Credit Archives | Page 41 of 80

Jan

2023

Is it Possible to Build Credit With a Debit Card?

By Jennifer Calonia | Credit, credit card, Family Finances | Comments Off

Unfortunately, building credit with debit card activity won’t kickstart your credit file. Having a solid credit history provides greater access to competitive financing offers. Additionally, your creditworthiness is reviewed in other parts of your life, like when renting an apartment unit or applying for a job.

That’s why it’s worth exploring ways you can build your credit, given the fact that you can’t build credit with a debit card. Once you understand how building credit works, there are a few strategies you can explore to establish your credit.

Recommended: How to Avoid Interest On a Credit Card

How Does Building Credit Work?

Purchasing goods or services on credit means you’re borrowing money that you don’t already have to make the purchase now. When you enter into this agreement with a lender, you’re accepting the responsibility of repaying the balance — typically, plus interest — over time.

The lender reports the new credit account under your identity to the credit bureaus, Experian, Equifax, and TransUnion. As you make payments toward the debt, your lender will send routine updates to the bureaus about the account’s status and repayment activity.

Your borrowing and repayment data is what creates your credit profile and what’s used to determine your credit score. Keep in mind that all data is reported by your lender, whether positive or negative. For example, if you’re chronically late on your loan payments, but make on-time payments toward a credit card, all of this information is reflected on your credit report.

Recommended: When Are Credit Card Payments Due?

Can You Build Credit With a Traditional Debit Card?

Although they’re a helpful financial tool, when your goal is building your credit from scratch, the pros and cons of debit cards should be closely considered. One major downside is that you generally can’t build credit with a debit card.

That being said, some financial tech companies do offer debit cards with a credit-builder feature that can help you build your credit. This feature is not typical of most debit cards though.

Still, debit cards are convenient in that they let you spend your money without carrying physical cash. They can also help you avoid racking up debt for purchases, and in some cases, it’s even possible to pay a credit card with a debit card.

Can You Use a Credit Card to Build Credit?

A credit card is a common financial tool that’s used to build credit. That’s because card issuers send credit card activity data to the credit bureaus.

A traditional credit card is a revolving credit line in which the issuer sets a maximum borrowing limit on the card. When using a credit card like a debit card, you can swipe your card to cover everyday purchases, like groceries or your cell phone bill. However, instead of those funds coming out of an attached bank account, you’re borrowing them — meaning you can spend with a credit card up to your credit limit, regardless of whether you actually have the money on hand at the moment.

At the end of each billing cycle, you’ll need to repay at least the minimum amount due, which is typically a portion of the total balance. Paying the minimum amount by the due date is sufficient to maintain positive payment data on your credit file.

However, this means you’ll accrue interest for rolling over a balance into the next billing cycle. When building your credit with a credit card, make sure you can afford to repay the full statement balance each month to avoid costly fees and deeper debt.

Recommended: What is the Average Credit Card Limit?

When to Use a Credit Card vs. Debit Card

The differences between credit cards and debit cards when it comes to establishing your credit are stark.

When you’re first starting out with credit, consider using a credit card for a few smaller purchases, like your next cup of coffee, or a recurring expense, like a streaming subscription. Keeping your purchases small and manageable adds bulk to your credit history while allowing you to better track your spending. That way, you don’t end up with overwhelming debt.

Your debit card, on the other hand, can be useful to pay for bills that only accept payment from a checking account, or if you’d like to access your cash at an ATM. You’ll need to ensure you have the funds in your account before you swipe, but you don’t run the same risk of racking up debt that you do with a credit card.

Other Ways to Build Credit

Since building credit with a debit card isn’t effective, you can start building your credit using one or more of the strategies below. Although these are all viable approaches to establishing credit, be aware that the process takes time.

Become an Authorized User

Ask a family member or trusted friend who has good credit if they’re willing to add you as an authorized user on their credit card. As an authorized user, a credit check isn’t required, and you’re ultimately not responsible for making the payments on the account.

If the card issuer reports data for both the primary cardholder and authorized users on the account, this strategy can help with establishing credit.

Report Your Rent Payments

An unconventional way to build credit without a debit card is reporting payment data, such as rent payments or utility bills. Ask your landlord and service providers if they’re willing to report your rent payment history to the credit bureaus.

For example, landlords and property management companies can report rental payment data through Experian RentBureau. Your rent payment data is then included in your consumer credit report so you can establish your credit with your on-time rent payments.

