Credit Archives | Page 20 of 68

Oct

2022

What Are Credit Card Rewards? How to Take Advantage of Them

Credit Card Rewards 101: Getting the Most Out of Your Credit Card

By Alyssa Schwartz | Credit | Comments Off

Groceries, streaming services, transportation — everyday spending can add up, as most people’s monthly credit card statements can attest. And while paying bills is no fun, using a rewards credit card can help make some of those expenditures pay off.

Rewards credit cards pay cardholders back based on a small percentage of what they spend. There are differences in the types of credit card rewards that cardholders can earn and how they can redeem those rewards though. This means it may take a little research — and a basic understanding of how credit card rewards work — to find the best rewards card for your circumstances.

Types of Credit Card Rewards

What credit card rewards are, specifically, depends on the type of rewards your specific credit card pays out. The credits earned for making purchases can come in the form of cash back, points, or airline miles.

Cash Back

For cash-back rewards cards, earnings are based on a percentage of the amount charged to the card. The rate of earnings can typically range from 1% to 6%.

Calculating what the rewards rate actually amounts to in the form of money back can be simple for cash rewards: Just apply the cash-back percentage to total spending on the card. For example, if you had a credit card that offered 2% cash back on all purchases, you’d earn $2 back for every $100 you spent using your card.

Some rewards credit cards offer tiered earnings, meaning the percentage back will vary depending on the category of spending or the total amount spent during the year. For others, cardholders will earn a flat rate across all purchases made with the card.

Recommended: What is a Charge Card

Travel Miles

As the name suggests, this type of rewards credit card allows you to earn airline miles in exchange for your spending with the card. You can either get a card affiliated with a specific airline or a more general travel rewards credit card.

It’s possible to earn a fixed rate of miles for every dollar spent, or you might earn more miles through spending in certain categories. For instance, you might earn a mile per every dollar spent. Or, you could get 1 mile per $1 in all purchase categories with the exception of travel costs, where you’d earn 3 miles per dollar spent.

While they’re called miles, these rewards don’t translate to airline miles traveled. Rather, you redeem the miles you’ve earned to help cover the cost of flights or other travel-related expenses, such as hotel stays.

Unlike cash-back rewards, where the value is pretty straightforward, the valuation of airline miles can vary by card, which is something to consider when weighing a preference for credit card miles or cash-back rewards. The value of an airline mile can range from just under 1 cent per mile up to around 2 cents.

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Points

Another way to earn credit card rewards is by getting a certain number of points for every dollar spent using the card. You can then redeem those points in a variety of ways, such as in the form of cash back, merchandise, travel purchases, gift cards, and even events.

Credit cards that reward cardholders through credit card points will pay out a certain number of points for every dollar spent on the card. They might offer bonus categories, where cardholders can earn more points for every dollar spent in that particular category.

For some cards, earned rewards points may have a set redemption value — for example, every 10,000 points might be worth $100 in flight or merchandise redemptions. However, redemption rates can depend on the type of reward you choose. For instance, there might be different points requirements for flights as opposed to merchandise.

As such, cardholders may have to be more strategic — considering the type of reward they select and the actual cost of their selections — to get the best bang for their buck.

Cash in on up to $300–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.

How to Optimize Credit Card Rewards

It’s clear that the returns you can earn when using a rewards credit card can vary tremendously. But in addition to choosing a rewards card with the best earnings rate, there are other ways to take maximum advantage of credit card rewards.

Find the Best Card Based on Individual Spending Habits

While some rewards cards accrue points on a flat-rate basis — meaning points or miles are awarded at the same rate regardless of what an individual charges to their credit card — others offer higher levels of earning for different spending categories.

Some cards may offer more points per dollar spent on groceries or gas. Other rewards credit cards may provide more miles back when an individual spends on flights or hotels. For people who tend to concentrate spending on specific categories, some cards may offer added value back.

Before signing up for a card, it’s worth taking the time to assess the different types of credit cards you may qualify for.

Max Out Available Promotions

Some rewards credit cards offer higher introductory earning rates, meaning you’ll earn more points than usual for a set amount of time or up to a specific spending threshold. Other promotions may be offered as well, such as greater earnings during a specified time period. Enjoying credit card bonuses like these is key to making the most of credit card rewards.

For instance, you may want to time big-ticket items and other purchases to take advantage of those greater returns. (One important caveat: While offers to earn more rewards certainly seem attractive, it’s wise to ensure that spending is within your budget. That’s because carrying a credit card balance may incur interest and/or penalties that can cancel out the value of any increased earnings — avoiding interest on credit cards requires paying off your balance in full.)

Recommended: How to Avoid Interest On a Credit Card

Be Strategic About Redemptions

Given the variability in the value of rewards points, it’s a good idea to crunch the numbers before redeeming — especially because fluctuating prices and redemption promotions can help to stretch earned rewards further.

For example, although a $200 short-haul flight may not optimize the value of points, booking that same route at the last minute may be considerably more expensive. In such a case, points may yield considerably more value.

Similarly, taking advantage of redemption promotions or redeeming for the highest-value choices can yield greater returns.

