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

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

Can You Buy Real Estate With a Credit Card?

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

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

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

How to Finance Real Estate Investments With a Credit Card

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

Through a Cash Advance

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

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

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

Recommended: What Is the Average Credit Card Limit?

For Related Real Estate Costs

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

By Using Credit Card Rewards

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

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

Recommended: Can You Buy Crypto With a Credit Card?

Advantages of Using a Credit Card to Invest in Real Estate

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

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

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

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

Downsides of Using a Credit Card to Buy Real Estate

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

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

•   You’ll face high interest rates: If you have to draw a cash advance against your credit card to buy real estate, you’ll face expensive APRs, compared to other financing sources, like a personal loan. According to the latest Federal Reserve data, the average credit card rate across all accounts with balances is currently 22.76%. By comparison, the average personal loan rate is 12.36%.

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

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

Recommended: How to Avoid Interest On a Credit Card

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

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

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

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

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

Alternatives to Buying Real Estate With Credit Cards

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

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

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

The Takeaway

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

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 can I buy rental property with a credit card?

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

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

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

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

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

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Photo credit: iStock/SDI Productions

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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The average credit card annual percentage rates (APR) topped 21% as of the middle of 2024, according to the Federal Reserve. It’s no wonder that savvy cardholders are looking for ways to reduce the cost of using a card. Some ways consumers achieve this is through a cash-back rewards credit card or a low-interest credit card.

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

What Are Cash-Back Credit Cards?

Credit cards that offer cash-back rewards are designed as an incentive to encourage spending on the card. For every eligible purchase you charge to your card, you’ll receive a small percentage of cash back. Some cards offer 1% cash back, while others offer as much as 6% or more, depending on the program’s rules. You might earn a flat rate across all purchases, or you might earn more in certain spending categories, such as groceries or gas.

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

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

What Are Low-Interest Credit Cards?

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

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

Recommended: How to Avoid Interest On a Credit Card

Differences Between Cash-Back and Low-Interest Credit Cards

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

Cash-Back Credit Cards	Low-Interest Credit Cards
You’ll generally need good credit to qualify.	Cash-back rewards offer an incentive for spending.
Cash-back rates vary by issuer.	Low- or no-interest credit cards vary by issuer.
Savings may be negated when a balance carries over.	Lowest APR offers are reserved for those with strong credit.
May be able to choose a card that offers enhanced cash-back rewards in key spending categories.	Some cards offer a promotional 0% APR for a limited period, which can be especially beneficial to those carrying a balance.
Lowers the borrowing cost for carried-over balances.	Perks may be inconsequential when monthly balances are paid in full.

Factors to Consider When Choosing Between Rates and Rewards

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

Average Balance You’ll Be Carrying Monthly

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

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

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

Recommended: When Are Credit Card Payments Due?

Your Average Monthly Spending

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

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

Recommended: Tips for Using a Credit Card Responsibly

Annual Fees

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

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

Interest Rate Difference Between Cards

Although all credit card issuers check your credit to determine your interest rate, each card company has its own underwriting criteria. You might receive an interest rate offer for 19.99% APR for one card, and an offer from another card issuer at 22.99% APR, for example. To gauge interest rates, it can be helpful to look at the current average credit card interest rates for a point of comparison.

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

Guide to Lowering Your Credit Card Interest Rate

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

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

•   Build your credit score. Even if you already have good credit, building your credit score can help you secure the most competitive interest rate in the future. Good borrowing habits — like making on-time payments and keeping your credit utilization low (below 30% or ideally below 10%) — are just some ways that may help your score.

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

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

The Takeaway

Ultimately, whether you opt for a cash-back credit card or a low-interest card depends on how you plan to use the card and manage debt, as well as what kinds of perks and features matter most to you. If you often carry a balance, for instance, a low-interest card could be valuable. If you tend to follow the important rule of paying off your card balance in full every month, then interest rate may not matter as much but cash back could be a benefit you appreciate.

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

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

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

Are there credit cards with low interest and cash back?

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

How can I choose between low APR and rewards?

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

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

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

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Photo credit: iStock/AsiaVision

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 .