Use a Credit Card Responsibly

As mentioned, credit cards do help when it comes to building credit. You might consider applying for a secured credit card or a more basic card with lower eligibility requirements as you get started establishing your credit profile. This will require consistently making on-time payments and keeping your spending in check.

Once you’ve started to build up your credit through responsible behavior, you might even have the opportunity to earn rewards as an added bonus alongside building your credit. Some credit cards offer rewards points, miles, or cash back for each dollar you spend on the card.

The Takeaway

Debit cards can offer a number of advantages, but building credit with a debit card is not among them. Although you can’t build your credit with a debit card, there are many other ways to get your credit profile started. This can include becoming an authorized user on someone else’s credit account, getting your on-time rent or other bill payments reported to the credit bureaus, or opening a credit card account.

FAQ

Does debit card usage get reported to credit bureaus?

No, your debit card usage is not reported to the three credit reporting bureaus. Debit card transactions are linked to a bank deposit account in which you’re drawing funds from your own pool of money.

Why can’t you build credit with a traditional debit card?

You can’t build credit with a traditional debit card because while a debit card offers the convenience of cashless purchases, you’re not actually borrowing money. Instead, you’re pulling funds from a personal checking account that’s tied to the debit card.

Does a debit card affect your credit score?

No, using a debit card doesn’t affect your credit score. However, carrying a debit card can be a useful part of managing your finances.

Photo credit: iStock/Drazen Zigic

Jan

2023

Does Financing a Car Build Credit? How Car Loans Affect Credit

Does Financing a Car Build Credit? How Car Loans Can Affect Your Credit Score

By Dan Miller | Credit, credit card, Family Finances | Comments Off

If you’re like the millions of Americans who have an outstanding auto loan, you may be wondering how your car loan affects your credit. Applying for and having a car loan does affect your credit, as long as the loan is reported to one of the major credit bureaus.

Like with most other debt obligations, responsibly making on-time payments can help your credit score — in this, way financing a car can build credit. On the other hand, making late or missed payments can hurt your credit score, as can the hard pull of your credit report that potential lenders conduct when you apply for an auto loan.

Recommended: When Are Credit Card Payments Due?

How Does Car Financing Work?

While it is possible to pay for a new car with cash, it’s common for many potential auto buyers to use car financing. You may get a car loan for the full purchase price, or make a down payment and get a loan for the rest of the amount.

The lengths of car loans vary but are commonly 48, 60, or 72 months. After making your payments for the balance of the loan, the loan is paid off and you take full ownership of the car.

Note that your car acts as collateral for an auto loan. This means that if you fail to repay the amount borrowed, the lender can take your car to recoup its losses.

How Financing a Car Can Affect Credit Positively

Most car loans are reported to the major credit bureaus, and your payment history and balance is usually included on your credit report. Making on-time payments on your car loan can have a positive impact on your credit. Potential lenders want to see a history of reliably paying your debts, and making payments on a car loan can help with establishing that.

Another factor that makes up your credit score is having a healthy mix of different types of credit. This can be another reason why having an active auto loan can help build credit, as it adds to the types of credit you have.

How Financing a Car Can Affect Credit Negatively

Just as making on-time payments on your car loan can have a positive impact on your credit score, missed or late payments can affect your credit negatively.

Additionally, when you initially apply for an auto loan, the lender will conduct a hard pull on your credit report to verify your creditworthiness. This can drop your credit score by a few points, though those drops usually only last a few months. If you’re working with multiple lenders, keep in mind that hard credit pulls by multiple lenders in a short period of time will usually get combined.

And while paying down debt is often a good idea, paying off a car loan affects your credit in some additional ways. If you don’t have other debts or loans, it’s possible that paying off your loan can have a negative impact on your credit score. This is because your on-time payments no longer get reported, and you’ll have one fewer type of credit to your mix. Additionally, if you took out your car loan a while ago, paying it off can impact the average age of your open accounts, which also influences credit.

Factors That Influence Your Credit Score

The biggest factor that influences your credit score is your payment history. Potential lenders want to see that you reliably pay your debts, and making on-time payments is one way to show that. Other factors that influence your credit score are:

• Your average age of accounts

• Credit mix

• How much you owe

• How many recent inquiries appear on your credit report

Tips to Build Your Credit Score

If you’re wondering, ‘does a car payment build credit?’, then you’re likely hoping to boost your score. Here are some tips to consider to build credit:

• Make sure that you always pay your bills on time.

