do so, however, here are a few considerations to keep in mind.

Credit

When you take a cash advance from your credit card, it can negatively impact your credit. Credit bureaus use your credit utilization ratio to determine your credit score, which is the amount of credit you’re using versus the amount of credit you have available. Ideally, you want your credit utilization ratio to fall under 30%, ideally closer to 10%.

If you take a cash advance, there’s a chance it will spike your credit utilization ratio and ding your credit. For example, let’s say your credit limit is $5,000, and you take a $3,000 cash advance. This would make your credit utilization ratio 60% — double the recommended benchmark. Keeping your credit limit above this threshold for too long can affect your credit score.

Likewise, not handling your credit card usage responsibility can harm your credit. So, even when using a P2P app to send money, it’s important to make on-time credit card payments (ideally of more than the credit card minimum payment) to avoid late fees or potential damage to your credit score.

Fees

Most options for using a credit card to transfer money will involve your paying transfer fee. This may be a fixed amount or a percentage of the cash advance.

While you can compare options to identify the cheapest solution, it’s best to find a solution that doesn’t charge any fees. This way, you don’t have to worry about losing money on the extra fees you must pay.

Interest

In addition to fees, you must pay interest on all of your credit card purchases — including money transfers — if you don’t (or can’t) pay off your balance in full each billing cycle given what a credit card is and how it works.

And, if you take a cash advance, your interest rate is usually higher on those transactions. Further, interest on cash advances starts accruing immediately. (You may have noticed these points when applying for a credit card and reviewing the disclosures.)

So, even if it is an emergency, you must consider the interest you’ll pay if you choose to send money with a credit card.

Pros and Cons of Sending Money With a Credit Card

Understanding the advantages and disadvantages of sending money with a credit card will help you make a more informed decision. Like with most financial decisions, there are pros and cons to using a credit card to send funds.

Pros

•   Rewards. You could earn credit card rewards if you have a card that offers cashback, miles, or bonus points when you spend money. Purchases may include a money transfer if you decide to use a money transfer service.

•   Convenience. Using a money transfer service can help you transfer funds from your credit card to another party within minutes. So, if you need money fast, this could be a good solution.

•   Security. Using a credit card is often more secure than using a debit card. Credit cards typically have stronger fraud protection and other security features to keep your money and identity safe, especially when sending money abroad. For instance, if you believe a charge is fraudulent, you can request a credit card chargeback.

Cons

•   High interest rates and fees. If you choose the credit card cash advance route, you must pay the cash advance fee and cash advance interest rate. Even if you use a money transfer service, you’ll usually pay a fee.

•   Not accepted everywhere. Some companies may not accept a credit card as a form of payment for a money transfer.

•   Potential impact to your credit. If you’re unable to pay off the cash advance or your credit card balance, it could impact your credit score. This can make it harder to get approved for a loan or a mortgage in the future.

Alternatives to Using Credit Cards for Sending Money

Again, if you send money with a credit card, you’ll have to pay fees and interest. With this in mind, there are other alternative solutions that can help you save money. Some other options you may consider include:

•   Low-interest personal loan. If you have a good credit score, you could qualify for a competitive interest rate, potentially one that’s lower than your credit interest rate. Also, personal loan approval can happen quickly, so you may not have to wait too long for the money to come through.

•   Credit card with 0% introductory offer. Some credit cards offer promotional periods where the APR is 0%. Some may simply offer a good APR on a credit card that’s lower than the standard APR. This means you could make purchases and not have to pay interest. However, you’ll still have to pay the transfer or cash advance fee if you go this route, and that introductory period will end at some point.

•   Home equity line of credit. A home equity line of credit (HELOC) lets you access the equity you have in your home. You may have a lower interest rate compared to unsecured lines of credit, and your lender may even waive the closing cost for the line of credit. Keep in mind that this loan is secured by your home though, so if you fail to repay it, your home may be on the line. An unsecured credit card, meanwhile, doesn’t require any collateral.

The Takeaway

It is possible to send money via a credit card in certain situations. However, this can involve significant fees. It may be wise to consider your options before sending money with a credit card. Doing so can help ensure you use your credit card wisely.

