What Is a Gift Tax Return and When Is It Due?

What Is a Gift Tax Return and When Is It Due?

An individual preparing to file a federal tax return will want to think back on gifts given in the prior year. If a gift exceeds a certain threshold, the IRS wants it reported by Tax Day — but only extremely wealthy taxpayers will ever have to pay taxes on their lifetime of gifts.

In 2022, you could have made gifts worth up to $16,000 per recipient without reducing your lifetime exemption, being required to report the gift to the IRS, or paying federal gift tax.

Gifts over that value count toward the lifetime gift and estate tax exemption of $12.06 million (per spouse, if married), rising even higher in 2023.

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What Is a Gift and What Is Not?

According to the IRS, gift tax is applicable when property is transferred from one person to another, with the giver receiving nothing, or less than full value, in return.

The tax applies even when the donor doesn’t consider the transfer a gift.

The IRS defines the federal gift tax broadly, including when the gift is monetary or a physical property, or a donor allowing someone to stay in their property or earn income from the property without getting something equal in return.

Someone who makes an interest-free or reduced-interest loan may also be seen as giving a gift.

When you make a gift other than cash, you must assess the property’s fair market value: the price a willing buyer would pay in the open market. If you’re buying a house from a family member, you might ask for a gift of equity.

Generally, the IRS does not consider these taxable gifts:

•   Gifts that are not more than the annual exclusion for the calendar year

•   Another person’s tuition, as long as payments are made directly to the educational institution

•   Another person’s medical expenses, as long as the payments are made directly to medical service providers

•   Gifts to a spouse who is a U.S. citizen

•   Gifts to a political organization

•   Gifts to IRS-approved charities

Recommended: Rich vs Wealthy: What’s the Difference?

What Is a Gift Tax Return?

Par for the course with the IRS, there’s a form involved if you made a gift exceeding the annual limit: Form 709. It is to be filled out the year after the giving of the gift. So if a relevant gift was given in 2022, the information belongs on the 2023 tax return form.

Information on this form lets the IRS know that a gift has been given that falls within the scope of the gift tax.

Married couples may “split” gifts and essentially double their annual exclusion. If you are married and your spouse consented, you could have given up to $32,000 to an unlimited number of individuals in 2022 with no gift or estate tax consequences. For 2023, that amount rises to $34,000.

Spouses who split gifts always have to file Form 709, even when no taxable gift was incurred.

The gift tax is tied to the estate tax. As of tax year 2022, you can leave up to $12.06 million to relatives or friends free of any federal estate tax. If you’re married, your spouse is entitled to a separate $12.06 million exemption. Clearly this is the province of high earners.

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Who Files the Gift Tax Return: the Giver or the Recipient?

Taxes typically fall on the donor, not the recipient.

There may be special circumstances when the recipient will agree to pay the tax. If you make this agreement, the IRS suggests that you contact your tax professional for guidance on how to proceed.

Annual Exclusion for 2022

You could have made an unlimited number of tax-free gifts in 2022 as long as no one received more than $16,000.

If you held back, just know that you can make an unlimited number of tax-free gifts of up to $17,000 in 2023, when the lifetime gift tax exemption increases to $12.92 million per person.

Tracking gifts you make, and all outlays, is easier with a spending app.

When Do You Need to File a Gift Tax Return?

This follows the regular tax filing deadline, which is April 18 in 2023.

If you need a gift tax return extension when you’re not filing a tax extension for your general income tax return, file Form 8892. This will typically give you a six-month extension.

How to File a Gift Tax Return

First, you use the federal gift tax return Form 709 that’s available online through the IRS. The IRS also provides gift tax return instructions. The agency includes determining if you need to file a form and, if so, for what gifts.

You may need to decide whether you and a spouse will split the gift taxes.

Form 709 is complicated. Whether you’re a seasoned tax filer or filing taxes for the first time, a tax pro could be of great help.

Recommended: How Long Does It Take for the IRS to Mail a Refund?

What Happens If I Don’t File a Gift Tax Return?

You could be fined by the IRS, and the taxing authority is becoming more vigilant in levying these failure-to-pay penalties. The fine equals 0.5% for every month that the tax isn’t paid, based on the amount of the gift. So, as time goes by, the fine gets bigger. If the IRS determines that fraud was involved, the fine can go up to 5%.

If this oversight isn’t discovered in a person’s lifetime, the estate could be assessed the accumulated fine.

How Long Should You Keep Gift Tax Returns?

