You’ve been running a credit card balance for a few months, but finally, you have enough cash on hand to zero out the statement balance.
With great relief – and not a little pride – you pay it off. Thank goodness you’re done with that debt.
But wait: did you also pay the residual interest?
What is residual interest?
Residual interest is the interest that’s accrued on the unpaid credit card balance all this time that you’ve not been paying it. It’s also called trailing interest – because it trails into the next month.
The federal Consumer Financial Protection Bureau investigated residual interest charges on credit cards in 2015 as part of its biennial credit card report to Congress.
“We recognized, based on our research, that there is some confusion about this so-called ‘ghost charge,’ said Wei Zhang, the bureau’s credit card program manager. “People wanted to know, ‘What is this? Why is it happening?’”
The bureau did not find issuers doing anything illegal; however, they did discover that many details were buried in the fine print of credit card agreements. Card owners often were unaware of or did not fully understand what happened if they failed to pay their bill in full or how interest on the balance was calculated.
Before we get into those details any further, though, let’s start by explaining some terms:
- Billing cycle – That’s the time between two bills. Many billing cycles are about a month long.
- Closing date – That’s the date on which the billing cycle ends. When the closing date occurs, the card will post a statement balance. That’s the amount of purchases you charged during this billing cycle.
- Grace period – This is the period of time between when the billing cycle closes and your payment is due. This can be a few weeks, or even up to a month.
- Due date – This is the last possible day to make your payment without penalty. After this day, interest will start to accrue on the balance.
That interest that accrues? That’s residual interest.
See related: How to lower your credit card interest rate
How does residual interest work?
Here’s an example of how residual interest comes into play:
- You have a credit card with a billing cycle that closes on the 15th of every month. On March 15, your statement balance is $1,200.
- Your due date on the bill is April 14th. But when the date arrives, you can only afford to pay $900 – meaning you leave a balance of $300 on the credit card.
- That $300 starts accruing interest the very next day. How much interest? Depends on your particular credit card. Let’s say, for this example, your card charges an APR of 22%.
- To figure out how much that will be, divide the APR by the number of days in the year. So 22 divided by 365 – 0.0602%.
- Multiply this by your current $300 balance, and you get 18.06 cents. That’s the amount of residual interest you will get charged on the balance each day.
- By the time the next month’s due date rolls around, 30 days later, you will owe $5.41 in residual interest.
This is where things get tricky. Maybe you decided to clean up your financial act. You’ve only charged $200 this month, and now you can afford to pay off both the new balance and the $300 from last month. Everything’s squared away, right? Nope, not so fast. You still owe that $5.41. And if you don’t notice it and neglect to pay it, it will continue to accrue interest.
Or, you do pay the entire bill by sending a check in the mail. Interest may continue to accrue on the balance between the time you mail the check and the time the bank receives it and cashes it. Remember, once you enter the land of accruing interest, there is no more grace period.
“Because it accrues after the billing period closes, [residual interest] won’t appear on your current statement – meaning that this could be a surprise amount you discover in your next statement,” said Megumi Smisson, who discusses personal finance on her podcast Ms. Money Moves and her website, Money With Megumi. “Or, worst case, you think you’ve paid off your card, don’t check your next statement to make a payment, and incur a late fee and potentially damage your credit.”
See related: What happens when you miss a credit card payment?
Do all cards charge residual interest?
Residual interest is a common credit card feature. Supposedly, there are banks that don’t charge it, though those are increasingly hard to find.
“I’m not saying it’s impossible, but … [scoring a credit card that doesn’t charge residual interest] is kind of like finding the pot of gold at the end of the rainbow with a unicorn standing next to it,” said Bruce McClary, spokesman for the National Foundation for Credit Counseling in Washington, D.C.
There are many credit cards that offer 0% APR on new and transferred balances for a number of months. To find out how your card deals with leftover balances, look at the back of the statement. It probably won’t say “residual interest” in those words.
Scan instead for writing like “finance charges may be assessed even if we receive payment in full in the current billing cycle.” Other ways to get this information, and discover what the APR is for your card, are to look at your card’s terms and conditions, go to the card issuer’s website or call the issuer.
How to avoid residual interest
There’s no reason you should have to pay months’ worth of residual interest on your credit card for a balance that’s quickly resolved. Here’s how to make sure this isn’t a problem for you.
- Pay your card in full each month. “The No. 1 rule, the best advice for avoiding residual interest altogether, is to pay off your purchases immediately,” McClary said.
- First timer? See if you can get a break. There’s no harm in calling your credit card issuer and asking if you can get an extension on your payment deadline, so you can avoid late fees, finance charges and any residual interest on this one cycle. “You never know what you’ll get until you ask,” McClary said.
- If that’s not possible, check your balance and pay it online. The credit card issuer should post real-time information about your leftover balance and any accruing interest.
- Get confirmation from the card issuer. This is particularly important if you are paying your balance by mail, either from a paper statement or from what you see online. Interest on the balance continues to accrue until the moment the bank cashes your check. If the check is insufficient because it doesn’t include those extra few days of interest, interest will accrue on the unpaid balance. Instead, before you write the check, pick up the phone and ask the credit card issuer for the payoff balance. “That is the best, the most foolproof way to accurately know the balance that would pay off the account,” McClary said. He advises overestimating the day the payment will arrive by a day or two; the company will repay you any overpayment but will charge more interest if you fall short again.
See related: Should I pay off my credit card all at once?
Remember, if you’ve let a balance carry from one statement to the next, you don’t just have to pay off the balance on your statement. You may also owe residual interest that is not included in your current statement. Check your total online. Call the card issuer to double-check. You can also check your credit card agreement to find out about residual interest or minimum finance charges.
And after you’ve paid what you believe you owe, check again, to be sure.
“Don’t just anticipate ‘I’m off the hook’ next month,” Zhang said. “In many cases, you are probably not off the hook. Make sure there are not any residual balances next month.”
The pandemic has hastened the online move of services as well as goods.
