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If you’re applying for a mortgage, you’ll want to know what credit score mortgage lenders use when they’re looking at your credit. It’s more complex than it sounds.

More than 90% of mortgage lenders use scores generated by FICO® models — but each of the three major credit reporting agencies uses a different version of the FICO software.

How Mortgage Credit Scores Work

When you apply for a mortgage and your credit is pulled, the lender will see scores from credit reporting agencies Experian, Equifax, and Transunion.

Which FICO score do mortgage lenders use? The middle number. If two of the three scores are the same, lenders will use that number.

If you’re applying for a home mortgage loan with another person, the lender typically will look at the middle score of both parties and use the lower of the two. Fannie Mae calls for things to be done differently: Lenders of conventional conforming loans are to average the middle credit scores of all applicants.

Experian uses FICO Score 2, Equifax uses FICO Score 5, and Transunion uses FICO Score 4. If your middle credit score comes from Equifax, then your credit will have been scored on FICO Score 5. If your middle score comes from Transunion, your credit will have been evaluated using FICO Score 4, and so on.

Most mortgage lenders only consider FICO scores, but some also will look at a VantageScore® typically gleaned from one of the two latest scoring models.

Starting in late 2025, there will be new guidelines from Fannie Mae and Freddie Mac requiring that lenders provide newer FICO and VantageScore® credit scores when they sell the mortgages they write to these two government-sponsored companies. This could lead to a significant change in the scores that lenders use, although exactly when that will take place is still an open question.

Both FICO and VantageScore calculate credit scores in a range between 300 to 850, and both put the most weight on payment history and credit utilization (the amount of credit a cardholder is using compared with the person’s credit limits).

Bottom line? It might be mind-blowing to hear, but you have multiple credit scores. Complicating matters further, the scores you see on a credit card statement or in your credit monitoring app are likely higher than the score your lender will see.

Commonly Used Scoring Model in Mortgage Applications

Why do the three credit reporting agencies each use a different FICO scoring model for mortgages?

FICO designed the different versions specifically for each credit bureau because of the way the credit bureaus store and report information in a credit report. These legacy models have been used for years because until recently they were required by Fannie Mae and Freddie Mac for conventional conforming loans.

Despite each credit bureau using a different scoring model, the scores generated should be the same or similar.

Recommended: What Credit Score Is Needed to Buy a House?

Other Factors Mortgage Lenders Consider to Determine Mortgage Terms

Beyond knowing which credit score is used to buy a house, you may also want to know what other factors mortgage lenders consider when deciding whether or not to offer mortgage preapproval on your way to a loan.

Mortgage lenders also consider the following:

•  Steady income. Stable employment is one of the key indicators of a low-risk borrower who is able to repay the loan.

•  A low amount of debt. Lenders look at how much debt you have relative to your gross income. This is also called your debt-to-income ratio. If you have too much debt, you may not qualify for a new mortgage.

•  Assets. Though not as important as your income or debt, lenders will also look for high-value assets. This includes cash in your checking and savings accounts, investments, retirement accounts, and other property. Assets help a borrower appear less risky to a lender since the money could be used for a large down payment or to cover monthly expenses.

•  Down payment. Your down payment will affect your loan-to-value ratio, which will also affect your interest rate. With a higher down payment, the risk to the lender decreases, which is why you’ll pay a lower interest rate. A mortgage calculator can help you find a mortgage amount that may work for your situation.

How Your Credit Score Affects Your Interest Rates

Simply put, a better credit score gives you a better interest rate on most mortgages.

An FHA loan, which is backed by the Federal Housing Administration, is an outlier: Your rate and mortgage insurance premium will be the same no matter what your FICO score is. FHA loans are especially popular with first-time homebuyers in part because of the lenient credit score requirements.

With a conventional mortgage, your options, terms, and interest rates are often more favorable when you have a good credit score.

Recommended: Home Loan Help Center

What Factors Go Into a Credit Score?

Improving your credit score before you apply for a mortgage could pay off. It’s helpful to know what to work on that could help you.