Keep them indefinitely! They will likely be needed by the executor of your estate.

Recommended: Updates to the Tax Code

The Takeaway

A gift tax return might inspire dread, but it’s simply a way for the IRS to track eligible gifts made in a year and over a lifetime. Most people will never pay gift taxes.

Want to keep tabs on gifts and track all of your money in one place? SoFi Insights provides credit score monitoring, spending breakdowns, budget planning, and more at no cost.

Find financial enlightenment with SoFi Insights.

FAQ

What triggers a gift tax return?

The main trigger is exceeding the annual limit of what you can give without taxation. The annual amount per donee is $16,000 in 2022 and $17,000 in 2023.

Do I have to file a gift tax return if I receive a gift?

In general, it’s the donor of the gift, not the recipient, who pays the tax.

What happens if I don’t file a gift tax return?

The IRS may levy fines. If it doesn’t happen in your lifetime, the situation may be uncovered by the IRS after your death, and fines can be levied on the estate.


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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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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Wedding Budget Breakdown: Line Item by Line Item

8 Tips for a Budget Dream Wedding with Budget Breakdown

The prospect of getting hitched often gives a couple butterflies — about their enormous wedding budget. But marrying your special someone doesn’t have to mean going into debt. A wedding budget breakdown can help you prioritize which elements matter most to you, so you can achieve the wedding of your dreams without going overboard.

We’ll review the average cost of common wedding items big and small, mistakes to avoid, and cost-cutting tips that will make the whole process easier on your wallet and your peace of mind.

Average Cost of a Wedding

Based on their survey of 15,000 couples who wed in 2021, wedding planning site The Knot projects that the average cost of a wedding in 2022 will be $28,000. That figure doesn’t include the wedding ring, which they claim typically costs around $6,000.

In real life, the average cost of a wedding varies widely based on location. In Idaho, Oklahoma, and Wyoming, wedding expenses total around $16,000. Over in New Jersey, New York, and Washington, D.C., the big day exceeds $40,000.

We’ve rounded up the items that will account for most of your wedding budget.

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Major Costs to Include in Your Wedding Budget Breakdown

Keep in mind that the numbers below reflect average costs nationwide. Yours may be more or less depending on where you live, your taste, and your income.

Average Wedding Costs

Venue $10,700
Engagement Ring $6,000
Live Music $4,300
Photographer $2,500
Rehearsal Dinner $2,300
Flowers $2,300
Videographer $1,900
Wedding Dress $1,800
DJ $1,400
Invitations $530
Wedding Cake $500
Favors $450
Bride’s Hair Stylist $130
Bride’s Makeup $115
Catering $75/person

Mind you, these are the costs incurred by and for the bride and groom. The groomsmen and bridesmaids will incur their own costs for being in the wedding.

Figure Out What You Can Afford

No one is born knowing how to plan a wedding. To set your wedding budget, start by asking yourself a few questions:

•   How much of your savings are you willing to use for your wedding?

•   Are your parents or other relatives planning to contribute financially?

•   How much can you reasonably save each month from your salary?

•   How long will it take to save the amount of money you need?

•   Is a wedding really worth the amount of money you want to spend on it?

Getting clarity on these answers will help you come up with a starting number.

Recommended: What Are the Tax Benefits of Marriage?

Typical Wedding Budget Allocation

Budget allocation involves assigning a percentage of your overall fund to each category. Use the percentages below to get a rough idea of how much you can pay for your venue, catering, etc. According to The Knot, a typical budget allocation looks like this:

Wedding Budget Allocation

Venue 30%
Catering 23%
Live Music 13%
Wedding Rings 7%
Alcohol 7%
Photographer 7%
Flowers 7%
Videographer 6%
Couple’s Attire 6%
Wedding Planner 5%
Lighting & Decor 5%
DJ 4%
Guest Entertainment 3%
Transportation 3%
Stationery 2%
Hair & Makeup 2%
Favors 1%
Cake or Desserts 1%
Officiant 1%
Other 5%

These numbers don’t add up to 100% because alternative options are offered for the same category, such as live music, DJ, or guest entertainment. In combination with the average wedding costs table above, you should be able to project your total budget without any major surprises.

Common Wedding Budget Mistakes to Avoid

•   Not budgeting enough. Many couples underestimate the amount of money they’ll spend on a wedding. When there’s no plan, everything becomes a priority and you’ll go through money faster than you can imagine. Be sure to make both a wedding budget and a savings plan to make it happen.