Redeeming Credit Card Rewards

Once you’ve racked up some credit card rewards, it’s time to redeem them. Here’s how:

1. Log into your credit card app or portal. You can usually find your rewards listed somewhere on the main page, though the exact placement depends on your credit card issuer.

2. Click on your rewards balance. You should be able to see your total available rewards, as well as your options for redemption.

3. Choose how you want to redeem your rewards. Options for redemption may include a statement credit, a check, merchandise, gift cards, or travel, depending on your specific credit card.

4. Move ahead with redeeming your rewards. Once you select the option to redeem your rewards, that amount will get deducted from your balance. How long it takes to receive your rewards will depend on how you chose to redeem them.

Do Credit Card Rewards Expire?

It is possible for credit card rewards to expire. However, whether your rewards will expire — and how soon their expiration date will arrive — depends on the type of credit card rewards and your credit card issuer.

Airline miles and hotel points often expire (though not always). Points or cash back earned through your issuer’s program are less likely to expire. In some cases, your rewards might even get automatically credited to your account if you forget to redeem them or haven’t used your account in a while. Check your credit card’s terms and conditions to find out how your credit card works and what the rules are for your credit card rewards.

Recommended: When Are Credit Card Payments Due

The Takeaway

Getting rewards — whether in the form of cash back, points, or travel miles — when you spend money is an attractive proposition. However, when it comes to how to take advantage of credit card rewards, you’ll need to do more than just swipe your card. You’ll want to be strategic about redeeming your points and also make sure to max out any promotions that are available.

Additionally, it’s important to find a rewards credit card that fits your particular needs. The SoFi Credit Card, for instance, offers 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

For a limited time, new credit card holders† who also sign up for a SoFi Checking and Savings with direct deposit can start earning 3% cash back rewards on all eligible credit card purchases for 365 days*. Offer ends 12/31/23.

Take advantage of this offer by applying for a SoFi credit card today.

†SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS PROSPECTIVELY BASED ON MARKET CONDITIONS AND BORROWER ELIGIBILITY. Your eligibility for a SoFi Credit Card Account or a subsequently offered product or service is subject to the final determination by The Bank of Missouri (“TBOM”) (“Issuer”), as 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. Please allow up to 30 days from the date of submission to process your application. The card offer referenced in this communication is only available to individuals who are at least 18 years of age (or of legal age in your state of residence), and who reside in the United States.

*You will need to maintain a qualifying Direct Deposit every month with SoFi Checking and Savings in order to continue to receive this promotional cash back rate. Qualifying Direct Deposits are defined as deposits from enrolled member’s employer, payroll, or benefits provider via ACH deposit. Deposits that are not from an employer (such as check deposits; P2P transfers such as from PayPal or Venmo, etc.; merchant transactions such as from PayPal, Stripe, Square, etc.; and bank ACH transfers not from employers) do not qualify for this promotion. A maximum of 36,000 rewards points can be earned from this limited-time offer. After the promotional period ends or once you have earned the maximum points offered by this promotion, your cash back earning rate will revert back to 2%. 36,000 rewards points are worth $360 when redeemed into SoFi Checking and Savings, SoFi Money, SoFi Invest, Crypto, SoFi Personal Loan, SoFi Private Student Loan or Student Loan Refinance and are worth $180 when redeemed as a SoFi Credit Card statement credit.

Promotion Period: The Program will be available from 10/1/22 12:01 AM ET to 12/31/23 11:59PM ET

Eligible Participants: All new members who apply and get approved for the SoFi Credit Card, open a SoFi Checking and Savings account, and set up Direct Deposit transactions (“Direct Deposit”) into their SoFi Checking and Savings account during the promotion period are eligible. All existing SoFi Credit Card members who set up Direct Deposit into a SoFi Checking & Savings account during the promotion period are eligible. All existing SoFi members who have already enrolled in Direct Deposit into a SoFi Checking & Savings account prior to the promotion period, and who apply and get approved for a SoFi Credit Card during the promotion period are eligible. Existing SoFi members who already have the SoFi Credit Card and previously set up Direct Deposit through SoFi Money or SoFi Checking & Savings are not eligible for this promotion.
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.
¹See Rewards Details at SoFi.com/card/rewards.
New and existing Checking and Savings members who have not previously enrolled in direct deposit with SoFi are eligible to earn a cash bonus when they set up direct deposits of at least $1,000 over a consecutive 25-day period. Cash bonus will be based on the total amount of direct deposit. The Program will be available through 12/31/23. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC.

SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 3/17/2023. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
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.
SOCC0922016

Oct

2022

Is It Illegal To Check Someone Else’s Credit Report?

By Kelly Boyer Sagert | Credit, relay | Comments Off

Yes, in most cases it’s illegal to check someone else’s credit report. The Fair Credit Reporting Act (FCRA) is a federal statute that defines and limits who can receive credit-related information. The act lists legal reasons why someone’s credit can be checked; therefore, it is illegal for an individual or organization to check someone’s credit report for any other purpose.

We’ll do a deep dive into when it’s OK to run a credit check on someone, and what to do if you suspect someone has pulled your credit report without permission.

Can Anyone Check Your Credit?

The short answer is no. Legally speaking, a person or organization can check your credit only under certain circumstances. Someone either needs to have what’s called “permissible purpose” or have your permission and cooperation in the process for the credit check to be considered legal.