•  Payment history. Paying on time every time may be the single most important thing you can do to improve your credit score. It shows that you’re a reliable borrower.

•  Credit utilization. Keeping your credit utilization under 30% is preferred by many lenders. Using most of the credit available to you shows a lender you may be overleveraged and unable to repay your loans.

•  Recent applications. Applying for a lot of credit in a short amount of time can be seen as risky by a lender. It may be wise to limit credit applications leading up to your mortgage application. Don’t worry about submitting multiple applications to different lenders when you’re shopping for a mortgage; as long as you do this within a brief window of time — say 14 days — this should only be considered one hard pull. Also, be sure not to open any new lines of credit while your mortgage is being processed.

•  Derogatory marks. A bankruptcy, delinquent account, judgment, charge-off, or accounts in collections are looked upon negatively. It may be best to take care of any issues on your credit report before applying for a mortgage.

Free credit reports are available from annualcreditreport.com. If you find an error, contact the business that issued the account or the credit reporting agency that issued the report. The Consumer Financial Protection Bureau also will assist with complaints.

What Is a Good Credit Score to Buy a House?

To qualify for the best rates on a conventional mortgage, aim for a score above 740. Higher scores reflect a lower credit risk, which is usually rewarded by lenders with more favorable terms.

Can you buy a house with a bad credit score? Possibly. Someone with a credit score as low as 500 (a “poor” FICO score) may qualify for an FHA loan or, with sufficient residual income, a VA loan.

Minimum Credit Score Required by Mortgage Loan Type

Different mortgage types have different minimum score requirements.

•  FHA: 500 if you can put down 10%. 580 if you want to put down 3.5%.

•  Conventional: 620

•  Jumbo loan: 700

•  USDA: No minimum, but scores above 640 are most successful with lenders

•  VA: No minimum, but it is advisable to have a score above 620

A lower credit score may be offset by compensating factors like a larger down payment or substantial cash reserves. “How much of a down payment do I need?” is one of the many mortgage questions to ask your lender.

The Takeaway

Your credit score is the key to unlocking great rates and terms from the lender of your choice. Knowing which credit score is used for a mortgage is a great first step to getting mortgage terms that can work for you. Take time to practice good credit usage habits before applying for a home loan and you may be rewarded with better rates and terms.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

What does “A” credit mean?

“A” credit is the grade equivalent of a credit score. It’s also called a credit rating and can be assigned to individuals, businesses, or even governments, though it’s usually reserved for higher credit scores. Credit ratings can range from AAA to a C or D, with AAA being excellent. Credit with an “A” grade represents a desirable borrower.

Which FICO score do mortgage lenders use?

Of the three FICO credit scores pulled from the three credit bureaus, lenders will home in on the middle number.

Can I get a home loan with bad credit?

There are options for borrowers with poor credit. FHA, for example, backs loans with 10% down when a borrower’s credit score is between 500 and 579. Borrowers with scores of 580 and above are eligible to put 3.5% down on FHA loans.

SoFi Loan Products
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.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q125-016

The main difference between a soft vs. hard credit check is that each hard check can knock a few points off your credit score, whereas soft checks don’t affect your score. Both hard and soft checks pull the same financial data but for different purposes. Hard checks are typically done when you apply for a loan or credit card; soft checks are conducted for most other purposes, such as pre-screening for credit card offers.

It’s important for consumers to understand this difference because too many hard checks — also known as hard pulls and hard inquiries — can significantly lower your credit score. This in turn can hurt your chances of getting the best offers on credit cards and loans. Keep reading to learn more about credit checks and how to prevent unnecessary hard checks of your credit file.

What Is a Soft Credit Inquiry?