Healthcare, therapy sessions and education are some of the services that have migrated online, voluntarily or involuntarily, due to the pandemic. What if you paid for an online service and either didn’t receive it or are not satisfied?
Reader Wanda finds herself in such a situation. She writes, “I have a pending charge of $200 on my credit card for a video consultation with a nurse practitioner who runs a medical marijuana spa and the fee is for a prescription for a medical marijuana card plus the video visit.
“I waited for over an hour online for the video visit, which I did not receive. The person finally called me and explained the process telling me an email would be sent to me that night with a link to get my medical marijuana card. I texted her the next day saying I received nothing and she texted back and said ‘give me about an hour’ and she would contact me. As of 9:30 p.m. today, no email or text from her. Can I get a reversal of that charge?”
See related: Filing credit card disputes in the coronavirus crisis
Chargeback for services
It seems the situation involves getting a chargeback for a service that is not provided. If the chargeback involves merchandise that you didn’t receive, the situation is clearer; either you received the merchandise, or you didn’t. In case of services not received, there is more scope for ambiguity.
Chargebacks 911, a website that helps merchants deal with chargebacks, explains how a chargeback situation could come about for services that a consumer says they didn’t receive:
“The merchant failed to do something as promised. Or, the merchant’s policies and procedures weren’t clear, and there was confusion regarding what the consumer would actually receive. It’s also common that marketing causes chargebacks; unrealistic promises might be made.”
The firm advises merchants to adhere to the following procedures to avoid these situations:
- Make sure that the way they describe the services is accurate. The description should provide detailed information but should also be easy to understand. Supplementary videos and images could help explain any confusing aspects.
- Get consumers to sign off on the terms for providing the service and make sure they know what they will receive in return.
- Provide excellent service, responding to all customer questions and grievances quickly. Give customers various ways to get in touch, such as live chat, phone and email. And check social media accounts regularly to respond to comments.
If it comes to that, Chargebacks 911 also advises merchants to issue credits promptly. If they sense that their relationship with the customer is strained and a chargeback situation could ensue, it advises them to cancel the service and issue a refund.
See related: What to do if your online order never arrives
Disputing a charge with a credit card company
It seems a service provider would be wise enough to recognize a potential chargeback situation and promptly take steps to issue a refund if that’s called for. However, that’s not always the case, and you could also take recourse to the Fair Credit Billing Act to dispute a charge with a credit card issuer if that becomes necessary.
You should put in a billing error dispute in writing with the credit card company within 60 days of receiving the bill with the charge for the service that was not provided. You could also call the company, but you should send something in writing first, the California Attorney General’s office advises. Send this letter to the company’s address for billing inquiries or errors, not to its address for payments.
The letter should provide all your details, an account of the dispute and any evidence you have about the matter. The card issuer should acknowledge receipt of your letter within 30 days. And it has 90 days to look into the matter.
Also, you should inform the credit card issuer if you are holding back on paying the disputed amount, which you can legally do while it investigates the matter without triggering a report to the credit bureaus. However, you should continue to pay the rest of your credit card bill. If the credit card company rules in your favor, it will credit you for the disputed charge and any interest associated with it.
See related: Can I get a chargeback credit on a canceled card?
What if a chargeback is not provided?
If the card issuer rules against you, it will provide you a written explanation of its findings, and you will have to pay the disputed amount and any interest charges on it.
If you disagree with the card issuer’s findings, you can get back to it within 10 days to present any other evidence you might have. You could also ask to see any input it used to reach its decision.
Another recourse is to put in a complaint with the Consumer Financial Protection Bureau. You could even sue the card issuer if you believe the investigation was not conducted fairly.
See related: What to do when your bank won’t refund fraudulent changes
Wanda, if you never received the services you ordered from the medical marijuana spa, after first making your best efforts to sort out the matter with the nurse practitioner, you should initiate a dispute with your card issuer, asking for a chargeback. Since this is all online, you should have a digital trail for evidence.
Good luck getting your money back!
Contact me at email@example.com with your credit card-related questions.
Consumers have not been immune to financial challenges in the grips of a global pandemic. One way lenders are responding is by tightening their standards when issuing credit card accounts as the number of credit card accounts continues to fall.
According to data released in May 2021 by the American Bankers Association, there were 365 million open credit card accounts in the U.S. as of the end of 2020.
That number includes 203 million accounts held by superprime consumers, 98 million held by prime consumers and 64 million held by subprime consumers. According to the ABA data, the number of credit card accounts decreased for the third quarter in a row.1
While the number of prime and subprime accounts dropped to levels not seen since 2015-2016, the number of superprime accounts hit an all-time high, suggesting that those with the best credit have plenty of options to choose from.1
See related: How to choose the best credit card
How many Americans own credit cards?
Despite the decline in credit card accounts, credit cards are found in most Americans’ wallets. Federal Reserve Bank of Atlanta data released in May 2021 found that in 2020, 79% of consumers had at least one credit card or charge card, which is the highest percentage since the Fed began conducting the Survey of Consumer Payment Choice in 2008.2
A credit card is defined as a card that allows the cardholder to make a purchase by borrowing funds paid back to the credit card company later. A charge card is a type of credit card that must be paid off in full every month.
Using the U.S. Census Bureau estimate of 253 million adults in the U.S.,3 that means nearly 200 million American adults have a credit card, a charge card or both.
