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Credit Card Refinancing vs Consolidation

There are many reasons people end up in debt. Medical bills, emergency home or car repairs, a job layoff. And some of us just didn’t know that it’s best to pay off credit cards in full every month. Either way, no judgment here. If you have high-interest credit card debt and are ready to put together a plan to pay it back, you might be considering one of two popular methods: Credit card refinancing vs. debt consolidation.

Both involve paying off your debt with another credit card or loan, ideally at a lower interest rate. Still, the two methods are not the same, and both options require careful consideration. Below, we’ll discuss the pros and cons of each debt payback method, so you can make an informed decision.

What Is Credit Card Refinancing?

Credit card refinancing is the process of moving your credit card balance(s) from one card or lender to another with a lower interest rate. The main purpose of refinancing is to reduce the amount of interest you’re paying with a lower rate while you pay off the balance.

Borrowers may accomplish this by paying off their existing credit cards with a brand-new balance transfer card. This type of credit card offers a low or 0% interest rate for a promotional period of up to 21 months.

For example, say a borrower has $10,000 on a credit card that charges 20% interest. By switching to a 0% interest card (and making payments on time), they can save around $2,000 in the first year alone, provided there are no fees or penalties. Alternatively, if the borrower switches to a card that charges 10% interest in the first year, they can save around $1,000.

Recommended: The Risks of Payday Loans

What Are the Pros and Cons of Credit Card Refinancing?

We’ve discussed the goal of credit card refinancing — to lower your interest rate — and how to accomplish it. Now let’s explore some of the pros and cons of refinancing.

Pros of Refinancing

The primary benefit is the chance to pay off credit card debt while paying little to no interest for the first 12 or more months. For a relatively small credit card balance — one that can comfortably be paid off within a year — this can be an effective strategy.

Cons of Refinancing

Balance transfer cards come with major catches: The low or 0% interest period is short-term (6-21 months), and there may be a balance transfer fee of 3%-5%. For a borrower with $10,000 in credit card debt, a 5% balance transfer fee comes out to $500.

For some borrowers, the amount they’re saving in interest might not be worth the transfer fee. This is especially true if the borrower ends up unable to pay off their balance within the introductory period. After the promotion ends, the interest rate can skyrocket to as high as 25%.

This brings up yet another consideration: Balance transfer cards don’t put any structure into place for the borrower to follow in order to fully pay off the credit card debt. A borrower can just as easily continue making only the minimum payments and even add to the balance of the debt. This is the risk we run with what is called revolving credit.

Finally, 0% interest balance transfer cards often require a high credit score to qualify. However, borrowers hoping to qualify in the future can build their credit by making all payments on time and reviewing their credit report for errors.

Recommended: Loans With No Credit Check

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What Is Credit Card Debt Consolidation?

Credit card consolidation refers to the process of paying off multiple credit cards with a single loan, referred to as a debt consolidation loan or personal loan. Unlike refinancing, the main purpose of consolidation is to simplify bills by combining multiple credit card payments into one fixed loan payment.

A borrower may also pay less in interest, but the difference may not be as great as with refinancing. An applicant’s credit score and other financial data points will determine their personal loan interest rate.

What Are the Pros and Cons of Credit Card Debt Consolidation?

As we mentioned, credit card debt consolidation serves to pay off multiple credit cards with a single short-term loan. But as with credit card refinancing, there are advantages and disadvantages.

Pros of Debt Consolidation

Consolidation allows borrowers to pay off multiple debts and replace them with one monthly payment and a set repayment term of their choosing. Borrowers benefit from the structured nature of a personal loan: They make equal payments toward the debt at a fixed rate until it is completely eliminated.

With most personal loans, the borrower is able to opt for a fixed interest rate, which ensures payments won’t change over time. (Variable interest rate loans are available, but their lower initial rate can go up as market rates rise.) You might have a $10,000 loan, for instance, with a repayment term of five years at 8% interest — a rate that will not change for the duration of the loan.

Secured personal loans that require collateral sometimes offer lower interest rates. However, the savings is usually not worth the risk of losing your car or home. For that reason, unsecured personal loans are preferable.

Cons of Debt Consolidation

The terms of a personal loan will almost always be based on the borrower’s credit history and their holistic financial picture. That means that not every borrower will qualify for a low interest rate, or get approved for a personal loan at all.

Another hazard is the potential for a borrower to run up their credit card debt again, once their cards are paid off. Canceling all but one card can help prevent that. However, borrowers should research how canceling their credit cards might affect their credit scores.

Credit Card Refinancing vs Debt Consolidation

To recap, the difference between debt consolidation and credit card refinance is first a matter of goals. With credit card refinancing — as with other forms of debt refinancing — the borrower’s aim is to save money by lowering their interest rate. Debt consolidation may or may not save the borrower money on interest, but will certainly simplify bills by replacing multiple credit card obligations with a single monthly payment and a structured payback schedule.

