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Learning how to achieve and maintain a good credit score is a crucial part of your financial health. Not only can it be a badge that says your financial life is in good shape, it can also help you access credit and get approved for loans and insurance at more competitive rates. Being approved for lower interest rates and premiums can in turn save you tens of thousands of dollars over your lifetime.

A solid credit score can also have other perks, such as helping you get approved for products with better features, such as rewards credit cards.

While there’s no one size fits all solution on how to keep a good credit score, there are some best practices you can follow. Read on to learn more about this topic and actual tactics, including:

•   What is a credit score?

•   How can you maintain a good credit score?

•   What are tips to keep your credit score high?

•   How can new credit card users establish a credit score?

What Is a Credit Score?

A credit score is a three digit number ranging from 300 to 850 that is an indicator of your credit behavior. Your score is calculated based on your credit history from all three credit bureaus — Experian, Equifax, and TransUnion — and is based on how lenders may perceive your risk as a borrower.

What exactly does that mean? By reviewing your past use of credit, your score reveals if you are more or less likely to pay back your loans on time. If you are more likely to repay your debts in a timely manner, the less risky you are.

The higher your credit score, the more creditworthy you are in the eyes of lenders.

What Affects Your Credit Score?

Several factors can affect your credit score, such as your payment history, the number of loan or credit applications submitted, and the age of your accounts you hold. There are also different scoring models, such as FICO vs. VantageScore. Each weighs factors differently to arrive at a credit score. Meaning, there may be some differences in your credit score.

Lenders may look at one credit score or all of them, plus different qualification criteria when deciding whether to approve you for a loan and at what interest rate.

How Is Your Credit Score Calculated?

Though there are different credit scoring models, most use similar financial behaviors to calculate them.

They’re grouped in the following categories:

•   Payment history: This factor is one of the most important factors in your credit score as it assesses whether you’re likely to pay your loan on time. Credit scoring models will look into current and past account activity, including any late or missed payments.

•   Amounts owed or available credit: The percentage of the available balance you’re using is your credit utilization. The more you are using available credit in your revolving accounts (like your credit cards and lines of credit), the more it could appear you rely too much on credit. This can make you look like a risky person to whom to lend.

•   Age of credit history: The longer your credit history, the more a lender can look into your credit behavior. It’s usually considered good to have a long credit history vs. a very short or recent one.

•   Account types: Having a different mix of loans offers more insight into how you handle various accounts. Credit-scoring models may not, however, use this as a major factor when calculating your score.

•   New or recent credit: The more recent applications you submit for new loans or credit accounts, the more risky you may appear to be. That’s because it may look like you need to rely on credit; that you are quickly trying to acquire different forms of access to funds.

(There are some exceptions, such as shopping around for mortgages within a short span of time.)

8 Tips for Maintaining Your Credit Score

Understanding the importance of a good credit score and what goes into it can help you protect the one you have. The following are eight suggestions on how to maintain a good credit score.

1. Pay Your Credit Card Bills on Time

Ensuring you’re on top of your bills (not just your credit cards) will help keep a positive payment history in your credit reports. This is the single biggest contributing factor to your credit score at 30% to 40%. Consider setting up automatic payments or regular reminders to ensure you’re paying on time.

2. Keep Your Credit Utilization Low

Your credit utilization is the percentage of the available limit you’re using on your revolving accounts like credit cards. Basically, you don’t want to spend close to or at your credit limit. A good rule of thumb to follow is to now use more than 30% of your overall credit limit.

So if you have one credit card with up to $10,000 as the limit, you want to keep your balance at $3,000 or lower.

3. Maintain Credit History With Older Credit Cards

Even if you don’t use your older credit cards that often, keeping them open means you can maintain your long credit history. Consider charging a small or occasional amount, whether an espresso or gas station fuel-up, to ensure your account stays open. This can reassure prospective lenders that you have been managing credit well for years.

4. Apply for a New Card Only When Important

Consider this as you try to keep a good credit score: Go slow. Since credit-scoring models look at the number of times you apply for new credit, only open one when you really need it. Stay strong in the face of offers to get free shipping or 10% off if you sign up for a card that many retailers promote.

Spreading out your applications is a good idea rather than regularly or heavily putting in a lot of card applications. By moving steadily and choosing a credit card and other types of funding carefully, you likely won’t raise red flags, such as that you need to rely heavily on credit.

5. Frequently Check Your Credit Reports for Errors

Mistakes can happen, and errors in your credit reports could negatively affect your score. You can get your credit reports for free at AnnualCreditReport.com from all three credit bureaus.