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Track your credit score for free. Sign up and get $10.*

Who Can Access Your Credit Report?

People and organizations that can legally access your credit report under certain circumstances include the following:

• Banks and other lenders

• Utility companies

• Insurance companies

• Landlords

• Employers

• Here’s more about each

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Banks and Other Lenders

A financial institute can check someone’s credit in connection with credit-related transactions, such as when they apply for a mortgage or car loan. Note that section 609(g) of the FCRA requires financial institutions that arrange mortgage loans and use credit scores in their decision making to provide the credit score and additional information to the applicant.

Utility Companies

Although it may not be commonly thought of in this way, applying for utility service is a form of credit. So when someone requests service from an electric company, the utility will likely check the person’s credit history. If the individual doesn’t have at least a fair credit score, the company can request a deposit or even deny service.

Insurance Companies

Insurance companies have permission to review an applicant’s credit information. Note that companies must also comply with state laws as they use the credit data to underwrite policies.

Landlords

The Federal Trade Commission notes that landlords have the right to review consumer credit reports when someone applies to rent from them or renews a lease. A landlord must certify to the credit bureau (such as Equifax, Experian, or TransUnion) that they will only use this information for rental purposes.

Employers

A potential employer can check an applicant’s credit report, although the company must give the applicant notice of their intent and get written permission. State laws vary regarding an employer’s ability to use this information as part of a hiring decision.

When Is It Legal To Run a Credit Report on Someone?

There are a handful of legal reasons to run a credit report on someone.

Permissible Purpose

This umbrella term used in the FCRA describes when a credit reporting agency can provide a credit report.

Proxy Ordering

“Proxy” is a legal term for someone with the authority to represent someone else. The only instance that isn’t proxy ordering is when a consumer requests their own credit report.

To pull your report, a proxy will need to get answers to questions that only you should know — information that comes directly from your credit report. This provides an extra layer of protection to ensure that your permission is freely being given.

Deceased Spouse

An individual can send a letter to a credit agency requesting the credit report of a deceased spouse. The surviving spouse will need to provide information about both parties so that the agency can verify identities and ensure that it’s OK to provide the credit report.

During Mortgage Underwriting

The FCRA notes that a financial institution can obtain a credit report for “extending, reviewing, and collecting credit.” This applies to mortgage underwriting as well as other types of loans.

Screening Job Applicants

With permission, an employer can request and review a credit report for the purpose of “evaluating a consumer for employment, promotion, reassignment or retention as an employee.”

During Insurance Underwriting

An insurance company can check a person’s credit report, with permission, as part of the underwriting process for a policy. The FCRA delves into specifics for different types of insurance: life, health, homeowners, etc.

Recommended: Does Net Worth Include Home Equity

Evaluating Prospective Tenants

The FCRA states that a potential landlord can pull a credit report with the prospective tenant’s permission.

Court-Appointed Guardians

Court-appointed guardians can request a copy of their ward’s credit report by mail. They must provide information about themselves as well as the ward.

What To Do if Someone Pulls Your Credit Without Permission

Contact the organization that pulled your credit to rule out that it was done in error. Then contact the three credit bureaus and request that any hard credit inquiries be deleted from your credit report.

You can also submit a complaint to the Consumer Financial Protection Bureau (visit https://www.consumerfinance.gov/complaint/) and ask for any problems associated with the inquiry to be resolved.

Who Can Check Your Credit Without Permission?

Government agencies may check your credit report to process an application for a license, to determine if you qualify for public assistance, or to calculate what a person can pay in child support, among other reasons.

If you already receive credit from a company, it may periodically check your credit report. Language giving them permission is likely in their terms and conditions. Debt collectors may also get access to information on credit reports.

How To Know if Your Credit Was Checked

All hard inquiries will appear on your credit report for two years, so you can find the information there. Soft checks may or may not appear. Each year, you can get a free copy of your credit report — and find out your credit score for free — via AnnualCreditReport.com.

If you’re concerned about credit checks, consider signing up for a credit monitoring service. What qualifies as credit monitoring varies from service to service; look for one that sends out alerts for new hard inquiries.

Recommended: What Is a Tri-Merge Credit Report?

How a Credit Check Affects Your Credit Score

A soft inquiry will not hurt your credit score even if it appears on your report. A hard inquiry can lower the score by up to five points. Although the inquiry will remain on your credit report for two years, it will stop affecting your credit score after 12 months. Applying for several credit accounts in a relatively short amount of time may pose a greater risk. (Find out more about what affects your credit score.)

Can You Stop Someone From Getting Your Credit Report?

You can freeze your credit at all three bureaus, which will prevent them from sharing information with businesses that make inquiries. However, if you want to apply for a loan or otherwise conduct a transaction that requires a credit check, you will need to unfreeze your credit.

The Takeaway

The Fair Credit Reporting Act (FCRA) provides legal guidelines on who can and can’t check consumer credit reports. Certain individuals can check your credit with your permission, including landlords and employers. Banks, insurers, lenders, and utility companies may also pull a credit report if you’ve applied for credit or service with them. In some circumstances, government agencies may request your credit report without your permission. In general, an average citizen cannot check someone else’s credit report unless they are serving as a legal proxy.