• As you apply for new debt or credit, only apply for loans that you know you have the financial ability and discipline to pay.

• Aim to keep your credit utilization — the amount of your total credit you’re using — at 30% or lower. Having a higher credit utilization rate can negatively affect credit.

• Remember to check your credit report at least once a year. Not only can this help you to monitor your credit health and understand the impacts of various activities on your credit, it can help you spot any errors or fraudulent activity.

Recommended: Credit Score Needed to Buy a Car

Mistakes to Avoid When Financing a Car

One of the biggest mistakes that you can make when financing a car is applying for a higher loan amount than you can afford. When you take out a car loan, you’re making a multi-year commitment to make those monthly payments. If you take out a loan for more money than you can reasonably afford, you run the risk of destabilizing your overall financial situation and ending up in a situation where you make late payments or, even worse, miss payments.

Recommended: Average Payment for a Car

Is a Car Loan a Wise Option to Build Credit?

A car loan can be a good option to build up your credit. Remember, what potential lenders are looking for when they look at your credit report is a history of meeting your debt repayment obligations. A car loan that you regularly pay on-time can be a great way of showing that you are reliable.

Follow our tips for getting a car loan to give you a head start toward building your credit.

Other Ways to Build Credit

Aside from turning to car financing to build credit, here are a few other ways to build credit that you might consider.

Become an Authorized User

Another way that you can build credit is by becoming an authorized user on someone else’s credit card account. When you are an authorized user on a credit card account, you’re not financially responsible for paying the statement, but it still shows up on your credit report. Keep in mind that how the primary account holder manages their account can affect your credit score, either positively or negatively.

Consider a Personal Loan

Another option to build credit is by taking out a personal loan. Unlike a car loan, which is considered a secured loan since the car itself acts as collateral for the lender, a personal loan is an unsecured loan. That means that there is no collateral for the lender to seize if you stop making payments.

In certain situations, this can make a personal loan a great option for building credit. In fact, if an auto loan isn’t the right option, you can consider getting a personal loan for a car.

Apply for a Credit Card

Responsibly using a credit card and paying it off in full each month is another way that you can establish credit. Your credit card balance and payment history are typically reported to the major credit bureaus.

Additionally, some credit cards, like the SoFi Credit Card, offer rewards, such as cash-back rewards, with each purchase. Those rewards can be a boost to your monthly budget.

The Takeaway

If you take out an auto loan to buy a new or used car, it will typically get reported to the major credit bureaus. That means making on-time payments on your auto loan can help you build credit. Similarly, late or missed payments can have a negative impact on your credit score.

Applying for a credit card and making regular payments can be another way to build your credit. When you’re ready for a new credit card, consider a cash-back rewards credit card like SoFi’s credit card. With the SoFi credit card, you can earn unlimited cash-back rewards if you’re approved. You can use those rewards as a statement credit, invest them in fractional shares, or put them toward other financial goals you might have, like paying down eligible SoFi debt.

Apply for a SoFi credit card today!

FAQ

Does paying off a car loan help build credit?

While making regular payments on your car loan helps you build credit, paying off your car loan doesn’t always have the same impact. When you pay off your car loan, you no longer have the monthly payment history showing up on your credit report. Still, paying off a car loan can be a good financial move since it helps lower the total amount of your debt.

How can I keep my payment within my budget when financing a car?

The monthly payment amount of your car loan will depend on a variety of factors — the total purchase price of the car, your down payment, the length of the car loan and your interest rate. If you want to keep your monthly payment below the average payment for a car, you can get a cheaper car, make a higher down payment, or take out a longer loan. You can also work on raising your credit score to hopefully qualify for a lower interest rate.

Recommended: How to Avoid Interest On a Credit Card

How fast can a car loan raise my credit score?

While taking out a car loan can possibly build your credit, you shouldn’t count on an immediate positive impact. In the short-term, it’s possible that your credit score may decrease from the new credit inquiries and the additional debt that shows up on your credit report. However, over time, making regular and on-time payments on your auto loan could improve your credit score.

Does leasing a car build credit?

Most lease payments are reported to the major credit bureaus. That means that regular, on-time payments can help you build your credit in a similar manner to buying a car with a car loan. However, if you make late payments or miss payments on your lease, it can have a negative impact on your credit score.