It’s wise to check your credit scores regularly, which won’t impact your score. If you see an error — whether it’s an account you don’t own or a bill marked unpaid that you know you took care of — dispute it as soon as possible.

6. Make Payments in Full When Possible

Making payments in full will help you maintain a positive payment history and lower your credit utilization. Both of these can maintain your creditworthiness and save you money on interest charges.

7. Don’t Close Old Credit Cards

Closing your old credit cards could shorten your credit history. It could also increase your credit utilization because it will lower your available credit limit. Even if you make the same amount in purchases, your credit utilization would go up when your credit score updates.

For example, if you currently have an overall credit limit of $28,000 and you have $7,000 in credit card balances, your credit utilization is 25%. If you close a credit card which had a $7,000 limit, you then lower your total available credit to $21,000 your credit utilization will go up to 33%.

8. Live Within Your Credit Means

It can be hard to say no to an invitation to try a pricey new restaurant or not tap to buy when scrolling through social media. But when you let your spending get out of hand, you may use your credit cards too much. It can feel like free money in the moment — but you still have to pay it back. If you overextend yourself, you may find it hard to pay your balance on time and risk a late or missed payment.

Instead, spend only what you can afford and try to avoid lifestyle creep (having your spending rise with your pay increases or even beyond them). That can help provide some guardrails for using credit cards responsibly.

Establishing a Credit Score for New Credit Card Users

Trying to establish a credit score can be a challenge since, ironically enough, you need credit to build credit.

If you are in this situation, there are several options to pursue, such as the following:

•   Open a secured credit card: A secured credit card is one where you’ll put down a refundable cash deposit that will act as your credit line. You can use this to establish credit and apply for an unsecured credit card. Some issuers will upgrade you once you make consistent on-time payments for a predetermined amount of time.

•   Apply for a credit builder loan: These types of loans are specifically geared towards helping you establish and build credit over time. Instead of getting the loan proceeds like a traditional loan, the funds are held in an escrow account until you pay back the loan in full.

•   Become an authorized user: You can ask a loved one, like a parent or even a close friend, if they’re willing to add your name on their credit card account. Doing so means the credit account will go in your credit history. Of course, that doesn’t give you access to use their account without restraint. The guardrails can be established between you and the original card holder.

The Takeaway

Maintaining a good credit score (and keeping that score high over time) comes with perks such as increasing the likelihood of getting approved for loans at more favorable terms. You might qualify for lower interest rates, saving you a considerable amount of money over time.

Using a credit card wisely is one of the ways you can build and maintain your credit score. But that’s not all there is to opening a credit: You also likely want one with great perks.

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

How can I maintain my credit score?

You can maintain your credit score by consistently making on-time payments, keeping a low credit utilization, and limiting applications for new credit.

Why is it important to maintain a good credit score?

Maintaining a good credit score can help increase the chances of getting approved for loans with more favorable rates and terms. It can also mean lower insurance premiums.

How can I maintain a good credit score without debt?

You can maintain a good credit score by paying off all your credit card balances each month so you don’t carry that kind of debt. Keeping older accounts open and using them occasionally can also contribute to a good credit score.

What can I do to build a good credit rating?

You can build a good credit rating by ensuring you’re making payments on time, not using all your available credit limit, and being careful in applying for new loans (that is, don’t apply for too many lines of credit too quickly). These are some of the best ways to achieve and maintain a good credit rating.

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Photo credit: iStock/PeopleImages

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
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 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.
New and existing Checking and Savings members who have not previously enrolled in direct deposit with SoFi are eligible to earn a cash bonus when they set up direct deposits of at least $1,000 over a consecutive 25-day period. Cash bonus will be based on the total amount of direct deposit. The Program will be available through 12/31/23. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC.

SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 3/17/2023. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
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.
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 .
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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When you check into a hotel, the hotel is very likely to ask you to put a credit card on file. This is true even if you are using points for a free night or if you have already prepaid for your stay. When you give the hotel your credit card, they will usually place a small hold on your credit card. This is typically a relatively small amount, but it can range from $20 to $200 above the price of your room.

Hotels use these credit card holds because the exact amount of your final bill is not known at the moment of check in. You may charge items to your room, grab some drinks from the minibar, extend your stay, or even cause damage to the property. Once you checkout and your final bill is settled, the hotel credit card hold will usually drop off of your credit card account.

This can be a practice that merits a closer look. Read on to learn more about these credit card holds, including:

•   What is a hotel credit card hold?

•   How do hotel credit card holds work?