The other difference is that credit card refinancing typically utilizes a balance transfer credit card that has a 0% or low-interest rate for a short time. This limits the amount a borrower can transfer to what they can comfortably pay off in a year or so. Debt consolidation utilizes a personal loan, which allows for higher balances to be paid off over a longer payback period.

Credit Card Refinancing vs Balance Transfer Cards

These two terms are not mutually exclusive. Instead, a balance transfer credit card is one way to refinance credit card debt.

The Takeaway

Credit card refinancing is when a borrower pays off their credit card(s) by moving the balance to another card with a lower interest rate. A popular way to do this is with 0% interest balance transfer credit cards. However, borrowers typically need a high credit score to qualify for these cards. Debt consolidation, on the other hand, is when a borrower simplifies multiple debts by paying them off with a personal loan. Personal loans with a fixed low interest rate and a structured payback schedule are a smart option for consolidating debts.

If you have a relatively small balance that can be paid off in a year or so, refinancing with a balance transfer credit card may be right for you. If you have a larger balance or need more time to fully pay it off, personal loans are available for terms of up to 7 years.

Tired of juggling logins and payment schedules with a bunch of other lenders? SoFi Personal Loans can help you save money, take control of your finances, and simplify your life by consolidating everything at a single, low rate. It only takes minutes to apply.

Don’t let high interest interfere with your interests.


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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.

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

Figuring out how to manage money during a recession — or any crisis — can be difficult. When facing a potential recession, financial decisions take on a new weight. After all, financial policy may change during a recession, which can leave consumers with questions. For example, if the Federal Reserve lowers interest rates, should you borrow money during a recession?

While lower recession interest rates might sound appealing, there are lots of things to consider before borrowing money during a recession.

Understanding Recessions

A recession is a period of time when economic activity significantly declines. In the U.S., the National Bureau of Economic Research defines a recession as more than a few months of significant decline across different sectors of the economy. We see this decline in changes to the gross domestic product, unemployment rates, and incomes.

In essence, a recession is a period of time when spending drops. As a result, businesses ramp down production, lay off staff, and/or close altogether, which in turn causes a continued decrease in spending.

There are many possible causes of the recession. Usually, recessions are caused by a wide variety of factors — including economic, geopolitical, and even psychological — all coinciding to create the conditions for a recession.

For example, a recession could be caused by a major disruption in oil access due to global conflict, or by the bursting of a financial bubble created by artificially depressed interest rates on home loans during a financial boom (as was partially the case with the 2008 financial crisis in the U.S.). A recession also could be caused in part by something like a pandemic, which could create supply chain disruptions, force businesses into failure, and change spending habits.

As for how psychology plays a role in recessions, financial actors might be more likely to invest in a new business or home renovation during boom years when the market seems infallible. But when an economic downturn or recession starts, gloomy economic forecasts could make people more likely to put off big purchases or financial plans out of fear. In aggregate, these psychological decisions may help control the market.

In the case of a recession, for example, many people choosing not to spend out of fear could cause a further contraction of the market, and consequently further a recession.

💡 Recommended: Find more recession resources in our Recession Survival Guide and Help Center.

How Does Financial Policy Change During a Recession?

Economic policy might temporarily change in an effort to keep the market relatively stable amid the destabilization a recession can bring. The Federal Reserve, which controls monetary policy in the U.S., often takes steps to attempt to curb unemployment and stabilize prices during a recession.

The Federal Reserve’s first line of defense when it comes to managing a recession is often to lower interest rates. The Fed accomplishes this by lowering the interest rates for banks lending to other banks. That lowered rate then ripples throughout the rest of the financial system, culminating in reduced interest rates for businesses and individuals.

Lowering the interest rate could help to stem a recession by decreasing costs for businesses and allowing consumers to take advantage of low-interest rates to buy things using credit. The increase in business and purchasing might in turn help to offset a recession.

The Federal Reserve also may take other monetary policy actions to attempt to curb a recession, like quantitative easing. Quantitative easing, also known as QE, is when the Federal Reserve creates new money and then uses that money to purchase assets like government bonds in order to stimulate the economy.

The manufacturing of new money under QE may help to fight deflation because the increase in available money lowers the value of the dollar. Additionally, QE can push interest rates down because federal purchasing of securities lowers the risks to lending institutions. Lower risks can translate to lower rates.

Recommended: Federal Reserve Interest Rates, Explained

Downsides to Borrowing Money During a Recession

While it might seem smart to borrow during a recession thanks to those sweet recession interest rates, there are other considerations that are important when deciding whether borrowing during a recession is the right move. Keep in mind the following potential downsides of borrowing in a recession:

•   There’s a heightened risk of borrowing during a recession thanks to other difficult financial conditions. Difficult financial conditions like furloughs or layoffs could make it more difficult to make monthly payments on loans. After all, regular monthly expenses don’t go away during a recession, so borrowers could be in a tough position if they take on a new loan and then are unable to make payments after losing a job.