A soft inquiry is when a person or company accesses your credit as part of a background check. They will be able to look at:

•   The number and type of all your credit accounts

•   Credit card balances

•   Loan balances

•   Payment history for revolving credit (credit cards and home equity lines of credit)

•   Payment history for installment loans (auto loans, mortgages, student loans, and personal loans)

•   Accounts gone to collections

•   Tax liens and other public records

Soft inquiries are not used during loan or credit card applications, and do not require the consumer’s permission or involvement. Reasons for a soft check can include:

•   Employment pre-screening

•   Rental applications

•   Insurance evaluations

•   Pre-screening for financial offers by mail

•   Loan prequalification

•   Checking your own credit file

•   When you’re shopping personal loan interest rates or credit cards

Soft credit checks do not affect your credit score, no matter how often they take place. Some soft checks appear on your credit report, but not all — you may never find out they took place.

When they are listed, you might see language like “inquiries that do not affect your credit rating,” along with the name of the requester and the date of the inquiry. Only the consumer can see soft inquiries on their report; creditors cannot.

Recommended: Does Applying for Credit Cards Hurt Your Credit Score?

What Is a Hard Credit Inquiry?

A hard credit inquiry typically takes place when you apply for credit, such as loans or credit cards, and give permission for the lender or creditor to pull your credit file. As with a soft credit pull, the lender will look at the financial information listed above.

Each hard pull may lower your credit score — but typically by less than five points, according to FICO® Score. All hard inquiries appear on your credit report. While they stay there for about two years, they stop affecting your credit score after 12 months.

Not all loans require a hard credit inquiry — but consider that a red flag. Some small local lenders may offer short-term, high-interest, unsecured personal loans. Borrowers must show proof of income via a recent paycheck, but no credit check is required. The risks of these “payday loans” are so great that many states have outlawed them.

Avoiding Hard Credit Inquiries

Consumers should carefully consider if they really need new credit before applying for an account that requires a hard credit check.

For example, department stores and some chains like to entice you to apply for their store credit card by offering a generous discount on your purchase as you’re checking out. In that situation, ask yourself if it’s worth a credit score hit (albeit a small one).

Another way to minimize hard inquiries is to ask which type of credit check a company intends to run. If, for example, a cable company usually requires a hard credit inquiry to open an account, you might ask if a hard pull can be avoided. Other situations where there may be some flexibility include:

•   Rental applications

•   Leasing a car

•   New utility accounts

•   Requesting a higher credit limit on an existing account

Disputing Inaccurate Hard Inquiries

A good financial rule of thumb is to review your credit reports every year to check for common credit report errors and signs of identity theft. You can access your credit reports from the three consumer credit bureaus (Equifax, Experian, and TransUnion) for free at AnnualCreditReport.com.

To check for inaccurate hard inquiries, look for a section on your credit report with any of these labels:

•   Credit inquiries

•   Hard inquiries

•   Regular inquiries

•   Requests viewed by others

You can dispute hard inquiries and remove them from your credit reports under certain circumstances: if you didn’t apply for a new credit account, you didn’t give permission for the inquiry, or the inquiry was added by mistake.

That said, under federal law, certain organizations with a “specific, legitimate purpose” can access your credit file without written permission. They include:

•   Government agencies, usually in the context of licensing or benefits applications

•   Collection agencies

•   Insurance companies, when certain restrictions are met

•   Entities that have a court order, as in child support hearings

Even so, if you didn’t give permission for a hard credit pull, it’s worth filing a dispute to request that the credit check be removed from your report.

Consumers may dispute hard inquiries online through AnnualCreditReport.com, or by writing to the individual credit reporting agencies.

Hard Credit Checks and Your Credit Scores

As mentioned, hard inquiries appear on your credit report, and each hard pull may lower your credit score by five points or less. Here we’ll go into a bit more detail.

Why Hard Inquiries Matter

Multiple hard inquiries within a short time frame can do significant damage to your credit score. It could potentially be enough to move you from the Good credit range down to the merely Fair. Someone in a Fair credit range can pay substantially more over a lifetime in interest and fees than someone with a Good score or higher.

How Many Points Will a Hard Inquiry Cost You?

As noted above, each hard pull can lower your credit score by less than five points. One or two hard inquiries per year may not matter, especially if you’re not planning on applying for a loan.