Photo credit: iStock/Zorica Nastasic

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

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

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

¹See Rewards Details at SoFi.com/card/rewards.

Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details, please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, Member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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Jan

2023

How Long Does It Take to Build Credit?

By Dan Miller | Credit, credit card, Financial Independence | Comments Off

Building good credit (or any credit at all) doesn’t happen overnight. Instead, you may need to have an open credit account for around three to six months before you first get a credit score.

From there, a good credit profile and good credit score can take awhile to build up. In reality, it’s much easier to lower your credit score, which is why it’s vital to aim to make solid financial choices, like consistently paying your bills on time. Building and maintaining good credit isn’t always easy, but by following a few simple steps, you can put yourself on solid ground.

How Long It Can Take to Build Credit From Scratch?

The exact length of time it takes to build credit from scratch varies by credit card issuer. That being said, it’s usually around three to six months from the time you first open a credit account.

Even though establishing and building credit can take time, it’s worth it as a way to improve your overall financial situation. Having good credit can make it easier to get approved for loans and secure lower interest rates.

Recommended: How to Avoid Interest On a Credit Card

4 Ways to Build Credit

If you’re hoping to begin building credit, here are some tactics you might consider.

Become An Authorized User

One way to help build your credit is by becoming an authorized user on an account of someone who already has good credit. This might be a trusted friend or family member. As they make on-time payments, that can have a positive impact on your credit score as well. Just know that if they miss or make late payments, that can also negatively impact your credit.

Recommended: When Are Credit Card Payments Due?

Apply For a Credit Card

If you’re getting a credit card for the first time, know that it is possible to apply for and get approved for a credit card with no existing credit history. However, you do need to be selective about which card you apply for. You’re unlikely to get approved for a premium or luxury credit card if you don’t already have excellent credit.

Still, there are credit cards that are marketed toward those who have no credit or a limited credit history. You might also consider a secured credit card, where you put down a refundable security deposit that then serves as your credit limit.

If you can get approved for a credit card, using that card responsibly, such as by making on-time payments, can help you build up your credit.

Recommended: Time It Takes to Get a Credit Card

Get a Cosigner

If you aren’t able to get approved for a loan on your own, you might consider applying for credit with a cosigner. Using a co-signer with good credit can help improve your chances of getting approved for a loan.

Then, if you reliably make on-time payments, that will get reported to the major credit bureaus and hopefully help you start building your credit score.

Maintain Good Credit Habits

Once you have opened a credit account like a loan or credit card, it’s important to practice good credit habits. This includes paying your statement off in full, each and every month. Demonstrating a pattern of reliably paying your bills over time shows potential lenders that you’re likely to repay your debts.

Factors That Affect Credit Score Calculations

There are five major factors that affect your credit score:

• Credit utilization: Your credit utilization is the amount of the credit you’ve used compared to your total available credit. It’s recommended to keep this ratio to 30% or less.

• Payment history: This indicates how reliably you make payments on your existing accounts.

• Types of credit accounts: Having a good mix of different types of credit accounts has a positive impact on your credit score, as it indicates to lenders that manage multiple types of accounts.

• Your average age of accounts: Having a lengthy credit history is a positive sign. This shows you have experience in responsibly managing accounts.

• New credit: Opening a number of accounts or making a number of hard inquiries in quick succession can suggest to lenders that you’ve overextended yourself and are in need of funding to bail you out.

Recommended: Starting Credit Score for 18-Year-Olds

Things to Keep in Mind Before Building Credit

If you’re looking to build good credit, here are some tips on establishing credit to keep in mind.

Have a Solid Financial Plan

The first thing you’ll want to do is set up a budget. Getting a new credit card should not be viewed as a way to fix your budget or dig yourself out of a financial hole. Instead, the best way to use a credit card is as a tool of convenience for money that you already have. Make sure that you have the financial ability and discipline to pay your bills in full, each and every month.

Watch Out For Scams

Usually building credit is something that you do over a period of several months or years. If someone tells you that they can build or repair your credit quickly, it could be a sign of a credit card scam. There aren’t many shortcuts to the simple rules of just regularly paying your bills on time.

Don’t Open Too Many Accounts At Once

You might think that since opening a credit account can help build credit, opening many accounts will help build credit even faster. However, that is usually not the case. Many lenders view a high number of credit inquiries in a short period of time as a negative indicator. They may see it as a potential red flag that someone is in a bad financial situation.