•   How much do hotels hold on your credit card?

•   How long does a hotel hold your deposit by credit card?

•   What is a credit card hold vs. a debit card hold?

What Is a Hotel Credit Card Hold?

A hotel credit card hold is a type of credit card hold that happens when you stay as a guest at a property. When you check in to a hotel, they typically will ask for a credit card to put on file. The hotel will then put a hold on your card to account for any incidentals or other charges during your stay, such as room service or perhaps Wi-Fi fees (yes, some places still charge for that).

You are not responsible for paying the amount of the hold until and unless it becomes an actual posted charge. It may, however, decrease your total available credit in terms of your credit card limit.

How Hotel Credit Card Holds Work

Hotel stays are one of a few types of expenses where you may not know the exact final amount of the charge initially. When you go to the supermarket and buy a week’s worth of groceries, you will be immediately charged for the cost of that food — no credit card hold required. But when you check into a hotel, the management will put a hold on your card to account for any extra charges or damages that could occur in the future.

What Can You Be Charged For?

Most hotels will put a hold on your credit card to account for any extra or additional charges that might come from your stay. Here are a few things you might be charged for:

•   The cost of your room (if not prepaid)

•   Additional nights if you extend your stay

•   Room service

•   Other items charged to your room (such as minibar snacks or an on-demand movie)

•   Damages to the property

How Long Does a Hotel Hold Your Credit Card?

Generally a credit card hold is processed by the card network itself (e.g. Visa or Mastercard) and not by the merchant. So the hotel itself likely does not have any control over how long the hotel credit card hold amount stays on your account. Generally, most hotel credit card holds will drop off within one to a few days after you check out.

If you’re still seeing the hold on your account after that, reach out to your credit card issuer to see if you can get it removed.

What Are the Benefits of a Hotel Credit Card Hold

A hotel credit card hold doesn’t offer very many benefits to the consumer — it’s more just an artifact of how credit cards work. A hotel credit card hold may provide some semblance of protection for the hotel itself in the case of getting payment for additional charges or damages.

But from the consumer side of things, a hotel hold on your credit card is just something to be aware of and account for, since it will generally lower your amount of available credit.

Other Methods of Reservation

You have a variety of different methods of payment that you might use to pay for your hotel stay. You might use your credit card points, cash, a debit card or prepay for your stay.

But it’s important to know this: No matter how you reserve and pay for your hotel room, the hotel is likely going to ask you for a credit card to put on file and put a hold on your card when you check in. It’s quite typical throughout the industry.

Recommended: What Is the Average Credit Card Limit and How Can You Increase It?

Booking a Hotel Using a Credit Card Hold

One of the most popular ways to book a hotel is with a credit card. Using a credit card to book and pay for your hotel allows you to not have to give a cash deposit or another form of payment when you check in and check out.

If you pay for your hotel room with a debit card, credit card rewards, or cash, you’ll likely also have to show a credit card when you check in. The hotel will generally put a small temporary hold on your credit card account at that time.

Best Practices for Managing Credit Card Holds

It’s unlikely that you have any control over a hotel putting a temporary hold on your credit card. That said, it’s still important to understand what that means and how you can manage it.

Most hotel holds on credit cards are relatively small amounts, even as little as $20. However, if you have a credit card with a lower overall credit ceiling or if you are close to maxing out your credit, this practice may end up limiting your total available credit. You’ll want to be aware of that to minimize the chances of your credit card being declined.

How Do Hotel Credit Card Holds Help Hotels?

Hotel credit card holds help hotels by making sure that they have access to your card in case there are additional charges or damages by guests. In many cases, there are no additional charges. You can make a credit card payment for the total amount of your bill and settle your account.

But if there are any additional charges, a credit card hold helps the hotel to know that your card has at least a certain amount available to pay.

Credit Card Hold vs Debit Card Hold

Holds can be issued on both credit cards as well as debit cards. In both cases, a hold is temporary and for a specific amount. Once the charge is finalized, the hold will usually be automatically removed.

One important difference to note: Because a debit card is tied directly to your bank account, you may be charged additional fees if the hold triggers an overdraft on your account.

In either scenario, it can be wise to understand your total available balance and how any temporary holds affect it.

Recommended: Credit Cards vs. Debit Cards

The Takeaway

It is common practice in the hotel industry to request a credit card at check-in and place a temporary hotel credit card hold on the card. This temporary hold is generally around $20 to $200 higher than the outstanding balance on your hotel room. This hold helps to protect the hotel if you have any additional charges or damages to the room. The temporary hold will usually be cleared within a few days of checking out.