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Applying for credit cards isn’t something you should take lightly because it can lower your credit score with each application you submit. Reviewing a credit card application typically involves a hard credit inquiry, which usually lowers a score by perhaps five points or so. If you were to fill out several credit card applications at one time, that could have a significant impact on your score.

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

Hard vs Soft Credit Inquiries

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

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

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

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

How Applying for Credit Cards Can Hurt Your Score

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

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

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

Should You Apply for Multiple Credit Cards at Once?

Simply put, probably not. Applying for multiple credit cards at one time is likely to have a negative impact on your credit score. While it might make sense to apply for more than one job at a time, that’s not the way to go with credit cards. Instead, you should approach applying for credit cards strategically.

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

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

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

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

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

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

Recommended: What Is the Average Credit Card Limit?

Can Applying for Credit Cards Help Your Score?

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

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

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

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

Recommended: When Are Credit Card Payments Due?

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

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

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

Recommended: Tips for Using a Credit Card Responsibly

Things to Consider Before Applying for a Credit Card

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

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

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

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

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

Recommended: How to Avoid Interest On a Credit Card

Alternatives to Credit Cards

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

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

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

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

The Takeaway

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

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

FAQ

How much does my credit score go down when I apply for a new card?

Typically, when you apply for a new credit card, your score will only go down temporarily by five points or even less. This will, however, depend on other factors related to your credit status.

How bad does a credit application hurt your credit?

In most cases, a hard credit inquiry as part of a credit card application will temporarily decrease your credit score by five points or less.

How often can I apply for a credit card without hurting my credit?

Typically, hard inquiries stay on your credit report for two years, but only impact your FICO score for one year. You might therefore want to space out applying for a credit card and do so only once every six months or so.

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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 .

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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Credit bureaus are companies that gather and store credit-related information on just about every adult in the United States. There are three major credit bureaus, or credit reporting agencies: Equifax®, Experian®, and TransUnion®.

The information collected by the credit bureaus is used to make financial decisions that have a major impact on the lives of many Americans. While credit bureaus themselves don’t make lending decisions, lenders typically rely on the information that credit bureaus provide to judge individuals’ creditworthiness.

What Is a Credit Bureau?

A credit bureau is a company that gathers credit and debt information about consumers. The three major credit bureaus in the U.S. — Equifax, Experian and TransUnion — also sell credit reports and credit scores to creditors, such as credit card issuers and mortgage lenders.

Credit bureaus keep a database of historical financial records about consumers. This may include information like the total number of credit or loan accounts you have open, your current account balances, and your payment history.

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

How Does a Credit Bureau Work?

Credit bureaus work by detailing and cataloging credit and loan transactions. The bureaus get their information from a variety of sources, including public records and information reported by lenders.

Not all third parties report to each of the three bureaus, which is why you may see different information on credit reports provided by different bureaus. If a lender wants one report that has information from all three major credit bureaus, they’ll need to get a tri-merge credit report.

Why Are Credit Bureaus Important?

Credit bureaus serve an important role in the overall financial markets. While credit bureaus do not make lending decisions themselves, they provide historical financial information on consumers to potential lenders and creditors. This information is used by potential lenders when deciding whether or not to issue you credit, which is why it’s important to regularly review your credit report. It’s also wise to dispute a credit report if there’s any incorrect information.

Credit Bureau Regulations

The Fair Credit Reporting Act (FCRA) regulates the credit bureaus and helps ensure that consumers are protected. One part of the FCRA states that information held by each credit bureau cannot be given to someone without authorization or a valid purpose. The FCRA also has a provision that gives every American the ability to see their credit report for free at least once per year.

The 3 Major Credit Bureaus

As previously mentioned, there are three major credit bureaus in the U.S. While not the only credit credit bureaus in the country, these are the three credit bureaus that dominate the collection and dispersal of information.

Equifax

Equifax was founded in 1899 and is headquartered in Atlanta, Georgia. With 13,000 employees in total, Equifax operates in 25 countries.

Experian

Experian traces its roots back to 1826 and is currently a conglomeration of several different companies. Headquartered in Dublin, Ireland, Experian currently has over 20,000 employees working in 43 countries around the world.