•   It may be harder to find a bank willing to lend during a recession. Lower interest rates may mean that a bank or lending institution isn’t able to make as much money from loans. This may make lending institutions more hesitant.

•   Lenders could be reluctant to lend to borrowers who may be unable to pay due to changes in the economy. Most forms of borrowing require borrowers to meet certain personal loan requirements in order to take out a loan. If a borrower’s financial situation is more unstable due to a recession, lenders may be less willing to lend.

When to Consider Borrowing During a Recession

Of course, there are still situations where borrowing during a recession might make sense. One scenario where borrowing during a recession might be a good idea is if you’re consolidating other debts with a consolidation loan.

If you already have debt, perhaps from credit cards or personal loans, you may be able to consolidate your debt into a new loan with a lower interest rate, thanks to the changes in the Fed’s interest rates. Consolidation is a type of borrowing that doesn’t necessarily increase the amount of total money you owe. Rather, it’s the process by which a borrower takes out a new loan — with hopefully better interest rates and repayment terms — in order to pay off the prior underlying debts.

Why trade out one type of debt for another? Credit cards, for example, often have high-interest rates. So if a borrower has multiple credit card debts with high-interest rates, they may be able to refinance credit card debt with a consolidation loan with a lower interest rate. Trading in higher interest rates loans for a consolidation loan with potentially better terms could save borrowers money over the life of the loan.

Having one loan to pay off instead of many loans may be easier than managing multiple payments each month. When a borrower is paying off a variety of credit cards, they usually have to consider a number of different payment due dates, interest rates, and outstanding balances. Additionally, if the entire credit card balance isn’t paid in full by the end of the billing period, compounding interest accrues, increasing the amount owed.

When considering consolidation, borrowers may want to focus on consolidating only high-interest loans or otherwise comparing the interest rates between their current debts and a potential consolidation loan. Also note that interest rates on consolidation loans can be either fixed or variable. A fixed rate means a borrower may be able to lock in a lower interest rate during a recession. With a variable interest rate, the loan’s interest rate could go up as rates rise following a recession.

Additionally, just like many other types of loans, consolidation loans require that borrowers meet certain requirements. Available interest rates may depend on factors like credit score, income, and creditworthiness.

Recommended: Fixed vs. Variable Rate Loans

The Takeaway

Deciding whether or not to borrow during a recession, including taking out a personal loan, is a decision that depends on your specific circumstances. There are downsides to consider, such as the general economic uncertainty that can increase risk and heightened uncertainty from lenders. But if you have high-interest debt, or could secure a lower rate by consolidating, then taking out a consolidation loan during a recession could make sense.

If you think a consolidation loan might be right for you, SoFi offers personal consolidation loans with fixed interest rates. SoFi consolidation loans have no fees at all, which means you can be sure of exactly what you’re getting. Plus, applying for a personal loan with SoFi is quick and easy.

Thinking about a consolidation loan? Learn more about how SoFi can help.


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 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.

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Which Debt to Pay Off First: Student Loan or Credit Card

It’s a common dilemma: Should you pay off credit cards or student loans first? The answer isn’t totally cut and dried. But if your credit card interest rates are higher than your student loan interest rates, paying down credit cards first will probably save you more money in interest.

But don’t stop there. Keep reading to learn how to calculate what’s best for your situation, and why. Along the way, you’ll learn more about how credit cards work, the complexities of student loans, and two very different strategies for paying down debt.

Prioritizing Your Debts

Experts are split over the best debt to pay off first. Some recommend you tackle the smallest balance first because of the psychological boost that comes from erasing a debt entirely.

However, from a purely financial standpoint, you’re better off paying off the debt that carries the highest interest rate first. That’s because the higher the interest rate, and the longer you hold the debt, the more you end up paying overall. This usually means tackling high-interest credit card debt first.

Keep in mind that prioritizing one debt over another does not mean that you stop paying the less urgent bill. It’s important to stay on top of all debts, making at least minimum monthly payment on each.

Failing to make bill payments can hurt your credit score, which can have all sorts of effects down the road. For example, a poor credit score can make it difficult to secure new loans at low rates when you want to buy a new car or home, or to take out a business loan.

You might consider setting up automatic payments on your loans. Automatic payments can make it easier to pay bills on time and juggle multiple payments.

If you’re having trouble making your monthly payments, consider strategies to make your payments more manageable, such as refinancing.

Student Loan vs Credit Card Debt

Before we get into if it’s better to pay off credit cards or student loans first, let’s look at how each debt is structured.

Student Loan Debt

A student loan is a type of installment loan used to pay for tuition and related schooling expenses for undergraduate or postgraduate study. Borrowers receive a lump sum, which they agree to pay back with interest in regular installments, usually monthly, over a predetermined period of time. In this way, student loans are similar to other installment loans such as mortgages, car loans, and personal loans.