•   Not communicating with loved ones about the budget. If you have parents or other loved ones helping to cover expenses, be sure to have a conversation with them to avoid overestimating their contribution.

•   Not saving long enough. Once you know how much you’ll need, be realistic about how long it will take you to save that money. You may want to consider pushing back your wedding date to have enough time to save for it. (Too late to save up? Learn about wedding financing options.)

•   Going into debt. Many couples put wedding expenses on a credit card. If the balance isn’t paid off within the month, you’ll end up paying high interest rates on top of what you budgeted.

•   Forgetting to budget for unexpected costs. Surprise bills always come up. Keep a small amount reserved for unexpected wedding expenses.

•   Not keeping track of your spending. With wedding expenses, it’s easy to lose track of which bills you’ve paid. A spending app can help you monitor expenses and stick to your budget.

7 Cost-Cutting Tips When Planning a Wedding on a Budget

If your list of wedding expenses far exceeds your budget, don’t panic. Trimming your costs isn’t so hard if you know how to go about it. These ideas can help.

1. Limit Your Guest List

Consider shortening your guest list to include only close friends and family members. This can be a blessing in disguise for certain types of weddings. For instance, a destination wedding is especially difficult to coordinate for more than 100 people.

2. Host the Ceremony or Reception at Home or Outside

The wedding venue is often your biggest expense — unless you move the ceremony outside or to a private home. You can reserve a park pavilion for around $100. A permit to hold a wedding ceremony at a national park is around $385. Forgoing a fancy venue puts a lot of money back in your pocket.

Recommended: Should I Sell My House Now or Wait?

3. Source Second-Hand Items

Utilizing a few previously owned items is a real budget saver.

•   Wedding decor. Gently used decor is often sold online at a fraction of the cost. Keep your eye on Craigslist, Facebook Marketplace, eBay, and Etsy, for items that work with your theme.

•   Wedding dress. A wedding dress that costs thousands brand-new can be thrifted for a few hundred dollars. If you really want to save money, consider borrowing a dress from a good friend or family member.

4. Ask Friends and Family to Gift Their Skills

Do you have a photographer in your network? What about an aspiring caterer or florist? While it’s worth paying for their skills, you can also try exchanging something of value. Babysitting for busy parents is always a winner.

You can also ask for services in lieu of a gift. Tactfully articulate your desire to start your new life on a budget, while respecting their need to earn a living. If they say they can’t do it, don’t push.

5. DIY Whenever Possible

Many details that cost a fortune to outsource may be pulled together with the help of friends and family.

•   Centerpieces. Your table decor can be made ahead of time by the wedding party or a group of aunties.

•   Invitations. It’s so easy to make your own invitations. Even if you’re unskilled, you can use online tools like Canva to create your design. Save the result as a photo file for cheap printing. Image files cost as little as 19 cents to print. Compare that to formal invitations that typically cost several dollars each to print.

•   Catering. Know someone who makes an incredible main dish or specializes in smoked barbeque? They may be willing to help out for little more than the cost of groceries and supplies.

•   Flowers. Making your own bouquet from flowers sold at the farmer’s market or grocer is an easy way to save a lot of money. Check out a YouTube video tutorial and you’ll be on your way.

6. Use a Dummy Wedding Cake

A dummy wedding cake is one that is made just for appearance. It’s frosted to look like a real cake but underneath it’s just styrofoam or cardboard.

7. Time Your Wedding Strategically

Wedding season traditionally runs from May to October. This is when demand is highest — and prices too. If you can plan a wedding for the off-season (say, December or March) demand and prices are lower. You may be able to get the venue you want for the price you want.

8. Scout Out Vendors

While you’re saving money for the wedding, you might as well suss out suitable vendors and venues at other weddings. Make notes on what you like, and book services way ahead of time for a better deal.

Recommended: The 52-Week Savings Challenge

The Secret to the Wedding of Your Dreams

Your dream wedding doesn’t have to spawn a nightmare budget. Be mindful of what you really want and what you can really afford. If a backyard potluck is all it takes to make you happy, then don’t worry about what other people say you “should” do.

Do what you want — and feel great about sticking to a budget that frees up funds for other purposes, like your first home or a lengthy honeymoon. Because saving for a dream wedding is just the first step in a couple’s life together.