TransUnion

TransUnion was formed in 1968 by the Union Tank Car Company, a railcar leasing operation. Shortly afterward, they acquired the Credit Bureau of Cook County and got into the credit reporting business. TransUnion currently serves over 30 countries on five continents.

What Information Do the Credit Bureaus Monitor?

Generally speaking, credit bureaus monitor credit and debt information. For example, a credit card issuer might share the number of financial accounts you have, when you opened or closed them, your maximum credit line for each account, and/or your payment history, including if you pay your credit card bills when they are due. They may also collect information on debt collections and bankruptcies in your financial history.

How Do Credit Bureaus Use Your Information?

The credit bureaus themselves do not use your information to make any lending or financial decisions. Instead, the credit bureaus simply store and catalog this information. Credit bureaus then sell access to the credit data, allowing lenders and other potential creditors to view information about borrowers for a fee.

When credit card companies report to credit bureaus, the information they provide is added to the credit report for that consumer. This is why credit reports are constantly changing and updating, leading to credit score updates. As such, companies often regularly purchase reports and scores for their current customers.

What Is a Credit Report?

A credit report shares information about how you as a consumer have handled your credit accounts. It contains identifying information about you, such as names you have used, places you have lived, and your birthdate or Social Security Number.

Additionally, a credit report shows information about the different types of credit accounts or credit tradelines that you have or have had. More specifically, this information can include details on payment history, account balances, and credit limits, as well as any derogatory marks, like late payments, civil lawsuits, or bankruptcies.

Information Included in a Credit Report

Credit reports typically contain the following:

•   Identifying information: This includes your name, address, phone number, birthday, and Social Security number. You may also find information on your current and previous places of employment.

•   Credit summary: This portion of your credit report details any accounts you have, such as credit cards, mortgages, or other loans. Information will include the date the account was opened, the account balance, the highest balance, the credit limit or loan amount, the payment status, and the payment history.

•   Public records: Your credit report also contains information pulled from public records, such as bankruptcies or debt collections. You’ll also see payment defaults and late payments noted.

•   Credit inquiries: In your credit report, you can also see any party that’s requested access to your credit report in the last two years. This could come from a credit card or loan you applied for.

When reading a credit report, it’s important to make sure that the information on it is valid and accurate. Incorrect or inaccurate information on a credit report can lead to higher interest rates or being denied for credit.

Recommended: How to Avoid Interest On a Credit Card

Who Uses Credit Reports?

Credit reports are primarily used by potential lenders or creditors. This might include banks, credit card issuers, or other lenders. Landlords and employers are two other groups that often pull credit reports.

Lenders and creditors use credit reports to assess how creditworthy you are, which may help them determine whether to extend you credit (and at what rate). In the case of landlords and employers, your credit report may help them determine whether to offer housing or an employment opportunity.

What Else Do Credit Bureaus Do?

The main role and responsibility of credit bureaus is to provide credit information to potential lenders and creditors, for a fee. In addition to this main business model, credit bureaus also provide access to credit reports to the consumers themselves. This is to remain in compliance with the Fair Credit Reporting Act.

Recommended: Tips for Using a Credit Card Responsibly

Some Other Credit Bureaus

In the United States, the big three credit bureaus are Equifax, Experian, and TransUnion. These three companies do also maintain credit information in other countries. However, outside of the U.S., there are also country-specific credit bureaus. For example, there is SCHUFA in Germany and UC in Sweden.

Credit Bureaus vs Credit Rating Agencies

Confused on what credit bureaus vs. credit rating agencies are? While both credit bureaus and credit rating agencies provide information on creditworthiness, there are some key differences to be aware of:

Credit Bureaus	Credit Rating Agencies
Primarily focus on individual consumers	Rate corporations
Credit ratings use a 3-digit credit score	Credit ratings use letters, such as AAA or BB
The top three credit bureaus are Experian, Equifax, and TransUnion	The major credit rating agencies are Moody’s, Standard & Poor’s (S&P), and Fitch Ratings

The Takeaway

Credit bureaus gather, maintain, and collate credit information about millions of consumers throughout the United States and across the world. Lenders and potential creditors use this information to make decisions about whether to extend credit, as well as how much and at what rate. In the U.S., the three major credit bureaus are Equifax, Experian, and TransUnion. Any new credit card that you open will appear on your credit report maintained by one or more of these credit bureaus.