At a high level, there are two types of student loans: federal and private. The U.S. government is the single largest source of student loans. Federal student loans have low fixed interest rates: Current rates are 4.99% for undergrad loans, and 7.44% for graduate and professional loans. These loans come with protections like income-driven repayment plans, deferment and forbearance, and loan forgiveness.

Private student loans are managed by banks, credit unions, and online lenders. They may have a fixed or variable interest rate, which is tied to the borrower’s credit score and income. Average interest rates range from 3.22% to 13.95% for a fixed rate, and from 1.29% to 12.99% for variable.

Private student loans don’t come with the same protections as federal student loans. For instance, they are not eligible for President Biden’s loan forgiveness plan.

Payback timelines vary widely. As with other loans, the longer your repayment timeline, the lower your monthly payment will be — but you’ll pay more in interest over the life of the loan. The shorter your repayment period, the larger your monthly payment, and the less interest you’ll pay.

Recommended: Types of Federal Student Loans

Credit Card Debt

Credit cards offer a type of revolving credit, where account holders can borrow money as needed up to a set maximum. You can either pay off the balance in full or make minimum monthly payments on the account. Any remaining balance accrues interest.

Credit cards usually come with higher interest rates than installment loans. The average credit card interest rate in September 2022 was 21.59%. But an individual credit card holder’s rate depends on their credit score. People with Excellent credit will pay an average of 18.04%, while those with Bad credit will pay closer to 25.14%.

Depending how the account is managed, credit card debt can be either very expensive or essentially free. If you always pay off credit cards in full each month, no interest usually accrues. However, if you make only minimum payments, your debt can spiral upward.

Recommended: Taking Out a Personal Loan to Pay Off Credit Card Debt

Should I Pay Off Credit Card or Student Loan First?

When it comes to student loan vs credit card debt, there’s no universal answer that fits everyone in every situation. A number of factors can tip the scales one way or another, especially the interest rates on your loan and credit card.

We’ll explore two scenarios: one in which paying off credit cards is the best move, and another where student loans get priority.

The Case for Paying Down Credit Cards First

If you are carrying high-interest credit card debt, you’ll likely want to focus on paying off credit cards first. As you saw above, the average credit card interest rate (21.59%) is significantly higher than the maximum student loan interest rate (13.95%). Even if your credit card interest rate is lower than average, it’s unlikely to be much lower than your student loan’s rate.

Credit card debt can add up quickly, and the higher the interest rate, the faster your debt can accumulate. Making minimum payments still means you’re accruing interest on your balance. And as that interest compounds (as you pay interest on your interest), your balance can get more difficult to pay off.

A high balance can also hurt your credit score, which is partially determined by how much outstanding debt you owe.

Paying Off Credit Card Debt

Once you decide to focus on paying off credit cards first, start by finding extra funds to send to the cause. Look for places in your budget where you can cut costs, and direct any savings to paying down your cards. Also consider earmarking bonuses, tax refunds, and gifts of cash for your credit card payment.

Next, make a list of your credit card balances in order of highest interest rate to lowest. The Debt Avalanche method refers to paying off the credit card with the highest interest rate first, then taking on the credit card with the next highest rate.

It bears repeating that focusing on one debt doesn’t mean you put off the others. Don’t forget to make minimum payments on your other cards while you put extra effort into one individual card.

You may also choose to use a Debt Snowball strategy. When using this method, order your credit cards from smallest to largest balance. Pay off the card with the smallest balance first. Once you do, move on to the card with the next smallest balance, adding the payment from the card you paid off to the payment you’re already making on that card.

The idea here is that, like a snowball rolling down a hill gets bigger and faster as it rolls, the momentum of paying off debt in this way can help you stay motivated and pay it off quicker.

Managing Your Student Loans

Meanwhile, it’s important that you continue making regular student loan payments while you’re prioritizing your credit card debt. For one thing, you shouldn’t just stop paying your student loans. If you do, federal student loans go into default after 270 days (about 9 months). From there, your loans can go to a collections agency, which may charge you fees for recouping your debt. The government can also garnish your wages or your tax return.

You can, however, typically adjust your student loan repayment plan to make monthly payments more manageable. If you have federal loans, consider an income-driven repayment plan, which bases your monthly payment on your discretionary income.

While this may reduce your monthly student loan payments, it extends your loan term to 20 to 25 years. That can end up costing you more in interest. So make sure the extra interest payments don’t outweigh the benefits of paying down your credit card debt first.

Refinancing Your Student Loans

It can also be a smart idea to refinance student loans. When you refinance a loan or multiple loans, a lender pays off your current loans and provides you with a new one, ideally at a lower rate.