The Takeaway

If you’re just starting out and have no credit history at all, you generally start without an actual credit score. It can take a few months after you open a credit account to start establishing a score. As you continue to show that you’re responsible for the credit you have, your score will likely increase. Building credit can take time, and you should be skeptical of any people or programs that say they can build your credit fast.

If you’re in the market for a new credit card, you might consider a cash-back rewards credit card like SoFi’s credit card. If you’re approved for a credit card with SoFi, you can earn unlimited cash-back rewards. You can use those rewards as a statement credit, invest them in fractional shares or put them toward other financial goals you might have, like paying down eligible SoFi debt.

Apply for a SoFi credit card today!

FAQ

What credit score do you start with?

There isn’t a starting credit score for those without any credit history. While you might think that you start with the lowest possible credit score (like 300) and have to build your way up, you actually don’t start with any credit score at all. As you open credit cards or other accounts, you’ll start to establish a credit history and score.

How long does it take to build a good credit score?

It usually takes anywhere from three to six months to start building a credit score after you’ve opened your first credit account. You’ll then continue to build and improve your credit by continually making on-time payments. You can always check your credit score periodically to see where you’re at on your credit journey.

How long does it take to recover from a hard inquiry on your credit?

Usually when you apply for a new credit card or other loan, your potential lender will pull your credit file. This is known as a hard inquiry. Since the number of recent hard inquiries is one factor in determining your credit score, applying for credit cards can lower your credit score. However, these inquiries typically only lower your score by a few points and drop off your report after a few months.

How fast can you build your credit in 3 months?

How fast you can build your credit depends on a number of factors. Generally, it takes a few months after you’ve opened a credit account to even establish any credit. Your credit score will improve as you continue to use your credit responsibly. It’s best to think about building credit as more of a marathon than a sprint.

Photo credit: iStock/YakobchukOlena

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.

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

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

¹See Rewards Details at SoFi.com/card/rewards.

Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details, please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, Member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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 .

SOCC1122001

Jan

2023

Does Cosigning Build Credit? How Cosigning Affects Credit

By Dan Miller | Credit, credit card, Financial Independence | Comments Off

If you are working on building your credit, you may be interested in cosigning or getting a cosigner for your own credit application. In some cases, you may not be able to get approved for a loan if you don’t have any credit history. If that’s the case, one way that you can help build credit is by having a cosigner.

A cosigner is someone you know who already has established a positive credit history and a good credit score. This person is usually a trusted friend or family member. The prospective lender will consider the credit of both the primary applicant and any cosigners when deciding whether or not to approve the loan.

Recommended: What is a Charge Card?

How Does Cosigning Work?

Cosigning is one way to build credit if you don’t already have an existing credit history. When you have a cosigner, the lender will use both your credit profile and that of the cosigner to determine whether or not to approve your loan request.

Without any sort of credit profile, some lenders may not be willing to issue you credit, or the interest rates they offer may be quite high. In those cases, you may consider applying with a cosigner who already has good credit in order to increase your odds of getting approved or securing better terms.

Recommended: How to Avoid Interest On a Credit Card

Cosigning vs Authorized User

Besides cosigning, becoming an authorized user is another way to help build credit. Here is a quick look at how the two approaches differ:

Cosigning	Being an authorized user
The amount of debt factors into the cosigner’s debt-to-income ratio.	Debt information on an account where you are the authorized user does not affect your debt-to-income ratio.
Both the cosigner and the primary account holder are responsible for making the payments.	An authorized user is not responsible for making payments.
Both the primary account holder and the cosigner must be adults.	Children can be approved as authorized users on a parent’s account.

Recommended: When Are Credit Card Payments Due?

Does Cosigning Help Build Your Credit?

When used appropriately, cosigning can help build your credit. Just make sure to avoid these mistakes when choosing a student loan cosigner, or a cosigner for any other type of loan. If the responsibility is not taken seriously, it could have negative implications for both parties’ credit.

When Cosigning Can Build Your Credit

If you’re just starting out and establishing credit, using a cosigner can be an attractive option. If you have a trusted friend or family member who is willing to cosign on your loan, you may be able to qualify for a loan that you wouldn’t otherwise be eligible for. Then, as you make on-time payments on your loan, your credit score will likely improve due to a positive payment history.

When Cosigning Can Hurt Your Credit

If you find yourself needing a student loan cosigner or any other type of cosigner, it’s important to also understand the potential downsides of cosigning. While being a cosigner does not affect your credit in and of itself, it is possible to damage your credit by cosigning.