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The Takeaway

Budgeting for a wedding can help you start married life on the right foot financially. First, find out the average costs in your area for major wedding expenses — venue, catering, music, photography. Then determine how much money you can pull together from family, your current savings, and however many paychecks you’ll receive before the big day. Budget allocation (assigning a percentage of your funds to each category) can help you separate your wants from needs. For example, you may want a live band and sit-down dinner for 200, but you only need a DJ and lots of passed hors d’oeuvres. If you scrimp on some items, you can splurge on others.

The right tools can make budgeting a lot easier. SoFi Insights is a free money tracker app that offers a complete picture of your financial health. For saving, investing, and paying off debt, take a look at SoFi Insights.

SoFi Insights makes it easy to know where you stand, what you spend, and how to hit your financial goals — all in one app.

FAQ

How should your wedding budget be broken down?

Spend according to your values. If you value how you look, allocate a large portion of your budget to the dress, tuxedo, hair stylist, and makeup artist. If you value memories created by a video, allocate enough budget for that service. It all comes down to priorities. Spend more money on the things that are important to you, and save money on things that are incidental, and you’ll most likely be happy with your decisions.

What is a good budget for a simple wedding?

Since tastes and costs vary so much, it’s hard to offer an exact number for a simple wedding budget. Getting married doesn’t have to cost much more than the marriage license fee, but if you want to celebrate with loved ones, you’ll need to save money to make it happen. With a little creativity, it’s possible to make your wedding ideas come to life on any budget.

What is a low budget for a wedding on average?

For a low-budget wedding where no meals are provided for guests, plan on spending a few hundred dollars. At the very least, you need to pay a fee for a marriage license and an officiant. You can wear something you already have, eat a potluck meal, and take your own pictures — and it will still be magical.


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SoFi’s Insights tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
*Terms and conditions apply. (Must click on the link to be eligible.) 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 into SoFi accounts such as cash in SoFi Checking and Savings or loan balances, Stock Bits, fractional shares and cryptocurrency 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.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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What Is the Qualified Dividend Tax Rate for Tax Year 2022?

What Is the Qualified Dividend Tax Rate for Tax Year 2022?

Dividends are payments that investors can receive from stocks, exchange-traded funds (ETFs), and mutual funds. These earnings count as income and may be taxable, depending on your income and filing status.

We’ll investigate dividend tax rates and the difference between ordinary and qualified dividends.

Defining Ordinary and Qualified Dividends

The IRS divides stock dividends into two categories: ordinary and qualified. The federal tax rate is different for each category. A qualified dividend is one that qualifies for a lower tax rate based on the concept of capital gains. An ordinary dividend, meanwhile, is one that doesn’t that doesn’t qualify for a lower rate.

When a company declares a dividend payment, your dividend is ordinary if you’ve held their stock for less than 61 days over a 121-day period. If, however, you make the stock purchase on or before the date that it’s declared, and then hold it for at least 61 days, it is considered qualified.

The timing also matters. Let’s say that you own stock in Company A, and they announce that a dividend will be paid on December 1. The day before, November 30, is called the ex-dividend date, or ex-date. If you bought your shares of stock 60 days or fewer before November 30, then your dividend is ordinary. But if you bought the stock more than 60 days before November 30, your dividend is qualified.

Recommended: Does Net Worth Include Home Equity?

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Recommended: What Is a Dividend?

Qualified Dividend Documentation

When it’s tax time, you’ll receive a 1099-DIV. This is the form that financial institutions use to report dividends to the IRS and relevant taxpayers. Box 1a shows the total ordinary dividends you received during this tax period. Box 1b shows your qualified dividends. The form will also show any federal or state income tax that was withheld. You can use this information plus the federal dividend tax rate to determine what you owe.

Financial institutions must issue a 1099-DIV to shareholders who receive more than $10 in dividends and other distributions for the year. For more on tax documentation, read our story on the most common types of tax forms.

Tax Information for Ordinary and Qualified Dividends

The ordinary dividend tax rate is the same as an individual’s income tax bracket for the year.

The qualified dividend tax rate for 2022 is calculated using capital gains tax rates. This may be 0% depending on your taxable income and filing status:

•   Less than $41,676 for single or married filing separately.

•   Less than $55,801 for head of household.

•   Less than $83,351 for married filing jointly or qualifying widow(er).

The qualified dividend tax rate rises to 15% for the next tax brackets:

•   $41,676 to $459,750 for single filers.

•   $41,676 to $258,600 for married filing separately.

•   $55,801 to $488,500 for head of household.

•   $83,351 to $517,200 for married filing jointly or qualifying widow(er).