You can use refinancing to serve a couple of purposes. One option is to lower your monthly payment by lengthening the loan term. This can free up some room in your budget, making it easier to stay on top of your monthly payments and redirect money to credit card payments. Just remember that lengthening the loan term can result in you paying more interest over the course of your loan.

Or you can shorten your loan term instead. This can be a good way to kick your student loan repayment into overdrive. Your payments will increase, but you’ll reduce the cost of interest over the life of the loan. In other words, you’re giving equal weight to paying off your student loans and your credit card debt.

When you refinance with SoFi, there are no origination or application fees. And as a SoFi member, you’ll have access to member benefits like unemployment protection, which can allow you to temporarily pause your payments if you lose your job. However, refinancing your student loans with a private lender means you’ll lose access to federal loan benefits, such as income-driven repayment plans, forbearance, and deferment.

To see how refinancing with SoFi can help you tackle your student loan debt, take advantage of our student loan refinancing calculator.

Take control of your debt by refinancing your student loans. You can get a quote from SoFi in as little as two minutes.

FAQ

Should you pay off your student loans or your credit cards first?

The answer depends on a number of factors, especially the interest rates on your loans and credit cards. But if your credit cards carry high interest rates, you’ll likely save more money in interest by paying off your credit cards before your student loans.

What is the best debt to pay off first?

From a purely financial perspective, it’s best to pay off your highest interest-rate debt first. This is called the Debt Avalanche method. Paying off the most expensive debt (usually credit cards) first will save you the most money in interest.

Is it smart to pay off credit card debt with student loans?

This is probably not a good idea. First of all, paying off credit cards with student loans may violate your student loan agreement, which limits the use of funds to tuition and related expenses. If you use a credit card exclusively for educational expenses like textbooks and computers, you might be able to use loan funds to pay it off. However, you should check your loan agreement carefully to make sure this is allowed.


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 Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.


Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.


Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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What Is the Minimum Credit Score Needed for a Credit Card?

There is no minimum credit score needed for a credit card. Even borrowers with poor credit (a score of 300) or no credit card at all can qualify for some credit cards. However, options for bad-credit borrowers are limited and usually come with a high annual percentage rate (APR) and fees. Borrowers with no credit or poor credit may also only qualify for secured credit cards.

By boosting your credit score, you’ll have more options for credit cards with better rates, fees, and even rewards, bonuses, and perks. In this piece, we’ll review:

•   How your credit score affects credit card approval

•   The minimum credit score for a credit card

•   How your credit score is calculated — and how you can improve it

•   Credit cards for borrowers with fair, bad, and no credit

Recommended: Can You Buy Crypto With a Credit Card?

How Your Credit Score Affects Your Odds of Credit Card Approval

A good or excellent credit score increases your odds of credit card approval. But if you have a bad credit score, you’re not out of luck. Some credit card issuers have options for borrowers with no credit history or extremely low credit scores.

Before applying for a credit card, it’s a good idea to read the fine print for that specific card. Often, credit card companies will list their minimum credit score requirements for the card. If you’re at the bottom of the stated range, you may have a harder time qualifying.

To avoid getting declined (and having an unnecessary hard inquiry on your credit report), you may want to consider a less competitive credit card that you’re more likely to be approved for based on your credit score.

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.


What Credit Score Do You Need to Get a Credit Card?

While there is no minimum credit score to get a credit card, you’ll need a higher credit score to qualify for the best credit cards available. Typically, travel credit cards and cash-back credit cards are reserved for borrowers with good to excellent credit (670 and above on the FICO scale).

If you have a fair credit score, you might be able to qualify for a decent credit card with a higher annual percentage rate (APR) and limited perks. Experts recommend having at least a 600 credit score to qualify for a standard credit card.

Borrowers with bad credit or no credit at all may be limited to secured credit cards (cards that require a security deposit as collateral), credit-building cards, or high-interest credit cards with high annual fees.

Recommended: How to Avoid Interest On a Credit Card

Tips for Estimating the Credit Score You Need

How can you determine a credit card’s credit score requirements? Here are a few ways to estimate the minimum score you’ll need:

•   Checking the website: Often, the credit card issuer will advertise in plain writing what credit score is required for each of its credit cards.

•   Reading reviews: If the issuer’s website isn’t clear, you may want to check third-party review websites, which often print the recommended credit scores needed for credit cards.

•   Using third-party services. Platforms like Credit Sesame and Credit Karma can predict which credit cards you’ll qualify for with your current credit score — but it’s never guaranteed. Such services also typically offer free credit score monitoring.

•   Getting preapproved. Many credit card issuers offer preapproval for their cards. This means they only initiate a soft pull on your credit report (with no effect on your credit score). A preapproval is not a guaranteed yes; you still have to go through the process, but it can instill more confidence if you’re worried about your chances.

Recommended: Does Checking Your Credit Score Lower Your Rating?

Factors Affecting Your Credit Score

Boosting your credit score is a great way to qualify for more (and better) credit cards. But knowing how to increase your credit score requires that you know what affects your credit score in the first place.