However, lenders have shown caution when extending new credit, perhaps due to Americans’ financial challenges during the pandemic. Average new account credit lines decreased to $3,696 in the first quarter of 2021 from $5,128 the year before, according to a May 2021 TransUnion report. And the number of credit cards fell from 457.6 million in Q1 2020 to 454.6 million in Q1 2021.4
According to a survey conducted in August 2020 by Travis Credit Union, more and more Americans are going cash-free. Fifty percent of respondents said they used cash less during the pandemic than they did before the COVID-19 crisis. On top of that, 58% said they planned to stop using cash entirely after the pandemic.5
See related: How COVID-19 is possibly leading the cashless revolution
Types of credit cards Americans own
Americans tend to hold a variety of cards, but cash back credit cards are most popular. According to a 2021 survey of 2,000 Americans by The Ascent, from the investing site The Motley Fool, 46% of Americans own a cash back credit card, down from nearly 60% who had a cash back credit card in 2019. Also, 31% own a retail credit card, 25% own a low-interest card and 19% own an airline or other travel rewards card.6
Card ownership by age
Older consumers tend to carry the most cards. According to Experian, in the third quarter of 2020, baby boomers – those between 56-74 – carried, on average, 4.61 cards followed by:
- Generation X – those between 40-55 – who carried 4.23 cards on average.
- The silent generation – those 75 and up – carried 3.64 cards, on average.
- Among younger cardholders, millennials – those between 24-39 – carried on average 3.18 cards and Generation Z – those between 18-23 – carried 1.91 cards.7
Young Americans are waiting longer to get their first credit card, possibly because younger consumers also are dealing with student debt. Additionally, the Credit CARD Act of 2009 bans credit card approvals for anyone under 21 years old unless they have an adult co-signer or can prove they have sufficient income to pay the bills.
However, that doesn’t mean young people are not using credit cards.
- According to Sallie Mae’s 2019 “Majoring in Money” report, 57% of undergraduate students owned a credit card in 2019, and 38% of undergraduates have two or more cards.8
- However, a higher percentage of college students (19%) have only one card, compared with college graduates or people who didn’t finish college (14%).8
- Debit cards are still more popular, and 85% of undergraduate students carry debit cards. Students overall are more likely to use debit (85%) or cash (81%) than credit cards (57%).
- Students prefer cash over any other payment method for in-store purchases of less than $20. Forty-three percent of college students do not use credit cards at all.8
The Ascent survey showed that while nearly 55% of consumers have maxed out at least one credit card, Generation Z (44%) was least likely to do so, followed by baby boomers (48%), millennials (51%) and Generation X (66%).6
However, millennials were most likely to fall more deeply into credit card debt because of the pandemic, according to a CreditCards.com survey conducted in May 2020. More than a third of millennial cardholders – 34% – said they incurred more debt during the pandemic compared to 23% of Generation Xers and 15% of baby boomers.9
Card ownership by state
Where you live can also play a role in how many credit cards you have. In every state, the average number of credit cards owned by consumers dropped in 2020, according to a 2021 study by Experian.7
- New Jersey residents had, on average, the most credit card accounts in the third quarter of 2020 with 4.54. Other states in the top five include Connecticut (4.21), Rhode Island (4.16), Florida (4.15) and New York (4.14).7
- On the low end, Alaska residents had the fewest credit card accounts in the third quarter of 2020, with 3.06 accounts. They were followed by South Dakota (3.22), Mississippi (3.26), the District of Columbia (3.26) and Wyoming (3.28).7
See related: 2020 state debt burden survey
Card ownership by credit score
Superprime (those with credit scores greater than 759) and prime borrowers (those with credit scores between 680-759) make up most credit card account holders. In fact, prime and above consumers represent 82% of all open credit card accounts, according to the ABA report.1
In Q4 2020, there were 31 million new accounts issued for superprime borrowers, 23 million new accounts issued for prime borrowers and 16 million issued for subprime borrowers (those with credit scores less than 680).1
- American Bankers Association Credit Card Market Monitor, May 2021
- The Federal Reserve Bank of Atlanta’s 2020 Survey of Consumer Payment Choice, May 2021
- U.S. Census Bureau July 2019 estimate of U.S. population, and U.S. Census Population by Age and Sex 2019
- TransUnion Industry Insights Report, Q1 2021
- 2020 Travis Credit Union Cash Survey
- The Ascent from Motley Fool, “How Gen Z, Millennials, Gen X and baby boomers use credit cards”
- Experian, “What is the average number of credit cards per U.S. consumer?”, April 2021
- Sallie Mae “Majoring in Money” report, 2019
- CreditCards.com, “Poll: 23% of consumers added to their card debt during the pandemic,” May 2020
Taking advantage of a 0% APR promotional balance transfer offer can make your financial life easier if you’re able to consolidate credit card debt at a lower rate.
While transferring a balance might seem simple enough, you could hit a snag when attempting to transfer amounts from one card to another at the same bank. Banks have rules for this process and these tips can shed some light on what you need to know when choosing your next balance transfer card.
See related: Best 0% intro APR credit cards
Balance transfers within the same bank: 5 things to know
- Why banks don’t allow balance transfers at the same bank
- There’s no exception for business credit cards
- Shop around for other balance transfer offers
- Balance transfer offers: options to consider
- What to do when a balance transfer doesn’t work
Why banks don’t allow balance transfers at the same bank
When you transfer a balance, you’re moving the amount you owe on one card to another. The receiving card could be one you already have or a brand-new account that you open to take advantage of a low promotional rate.
Banks make money through a combination of interest and fees. For instance, you might pay a $95-plus annual fee for your card that the bank gets to collect each year. If you carry a balance at the regular APR, the bank also benefits from the interest you pay.
Which is why, in a nutshell, banks typically don’t allow you to transfer balances between cards at the same financial institution.
“There’s no law preventing it; it simply isn’t beneficial to banks,” says Carey Zielke, personal finance expert at Realities and Dreams.
“Zero interest balance transfer offers are used to attract new customers,” says Zielke. “You’re already their customer and they’re already making money off interest on your existing credit card.”
That leaves the bank with little incentive to allow you to shift that balance over to another card where you’ll pay no interest on the balance through the promotional period.
John Pham, founder of The Money Ninja, says the balance transfer fees banks charge, which can range from 3% to 5%, typically aren’t enough to offset any lost interest by allowing you to switch to a card with a lower rate.
“It’s not so much a risk to the bank, but in their eyes, you’re likely not a profitable customer for them,” says Pham.