If you’re rate shopping for a particular type of loan, such as a mortgage or auto loan, keep in mind that multiple hard credit checks within a specific period (often several weeks) for the same purpose are usually counted as one inquiry by credit scoring companies. However, this is not the case with hard pulls for credit card applications.

How Long Do Inquiries Stay On Your Credit?

Hard inquiries stay on your credit report for two years. While they’re on your credit report, they are visible to anyone who checks your credit. But their impact on your credit score typically lasts less than 12 months.

Soft inquiries may remain on your credit report for one or two years, but only you can see them.

The Takeaway

Soft credit inquiries do not affect a credit score, while hard credit inquiries may cost you a few points. In both cases, individuals or businesses pull information from your credit reports. Checking your own credit report counts as a soft pull, as do most other situations where the consumer hasn’t given written permission. Hard pulls are typically done only when you’re applying for a loan or new credit account.

Many lenders allow you to “prequalify” for a loan without running a hard credit check. This allows you to shop rates without risking any impact to your credit.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

SoFi Loan Products
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.

SOPL-Q324-025

If you’re responsible about paying your cable bill on time, your cable bill likely won’t impact your credit score at all. Payments on your cable bill generally are not reported to the credit bureaus — unless they’re seriously late. In that case, if your payments are late enough to be sent to collections, you could see your score drop.

Also, if you use a credit card to pay your cable bill, it could impact your score, depending on how you manage those payments. Learn more here.

What’s a Cable Bill?

A cable bill is a statement for an unpaid entertainment service or subscription, like a cable television subscription or package plan. It might include costs like the base price of the plan or service, along with other fees.

Cable bills fall under the “utility bills” category, which includes other household expenses, like electricity, water, and gas. However, unlike those essential utilities, cable service might be one of the first expenses to cut if you’re living on a budget.

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

How Not Paying Your Cable Bill Affects Your Credit

Your cable bill generally doesn’t affect your credit score — that is, unless you fail to pay it.

On-time cable bill payments won’t help you build credit, nor will they strengthen it. That’s due to the fact that cable servicers don’t traditionally report timely payments to the major credit bureaus (Experian®, Equifax®, and TransUnion®).

If you’ve missed multiple payments, servicers can do one of two things: charge off the unpaid balance or send it to collections. In both situations, your credit score will take a hit.

Recommended: What is a Charge Card?

How Do Late Cable Bill Payments Affect Credit Score?

Whether paying a cable bill late affects your credit depends on how late you are with payment. Typically, late payments are reported to credit bureaus when they’re at least 30 days overdue and are marked delinquent.

If you provide a late payment after your due date, but before it’s sent to the bureaus, the consequences are at your service provider’s discretion. However, if the payment was made after the late payment was reported, or you missed a payment entirely, your credit score will usually drop.

Recommended: When Are Credit Card Payments Due?

How Long Does Late Cable Bill Payment Negatively Impact Your Credit?

Late payments that are reported to the credit bureaus have a lasting effect, whether it was one indiscretion or a chronic occurrence. Late cable bill payments can stay on your credit report for up to seven years.

As such, if you’re finding yourself routinely struggling to put aside enough for your cable bill, you might look into methods for saving on streaming services.

How to Use Your Cable Bill to Build Credit

Paying bills with a credit card is a straightforward way to establish credit when you’re new to it. If you’ve been approved for your first credit card, you might consider using it to pay for your cable bill.

Then, when your credit card bill is due, you can make a manual payment. Even better, set up automated bill payments ahead of time so you never miss a bill.

As you make on-time payments on your credit card, your card issuer will routinely report your positive payment data to the credit bureaus. Over time, with responsible credit card repayment and keeping your revolving debt manageable, you can build your credit.

Recommended: Tips for Using a Credit Card Responsibly

Alternative Ways to Build Credit

If you’ve never had credit or you want to take steps to positively impact your credit profile, here are a few other strategies to build credit.