Once your household income exceeds the 15% bracket, you’ll pay a 20% tax rate on any qualified dividends. There may also be a 3.8% net investment income tax. Consult your accountant or financial advisor regarding your situation.

Recommended: 2022 IRS Tax Refund Dates

Dividend Tax Rate 2021

The thresholds can change by year. For example, the dividend tax rate for 2021 was as follows:

•   0% dividend tax rate:

◦   Single filers, up to $40,400

◦   Married filing jointly, up to $80,800

•   15% dividend tax rate:

◦   Single filers, $40,401–$445,850

◦   Married filing jointly, $80,801–$501,600

•   20% dividend tax rate:

◦   Single filers, $445,851+

◦   Married filing jointly, $501,601+

Dividend Tax Rate 2023

Looking ahead, we’ve got some insights into the 2023 tax year. A married couple filing jointly won’t pay taxes on qualified dividends until their income is above $89,250. Above that amount, the tax rate will be 15%. The tax raise will go up to 20 percent when a couple earns more than $553,850.

Individual filers won’t pay 15% until their income is greater than $44,625. They’ll pay 20% when income exceeds $492,301.

Why Are the Two Types of Dividends Taxed Differently?

Qualified dividends are more favorably taxed as an incentive to investors to hold onto stocks for a longer period of time. This is based on the concept of capital gains.

Recommended: Short-term vs. Long-term Investments

Additional Qualified Dividend Requirements

Besides the holding period described above, the dividend must have been paid by a corporation in the U.S. or a qualifying foreign one. Plus, the payment can’t be a dividend in name only. For example, payments given by tax-exempt agencies don’t qualify.

If a payment doesn’t satisfy all three requirements, then it can’t be a qualified dividend. It may be an ordinary dividend or another type of income.

The Takeaway

There are two broad types of dividends: ordinary and qualified. Qualified dividends are taxed at a lower rate than ordinary dividends. For a dividend to be qualified, an investor must hold the stock for at least 61 days during a particular time frame. A 1099-DIV will break out dividends into qualified and ordinary for the taxpayer’s information. There are three tax rates for qualified dividends. The lowest tax brackets pay nothing. The next brackets pay 15%, and the highest brackets pay 20%. Ordinary dividends are taxed as regular income.

To seamlessly track your finances, consider our spending app, SoFi Insights. You can set up a budget, pay bills, categorize your spending, and more. All for free.

SoFi Insights money tracker app makes it easy to know where you stand, what you spend, and how to hit your financial goals — all in one mobile app.

FAQ

What is the tax rate on dividends in 2022?

The ordinary dividend tax rate is based on your tax bracket. With a qualified dividend tax rate, it depends on your filing status and your income. The lowest tax brackets pay nothing, the middle brackets pay 15%, and the highest brackets pay 20%.

How do I calculate my qualified dividends?

Investors receive form 1099-DIV from their financial institution, which provides the amount of ordinary and qualified dividend income received during the year. The IRS also provides a worksheet.

Why are my qualified dividends being taxed?

Dividends are a type of income, and investors who receive them typically pay taxes on them. It’s true that individuals who make less than $41,676 pay no tax on qualified dividends. However, taxpayers in higher brackets must pay 15% or 20%.


Photo credit: iStock/AsiaVision

SoFi’s Insights tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
*Terms and conditions apply. (Must click on the link to be eligible.) 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 into SoFi accounts such as cash in SoFi Checking and Savings or loan balances, Stock Bits, fractional shares and cryptocurrency 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.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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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Does Paying Rent Build Credit?

Does Paying Rent Build Credit?

There are many ways to build credit, and paying rent can be one of them. That is, as long as your rent payments are being reported to the major credit bureaus — Equifax, Experian, and TransUnion. From there, you’ll also need to make sure you’re regularly making on-time payments, as late or missed payments can have a negative effect on your credit.

While it may not feel as automatic as other methods, with some effort, you can use your rent payments to build your credit. Here’s a closer look at how to do so.

Recommended: When Are Credit Card Payments Due?

How Paying Rent Affects Your Credit

Paying rent has the potential to affect your credit in two major ways: through your traditional credit history or through alternative data.

If you use your credit card to make rental payments, then your account activity will get included in your credit report. If you’re making timely payments in full, then this can positively impact your credit score. Late or missed payments, on the other hand, can lead to negative effects on your credit score.