Ink Business Unlimited Credit Card, you wouldn’t be able to transfer that amount to another Chase card. But you could still transfer a business credit card balance to another business card at a different bank. You could also opt to transfer the balance to a personal card at another bank.
The caveat with transferring business debt to personal cards is that carrying a balance can affect your personal credit score since it changes your credit utilization ratio.
You could try working around the rules by transferring a balance to a card at a different bank, then transferring it back to your current bank. But the downside there is twofold: your credit score gets dinged with each new inquiry and you pay double the balance transfer fees.
See related: Multiple balance transfers: a difficult debt payoff strategy
Shop around for other balance transfer offers
It’s disappointing to come across a 0% balance transfer promotion that you can’t qualify for because it’s issued by your current bank. That’s when you have to look around to see what else is available.
Rick Orford, founder of finance blog Surplus Academy, says to consider the APR and fees first, then continue checking the fine print.
“The best balance transfer offer has no annual fee, a 0% APR and a 0% to 2% balance transfer fee,” says Orford. Though it’s important to note that these offers are currently less common than they used to be as many issuers pulled back these offers in light of the coronavirus pandemic.
Next, look at how long you’ll have to pay down your transferred balance with no interest. Zielke favors choosing the card with the longest promotional period.
“The longer you have with zero interest, the better to maximize your ability to pay it off before it ends,” he says.
When considering offers, look at how much you want to transfer. You need to be sure that the card you’re applying for can offer a high enough credit limit to accommodate the full transfer amount. Orford recommends trying to negotiate with the card issuer to get a higher credit limit if necessary.
Wells Fargo Platinum card
|0% introductory APR for the first 18 billing cycles for balance transfers. After that, a regular variable APR of 16.49% to 24.49%.
||3 balance transfer fee for the first 120 days, 5% after that. 0% annual fee.
||0% introductory APR for the first 18 billing cycles on new purchases.
|BankAmericard® credit card
||0% introductory APR for the first 12 billing cycles for balance transfers made within the first 60 days. After that, a regular variable APR of 12.99% to 22.99%.
||3% balance transfer fee or $10, whichever is greater. $0 annual fee.
||No penalty APR. 0% introductory APR also applies to purchases.
|Citi® Double Cash Card
||0% introductory APR for the first 18 months. After that, a regular variable APR of 13.99% to 23.99%.
||3% or $5, whichever is greater. Balance transfers must be completed within the first four months to qualify for the introductory APR. $0 annual fee.
||Earn 1% cash back when you make purchases. Earn an additional 1% cash back as you pay them off.
denied for a balance transfer?
You could try a consolidation loan instead, says Zielke. The catch here is that you likely won’t find a 0% APR on a personal debt consolidation loan. Before you throw in the towel completely on getting a better deal on your card’s APR, reach out to your bank.
“If you don’t qualify for a balance transfer, one option you should consider is to call your current credit card company and ask for a lower interest rate,” says Pham.
Banks can sometimes do this as a goodwill gesture for customers with solid credit and a good account history. “It might not be as low as what you’re looking for, but it will reduce the total interest you’ll pay over time,” says Pham.
Paying the annual fee on a credit card doesn’t mean you’re wasting your money.
In fact, the top travel and rewards credit cards offer welcome bonuses that are worth considerably more than their annual fees, and that’s on top of the cardholder perks and benefits you can receive.
Case in point: The Chase Sapphire Preferred Card* charges $95 per year, yet the sign-up bonus of 60,000 points is worth $750 on its own. Meanwhile, the more luxurious Chase Sapphire Reserve charges a $550 annual fee, but the sign-up bonus is worth $750 in travel, and you get perks like a $100 Global Entry/TSA PreCheck credit every four years, Priority Pass Select membership (valued at $429), a $300 travel credit and more.
Still, a problem can arise when you can’t use the benefits your card offers â or when you cannot (or don’t want to) pay the annual fee anymore.
In that case, you should know credit card issuers can be surprisingly receptive to cardholders who may not be excited about paying their credit card’s annual fee another year. With this in mind, you have some options that can help you avoid annual fees, get something in return or switch credit cards altogether.
See related: When is a credit card annual fee worth it?
You may have more power than you think
According to Howard Dvorkin, CPA and chairman of Debt.com, itâs always worth it for consumers to negotiate their credit card fees or terms. Whether a consumer will get their fees waived is another question, but “it never hurts to ask,” he said.
This is especially true in light of the coronavirus pandemic. As we all know, credit card issuers have been fairly generous when it comes to offering struggling customers relief, with some extending options for deferred payments or waived fees. As an example, a March 2020 statement from Capital One CEO Rich Fairbank noted that the bank was offering assistance to its customers, such as “waiving fees or deferring payments on credit cards or auto loans.”
Dvorkin says consumers can improve their chances of getting their annual fee waived if they have a history of responsible credit use. In some cases, it may be possible to have an annual fee waived altogether, while in others, an account credit may be offered to take the sting out of the fee.
Some credit card issuers even have their own “retention offers” meant to entice you into keeping your card. For example, American Express is known for offering a set number of points for customers who agree to renew their card and pay an annual fee for another year. Sometimes a specific amount of spending is required on the card as well.
On the FlyerTalk website, you’ll even find a running guide of retention offers from several different card issuers, including Amex. After you dig through it, you can find that, as recently as January 2021, at least one person was offered 50,000 Membership Rewards points to renew their Platinum Card from American Express.
See related: Which cards earn American Express rewards points?
6 tips for negotiating annual fees
But how do you make sure you have as much leverage as possible? We interviewed the experts to find out their best tips for negotiating credit card fees:
1.Â Use the card
Lending expert John Li of Fig Loans says you’ll have the best chances at negotiating your credit card’s annual fee if you use your card frequently.
“At the end of the day, doing so makes the bank money, and a steady flow of transactions puts you in front of the credit card issuer as a worthy customer to build a long-term professional relationship with,” he says.
2. Be respectful
Dvorkin recommends keeping a level head before you pick up the phone. Take the time to state your case, but don’t fly off the handle if you don’t get your way.