FICO and VantageScore both constantly monitor consumers’ credit and assign them different credit scores based on a consumer’s activity. While the models are similar, each company uses its own proprietary scoring method to calculate credit scores. Both scores range from 300 to 850.

FICO Scoring Method

Your FICO credit score depends on five key factors:

•   Payment history (35%): The largest factor impacting your credit score is your payment history. Making on-time payments not just for loans but for things like rent and utilities will boost your score. Late payments can stay on your credit report for up to seven years.

•   Credit utilization (30%): Using less of the credit available to you can raise your score; on the other hand, maxing out each card in your name every month can lower your score.

•   Credit history (15%): Everything’s better with age, so they say. The length of your credit history plays an important part in your credit score. Responsible credit users should see their scores increase over time.

•   Credit mix (10%): Having a healthy mix of loan types (both installment credit and revolving credit) can boost your score — if managed properly. That means mortgages, auto loans, student loans, personal loans, and credit cards can all help your credit score.

•   New credit applications (10%): When you apply for new credit, lenders will make a hard inquiry on your credit report. Even if you are denied the credit, this inquiry will temporarily lower your credit score, which is how applying for a credit card affects your credit score.

Recommended: When Are Credit Card Payments Due?

VantageScore’s Scoring Method

VantageScore, on the other hand, assigns different factors a value of influence:

•   The most influential factor affecting your VantageScore is payment history, as it is with FICO.

•   Three highly influential factors include the age of credit, type of credit, and credit utilization.

•   A moderately influential factor is the total debt balance you maintain across all loans.

•   The least influential factor is your recent credit activity (opening new accounts, recent hard inquiries, etc.).

Recommended: How Often Does Your Credit Score Update?

Tips for Improving Your Credit Score

Wondering how to improve your credit score to increase your chances of credit card approval? Here are some tips:

•   Understand your credit score: The first step to improving your credit score is knowing how it’s calculated — and knowing what your current credit score is.

•   Make on-time bill payments: Paying bills on time is good for more than just avoiding late fees. It’s also the top factor in determining your FICO score and VantageScore.

•   Decrease your credit utilization: By reducing the amount of purchases on your credit cards — and paying them off in full every month — you’ll decrease your credit utilization, which can boost your credit score.

•   Become an authorized user: If you have no credit history or are repairing bad credit, you may benefit from becoming an authorized user on a loved one’s credit card. If they are responsible with the card, it’s an easy way for you to boost your score without applying for your own card.

•   Keep old cards open: Once you qualify for better credit cards, you may be tempted to close out old accounts. But each of those cards has a credit limit. By keeping the card open but not using it, you decrease your overall credit utilization and keep the average age of your credit higher. The exception: If the card has an annual fee and you’re not using it for anything, it’s probably not worth keeping it open.

•   Only apply for credit cards when you need them: Each time you apply for a credit card, the issuer enacts a hard inquiry on your credit report, which lowers your score. Because of this, it’s a good idea to wait at least six months between credit card applications — and only apply when you need to. Choose your credit card applications wisely.

Recommended: Tips for Using a Credit Card Responsiblya

Getting a Credit Card with Bad Credit

Bad credit is not a death sentence on your chances of getting a credit card. In fact, you can find credit cards on the market designed specifically for people with bad credit. However, such cards typically have high fees and interest rates.

If you’re worried about high fees and rates, a secured credit card for bad credit may be the better option. Some secured credit cards even approve borrowers without conducting a credit check and have no APR. The big difference between a secured vs. unsecured credit card is that secured credit cards require a security deposit, which acts as the card’s credit limit.

Alternatively, bad-credit borrowers may be able to qualify for a retail credit card. While retail credit card credit score requirements vary, many are available to borrowers with limited or bad credit.

Recommended: What is the Average Credit Card Limit?

Getting a Credit Card with Fair Credit

With a fair credit score (580 to 669 per FICO), you won’t qualify for the top rewards credit cards available. That being said, it’s still possible to get approved for an unsecured credit card with no annual fee and limited perks.

Interest rates tend to be higher for those within this credit score range, but if you can pay the card off in full every month, you won’t have to worry about racking up credit card debt. Eventually, you may even improve your credit score enough to graduate to a rewards credit card with a better rate and terms.

Getting a Credit Card with No Credit

What if you have no credit history at all? Believe it or not, you can still qualify for a credit card with no credit history — though your options may be more limited.

Like borrowers with bad credit, you can likely qualify for no-frills secured credit cards if you can come up with the security deposit. Alternatively, borrowers without an established credit history can ask a close friend or family member to be added as an authorized user on their card. There are also credit cards designed for those who are currently enrolled in school.