When you cosign a loan or credit card, both the primary applicant and the cosigner are liable for the debt. You may find yourself in a situation where your credit is harmed because the other party fails to make regular payments when required. So, depending on your situation, you may be better off with a student loan application without a cosigner.

Things to Know Before Cosigning

The most important thing to know before cosigning is that cosigning on someone else’s loan does come with some risk. While cosigning can make sense to help a friend or family member who is starting out in life, it’s riskier to cosign for someone who already has bad credit.

If someone has bad credit, then they likely already have a history of not reliably meeting their debt obligations. Make sure you fully understand the situation before cosigning a loan.

Other Ways to Establish Credit

Besides getting a cosigner, there are a few other ways to establish credit.

Open a Secured or Credit-Building Credit Card

There are also some types of credit cards that are marketed to those with a limited credit history. Often, these are marketed as either credit-building credit cards or secured credit cards. As you open credit cards and regularly make on-time payments, your credit score is likely to improve.

Become an Authorized User

If you don’t want to apply for a credit card or can’t get approved without a credit card cosigner, you can consider becoming an authorized user on someone else’s account. In this setup, only the primary account holder is liable for any purchases that are made on the account. Even if the authorized user is the one that actually makes the purchase, they aren’t financially responsible.

Get a Guarantor

A guarantor is similar to a cosigner, but there are some important differences between guarantors and cosigners. A cosigner is legally obligated and financially responsible right away to repay any debts. A guarantor, on the other hand, is more of a backup plan. The guarantor is only responsible for repaying the debt if the primary borrower fails to make payments and the loan is at risk of default.

The Takeaway

When you’re first starting out and building up your credit, you may not be able to qualify for loans. One way to help build your credit is by applying with a cosigner. A cosigner is usually a trusted friend or family member who already has good credit. Applying with a cosigner allows the potential lender to consider both people’s credit. It may help you get a loan that you otherwise wouldn’t qualify for.

When you’ve built up your credit and are ready for a credit card, you might consider a cash-back rewards credit card like SoFi’s credit card. If you are approved for a credit card with SoFi, you can earn unlimited cash-back rewards. You can use those rewards as a statement credit, invest them in fractional shares, or put them toward other financial goals you might have, like paying down eligible SoFi debt.

Apply for a SoFi credit card today!

FAQ

Does cosigning show up on your credit report?

Yes, cosigning will show up on both the credit report of the primary applicant as well as the cosigner. Any outstanding debt will be used in calculating your debt-to-income ratio, and late payments might negatively affect your credit. This is one reason that it is always important to check your credit score on a regular basis.

Does a cosigner have to have good credit?

A credit card cosigner doesn’t necessarily have to have good credit, but it’s usually more helpful if they do. The whole point of having a cosigner is to use their good credit to help an applicant with poor or no credit qualify for a loan. If the cosigner has poor credit, it may not make a difference in whether or not the applicant is approved.

Whose credit score is used when cosigning?

When you apply for a loan or credit card with a cosigner, the potential lender will use both people’s credit score and history to determine whether to grant approval. Typically, the primary applicant will have poor or no credit, while the cosigner will have excellent or good credit.

Photo credit: iStock/Sitthiphong

¹See Rewards Details at SoFi.com/card/rewards.

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

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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Jan

2023

Does Paying Rent Build Credit?

By Sarah Li Cain | Budgeting & Goals, Credit, credit card | Comments Off

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

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

Recommended: When Are Credit Card Payments Due?

How Paying Rent Affects Your Credit

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

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

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

Can Your Rent Payments Appear on Your Credit Report?

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

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

Can You Manually Report Rent Payments to Credit Bureaus?

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

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

Tips for Getting Credit for the Rent You Pay

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

Sign up for a Rent Reporting Service

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

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

Use Your Credit Card

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

Recommended: What is a Charge Card?

Does Missing Rent Hurt Your Credit Score?

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

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

Other Ways to Build Credit

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

Take Out a Personal Loan

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

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

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

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

Become an Authorized User

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

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

Use a Credit Card

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

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

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

The Takeaway

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

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

See if you qualify for the SoFi credit card today!

FAQ

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

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

Can I boost my credit by paying rent?

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

How long does unpaid rent stay on credit?

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

Photo credit: iStock/miniseries

¹See Rewards Details at SoFi.com/card/rewards.

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

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

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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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