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FAQ

Can I sue for an unauthorized credit check?

Consult an attorney to discuss potential legal remedies. If you discover that your credit was run inappropriately without your permission, contact all three credit bureaus to ask them to remove the inquiry so that it doesn’t harm your credit score. You can also file a complaint with the Consumer Financial Protection Bureau at https://www.consumerfinance.gov/complaint/

What is a violation of the Fair Credit Reporting Act?

There are multiple types of FCRA violations. They include instances when a credit bureau provides your information to someone who is not authorized to receive it, didn’t demonstrate a valid need for the data, or didn’t get your written permission in advance.

How do I find out who ran my credit?

You can get a free copy of your credit report from each of the three bureaus annually at AnnualCreditReport.com. Your credit report lists all hard credit inquiries from the past two years, and potentially some soft inquiries.

Photo credit: iStock/vitapix

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*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.
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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 .
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.
SORL0822008

Sep

2022

Credit Cards vs. Debit Cards

By Becca Stanek | Budgeting & Goals, Credit, personal_loan | No Comments

Credit cards and debit cards are two payment options that allow you to leave physical cash at home. While these two types of cards may look the same, they’re actually quite different. A credit card allows you to borrow money to make purchases and pay it back later, whereas a debit card draws on funds in your connected bank account to cover purchases.

If you’re considering whether to get a debit card vs. credit card, know that you don’t necessarily have to choose. Whether to opt for debit vs. credit — or both — ultimately comes down to your financial situation and if you’re comfortable with each product’s pros and cons.

Recommended: When Are Credit Card Payments Due

Credit Cards vs Debit Cards Key Differences

At a glance, here are the major differences between credit vs. debit to be aware of:

	Credit Cards	Debit Cards
How they work	Borrow money from a line of credit to cover purchases and pay amount back later	Draw funds from a connected bank account to cover purchases
Credit building	Can help build credit through responsible use	Cannot help to build credit
Interest charges	Will owe interest if a balance is carried from month to month	Interest charges don’t apply, as no borrowing is involved
Fraud protection	Limited liability for fraudulent activity	Fraud protection is more limited
Rewards	Opportunity to earn rewards like cash back and travel miles	Unlikely to earn significant rewards

What Is a Credit Card?

A credit card offers access to a line of credit, which means that you are borrowing money that you’ll then need to repay at a later date. With a credit card, you can make purchases, get a cash advance, or do a balance transfer. Credit cards are generally issued by banks, credit unions, or other financial institutions.

Because a credit card represents a loan, it’s necessary to apply and qualify for a credit card. Those with stronger credit will generally have a greater chance of getting approved for a credit card, as well as securing better terms. This can include a lower annual percentage rate (APR) and a higher credit limit, which represents the maximum amount the cardholder can borrow using the card.

Cardholders will owe interest if they carry a balance from month to month. Each month, it’s necessary to make at least the minimum payment in order to avoid late fees and other consequences. However, cardholders who pay off their balance in full each month can avoid interest charges.

There are a number of different types of credit cards to choose from. Some credit cards also offer rewards. A rewards card can offer benefits to the cardholder in the form of cash back, points, or airline miles.

Recommended: What is the Average Credit Card Limit

Cash in on up to $300–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.

The Pros and Cons of Credit Cards

Before using a credit card, it’s important to understand they have both advantages and drawbacks. Here are some of the major pros and cons to keep in mind.

Pros

Aside from the fact they allow you to borrow money, here are some of the major pros of credit cards:

• Robust fraud protections: If your credit card number is stolen online, and you report the theft right away, you’re legally only liable for $50 of any purchases made (or maybe even nothing, if your issuer offers zero liability). Meanwhile, with a debit card, your loss depends on how long it takes you to report the fraud — you could be held completely responsible for the charges on your account. Credit cards also have regulations that protect you from unfair practices. These regulations give you the right to dispute charges if you believe you didn’t make a purchase and allow you to file complaints with your credit card company.

• Ability to build credit: Another major benefit of using a credit card is that if you use your card responsibly, it’s possible to build your credit history. To do so, you’ll need to take steps like paying your credit card bill on time and keeping your credit card balances low. Having strong credit credit can lead to a number of benefits, such as qualifying for additional loans in the future at more favorable rates.

• Possible to earn rewards: Some credit cards will even offer rewards for spending money using the card. Cardholders may be able to earn points they can redeem for flights, hotel stays, or gift certificates to popular retailers. Other popular rewards options include cash-back rewards and airline miles.

Recommended: What is a Charge Card

Cons

Of course there are cons to using credit cards, too. These include:

• Interest and fees: You only have a select number of days before you have to pay your credit card bill in full, or risk having to pay interest charges. Potential fees vary, but some credit card companies may charge fees if you get a cash advance, make a late payment, or spend more than your credit limit. Some companies or cards may charge annual fees for simply being a cardholder

• Possible to rack up debt: A big risk of using a credit card is the possibility of racking up a large amount of debt. With a credit card, you’re borrowing money to make purchases rather than relying on funds you already have. If you borrow more than you can afford to pay back, you’ll start to accumulate interest charges, which can quickly snowball into a large amount of debt.