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

Do you need all three credit scores from the major credit bureaus?

Not necessarily. Because each of the major credit bureaus uses different sources of information, you may have slightly different information on each credit report. Also, each credit bureau uses the information they have differently in calculating an overall credit score. Because of this, some lenders prefer what is called a tri-merge credit report, which is one report that has information from all three major credit bureaus.

How many credit reporting agencies are there?

There are hundreds of credit reporting agencies throughout the world, each with a different focus. In the United States, there are three main credit reporting agencies or credit bureaus: Equifax, Experian, and TransUnion.

Which credit bureau is used the most?

Although Experian is the largest credit reporting agency, Equifax and TransUnion are generally considered to be just as reliable and accurate. There is not one credit bureau that is necessarily used the most. Instead, it varies by geographical region and the preference of the lender or creditor asking for the credit report.

Why doesn’t my report show a credit score?

There may be a variety of reasons why your credit report doesn’t show a credit score. One of the most common reasons is that the credit bureau does not have enough financial information about you to make an accurate decision. When your credit information updates, your credit score updates as well.

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Photo credit: iStock/damircudic

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Yes, they are usually similar rectangles of plastic, but charge cards and credit cards are actually very different financial products.

Charge cards, unlike credit cards, do not charge interest. Nor do they allow you to carry a balance over from one month to the following one.

In addition, charge cards often feature uncapped spending limits and considerable reward benefits to cardholders. However, it’s not all positive: They typically come with relatively high annual fees.

There are likely pros and cons of using a charge card vs. a credit or debit card. If you learn how each of these payment systems work, it can put you in a better position to decide which card you may want to use at various times and in different situations.

What is a Charge Card?

A charge card is a branded payment card that can be used anywhere the brand is accepted for electronic payment.

Charge cards require a credit application for approval, and typically are only approved for borrowers with good to excellent credit.

Like a credit card, charge cards allow the cardholder to make purchases that can be paid for at a later date.

However, unlike a credit card, which allows the cardholder to carry a revolving balance by making minimum payments each month, charge card balances must be paid in full at the end of each statement cycle.

If you don’t pay the balance at that time, you may not only face hefty late fees (often considerably higher than those you’d see with a credit card).

However, this strict repayment requirement does come with some benefits.

For one thing, most charge cards don’t have a preset spending limit like credit cards do.

That doesn’t mean you can spend an unlimited amount, however. It means that the max amount you can spend changes, depending on your card usage, credit history, financial resources, and other factors.

These limitations can change frequently. You can find out what your spending limit is on the spot online, with a mobile app, or by calling the number on the back of the card.

Charge cards are also known for their generous rewards, including purchase points and/or credits for making a purchase, and sometimes offer double or triple points on dining and travel expenses.

The benefits of a charge card aren’t free, however. Although charge cards don’t charge interest on purchases, since they’re paid off in full at the end of each billing cycle, almost all charge cards do require an annual fee. These fees can range from $95 to $5,000 for a super-premium American Express Black Card.

Recommended: Tips for Using a Credit Card Responsibly

Charge Card vs. Credit Card

Although charge cards and credit cards are similar, the differences between them can make one payment system more appealing than another, depending on your financial situation and spending habits.

Credit cards, like charge cards, allow purchases to be made today and paid for tomorrow — but in this case, “tomorrow” doesn’t necessarily have to mean the end of the billing cycle.

Credit cardholders are able to carry a balance from month to month, sometimes called a revolving balance, which allows the flexibility to pay when you’re able.

However, it’s important to note that credit card companies charge interest on these revolving balances — and the compound nature of that interest means that interest can also be assessed on the interest itself over time.

That’s one reason it’s so easy for credit card debt to spiral–and one reason being forced to pay the bill in full each month, as charge cardholders are, can be an attractive option for those working on their financial self-discipline.

That said, those who have the discipline to pay their credit card bill in full each month can avoid paying interest entirely, since credit card companies only charge interest on revolving balances.