•   Get a secured credit card. A secured card can offer a small credit line to new credit users. It requires a deposit, which the card issuer typically sets as your credit limit. As you use your card up to this limit and repay it, the issuer reports your payment activity to the bureaus.

•   Get a retail card. Store-branded credit cards, such those from department stores, gas stations, or retail brands, can be easier to get than traditional credit cards. However, they usually have lower credit lines.

•   Make payments on time. When you do open a new credit card or installment loan, stay on top of monthly payments as they account for 35% of your credit score. Organize bills to identify when your due dates are, and consider enrolling in auto-pay to conveniently pay your bills on time.

•   Apply for an installment loan. This might include consumer loans, like a secured personal loan or an auto loan, to help you build your credit file. If you’re a college student and need additional financial aid beyond scholarships, grants, or work-study, a student loan can help pay for your education and establish your credit profile. Always seek out federal student loans first, before a private student loan. Federal loans offer greater borrower protections and benefits.

•   Ask your landlord to report rent payments. Most landlords don’t report your on-time rental payment data to the credit bureaus. However, more third-party services, including Experian’s own Experian RentBureau, are making this possible. Ask your landlord if they are willing to share your good rent payment activity with credit bureaus for your credit file.

•   Become an authorized user. Ask someone with whom you have a close relationship, like a parent, grandparent, spouse, or sibling, if they will add you to their credit card account as an authorized user. Some lenders report good payment habits to the credit bureaus for all users on the account. Even if you’re not liable for making payments on the credit card, the reported data can establish your credit and build your score.

Recommended: Understanding Purchase Interest Charges on Credit Cards

The Takeaway

Although your cable bill typically doesn’t impact your credit score, staying in good standing on the account can help keep your credit out of trouble. That’s because seriously overdue payments can show up on your credit report, where they’ll remain for up to seven years. On the other hand, one way that you can get your cable bill payments to have a positive effect on your credit is by using your credit card to pay it and always paying your bill on time.

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

FAQ

Does paying cable bills on time build your credit score?

Cable providers typically don’t report on-time payments to the credit bureaus. Since this data isn’t shared with the bureaus, timely payments don’t directly affect your credit score. However, if you pay on time with a credit card, that could positively affect your score.

Do late cable bill payments hurt your credit score?

Late cable bills affect credit scores if they’re marked as a charge-off by your provider or are sent to a debt collector. Accounts with these statuses are reported to credit bureaus and harm your score.

Are cable bill payments reported to a credit bureau?

Cable bill payments typically aren’t reported to credit bureaus, unless you’ve missed multiple payments that have been charged-off or are in collections.

Photo credit: iStock/damircudic

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

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOCC-Q125-004

While there are many things that determine your credit score — including your payment history, credit utilization, and the average age of your credit accounts — investing in stocks is not one of them.

That being said, while investing or opening an investment account does not directly affect your credit score, it’s possible for it to have an indirect effect. For instance, if you open a margin investment account that comes with a loan or line of credit, that debt may show up on your credit score. Additionally, your investment performance may have an impact on your overall financial picture, which can affect your ability to pay off your debts.

How Does Trading Stocks Affect Your Credit Score?

There are many factors to consider before investing in stocks, like how to choose good investments or making sure that your overall finances are sound. The good news is that in most cases, you won’t need to worry about how trading stocks affects your credit score.

That’s because the amount of money you have in investment accounts (and how well you do at investing in stocks) does not usually show up on your credit report or impact your credit score. As such, investing isn’t a path toward establishing credit.

Recommended: Tips for Using a Credit Card Responsibly

What Happens to Your Credit Score if You Open a Brokerage Account?

If you’re looking to get started with investing in stocks by working with a broker, know that brokerage accounts are not typically reported to the major credit bureaus. This means that opening a brokerage account generally should not have any overall impact on your credit score.

One possible exception is if you open a margin account. Margin accounts allow you to borrow money and buy stocks for more than the actual cash you have in your account. Because some brokerages consider margin accounts as loans, there may be a credit check involved. This could have a small impact on your credit score (typically, it will lower your score by several points), but it usually goes away after a few months.