The Takeaway

While there isn’t a minimum credit score for a credit card, having a good to excellent credit score improves your chances of approval for the top credit cards on the market. If you have a bad credit score or no credit history at all, you may be able to qualify for secured credit cards or credit cards. However, you’ll generally face higher fees and APRs.

If you have good to excellent credit and are looking for a credit card that rewards your purchases, consider the SoFi Credit Card. 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.

FAQ

Can you get a credit card with limited or no credit history?

Yes, you can get a credit card with limited or no credit history. Borrowers with no history can look for secured credit cards or consider becoming an authorized user on someone else’s credit account. Without credit history, however, you likely will not qualify for low-APR credit cards or rewards credit cards.

Can I get a credit card with a score of 600?

Yes, with a credit score of 600 (in the fair credit range), you may qualify for basic credit cards that offer limited perks, if any. You likely will not be able to qualify for a rewards credit card. However, credit card issuers may at least approve you for an unsecured credit card, though likely with a higher APR.

What is the easiest card to get approved for?

If you have no credit history (or a limited credit history) or a bad credit score, the easiest card to get approved for is typically a secured credit card. Secured credit cards present lower risk to credit card issuers because borrowers must make a security deposit that serves as collateral.


Photo credit: iStock/Antonio_Diaz

SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back rewards when redeemed for a statement credit.1
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
1See Rewards Details at SoFi.com/card/rewards.
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
.

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.


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Guide to Checking Your Credit Card Approval Odds

Figuring out whether you will get approved for a credit card is seemingly simpler now with credit card approval odds calculators. These tools can offer guidance, highlighting credit cards with high approval odds in your favor. However, they are not always reliable.

Still, learning how to leverage the approval odds information that these tools provide can be helpful. You can use the insights to make yourself a more desirable borrower for credit card companies, thus increasing your future approval odds.

What Are Credit Card Approval Odds?

Credit card approval odds inform you of the likelihood that you’d get approved for a particular credit card. How these approval odds are determined, including which details are assessed, can vary between services and card issuers.

For example, a credit card approval odds calculator might suggest that, based on your credit score and income, you have an 80% chance of getting approved for a credit card. It might also offer you a few credit cards with high approval odds to explore.

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.


Checking Your Credit Card Approval Odds

Using a credit card approval odds calculator offers a glimpse of your approval chances, but not a promise. That’s because a credit card company or credit card marketplace can’t provide a 100% assurance of your approval without going through a formal underwriting process.

Underwriting is the step where a lender or issuer evaluates your credit portfolio and application details (like existing debt and income) to calculate whether it would be a risk to loan credit to you. Since this process can only happen after an application is submitted, a tool that states you have high approval odds doesn’t mean your eventual approval is guaranteed.

Prequalifying for a Credit Card Approval

There are a couple of ways to obtain a pre-screened credit card to gauge your approval odds: Receiving a pre-qualification offer or requesting a pre-qualification from a credit card issuer.

Using a Prescreened Offer

Based on your general information from the credit bureaus, card issuers might send you an unsolicited prescreened offer stating that you might be qualified for its credit card.

At this step in the process, the card company has only looked at limited markers, like whether you’ve met its minimum credit score requirement. It hasn’t performed a hard credit check, nor evaluated your existing debt or income to base an approval on. However, if you receive a pre-qualification offer, this can be a positive sign that your approval odds are better than if you hadn’t received it.

Checking the Card Issuer’s Website

You don’t always have to cross your fingers in hopes that a card issuer will give you a prescreened offer. Some credit card issuers offer a pre-screening form that you can fill out to see if you’re pre-qualified for its card. If your preferred card doesn’t let you request a pre-qualification, you might find more insight on the issuer’s website about what’s required for approval.

While you’re on the card issuer’s site, it’s helpful to review its response timelines so you can track your pre-qualification or application progress. This includes the timeline for an application decision, as well as how long it takes to get a credit card if you’re approved.

What To Do if You Prequalify

If you prequalify for a credit card, you can choose to submit an application. Doing so will require a hard credit inquiry before a decision is made, which can temporarily have an effect on your credit score.

Additionally, you can continue shopping around for different cards to see if another product offers a lower interest rate or better incentives.

Recommended: How to Avoid Interest On a Credit Card

What To Do if You Don’t Prequalify

If you don’t pre-qualify for a credit card, you can proceed in a few ways:

•   Hold off on getting a new card. Too many hard credit inquiries might flag you as a high-risk borrower who’s reliant on credit. If you’ve recently had multiple inquiries on your credit, consider waiting a couple of months before re-applying for a new card.

•   Work on your credit score. All card issuers look at your credit score to see if it meets its minimum requirement. A higher credit score is a positive indicator that you’re a responsible borrower.

•   Apply for a secured credit card. A secured credit card is a credit-building card in which you deposit money or collateral in a certain amount. This amount acts as your credit limit.

•   Appeal the decision. If you applied for a credit card and were denied, the issuer must legally inform you of the reason for the denial. If you can provide more information that might sway the issuer in your favor, you can ask them to reexamine your application.