• Could damage credit: On the flipside, using a credit card also has the potential to wreak havoc on your credit. If you’re not being a responsible cardholder — whether that’s maxing out your card, making your payments late, or skipping out on paying entirely — it can seriously damage your credit score.

What Is a Debit Card?

While a debit card may look identical to credit cards, it functions differently. Unlike a credit card that uses borrowed money to make purchases, debit cards are generally used to spend money that is already in your connected checking account. You can use a debit card to make purchases or to withdraw money from an ATM.

Most banks or credit unions will give you a debit card when you open a checking account.
When you receive your debit card, you’ll get a PIN, which stands for a personal identification number. You’ll typically need to enter your PIN on a keypad when making purchases with a debit card. This is intended to protect against someone else trying to use your debit card.

The Pros and Cons of Debit Cards

Like with credit cards, there are both upsides and downsides to debit cards to be aware of.

Pros

What are the pros of using a debit card? Here are the major benefits to note:

• Conveniently pay or withdraw funds: Debit cards allow you to spend cash without actually carrying it around. Most stores accept debit cards as a form of payment. You can also use your debit card to withdraw physical cash from an ATM. Depending on the store, you can even ask for cash back when you make a purchase.

• No interest charges: Another major benefit of using a debit card vs a credit card is that you won’t pay any interest. This is due to the fact that you can’t borrow money with a debit card. Rather, you’re using the money you already have in your connected bank account.

• Less risk of overspending: It can be easier to control your spending with a debit card than it is with a credit card. Since you’re limited to spending only what you already have in your bank, you’ll have less of a chance of racking up debt.

Recommended: How to Avoid Interest On a Credit Card

Cons

There are cons of using a debit card as well. Specifically, these include the following:

• Limited to spending what you have: When you make a purchase with a debit card, the money is usually taken out of your checking account immediately. This means you can’t rely on a debit card to lend you money, such as if you needed coverage in an emergency or wanted to make a larger purchase.

• Won’t help you build credit: Another con of using debit vs. a credit card is that you won’t build your credit history when making responsible purchases. However, this also means you can’t hurt your credit history when using a debit card, which is a positive attribute to consider.

• Less robust liability protections: As mentioned earlier, if there are any issues with charges due to a lost or stolen debit card, your personal liability can be a bit higher than it is with a credit card. It’s especially critical to quickly report any fraudulent activity on a debit card to limit your personal liability.

Choosing Between a Credit and Debit Card

You don’t have to choose between having a debit vs. credit card. Rather, you could have both a debit card and a credit card in your wallet, and then utilize the best features of each type of card to your advantage. As you can see, there are benefits of debit cards and credit cards.

Credit cards can be an effective tool to help you build your credit — as long as you’re able to pay off your balance each month. If you know you can make your payments on time and avoid costly interest charges or fees, you can take advantage of the rewards programs offered by credit cards.

Debit cards can be an option if you want to ensure you only spend the money you have in your bank account. While credit cards are likely safer for online purchases, you can use debit cards at ATMs or retailers to get physical cash. Since your debit card is a direct line to your cash, it’s wise to review the security policies offered by your bank, especially since debit cards do tend to have less robust fraud protections.

Recommended: Can You Buy Crypto With a Credit Card

The Takeaway

When it comes to a credit card vs. debit card, perhaps the biggest difference is where the funds come from. With a credit card, you’re drawing on a line of credit to make a purchase. You’ll then have to pay back that amount later, potentially with interest. A debit card, on the other hand, is linked to a bank account and draws upon the funds already in the account. As such, you won’t pay interest, but you also won’t have the chance to earn rewards.

If the benefits of a credit card seem like the right fit for you, it’s important to compare the o options available to you. With the SoFi Credit Card, for instance, you can earn generous cash-back rewards and potentially secure a lower APR through on-time payments. For a limited time, new credit card holders† who also sign up for a SoFi Checking and Savings with direct deposit can start earning 3% cash back rewards on all eligible credit card purchases for 365 days*. Offer ends 12/31/23.

Take advantage of this offer by applying for a SoFi credit card today.

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.
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 .
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.
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†SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS PROSPECTIVELY BASED ON MARKET CONDITIONS AND BORROWER ELIGIBILITY. Your eligibility for a SoFi Credit Card Account or a subsequently offered product or service is subject to the final determination by The Bank of Missouri (“TBOM”) (“Issuer”), as 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. Please allow up to 30 days from the date of submission to process your application. The card offer referenced in this communication is only available to individuals who are at least 18 years of age (or of legal age in your state of residence), and who reside in the United States.

*You will need to maintain a qualifying Direct Deposit every month with SoFi Checking and Savings in order to continue to receive this promotional cash back rate. Qualifying Direct Deposits are defined as deposits from enrolled member’s employer, payroll, or benefits provider via ACH deposit. Deposits that are not from an employer (such as check deposits; P2P transfers such as from PayPal or Venmo, etc.; merchant transactions such as from PayPal, Stripe, Square, etc.; and bank ACH transfers not from employers) do not qualify for this promotion. A maximum of 36,000 rewards points can be earned from this limited-time offer. After the promotional period ends or once you have earned the maximum points offered by this promotion, your cash back earning rate will revert back to 2%. 36,000 rewards points are worth $360 when redeemed into SoFi Checking and Savings, SoFi Money, SoFi Invest, Crypto, SoFi Personal Loan, SoFi Private Student Loan or Student Loan Refinance and are worth $180 when redeemed as a SoFi Credit Card statement credit.