How Does Opening an Investment Account Affect Your Credit Score?

Most investment accounts do not show up on your credit report. So, opening an investment account will generally not affect your credit score. Whether you are buying stocks with a credit card or investing by depositing cash into your account, your balance and investment performance will not impact your credit score.

That being said, opening an investment account and actively investing in stocks or other investments can indirectly affect your credit score. If you end up losing money in the stock market, it might negatively impact your ability to meet your other debt obligations. Should you have money tied up in your investment account and end up leaning more on your credit cards to cover costs or missing payments, that can have a negative impact on your credit score (say, by raising your credit utilization ratio or leading to late payment) and hamper your efforts at building credit.

Recommended: When Are Credit Card Payments Due?

How Making Investments May Affect Your Credit Score

There are many different ways to invest your money, and many different types of investments. But nearly all investment accounts do not show up in your credit score. So regardless of what type of investing you prefer — whether stocks, bonds, mutual funds, precious metals, or something else — your investing activity should not impact your credit score.

Recommended: Breaking Down the Different Types of Credit Cards

The Takeaway

Investing in stocks is one popular way that some people build wealth. While there are pros and cons to investing in stocks, it’s important to realize that investing in stocks — or most types of investments, for that matter — does not show up on your credit report and does not affect your score.
That said, there are other ways to positively impact your credit score, including using a credit card wisely.

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

FAQ

Can I open a brokerage account with a bad credit score?

Yes, you can open a brokerage account with a bad credit score. Generally speaking, your broker will not issue a credit check to open a brokerage account. Additionally, in most cases, your brokerage account will not show up on your credit report. One exception may be if you apply for a margin account. Margin accounts can be considered loans, so your broker may not approve you for one if you have bad credit.

Can I open an investment account with a bad credit score?

There generally is not a credit check to open an investment account, so it is usually possible to open an investment account even if you have a bad credit score. Further, most investment accounts will not show up on your credit report, help you build credit, or impact your credit score.

Do stocks show up on your credit report?

In most cases, stocks (as well as bonds, mutual funds, and other investments) do not show up on your credit report. Your account information, balance, and investment performance do not usually impact your credit score.

Photo credit: iStock/tdub303

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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 Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOCC-Q125-003

While joining a credit union likely won’t affect your credit score in and of itself, some of the financial products offered by credit unions can have an impact on your score. For example, a credit union may offer lower interest rates on loans, which can help you keep an affordable monthly payment that’s easier to make on time. You also may be more likely to get approved for a credit union credit card than one from a bank, and responsibly using that card could help you build your credit score.

What Is a Credit Union?

A credit union is a nonprofit financial organization that exists to serve its members, who are also its owners. This can mean that credit unions may be able to offer higher interest rates on savings and lower interest rates on loans and credit cards, as well as charge fewer fees.

Credit unions can offer many of the same financial services and products as banks and online lenders, though their lineup and number of locations can be a bit more limited. To gain access to a credit union’s products, you’ll need to become a member, which entails meeting certain requirements. Credit unions often target certain communities or regions.

Recommended: What Is a Charge Card?

Credit Unions vs Banks vs Online Lenders

Here’s a brief look at how credit unions compare with both banks and online lenders:

What Is a Credit Union Credit Card?

Many credit unions partner with credit card issuers to issue a cobranded credit card. The types of credit cards that are offered by credit unions vary widely depending on the particular credit union. They can include rewards credit cards that offer points or cash back or secured cards designed for those looking to build their credit.

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

What Credit Score Is Typically Needed for a Credit Union Credit Card?

Each credit union is owned by its respective members, so there isn’t a set credit score that’s needed for a credit union credit card. Rather, each credit union sets its own parameters for the credit score and other financial requirements for approval.