“Credit card issuers get angry calls from cardholders all the time, so it helps consumers to be positive when calling to get a fee waived,” he says.
3. Negotiate by phone
While some card issuers like American Express have an online chat feature, you may have better luck negotiating with a customer service agent over the phone. In fact, phone agents can usually perform more services on your behalf versus agents you speak to via online chat.
4. Have a legitimate grievance
Nishank Khanna, CEO of business lender Clarify Capital, says you’ll have a better shot at negotiating if you have a compelling reason for not wanting to pay an annual fee.
“If youâre having this conversation with your lender to begin with, youâll want to be able to articulate a logical reason for why you deserve to have the fee removed or reduced,” he says. “Customer service representatives are often receptive to legitimate reasons and may have a policy in place to help accommodate customers with specific concerns or circumstances.”
5. Leverage the competition
Khanna also says you can point to other card issuers that may have a better deal right now. Have competitors waived their fees? If youâre looking to knock off a fee on a travel credit card because you havenât been able to use the card during the pandemic, for example, you should find out how other card issuers are handling the situation.
6. If youâre not satisfied, call again
Persistence can pay off when it comes to negotiating credit card fees and terms. Not only that, but you don’t have to accept the first “no” you receive. If you don’t get the answer you want, you can always try the famous “HUCA” method, which asks you to hang up and try again. You may be connected to a different agent who is more agreeable.
See related: Does applying for a credit card by phone boost approval odds?
What to do when the issuer won’t budge
If you are trying to negotiate an annual fee but can’t seem to make any progress, keep in mind that other options may make just as much sense.
For starters, Dvorkin says consumers who find they cannot negotiate their cardâs annual fee should consider opening a credit card that doesn’t have an annual fee and closing their old one.
Note that closing a credit card can lower your credit score by reducing your overall available credit. Depending on how high the cardâs credit limit is and what balances you have on other cards, this could raise your credit utilization ratio and lower your score. But this may be a risk worth taking if you can no longer afford your cardâs annual fee.
Also, keep in mind some card issuers might let you downgrade your credit card to another card they offer that doesn’t charge an annual fee. You will probably earn a lower rewards rate and get fewer perks if you take this route, but moving your line of credit to a different card won’t cause damage to your credit score like closing an account can.
*All information about the Chase Sapphire Preferred Card has been collected independently by CreditCards.com and has not been reviewed by the issuer. This offer is no longer available on our site.
It would be easy to fill up a wallet with just credit cards. A card to maximize airline miles. A card targeted at your favorite hotel chain. A card that gives you cash back on groceries. Even a card that earns you points when you spend at NFL games. So, where to begin? And where to end?
How many credit cards should I have?
The short answer: you should have at least two – ideally each from a different network (Visa, Mastercard, American Express, Discover, etc.) and each offering you different kind of rewards (cash back, miles, rewards points, etc.). How many credit cards is too many? That depends on the individual – you should never have more than you can handle.
Experts say the number of cards one should have varies according to individual and circumstance. “Generally speaking, there is no one perfect number,” said Ethan Dornhelm, a vice president at FICO.
While the number varies by generation, credit score and other factors, the average American has three credit cards and 2.4 retail store cards, according to a 2020 survey by the credit reporting agency Experian.
To ensure a mix of credit cards and keep your credit score climbing, credit expert John Ulzheimer suggests asking yourself two questions about the cards in your wallet:
- Do you have cards across more than one network? If you have three cards, but all of them are Mastercards, this could be a problem if you run into a merchant who only takes Visa. An example? Costco only accepts Visa now, though you can use your Mastercard on the wholesaler’s website.
- Do you have a low credit card utilization ratio? Your average balances across all your cards for the past 24 months “should represent no more than 10% of your overall credit limit,” Ulzheimer says.
Credit utilization – how much credit you’re using each month, on average, of all the credit available to you from all your cards combined – accounts for 30% of your credit score under FICO’s traditional model.
If you can add another credit card while keeping your overall spending the same, you’ll lower this ratio – and boost your score.
See related: What is a good credit utilization ratio?
Two? Twenty? The answer is personal
That former number sounds about right to John Corcoran, a hotel industry executive in Aspen, Colorado.
He’s got two for personal use – both airline mileage cards – and a third for work. He added the second mileage card solely for the points bonus, and is thinking about dropping it before the $90 annual fee comes due. “I don’t like credit cards,” he said. “I don’t like debt.”
On the other end of the spectrum is Naomi Sachs, an international business executive in San Rafael, California. Sachs estimates she has 20 or 30 cards “sitting in a sock drawer, unused” – generally retail cards she signed up for to lower the cost of a purchase at that store or credit cards she acquired for the points boost.
Sachs is carrying around in her wallet about 10 more cards, of which she uses two or three with regularity. As for cash? Maybe there’s a $20 bill in there somewhere. Debit? “I don’t put anything on debit, ever, ever,” she said.
Instead, she charges strategically, and checks her card balances a few times a week to stay on top of her finances. “I aggressively try to maximize my spend, for almost every single dollar, every single time,” she said.
Credit expert John Ulzheimer suggests two things that can help you determine the number of cards that is right for you. Always keep your overall credit card utilization low, and secure access to more than one credit card network.
While merchants in the U.S. accept the big four card networks – especially Mastercard and Visa, and, to a lesser extent, American Express and Discover – you can still find places where some of them are not accepted. Costco is one example. The warehouse club switched in 2016 from American Express as its card partner to Citi, so now the only card Costco accepts in-store is Visa.
And if you travel abroad, you should pack credit cards from a variety of card networks. While Visa and Mastercard are most universally accepted, and American Express signs are increasingly common in store windows across the globe, you will inevitably wind up in a place that doesn’t accept the type of credit card you have with you.
Beyond those two key elements, Ulzheimer explains, many approaches are valid, so long as they work for you.