Promotion Period: The Program will be available from 10/1/22 12:01 AM ET to 12/31/23 11:59PM ET

Eligible Participants: All new members who apply and get approved for the SoFi Credit Card, open a SoFi Checking and Savings account, and set up Direct Deposit transactions (“Direct Deposit”) into their SoFi Checking and Savings account during the promotion period are eligible. All existing SoFi Credit Card members who set up Direct Deposit into a SoFi Checking & Savings account during the promotion period are eligible. All existing SoFi members who have already enrolled in Direct Deposit into a SoFi Checking & Savings account prior to the promotion period, and who apply and get approved for a SoFi Credit Card during the promotion period are eligible. Existing SoFi members who already have the SoFi Credit Card and previously set up Direct Deposit through SoFi Money or SoFi Checking & Savings are not eligible for this promotion.
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Sep

2022

Getting a $3,000 Personal Loan

By Caroline Banton | Credit, Financial Independence, personal_loan | Comments Off

The funds from a personal loan can be used for anything, from paying off high-interest credit card debt to buying a new spinning bike. But how hard is it to qualify for a $3000 personal loan? And what if you have bad credit?

Online lenders tend to cater more to borrowers with bad credit. They will also charge higher interest rates and financing fees because a borrower with bad credit is considered higher risk.

Read on to find out how to get a personal loan, what credit score you need for a personal loan, and where to go to get a loan if you have bad credit.

Can I Get a $3,000 Personal Loan with Bad Credit?

A personal loan is money borrowed from a bank, credit union, or online lender. Loan amounts range from $1,000 to $50,000, and the principal is paid back with interest in fixed monthly payments, typically over two to seven years. Personal loans are flexible, meaning they can be used for any purpose, from a cross-country move to home improvements.

Getting approved for a personal loanthat is $3,000 with bad credit may mean you have to jump through a few hoops to qualify. What is bad credit? According to FICO, someone with a score of 580 or below is considered a credit risk.

When calculating an individual’s credit score, FICO and other rating agencies will look at whether you pay bills on time, how long you have held credit lines or loans, your debt profile, how often you use credit, how often lenders have pulled your credit report, and your history of bankruptcy or foreclosure.

A low credit score indicates that you could be at a higher risk of defaulting on a loan. To compensate for that risk, a lender may charge you a higher interest rate for a loan or credit card, or you may have to put down a deposit.

What Is the Typical Credit Score Required for a $3,000 Personal Loan?

Since $3,000 is not a large loan amount, a credit score between 610 and 640 should suffice for an “unsecured” personal loan (a loan with no collateral). The higher your credit score, the less interest you will pay.

Benefits of a $3,000 Personal Loan

The benefits of a $3,000 personal loan include flexibility and predictability. The loan can be used for anything you need, and the payments will be the same each month until the loan is paid off.

Interest Rates and Flexible Terms

The interest rate for a personal loan will be fixed for the term of the loan, and the repayment terms are flexible, ranging between one and 10 years. Personal loans typically have a lower interest rate than a credit card, and the rates are even better if you have excellent credit. You might also be able to borrow more using a personal loan versus a credit card.

No Collateral Required

An unsecured personal loan does not require any collateral. Some loans require the borrower to use their car or home as an asset to guarantee the loan. The interest rate may be a little higher for an unsecured loan than it would be for a secured loan because the lender assumes more risk, but you won’t risk your car or home if you default.

Recommended: Secured vs. Unsecured Personal Loans

Fixed Monthly Payments

A personal loan will have fixed monthly payments for the life of the loan, which makes budgeting for bills easier.

Cons of a $3,000 Personal Loan

A personal loan might not be the best option depending on your situation and the loan’s purpose. Here are some of the downsides to a personal loan.

Debt Accumulation

Many people use personal loans to pay off credit card debt because the interest paid on a credit card is generally more than the interest paid on a loan. However, this can be a double-edged sword if they end up with a higher credit limit and the ability to rack up even more debt.

Origination Fees and Penalties

Personal loans may come with significant fees and penalties that can drive up the cost of borrowing. An origination fee of up to 6% of the loan amount is not uncommon. If you decide to pay off the balance before the term ends, you may have to pay a penalty.

Interest Rates May Be Higher Than Other Options

This is particularly true for people who have a low credit score. In that case, a credit card might charge a lower rate than a personal loan.

If you have equity in your home, another option is a home equity line of credit (HELOC). Alternatively, a credit card balance transfer might charge a lower interest rate.

Where Can I Get a $3,000 Personal Loan?

You can get a personal loan from online lenders, commercial banks, and credit unions. Online lenders are super-convenient and fast. Loans are often funded within two days. You can also get pre-qualified and see your loan terms before you apply. An online lender might do a soft credit check before you accept the loan, but your credit rating will not be affected.