If your credit card doesn’t assess an annual membership or maintenance fee, that means you can use the card to your heart’s delight and never pay a dime more than you spent on your purchases, provided you’re diligent about paying the statement off in full each and every time.

Both credit cards and charge cards often offer additional bonuses and benefits, such as cash-back rewards, points you can use towards purchases, concierge services, and statement credits.

The value of these kinds of rewards often scales with the annual membership fee in both credit and charge cards, so you’ll want to always be sure to read the fine print before signing any paperwork.

Recommended: Secured vs. Unsecured Credit Cards

Charge Card vs. Debit Card

Since a charge card isn’t an extension of long-term credit in the same way a credit card is, it might be tempting to compare it to a debit card. But there are significant differences between these two types of electronic payment systems too.

A debit card, unlike either a charge card or a credit card, is linked to a spending account with real money in it.

Therefore, in most cases, the cardholder can’t spend more than the amount they’ve put into that account. If they do, they may face pricey overdraft fees and have the difference taken out of the next deposit they make.

Debit cards, however, generally don’t involve interest charges or annual fees. They’re simply a shortcut for taking money out of a spending account.

Debit cards are also used to withdraw money from the ATM and can be used at certain point-of-sale terminals to get cash back when the cardholder needs actual dollars in hand.

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

Pros and Cons of Charge Cards

Charge cards, like any other financial product, have both benefits and drawbacks.

While some consumers may enjoy having and using a charge card, others may feel the annual fee is not worth the benefits.

Pros of Charge Cards

•   Because they have to be paid in full each month, charge cards can help avoid a credit card debt spiral.

•   Charge cards have no preset spending cap, which may allow cardholders to make large purchases without having to worry about “maxing out” the card.

•   Charge cards don’t require paying interest (though high fees can be assessed for late payments).

•   Charge cards often offer generous rewards and benefits, such as purchase points, statement credits, and sometimes double or triple points on dining and travel (which can make them a good option for business travelers).

Cons of Charge Cards

•   Many charge cards carry high annual fees, while many fee-free credit and debit cards are available.

•   Charge cards are offered by a limited number of issuers, so there are typically far fewer to choose from than credit cards.

•   As with credit cards, late payments can ding your credit history. With charge cards, however, consistently late payments can be more detrimental to your credit than late credit card payments.

•   You have to pay the whole balance to avoid a late fee (with a credit card, you can typically pay the minimum payment to avoid the late fee).

Alternatives to Using Charge or Credit Cards

The buy-now-pay-later model of purchasing has its advantages, since you can have something in hand before you actually have the funds to cover the cost.

But if you’d rather avoid hefty annual fees and/or paying interest, another way to afford a significant purchase is to start saving ahead of time. You may also want to consider setting up a separate savings account earmarked for that particular savings goal.

For something major you’d like to buy within a couple of years, consider opening an account that offers higher interest than a traditional bank account, but will allow you to access your money when you need it. Good options include a savings account from an online vs. traditional bank, money market account, or a checking and savings account.

To make sure you stay on track with your savings goal, you may also want to set up automatic payments between your spending account and your savings account. For example, you could select a dollar amount (and it’s fine to start small) to be sent each month after your paycheck gets deposited.

The Takeaway

A charge card is a financial product that, like a credit card, allows the cardholder to make purchases now that they then pay for later.

However, unlike credit cards, charge cards don’t allow cardholders to carry a revolving monthly balance — all charges must be paid in full at the end of the billing cycle.

Charge cards also don’t carry preset spending caps (though there may still be some spending limits), and typically assess annual membership fees. But if you enjoy perks, travel frequently, and make the occasional high-ticket purchase, a charge card might be a good fit for you.

If you’d rather avoid annual fees and/or paying interest, you may want to simply save up for that next big purchase.

One way to make saving for a short-term goal a little easier is to sign up for a SoFi Checking and Savings Account. SoFi Checking and Savings allows you to spend and save, all in one account. And you’ll pay zero account fees to do it.

Using SoFi Checking and Savings’s Vaults feature, you can separate your spending from your savings while still earning a competitive interest rate on all your money.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

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SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details 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.

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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