That being said, you may have better luck getting approved at a credit union compared to a traditional bank, even if you are still building your credit. Some credit unions may be more flexible than other lenders, but keep an eye on what interest rate you will be charged. Typically, the lower your qualifying score, the higher your interest rate.

How a Credit Union Credit Card Can Help Build Your Credit Score

Here are some of the ways a credit union credit card could help you to build your credit score.

Potentially Easier Approval

Getting approved for and opening a credit card or loan is key to establishing credit. However, it can be challenging to get credit if you’ve never had it before. Because credit unions are owned by their members, you may find it easier to get approved for a new credit card. And if you are denied, it may be easier to talk with a customer service representative and learn what steps you might take to access a card.

Lower Interest Rates

While this isn’t necessarily true across the board, many credit unions offer lower interest rates on debt products like loans and credit cards. Having a lower interest rate can help you build your credit score by making it easier to stay on top of paying down debt.

Fewer Fees

Along with lower interest rates, it‘s common for credit unions to charge fewer fees than traditional banks or other lenders. Since credit unions are not-for-profit, they don’t need to charge some of the fees that banks and other financial institutions do. Paying fewer fees can help you keep more of your money in your pocket to pay down debt and save for the future.

Automatic Payments Option

Many credit unions allow you to set up automatic payments on your credit union credit card account. Additionally, most credit unions offer different checking and savings account options, so you can easily pay your credit card from your checking account. This setup helps avoid missing payments, which can help to build your credit score, given one of the best tips for building credit is to pay your debt obligations in full and on time, each and every month.

Recommended: When Are Credit Card Payments Due?

Are Credit Unions Safe?

Just like money in banks is insured by the Federal Deposit Insurance Corporation (FDIC), the funds you keep in credit union accounts are insured by the National Credit Union Administration (NCUA). NCUA is an organization of the federal government that insures up to $250,000 per individual account that you have at a federally insured credit union.

Still, you’ll also want to take simple steps to keep your account safe online, such as verifying transactions and choosing strong passwords.

Is It Worth It to Join a Credit Union?

Joining a credit union can be a wise financial move, especially if you find one that is a good fit for you and that offers the products and services you need. Many people enjoy being a partial owner of a credit union rather than just being one more customer at a for-profit bank, as credit unions tend to be more community-oriented. And the good news is that switching banks is usually not that difficult.

Alternative Ways to Build Your Credit Score

Joining a credit union won’t help build your credit score on its own, but it can be a good first step toward building your credit. Here are a few other ways that you can build your credit score:

•   Use a credit card cosigner to increase your approval odds.

•   Apply for a secured credit card, which requires making a deposit.

•   Get one of the different types of credit cards from a major issuer.

•   Review your credit report regularly for any inaccurate information.

•   When you buy your next vehicle, use an auto loan and then responsibly make payments.

•   Take out and responsibly use a personal loan.

•   Become an authorized user on the account of someone with strong credit.

Recommended: Tips for Using a Credit Card Responsibly

The Takeaway

Credit unions are nonprofit financial institutions that offer many of the same financial products as banks and other online lenders. But unlike banks, credit unions are owned by their members, which can help keep interest rates high and fees low. Joining a credit union won’t help you build your credit by itself, but taking advantage of credit union perks and financial products may help you build your credit.

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

FAQ

Will joining a credit union build my credit score?

Joining a credit union in and of itself will not build your credit score, since the fact that you are a member of a credit union does not usually appear on your credit report. However, credit unions offer many financial products, including loans and credit cards. Making responsible use of some of these credit union offerings can help you build your credit.

What are the disadvantages of joining a credit union?

Because credit unions are owned by their members, you generally can’t simply open up an account. Instead, you may have to belong to a specific group or pay a small membership fee to get an account. Many credit unions are also smaller than most banks, so they may not offer all of the financial products you’d find at a larger bank.

Will credit union credit card payments show up on my credit report?

Most credit card payments — including credit union credit card payments — are reported to the major credit bureaus. Paying your statement balance on time and keeping your balance low can be great ways to help build your credit.

Photo credit: iStock/sshepard

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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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