Credit unions may offer lower interest rates and more flexible terms for members. Federally chartered credit unions cap APRs at 18%, so borrowers with imperfect credit may receive lower rates than they would elsewhere. A history with a credit union might boost your eligibility.

A bank will typically require good credit to qualify for a personal loan. You may also need an account with the bank. Account holders are likely to qualify for the lowest interest rates and bigger loans. You may have to visit a branch and complete the application in person.

How to Apply for a $3,000 Personal Loan

1. Check your credit score. You may find errors on your credit report that you can fix to boost your eligibility for lower-rate loans.

2. Compare the terms and conditions offered by lenders. A personal loan calculator can help you determine what your payments will be.

3. Pre-qualify if you can, because it won’t affect your credit score and will help you with your comparison.

4. Consider using your car or other collateral to get a better rate with a secured loan.

5. Use a co-signee (with good credit) to get a better rate. The co-signee’s credit rating is considered along with your own, but they must agree to pay the loan if you cannot.

6. Gather the documents you need and apply to the best lender. Examples of documents you may be asked to provide are W-2s, paystubs, and financial statements.

$5,000 Personal Loan

Here’s an example of typical loan terms for a $5,000 personal loan. Rates are accurate at the time of writing for a loan through SoFi for someone earning around $50,000 with good credit.

• The monthly payment on a two-year loan with an interest rate of 6.99% would be around $224.

• The monthly payment on a three-year loan with an interest rate of 7.66% would be around $156.

• The monthly payment on a six-year loan with an interest rate of 11.38% would be around $96.

$10,000 Personal Loan

The monthly payment on a personal loan of $10,000 at a 5.5% interest rate over a one-year term would be $858, with $300 in total interest paid over the life of the loan.

The Takeaway

A personal loan is a way to get flexible financing quickly. These loans can be used for any purpose, and the term of the loan can range from 12 months to 10 years. Banks, credit unions, and online lenders offer these loans at varying interest rates.

Personal loans are popular for people who want to consolidate their debt or pay off credit cards that charge a higher interest rate. The requirements for a loan depend on the lender, but a good credit score will give you a better rate. Alternatives to a personal loan are a HELOC, or a credit card balance transfer as long as the card charges a lower interest rate.

SoFi’s personal loans can help you consolidate credit card debt. The fixed interest rate is significantly lower than that on most credit cards.

Looking for a personal loan? With SoFi’s Personal Loans, there are no fees required and no collateral required. Check out

SoFi’s Personal Loans — get your rate in just 1 minute!

FAQ

What credit score is needed for a $3,000 personal loan?

According to FICO, someone with a score of 580 or below is considered a credit risk. A score of between 610 and 640 is typically required for an unsecured personal loan.

Is it possible to get a $3,000 loan with bad credit?

Some lenders, particularly online lenders, will extend personal loans to people with bad credit. However, the terms may include high interest rates. Many online lenders specifically target borrowers with bad credit.

What’s the monthly payment on a $3,000 personal loan?

The monthly payment on a $3,000 loan will depend on the lender, the loan term, and the interest rate. For example, the monthly payment on a two-year loan with an interest rate of 6.99% would be around $224.The monthly payment on a six-year loan with an interest rate of 11.38% would be around $96.

Photo credit: iStock/nortonrsx

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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Sep

2022

How Much Does Your Credit Score Increase After Paying Off a Debt

Does Paying Off a Debt Increase Your Credit Score?

By Kelly Boyer Sagert | Credit, relay | Comments Off

Whether you’re thinking about paying off a debt or mulling over how to increase your credit score — or both — it’s reasonable to ask if paying off debt helps your credit rating. The answer, though, is more complex than a simple yes or no.

We’ll delve into it all here, showing how paying off a debt can either raise or reduce your credit score, depending on the circumstances. We’ll also explain a bit about how credit scores are calculated, and especially how managing your credit utilization can give you some control over your credit score.

How Paying Off a Debt Is Connected to Your Credit Score

What affects your credit score is on a lot of people’s mind. Your credit score is determined by five factors, some of which are weighted more than others. Paying off a debt can affect each of these factors in different ways, causing your score to rise or dip. Sometimes changes in two factors can even cancel each other out, leaving your score unchanged. This is why it’s hard to predict how paying off a debt will affect your credit.

Before we continue, you may want to take a moment to find out your credit score for free.

Check your score with SoFi Insights

Track your credit score for free. Sign up and get $10.*

Recommended: Does Net Worth Include Home Equity

Credit Score Calculation Factors

According to FICO® Score, a credit rating company, these are the five factors commonly used to calculate your score:

• Payment history (timely payments): 35%

• Amounts owed (credit utilization): 30%

• Length of credit history: 15%

• New credit requests: 10%

• Credit mix (installment versus revolving): 10%

Once FICO’s algorithm calculates your score, a credit score rating scale assigns it a category ranging from Poor to Exceptional. A higher number indicates to lenders that a person is a lower risk for default:

• Exceptional: 800 to 850

• Very Good: 740 to 799

• Good: 670 to 739

• Fair: 580 to 669

• Poor: 300 to 579

As you can see, a Fair credit score falls between 580 and 669. A Poor or bad credit score falls between 300 and 579. The minimum credit score required to qualify for a loan is around 610 to 640, depending on the lender — meaning not everyone with a Fair score would qualify.