See related: How to use your credit card wisely
How many cards should you have if…
Want to get more specific? Here’s a list of some particular situations you may find yourself in, and some experts’ thoughts on how that might affect what kinds of cards, and how many, you may want to carry in your wallet:
You’re new to credit cards, or just recovering from a bankruptcy or other bad credit incident
Start with one card, a secured card if necessary, then add a second card when you can prove to yourself that you are making your payments on time and paying your bill off in full each month, says Netiva Heard, a credit counselor in Chicago.
“It’s a learning period,” she said. “That’s why you start with just one card first, to get adjusted to those good habits.”
You want to take advantage of rewards programs
Cards that don’t offer rewards “are a complete waste of your time,” Heard says. She recommends thinking about what rewards would benefit you the most, and whether you want to pay an annual fee to get them.
Cards that don’t charge an annual fee generally come with lower introductory bonuses than cards that do and may not be as generous with rewards points on day-to-day spending. But be careful that you don’t sign up for more rewards cards than you can manage to juggle.
Heard advises most people to keep no more than three to five credit cards total in their wallets. Ulzheimer said two rewards cards seems like more than enough – one for airline points and one for cash back.
You plan to buy a new house or car soon
You should stick to the number of cards you already have, at least temporarily. Don’t open even one new credit card within at least six months of applying for a so-called installment loan. Opening a new card will lower your score by a few points due to the hard inquiry on your credit, “and you want it to be in the best shape possible when you go out to get that expensive loan,” Ulzheimer said.
That said, he added, installment lenders will pay the most attention to whether you’ve had a mortgage or auto loan before, if you paid it off on time and whether you tend to pay off your bills in general on time.
You want to improve your credit score
This is not a reason to get a new credit card, Ulzheimer said. “Opening a new card can actually backfire,” he said, because it will, at least initially, lower your score.
When you apply for a credit card, the issuer pulls your credit report, which triggers a hard inquiry. A hard inquiry can lower your score by five points, but it only affects your credit score for one year. After two years, the inquiry falls off your credit report. Note that applying for multiple credit cards at once can exacerbate the negative credit score impact of inquiries, at least in the short term.
A new credit card can also reduce your length of credit history, a key credit scoring factor that considers the average age of all your credit accounts. While length of credit history only counts for 15% of your FICO score, the effect can be significant if you only have one or two existing credit accounts.
On the other hand, if your new credit card has a high credit limit and you keep your balance low, the card can eventually boost your credit score by increasing your overall available credit.
debit card, or cash, Ulzheimer said.
If you need to close your credit cards to avoid using them, then do it, but know that every time you close a credit card, it can lower your score, he said – because it may reduce your available credit, thus increasing your aforementioned credit utilization ratio.
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So, whether you have two or 20 cards doesn’t really matter. What’s important is that your cards give you access to more than one network and offer you the rewards that best meet your needs (which can change over your lifetime).
And, of course, you need to be sure you’re not juggling so many cards that you can’t keep track of all the payment due dates The whole point of having two to 20 or more credit cards is earning points or cash back on your everyday spending that you pay off every month. All the while, keep your credit utilization low so that your credit score climbs.
In an economic emergency, covering even basic yet important expenses can be tough. For example, in 2020, theÂ coronavirus pandemic rocked the foundations of millions of Americans. The National Multifamily Housing Council found that by Jan. 20,Â 11.4% of tenants had not sent money for their rent.
The last thing you want is to be evicted from your home because of nonpayment of rent. When used correctly, a credit card can help you through hard situations. Since the card issuer only requires a small minimum payment, it can buy you time before getting back on your feet.
Hereâs how to charge rent, not just during a financial crisis but under normal conditions as well, advantageously.
See related: How to earn rewards when paying monthly bills
How to pay rent with a credit card
- How to pay through your landlord
- How to pay through third-party services
- Best credit cards to pay rent
- Pros of paying rent with a credit card
- Cons of paying rent with a credit card
How to pay through your landlord
First, ask your landlord if you can charge your rent. Some have software already set up to accept payments, so all you would need to do is provide your account information and your card will be charged. Larger property management companies are more apt to accept credit cards than individual landlords, but itâs worth an inquiry.
Bear in mind that there will be a processing fee, which typically falls between 2.5% and 2.99% of the transaction. The landlord will probably pass that cost to you, though it doesnât hurt to ask if theyâll absorb the fee.
For example, if your rent is $1,800 and the fee is assessed at 2.99% of the transaction, the added cost would be $53.82. If the minimum credit card payment is 2% of the balance, your payment would be $36. Add the fee to it and all youâd need pay is $89.82 â a far cry from the $1,800 due.
If your landlord doesnât offer this option, consider explaining your reason for wanting to charge the amount. If itâs not a permanent change to the rental agreement (which spells out the method and timing of your payments), your landlord may allow you to send the money via an app such as PayPal or Venmo on a temporary basis.
You would set up the app, attach your credit card to the account, and then follow through with the âpay-toâ transaction:
- Locate your landlordâs profile name.
- Hit the âpayâ function.
- The money is deducted from your credit card and sent to your landlordâs bank account on file.
- You receive the bill of the transaction amount plus the fee from your credit card company.
Yet another way to use your credit card to cover your rent is to take out a cash advance. It comes with some serious consequences that make this method your last choice, though:
- Fees can be 5% of the amount you withdraw.
- Interest rates are often higher on cash advances than they are on purchases.
- There is no interest-free grace period, as there is for purchases.
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How to pay through third-party services
An alternative to paying your landlord directly is to use a company that acts as an intermediary. The general process is simple:
- Sign up with the company.
- Identify your landlord.
- Enter your rent amount and due date.
- The company charges your card and sends your landlord the money in the form of a paper check or electronic transfer.
- You receive a bill from your credit card company and can send any amount that is at least the minimum payment.
You should have no trouble paying any landlord this way if the third party sends your rent with a paper check. Itâs the same as if it were coming straight from your own checkbook.
However, if the company sends payments electronically, your landlord would need to register for an account so the money can be deposited.
But charging rent with a third-party company is becoming popular.