Alternative data refers to sources that are not typically used to calculate credit scores. However, some lenders may consider them to determine creditworthiness. Rental payments are one example of alternative data — though for this information to count, you’ll usually have to enroll in a rent reporting service. And again, in order to build your credit through rental payments, it’s necessary to make those payments on time.

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Can Your Rent Payments Appear on Your Credit Report?

Rent payments can appear on your credit report if your payment activity is reported to the major credit bureaus. To find out if your rent gets reported, ask your landlord or the property management company.

Your method of payment also affects whether your rental payments will show up on your credit report. For example, if you’re able to pay rent with a credit card, your payment should show up on your credit report. However, if you pay with a check or bank transfer, your payment most likely will not appear on your credit report.

Can You Manually Report Rent Payments to Credit Bureaus?

Unfortunately, you can’t report your rent payments to the credit bureaus on your own. Your landlord usually won’t be able to either, unless your building is managed by a property management company that does.

The good news is that there is a workaround to getting your rent payments reported, but it involves using a rent reporting service.

Tips for Getting Credit for the Rent You Pay

There are two main ways to get your payment activity put on your credit report: enrolling in a rent reporting service or using a method of payment that’s guaranteed to show up on your credit report.

Sign up for a Rent Reporting Service

You can sign up for a rent reporting service yourself, or you can ask your landlord to do so if you’re hoping to use your rent payments to establish credit. If you sign up yourself, you may have to go through some verification procedures, such as having your landlord verify your rent payments.

In most cases, you’ll pay a fee for using the service. You may pay a set-up fee only, or you could owe a monthly fee. If your landlord signs up, they could incur a fee that they may then pass onto you. Still, it could be worth it if you want your rent payments reported to the credit bureaus.

Use Your Credit Card

If your landlord or property management company accepts this method of payment, then using your credit card could get your rent payment put on your credit report. Keep in mind that like rent reporting services, you may be charged a processing or convenience fee for using your card to pay for rent.

Recommended: What is a Charge Card?

Does Missing Rent Hurt Your Credit Score?

Missing even one payment could affect your credit score negatively if your rent payments are reported to the credit bureaus. Considering that payment activity is one of the major factors used in calculating your credit score — your payment history makes up 35% of your FICO — it’s best to try and make on-time payments each month.

However, if you don’t use your credit card to make rental payments, you aren’t signed up for a rent reporting service, and your landlord doesn’t report your payment activity, then your credit score will most likely not be affected by missing rent. Still, missing rent payments can have other serious implications down the road, from making it harder to negotiate rent in the future to possible eviction.

Other Ways to Build Credit

While paying rent can build credit, there are other ways to go about doing so. If you’re hoping to establish your credit, here are some alternatives to consider.

Take Out a Personal Loan

The good news is that there are many loans that are specifically geared toward those looking to build their credit. Sometimes marketed as credit-builder loans, these loans approve you for a specific amount that you then make payments on in monthly installments until the amount is paid off in full.

Unlike a traditional personal loan, the money borrowed is held in a savings or escrow account — think of it as forced savings — and your payment activity is reported to the credit bureaus. Once you pay off the loan, you’ll receive the funds, minus any applicable fees.

You can also choose to take out a traditional personal loan, where you’ll receive a lump sum upfront. The amount you qualify for and the terms of the loan will depend on your creditworthiness. In fact, if you’re in a bind and have strong credit, you can even use personal loans for rent.

With either of these options, make sure to shop around for lenders and compare offers. Also take the time to read the fine print carefully, so you understand exactly what you’re getting into.

Become an Authorized User

Another option to build credit is to ask someone you trust — such as your spouse or a relative — who has good credit to make you an authorized user on their credit card. Doing so means that this account gets added to your credit history.

This can allow the primary cardholder’s credit activity to help you build your credit, as long as they continue to be responsible with their credit card. In turn, this could help you to secure the necessary credit score to rent an apartment or qualify for loans.

Recommended: Tips for Using a Credit Card Responsibly

Use a Credit Card

Another way to build credit is through responsible credit card usage. Depending on your credit history, you can choose from a secured or unsecured credit card. A secured credit card may be easier to qualify for, since many are geared toward those with limited or no credit history. You’ll need to put down collateral (usually a refundable deposit), which will serve as your credit limit.

Or, you can try to apply for an unsecured credit card if you believe your approval changes are high. Some credit cards, like the SoFi Credit Card, may even offer perks like cash-back rewards.