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

Can you transfer money with a credit card?

Yes, you can transfer money using a credit card via a cash advance, P2P app, or a money transfer service. But, many of these options come with extra fees, so before you choose one, make sure you understand the costs involved.

Is it secure to use a credit card to transfer money?

Yes, usually credit cards provide fraud protection and additional security features to protect your money. This can make them more secure to use than debit cards, for instance.


Photo credit: iStock/Damir Khabirov

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

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All You Need to Know About Credit Card Minimum Payments

All You Need to Know About Credit Card Minimum Payments

It may be tempting to just make only the minimum payment on your credit card bill and put off paying the total amount until another time. However, only making your credit card minimum payment can cost you both in interest and your credit score. Plus, it can keep you in debt longer.

To avoid this predicament, here’s what you need to know about minimum credit card payments, as well as what you can do if making the minimum payment on your credit card is a challenge.

What Is a Credit Card Minimum Payment?

A credit card minimum payment is the lowest sum that you’re required to pay each credit card billing cycle. To avoid late fees or penalties, you must pay at least this amount.

If you don’t make the minimum payment amount, you could be charged a fee or, worse, your interest rate could increase, which is why it’s critical to understand this part of how credit cards work.

Creditors determine your minimum payment by using one of three different methods, which include:

•   A flat percentage of your total outstanding balance: Your minimum payment might be 1% to 3% of your balance. Thus, your minimum credit card payment will fluctuate monthly depending on your credit card balance at the time.

•   A percentage of your balance plus fees or interest that’s applied during that billing cycle: With this method, the credit card company may make your minimum payment equal to 1% of your revolving balance and then add any fees or the annual percentage rate (APR) charged within that billing cycle.

•   A flat rate: A creditor may apply a flat rate, perhaps $25 or $35, for your minimum payment.

Keep in mind that if your revolving balance is less than the minimum payment, your creditor will typically require you to pay the total amount. Because minimum credit card payment guidelines differ from creditor to creditor, you’ll want to get familiar with your credit card payment rules — ideally before you even apply for a credit card.

How Does a Minimum Payment Affect Your Credit Score?

Not only does paying the minimum payment on your credit card increase the amount you pay in interest, but it can also impact your credit score.

One of the factors that credit bureaus use to determine your credit score is your credit utilization ratio, which is the percentage of credit you’re using versus the amount you have available. A good rule of thumb is to keep your credit utilization ratio below 30% (better still, closer to 10%) so your credit won’t be affected.

For example, let’s suppose you have $15,000 of available credit. If your revolving credit card balance is $7,500 racked up from places that accept credit card payments. That means your credit utilization ratio is 50%, which exceeds the 30% threshold. If you’re only making the minimum credit card payments, your credit utilization ratio will stay beyond an acceptable rate for a more extended amount of time. Therefore, your credit score may dip.

To avoid this scenario, it’s wise to make more than the monthly minimum payment so you keep your credit utilization low. This is especially important if you have a limit that’s below the average credit card limit, as it will be easier for your credit utilization ratio to jump.

What to Do If You Cannot Afford Your Minimum Payment

Although you want to make more than your minimum credit card payment each month, you may find yourself in a situation where you can’t afford to do so. Fortunately, there are steps you can take to ease this financial burden.

Stop Using Your Credit Card

If you’re trying to repay your credit card debt, it’s best not to add to it. This means that while you’re working to pay down your credit card balance, you should consider putting your credit card use on pause. If you continue to use your credit cards, you may feel like you’re never getting ahead. This can become a vicious debt cycle that can be challenging to break.

You can pause your use by putting your credit cards in a safe place where you don’t have access to them but also don’t risk them getting stolen. For example, you could put them in your family’s safe. This way, you can avoid the temptation of impulse buys.

Also, you may find it helpful to track your spending. This will allow you to see where your money is going and get a better handle on what costs might be busting your budget.

Reduce the Cost of Your Bills

Looking for ways to cut your expenses can free up extra cash to help you make your credit card minimum payments. You might start by saving on streaming services you’re not using, or consider putting a gym membership on hold until your credit card balance is repaid.