âWeâve seen a 50% increase in the number of Plastiq customers that are paying for rent with their credit card [in 2019] compared to 2018,â says Eliot Buchanan, co-founder and CEO of the consumer-to-business bill-paying company.
âHowever, there are card processing fees involved, so rent payers should compare the costs and benefits of paying rent on a credit card to determine whether it makes sense to do in their particular situation.â
Accepting credit cards for rent payments is a win-win, says Brian Davis, director of education for SparkRental.
âLandlords and property managers who accept rent by credit card offer more flexibility for their renters, with an option to stay current on their rent even if their bank account is short on the first on the month,â says Davis.
Review a variety of third-party companies before deciding on one, paying close attention to the fee structure and whatever unique benefits they may have.
||Up to 2% cash back on transactions, depending on your card.
||2.99% â 3.99%
||Earn âMoolaPerksâ for deals on travel, shopping, home service providers, etc.
||2.99% â 3.99%
||Designed for landlords with a more challenging tenant base.
||Can pay via app, by replying to a text or by phone.
||For landlords who prefer paper checks.
||Can add low-cost renterâs insurance to the payment.
Best credit cards to pay rent
Some rewards cards offer generous introductory bonuses. You can open an account for the specific purpose of using that bonus to offset the fees involved in charging your rent.
To get the bonus, you have to meet the cardâs required minimum spend within the first three months of opening the card. When you do, the reward is yours.
If you get cash back, you can use the money as a statement credit. For cards that give points or miles, you can trade them in for cash too, but you wonât get as much for them as you would for things like travel.
Whatever the case, the introductory bonus will nullify the amount youâre charged in fees when use your card for rent. After that, youâll be earning rewards on purchases, which will also offset the fees, should you continue to charge your rent.
Just a few examples include:
|Rewards credit card
|Wells Fargo Propel American ExpressÂ® card
||$1,000 in first 3 months
||20,000 points ($200 cash value)
|Blue Cash PreferredÂ® Card from American Express
||$1,000 in first 3 months
||$250 statement credit
|Citi Rewards+Â® Card
||$1,000 in first 3 months
||15,000 ThankYou points (redeemable for $150 in gift cards at ThankYou.com)
|Chase Sapphire Preferred Card
||$4,000 in first 3 months
||60,000 points (redeemable for $750 toward travel when you go through Chase Ultimate Rewards)
See related: Best rewards credit cards
Another option is to open a credit card that comes with 0% APR for an extended period of time.
You wonât be charged interest on the debt you carry over until the rate rises to the regular rate. Therefore, if you charge your rent and can only afford to pay the minimum, the debt wonât escalate with financing fees.
A few good examples include:
|0% APR credit card
||Intro APR purchase period
|ABOC Platinum Rewards Mastercard
||12 months (12.90-22.90% variable thereafter)
|CitiÂ® Diamond PreferredÂ® Card
||18 months (14.74-24.74% variable thereafter)
|Discover itÂ® Cash Back
||14 months (11.99-22.99% variable thereafter)
See related: Best 0% APR credit cards
Pros of paying rent with a credit card
Aside from helping you through an emergency, charging rent has a few other benefits:
Build and improve credit history
Charging regularly, paying on time and keeping the balance at zero are the swiftest ways to establish a positive credit rating. Rent is a necessary expense, so why not parlay it into a high credit score?
Arthur Ruth, vice president of operations of Memphis Maids, a house cleaning service in Memphis, Tennessee, has been paying rent with his credit card for over 15 years.
“Using your cards so much, if you pay them correctly, you can save money and even improve your credit score,â says Ruth. âThatâs something really important in this day and age.â
Cash flow freedom
When NiâKesia Pannell, an Atlanta-based journalist and entrepreneur, was temporarily short on cash, she took advantage of the credit card option.
âI was in between freelance gigs and needed to pay bills,â says Pannell. âThe fees were high, but at the time, it was worth it.â
Once her financial situation returned to normal, she resumed paying by check.
In the same vein, if your rent is due on the first of the month but your income is sporadic, you may need some extra time to accumulate it all without any stress.
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Avoid late fees
If you donât pay your rent on time, the landlord may charge you a late fee â which can be assessed at 5% of your rent payment or more.
âItâs nice to have the flexibility to charge your rent as an option if you hit a particularly tough month,â says Davis. âIf tenants find themselves stretched too thin financially one month, itâs cheaper to charge their rent than let it go late â and it keeps them from falling behind and souring their relationship with their landlord.â
Cons of paying rent with a credit card
While paying with a credit card has its advantages, there are a few drawbacks to consider as well:
In the event you are responsible for the credit card processing fee, youâre looking at an increase in your monthly obligation. If the value of your credit card rewards doesnât surpass the fees, you will lose â not gain â money.
To know if it makes financial sense, look at your cardâs rewards program and compare its earnings rates to the transaction fees youâll be charged. If the fee is 2.5% of the transaction, and youâre earning 1.5% in cash back, youâre losing 1% every month. So, for example, youâll be out $15 for a $1,500 rent payment.
âIt may not sound like much, but over time, it adds up,â says Ande Frazier, former editor-in-chief of MyWorth, a financial education media company. âAnd if money is tight, [it will impact] what you should be spending on, [like] something essential.â
Credit card debt
As convenient as it is to rely on a substantial credit line when you need it, itâs also easy to over-borrow. Elevated interest rates and low payments will put you into a deep hole.
âItâs a vicious cycle,â says Frazier.âThat debt will grow and grow, and the compounding interest will be huge. If you canât afford your rent, youâre living in the wrong place.â
Credit scores consider the amount of debt you owe and weigh it against the amount you can borrow. If you hit your limit and the balance stays anywhere near it, your scores will sink. Skip payment cycles, and those scores plummet further.
This puts you in a terrible position if you have to move. Almost all landlords check credit reports to see if youâre a low-risk tenant. So, if they see excessive debt and a pattern of missed payments, they may pass you over for tenancy.