Whichever route you go, make sure to stay on top of making your payments on time, and avoid using too much of your available credit limit. You could even consider paying your bills with a credit card to build up your payment history.

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

The Takeaway

You can build credit with your rent payments if you make them using your credit card or if your payments get reported to the credit bureaus. Ask your landlord or rental company if payments already get reported to the bureaus. If they don’t you can sign up for a rent reporting service, though you’ll most likely pay a fee to do so. From there, rent can affect your credit score positively or negatively, depending on whether you’re timely with your payments.

Aside from paying rent to build credit, there are other, often easier ways to build credit. This can include applying for and responsibly using a credit card, such as the SoFi credit card. With the SoFi credit card, you can lower your APR by making 12 monthly on-time payments.

See if you qualify for the SoFi credit card today!

FAQ

How soon will my rent payments appear on my credit report?

How soon your rent payments will appear on your credit report depends on several factors, including when you made your payment, how you paid, and whether you did so through a credit reporting service. Experian, for instance, receives updates every 24 hours, though it could take longer for your rent payment to show up on your credit report.

Can I boost my credit by paying rent?

You may be able to build your credit by paying rent if you use a method of payment that gets reported to the credit bureaus or if you sign up for a rent reporting service. Otherwise, if your landlord or property management company doesn’t report your payment activity, it won’t affect your credit.

How long does unpaid rent stay on credit?

If you missed a rent payment and your rent payments do get reported to the credit bureaus, the negative remark may stay on your credit report for up to seven years.


Photo credit: iStock/miniseries

1See Rewards Details at SoFi.com/card/rewards.
SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back rewards when redeemed for a statement credit.1
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.
The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) 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.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
.

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

Does Financing a Phone Help Build Credit?

If you’re wondering whether financing a phone builds credit, the answer is that it depends. In some cases, financing a phone may help you build credit — but only if the financing company reports your payment activity to the credit bureaus.

Further, you’ll need to consistently make on-time payments if you’d like to build your credit. If your phone account ends up in collections, that will have the opposite effect on your credit. Here’s a closer look at how financing a phone can affect credit.

How Does Cell Phone Financing Work?

Think of cell phone financing much like taking out a loan. But instead of getting funding, you’re getting a cell phone that you will then pay off over time.

Some people may decide to go this route if they don’t have enough money saved to buy a new phone outright. Others may even choose to lease a new phone, which entails making monthly payments that allow for an easy upgrade to a newer phone on a more regular basis.

When financing a phone, you’ll most likely sign a contract outlining the value of the phone and the payment terms, such as the monthly amount due and the term length.

Cash in on up to $250–and 3% cash back for 365 days.¹

Apply and get approved for the SoFi Credit Card. Then open a bank account with qualifying direct deposits. Some things are just better together.


Cell Phone Financing Options

You can find different cell phone financing options, including through your wireless carrier, phone manufacturer, or a third-party company. Depending on which option you choose, you may undergo a hard credit inquiry when you apply for financing. This could temporarily affect your credit score, given new credit is one of the factors considered in determining your FICO score.

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

Wireless Carrier

When you purchase or lease a phone through your wireless carrier, you’ll most likely be presented with different payment options. If you’re purchasing a phone, you may be able to sign up for a monthly payment plan — sometimes without incurring interest. You may even be able to negotiate a discount if you’re a repeat customer or choose certain wireless plans.

For those who want to lease, your wireless carrier may offer options like the ability to periodically upgrade your phone by trading in your existing phone for a newer model. Or, you may be offered the choice of buying the phone after a certain amount of payments.

Whichever option you choose, know that sales tax may not be included in your monthly payment — you’ll need to pay that upfront. Plus, you may need to make a down payment depending on your credit profile. Those with good credit, as opposed to a bad or fair credit score, may secure more favorable terms.

Recommended: When Are Credit Card Payments Due?

Phone Manufacturer

Major phone manufacturers like Apple and Samsung typically have their own installment plans to purchase their phones. With these plans, you’re approved for a certain amount that you can use to finance a phone, which you’ll then pay off over time.

Like wireless carriers, some phone manufacturers have the option to upgrade to a newer model by offering credit for trading in your existing phone. In some cases, you may be charged interest, so it’s best to review the terms before committing to a plan.

Recommended: What is a Charge Card?

Third-Party Companies

Some electronics stores offer financing for cell phones if you open a store credit card and use it to purchase a phone. You may be able to make interest-free monthly payments if you pay for the phone in full within a certain period of time.