Recommended: Tips for Using a Credit Card Responsibly

Tips for Improving the Likelihood of Approval

Whether you’re getting a credit card for the first time or adding a new card to your rotation, there are a few steps you can take to improve your approval odds.

Reviewing Your Credit Report

Your credit report gives credit card issuers a comprehensive view of your borrowing habits to date. Since it’s a highly scrutinized factor when approving applications, review your credit report before submitting an application.

Check that all accounts, their statuses, and the amounts are accurate. If you spot an account that looks outdated or incorrect, reach out to the credit bureaus immediately to dispute it.

Taking a Look at Your Credit Score

In addition to ensuring your credit report is accurate, evaluate where your credit score stands today. Credit scores are the most common credit card requirements that influence your approval odds. For instance, if a card issuer explicitly states that its minimum credit score required is 720, but your score is 650, your credit card approval odds might be low.

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

Minimizing Your Debt

Keep your debt-to-income (DTI) ratio as low as possible. Credit issuers use this ratio as a way to determine whether you can afford to pay back potential purchases made on the card. The ratio is based on your aggregate monthly debt amounts divided by your gross monthly income.

Stating All of Your Income

As mentioned above, your income is one of multiple factors used to determine your credit card approval odds. A higher income can reduce your DTI ratio, making you a less risky customer to extend credit to.

You can include various types of income sources on your application. This might include your salary from your full-time job, earnings from a side gig, Social Security benefit payouts, and alimony.

Managing Payment History and Credit Utilization

Staying on top of your existing loan and credit card payments keeps your credit score healthy. This means paying at least the minimum amount due, and making those payments on time every month.

Additionally, be aware of how much of your total credit limit you’re using, compared to how much credit you have access to. This ratio is called your credit utilization ratio. There’s no golden credit utilization ratio to keep in mind, according to FICO, but the lower it is, the better.

Recommended: When Are Credit Card Payments Due?

Comparing Cards Carefully

With so many credit card products on the market, choosing a credit card that suits your borrowing needs and qualifications can help you find the right card.

Ensure you’re comparing credit cards with the same credit card features between different cards to accurately determine their pros and cons. Some considerations to make when comparing credit cards include:

•   APRs. The annual percentage rate, or APR, is how much you’ll pay in interest if you carry a balance on the card. The lower the interest rate, the better.

•   Balance transfer costs. Some issuers offer a zero-interest balance transfer promotion for a limited period, while others don’t. Similarly, some credit cards charge an additional balance transfer fee.

•   Penalty APRs. If your account becomes delinquent, some card issuers impose a higher penalty APR on your existing balances and future transactions. Make sure you understand how a credit card works and which rules apply.

•   Fees. Certain cards charge an annual fee just for the privilege of carrying the card. This fee is in addition to interest charges you might pay for rolling over a balance, month over month.

•   Rewards program. If you’re after credit card rewards, compare the details of each card’s program. For example, look at whether rewards points or miles are tiered or offered for specific categories, or if there’s a flat rewards rate for all purchases.

•   Incentives. You might encounter special promotions, like a welcome bonus or promotional 0% APR. These added perks should factor into your decision.

Recommended: What is a Charge Card?

The Takeaway

Although a credit card approval odds calculator or tool can offer broad guidance about whether you’ll be approved, it doesn’t replace a card issuer’s underwriting criteria. The credit card company relies on its own underwriting team to ultimately decide whether your application is approved. This decision is based on the specific information on your application and your creditworthiness.

If you’re ready to explore a cash-back rewards card, the SoFi Credit Card offers rewards at a generous rate. 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.

FAQ

Does getting rejected for a credit card hurt my credit?

A credit card pre-approval rejection doesn’t hurt your credit since pre-approvals typically involve a soft credit check. However, if you move forward with a credit card application that involves a hard credit inquiry, your credit score might temporarily drop, regardless of whether you were approved or denied.

Are credit card approval odds accurate?

Generally, credit card approval odds calculators offer guidance toward credit cards with good approval odds. However, they don’t provide a 100% guarantee that you’ll be approved. There have been reported cases of tools claiming that a consumer has high approval odds with a card, only to get denied upon applying. The card issuer is the only entity that can accurately say whether you’re approved for a credit card.

How can I improve my credit card approval odds?

The best way to get good approval odds for credit cards is to minimize high-risk borrowing practices. One way to achieve this is by improving your credit score. Keep your credit balances low, make timely monthly payments, maintain long-standing credit accounts, and avoid opening multiple new lines of credit in a short period.

How do you guarantee credit card approval?

There’s no way to absolutely guarantee credit card approval to any particular card. Card issuers base their decisions on a number of factors, like your credit history, credit score, income, credit utilization, debt-to-income ratio, and more.


Photo credit: iStock/akinbostanci

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