See related: How to rent an apartment with bad credit
In extreme situations, charging your rent and then paying incrementally can keep you in positive position with your landlord. To avoid credit card debt spiraling out of control, pay as much as you possibly can to the balance each month. Then when life returns to normal and you want to continue to charge your rent, make sure you always have the money in your checking account to cover the payment when the bill is due.
In response to the coronavirus pandemic, major credit card issuers are offering relief to their customers.
Even though many places around the country are open, the pandemic continues to impact the U.S. economy. Workers are still at risk of being laid off or facing reduced hours or pay.
“This is a rapidly evolving situation and we want our customers to know we are here to provide assistance should they need it,” Anand Selva, chief executive officer of Citi’s consumer bank, said in a statement in Spring 2020.
At the same time, scammers are now trying to take advantage of coronavirus concerns by sending out fake emails about the virus that are designed to steal consumers’ personal and financial information or to infect their computers with malware.
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Many credit card issuers are allowing customers to opt into financial relief programs online. These programs are a convenient way to access short-term relief. But it could come with a long-term cost as many cardholders will continue to see interest accrue. With the average credit card interest rate sitting at 16.05%, cardholders might find more cost-effective relief through other options.
Here’s what issuers are currently offering:
Cardholders who are having difficulties can get assistance through American Express’s financial hardship program. Eligible cardholders have the option to enroll in a short-term payment plan, which provides relief for 12 months, or a long-term plan, which can provide relief for either 36 or 60 months.
Under both options, you will receive lower interest rates, plus waived late payment fees and annual fees. But you might not have access to certain card benefits and features.
If you enroll in the short-term plan, you might be able to continue putting new purchases on the card but with a reduced spending limit. If you are participating in the long-term plan, you will not be able to use the card.
Amex will report participating cardholders to the credit bureaus as current, assuming they comply with the program’s rules. But the program’s terms do offer some important caveats: Amex will inform the credit bureaus that you are enrolled in a payment assistance program (if you’re in the long-term plan). And under both plans, Amex will report that you have a lower credit limit.
While these factors do not have as much of an impact on your credit score as a delinquent account does, it could still signal to other lenders that you might be having some financial hardship.
Bank of America
Bank of America cardholders who have trouble paying credit card bills can request a credit card payment deferral by calling the number on the back of their card.
To qualify for payment assistance, cardholders must be carrying a balance, according to the website.
Bank of America sent an email to Preferred Rewards members in May 2020 stating that the company had temporarily suspended the annual program review process. Members whose assets dropped below the regular threshold to keep their status would continue to qualify for program benefits. It is unclear if Bank of America is still suspending this program.
Barclays urges credit card account holders to request payment relief online. As of May 4, 2020, the bank is granting payment relief for two statements, but interest will continue to accrue.
“We understand that this is a time of uncertainty for many people, and we know that there may be instances where customers find themselves facing financial difficulties. Capital One is here to help and we encourage customers who may be impacted to reach out to discuss how we might be of assistance,” the bank said in a statement.
In a March 26, 2020 update, Chairman and CEO Rich Fairbank confirmed that they are offering waived fees and deferred payments on credit cards for some cardholders.
Because each customer’s situation is different, the bank encourages customers to contact it directly. To contact Capital One customer service about an existing account, call (800) 227-4825.
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Previously, Chase Bank stated that customers will be able to “delay up to three payments on your personal or business credit card” if needed, with interest continuing to accrue. The website currently does not specify how many payments cardholders can defer.
It also stated that active duty military members who are responding to a disaster might have access to additional benefits. Servicemembers can call the bank for more information.
In a letter to shareholders, the company’s CEO, Jamie Dimon, also promised to not report late payments to the credit bureaus for “up-to-date clients.”
See related: Chase offering limited-time bonus on food delivery for some cardholders
Citi customers who have been impacted by the coronavirus pandemic might be eligible for assistance. Previously, the bank was waiving payments and late fees for two consecutive billing cycles. However, Citi has ended its pandemic assistance program.
“Due to a significant and steady decline in enrollments, our formal COVID-19 assistance program has concluded and we will focus on providing assistance options to those customers financially affected by COVID-19 on a case-by-case basis. We continue to closely monitor the situation and will evaluate additional actions to support our customers and communities as needs arise,” a spokesperson for Citi said in an email.
During the bank’s pandemic assistance program, interest continued to accrue, but accounts that were current at the time of enrollment were not be reported as delinquent.
Discover will be extending relief to qualified customers who are experiencing financial difficulty caused by the spread of COVID-19.
“We encourage them to contact us by calling and are directing them to www.discover.com/coronavirus for phone numbers for each product line and other FAQs,” Discover said in a statement earlier this year. “We also can provide relief through our mobile text app, which connects a customer directly with an agent.”
Discover it Miles cardmembers can also put their miles towards their bill – including their minimum payment.
See related: What to do if you can’t pay your business credit card bill
Apple Card customers can enroll in an assistance program. Previously, cardholders could waive payments without accruing any interest. The website currently doesn’t specify if this is still the case.
Cardholders can defer payments for three billing cycles. Though interest will continue to accrue, enrolled cardholders will not receive late fees, and their accounts will be reported as current, as long as accounts were not delinquent at the time of enrollment.
Synchrony is extending relief to customers experiencing financial hardship. The company’s website previously stated that this could include payment relief for up to three statement cycles, while interest would continue to accrue. The website currently offers no specifics about what the issuer is prepared to offer.
Truist (formerly SunTrust and BB&T)
Previously, Truist offered payment relief assistance to customers with personal and business credit cards, among other products. As of April 14, it was willing to delay payments for up to 90 days. The website currently offers no specifics about what the issuer is prepared to offer.
Previously, impacted cardholders could defer monthly payments for two consecutive billing cycles. The company’s website currently does not specify what assistance cardholders can expect to receive.
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ultimate guide to coronavirus limited-time promotions for more offers designed to help cardholders maximize rewards amid the coronavirus pandemic.