Recommended: How to Avoid Interest On a Credit Card

Buy Now, Pay Later

Many retailers offer buy now, pay later options. Some don’t charge interest as long as you meet their payment terms. However, there can be fairly high late fees, so check the terms and conditions before proceeding.

Cell Phone Financing Options That Build Credit

Not all cell phone financing options help you build credit. That’s because not all companies that provide financing will report your payment activity to the major credit bureaus. As such, that information won’t get added to your credit report.

That being said, there are ways that financing a phone can help you build or establish credit. This includes the following:

•   Financing through a phone manufacturer: Major phone manufacturers have their own branded credit cards or financing accounts on which they will report your activity to the credit bureaus. As long as you keep making on-time payments, this can help to build your score. To ensure your payment activity will affect your credit, it’s best to check with the manufacturer.

•   Financing through a third-party company: Many stores offer branded credit cards that you can use to finance your phone. This is another way that financing a phone can build credit, since the company will generally report your payment information to the major credit bureaus.

Recommended: Effect Paying Off Debt Has on Your Credit Score

Cell Phone Financing Options That Don’t Build Credit

In most cases, financing a phone through your wireless carrier won’t help you build your credit. That’s because these companies most likely won’t report your payment activity to the credit bureaus. If your payment activity does not appear on your credit report, it won’t have an effect on your credit.

For similar reasons, buy now, pay later plans also usually don’t help you build credit.

Should You Finance Your Phone to Build Credit?

Financing a cell phone in order to build credit is best for those who are able to consistently make on-time payments. That way, this positive payment activity will get reported to the credit bureaus and help to build your score.

However, if you’re unsure whether you’ll be able to do so, it may make sense to find an alternative way to build credit. Even one missed payment could negatively affect your credit and land you in more debt than you’d originally anticipated.

Is Financing a Cellphone Worth It?

Financing a phone can come with some advantages, such as freeing up cash you can use to fund other financial goals. If you can get financing with zero interest and know you’ll be able to pay off your phone in full within the agreed-upon terms, then it may be worth considering if you want to have more cash available to you. If your financing plan doesn’t have a prepayment penalty, it can even give you the flexibility to pay off the phone early if you want.

However, if you need to pay interest, or you believe that you won’t be able to pay off the phone within the zero-interest period, you’ll need to carefully consider the financial repercussions. Interest charges can add up, so look at your budget to see whether you can truly afford the phone you want.

If not, it may be worth holding onto your phone until you can save up for a new one, or choosing to finance a phone that costs less.

Other Ways to Build Credit

Financing a phone isn’t the only way to build credit. Some of your other options include using a credit card responsibly and taking out a personal loan.

Using a Credit Card Responsibly

Using a credit card responsibly can help you build credit. Because payment history is the biggest factor in what affects your credit score, making timely payments on your credit card balance can go a long way toward building your credit score.

Plus, if you pay for your cell phone with your credit card, you can even secure cell phone insurance coverage. With an option like the SoFi Credit Card, you can get up to $1,000 of complimentary cell phone insurance coverage.

Recommended: Tips for Using a Credit Card Responsibly

Taking Out a Personal Loan

Getting a personal loan is another way to potentially build credit. How personal loans boost credit score is through on-time payments you make on the loan, since lenders will report your activity to at least one credit bureau.

Before taking out a loan, however, check the terms carefully. You’ll want to look at what interest rate you’ll be charged and what your monthly payment amount will be.

The Takeaway

Financing a phone can help you build credit, as long as the financing company reports your payment activity to credit bureaus. If not, you may want to consider other ways to help you build your credit.This could range from taking out a personal loan to using a credit card, such as the SoFi credit card, responsibly.

Apply for the SoFi credit card today!

FAQ

Do cell phone financing options report to credit bureaus?

It depends on which cell phone financing option you chose. Some financing providers report payment activity to the credit bureaus, while others don’t. For instance, wireless carriers most likely won’t report payments on cell phone financing, whereas phone manufactures and some electronic stores do.

Does upgrading your phone affect your credit score?

Upgrading your phone may affect your credit score if the financing company needs to conduct a hard credit inquiry before approving you for a phone.

How long does a phone bill stay on your credit report?

If you have a charged-off account — meaning your creditor has tried to collect payment from you and failed — that information may remain on your credit report for seven years.


Photo credit: iStock/Delmaine Donson

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.
The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) 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.
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
.

SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back rewards when redeemed for a statement credit.1
SOCC1122006

Read more
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