For example, if you have cable, Netflix, Amazon Prime, and Hulu, you may want to choose just one or two of these services to keep. Then, you can cancel the other subscriptions that you don’t need, saving you money and making it easier to meet your minimum payment on your credit card.

Consider Getting a Side Job to Earn Extra Income

Increasing the amount of money you have coming in also can help you accelerate your credit card debt repayment. Even bringing home an extra couple hundred dollars per month via a low-cost side hustle could help you make a significant dent in your credit card debt.

For example, if you’re handy, you could sign up for a service like TaskRabbit to help people tackle projects around their homes. Or, if you like to interact with a variety of people, you could consider driving for a ride-share service like Uber or Lyft.

Also, if you receive a financial windfall (say, extra money from a work bonus, tax refund, or a gift), you could put these funds to good use by making a larger credit card payment.

Call The Credit Card Company

In some cases, you may want to contact your credit card company if you cannot make the credit card minimum payment. You’ll want to explain why you can’t make the minimum payment and how much you can afford to pay.

Also, share with your credit card company when you can begin making regular payments again. Your credit card company would rather receive payment than no payment. So, by communicating with them, they might be willing to work with you while you repay your debt.

Explore Get-Out-Of-Debt Options

There are other options to help you get out of your credit card debt. For starters, debt consolidation is a get-out-of-debt strategy that can help you minimize your interest payments, helping you to repay your debt faster. With debt consolidation, you take out a loan with a fixed interest rate that you use to repay all of your other high-interest debts. Ideally, you want to find a financing option that can yield a lower interest rate.

How Paying Only the Credit Card Minimum Payment Costs You More

As you now know, it’s essential to make at least the credit card minimum payment. But making only the minimum payments each month can end up costing you more — even if you have a good APR for a credit card. When you carry a monthly credit card balance, the interest continues to accrue, which can keep you in a debt cycle.

To illustrate the cost of paying the minimum payment on the credit card only, let’s suppose your credit card has a 17% interest rate and you have a $3,000 revolving balance. If your credit card company has a $50 minimum payment requirement, it will take you 135 months to repay your debt. Additionally, you’ll end up paying roughly $3,743 in interest alone. This means you’ll spend a total of close to $7,000 to pay off a $3,000 bill.

Luckily, you don’t have to do all of this math yourself if you’re wondering how your credit card payments will impact the total amount you owe. Per the Credit CARD Act of 2009, credit card companies are required to put a minimum balance warning on each bill you receive to protect your interests.

Usually, credit card companies will communicate this warning with a table that provides a snapshot of the amount of time it will take to repay your balance if you only make the minimum payment. In some cases, the company may also provide a table that suggests the amount of time it will take to repay your debt if you make more than the minimum payment.

The Takeaway

If you want to avoid costly interest or a dip in your credit score, it’s wise to make more than your credit card minimum payment each month. An even better solution (if you can afford to do so) is to pay off your total credit card balance every month. This way, you can dodge high interest payments and keep your credit utilization ratio at a favorable rate.

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 your minimum payment rights?

As part of the Credit Card Accountability Responsibility and Disclosure (CARD) Act, creditors are legally required to illustrate how long it will take you to repay your debt if you make only the minimum payment. Also, they must provide a toll-free number that cardholders can call to get assistance with credit counseling or debt management. These requirements are designed to keep credit practices fair.

Does paying minimum due affect your credit score?

Yes, making a minimum payment can affect your credit score since it impacts your credit utilization ratio, a factor used to calculate your credit score. Credit utilization ratio is the percentage of credit you’ve used versus the amount you have available. So, if you continue to carry a high balance on your credit card, your credit utilization rate may be higher than recommended, which can impact your credit score.

What happens if I don’t pay my credit card for 5 years?

After just six months if you don’t pay your credit card, the credit card company is required to charge-off the account. This means they will close your account and write it off as a loss. However, you will still be responsible for repaying the outstanding balance either to your creditor or a third-party collections company.


Photo credit: iStock/MStudioImages

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

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

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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