Recommended: Do Personal Loans Build Credit?

Why a Credit Score Can Go Down After Paying Off a Debt

Because paying off debt feels good and improves your financial situation, people can be surprised when their credit score actually drops. This negative impact can be due to changes in one or more factors:

• credit utilization

• credit mix

• overall credit age

When you pay off a credit card and then close the account, you reduce your available credit and increase your credit utilization. Similarly, if you pay off your only car loan and close that account, you have one fewer type of account in your credit mix. Finally, paying off and closing an older account may reduce the average age of your overall credit history. (We’ll explore these scenarios in more detail below.)

While none of these things is “bad” in financial terms, it temporarily counts against you in the world of credit scores.

What Is Credit Utilization?

Now for a little more background on credit utilization. Credit utilization is a factor with revolving forms of credit, such as credit cards and lines of credit, where you can reuse the account up to your limit.

Your credit utilization rate, or ratio, is determined by dividing the sum of your credit limits by the sum of your current balances. So if someone has a $5,000 limit and is using $2,500, that’s a 50% credit utilization rate. Your rate should be kept below 30% to avoid a negative affect on your credit score.

What Is a Credit Mix?

Lenders like to see that an applicant can successfully handle different kinds of credit. This includes installment loans like mortgages, car loans, and personal loans, as well as revolving credit such as credit cards and lines of credit. If a person can manage both types of credit well, a lender will likely consider them less of a risk.

Recommended: Should I Sell My House Now or Wait

How Credit Age Factors In

The length of your credit history demonstrates your experience in using credit. To lenders, the longer the better. When payments are on time, this combo reassures lenders that you will likely continue to make on-time payments going forward.

New credit accounts can also lower your credit age. More important, opening or even applying for many new accounts is a red flag to lenders that you may be in financial trouble. The application process also involves a hard credit inquiry, which can lower your credit score.

Sample Scenarios

Here are two examples of someone paying off a credit card. In one case, the credit score goes up. In another, it goes down.

Credit Utilization Goes Down / Credit Score Goes Up

Let’s say that someone has a credit utilization rate of 40%, which is negatively impacting their credit score. (Remember, below 30% is best.) When they make enough payments to bring their utilization rate down to 25%, this can boost their credit score.

Credit Mix & Age Go Down / Credit Score Goes Down

Now, let’s imagine that someone pays off the balance of their first and only credit card. This should help their utilization score! But wait: Then they close the account, and their average credit age drops. And since this is their only form of revolving credit, their credit mix has lost out too.

Counterintuitively, paying off the card may make their credit score go down — at least in the short term.

Paying Off a Loan Early vs Paying It on Schedule

People often wonder if it’s better to pay off a loan early, if you can. In the case of a personal loan, early payoff can lower the average age of someone’s credit history, possibly lowering their credit score.

In reality, the effect will depend upon their overall credit situation. Paying the loan off according to the schedule will keep it open longer, which can help with their credit age. On the other hand, they’ll pay more in interest because the loan is still open.

If you’re in this situation, weigh the pros and cons before making the decision that’s best for you.

How Long Can It Take To See Your Credit Score Change?

According to the credit report agency TransUnion, credit reports are updated when lenders send them new information. In general, this happens every 30-45 days, though some lenders update more frequently.

If you’re concerned about your credit score, consider signing up for a credit monitoring service. What qualifies as credit monitoring varies from company to company. Look for a one that sends alerts whenever your score changes for better or worse.

Recommended: What Is a Tri-Merge Credit Report?

The Takeaway

How paying off a debt affects someone’s credit score depends on the person’s overall credit profile. Paying off a credit card typically helps your credit score because the account remains open, lowering your credit utilization. Paying off a loan can hurt your score because the loan is then closed, potentially reducing your credit mix and age. Generally, though, borrowers shouldn’t let credit score concerns prevent them from taking actions that are in their financial interest.

To benefit from free credit monitoring and gain a bird’s eye view of your financial picture, try the SoFi Insights app. You can connect all of your accounts into one convenient mobile dashboard, set multiple financial goals, track your spending, and more — all in one place.

Track your money like a champion with SoFi Insights.

FAQ

How fast does your credit score increase after paying off a debt?

In fact, your credit score may dip for a short period after a debt is paid off. Lenders report new information to credit reporting agencies every 30-45 days, though some lenders update more frequently. Generally, you shouldn’t let concerns about your credit score prevent you from taking action that is in your best financial interest.

Is it best to pay off all debt before buying a house?

Credit report agency Experian says it generally makes sense to pay off credit card debt before buying a home. Just know that in some circumstances, paying off a debt may temporarily reduce your credit score — which can affect the loan terms you qualify for. If you do pay off a credit card, keep the account open until after you qualify for a loan.

How do you get an 800 credit score?

Pay bills on time, maintain a credit utilization rate under 30%, and effectively manage your credit history length, new credit requests, and credit mix. Although this won’t guarantee a score of 800, it will help you maximize yours.

Photo credit: iStock/Patcharapong Sriwichai