Understanding how these temporary holds affect your available credit is a smart financial practice, since it can help keep you from maxing out your credit card. Another good financial practice is making sure you are earning the best possible rewards with every credit card purchase. One solid rewards card option is the SoFi Credit Card. With the SoFi Credit Card, you can earn cash-back rewards, which you can then use for travel or to invest, save, or pay down eligible SoFi debt.

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

What happens to your card limit when you use it to hold a room?

The amount of credit that you have available to use on your credit card account is reduced by any pending credit card charges like hotel room holds. Your available balance will be at this lowered level until the charge is finalized, which may take a few days after you check out. Make sure that you understand your available balance to limit the chances that your card is declined.

How long does a hotel hold your deposit?

Generally, most hotels will put a temporary hold on your credit card when you check in. This hold usually lasts for a few days after you check out, when it will usually disappear. If you see a hotel credit card hold on your statement longer than that, contact your credit card issuer to see if they can remove the hold.

How much do hotels hold on credit cards?

The amount that hotels hold on credit cards will vary by hotel. Usually the hold will be anywhere from $20 to $200, plus any outstanding balance owed on the room. This helps to protect the hotel over any extra charges or damages that might occur. If you’re not sure how much the hold will be for, you can ask the desk clerk when you check in for the policy at that specific hotel.

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Photo credit: iStock/ferrantraite

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
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 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.
New and existing Checking and Savings members who have not previously enrolled in direct deposit with SoFi are eligible to earn a cash bonus when they set up direct deposits of at least $1,000 over a consecutive 25-day period. Cash bonus will be based on the total amount of direct deposit. The Program will be available through 12/31/23. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC.

SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 3/17/2023. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
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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If you’re trying to build your credit, you may encounter a bit of a Catch-22: You likely need a good credit history to successfully apply for credit. But how do you do that if you don’t have credit?

Fortunately, products like credit builder loans and secured credit cards can help you build a favorable credit profile if you’re still at the beginning of your journey. Deciding which of these financial products is best will depend on your immediate financial needs and how much cash you have available to put down for a security deposit.

Read on to learn more, including:

•   What is a credit builder loan?

•   How does a credit builder loan work?

•   What are the pros and cons of credit builder loans?

•   What is a secured credit card?

•   How does a secured credit card work?

•   What are the pros and cons of secured credit cards?

•   Which is better of a secured credit card vs. a credit builder loan?

What Is a Secured Credit Card?

Secured credit cards vs. unsecured credit cards may look the same, but they work a little differently.

Instead of setting a credit limit determined by your credit history, secured cards require a cash security deposit. The amount of your deposit is usually the same as your limit.

You can think of it this way: Rather than allowing you to borrow money, the credit issuer is essentially allowing you to spend money you already have. It may sound as if it doesn’t offer any benefit, but remember: This gives you the opportunity to build your credit.

How Secured Credit Cards Work

When you apply for a secured credit card, you’ll provide your basic demographic information along with a cash security deposit to the card issuer. This deposit will usually be at least $200 or $300 and could be more; say, $1,000 or $2,500.

The deposit amount will likely serve as your working credit limit, though you may want to use the card sparingly. Perhaps you swipe or tap it often enough to keep it open and for the credit bureaus to see your positive credit behavior, such as paying in full and on time each month.

Because the cash deposit works as collateral, lowering the risk for the card issuer, you may be able to successfully apply for a secured credit card with a lower credit score or possibly even no credit at all. The same issuer might even automatically review the account to see if it merits a switch to an unsecured card.

Recommended: How to Apply for a Credit Card

Secured Credit Card’s Effect on Credit

Secured credit cards offer you the opportunity to build positive credit history, since your balance, payments, and other information will be passed to the credit bureaus. And because the credit limits are generally lower, it’s a lot harder to fall into a serious debt spiral with a secured credit card than it is with an unsecured one.

Pros and Cons of Secured Credit Cards

Like any financial option, secured credit cards have both pros and cons to consider.

Pros of secured credit cards:

•   It’s a readily available way for those with poor or non-existent credit history to begin building their credit with a low cash deposit.

•   You gain the ability to use the funds immediately while still building credit over time.

•   You may gain some potential credit card benefits, such as fraud protection and credit card rewards, like cash back.

Cons of secured credit cards:

•   You must have the cash deposit available, and it can be in your best interest not to use the entire amount once you have the credit card. That means some of your money is tied up on the card.

•   Interest and penalties may apply if you aren’t able to keep your balance low or paid off in full each month.

•   Card issuers do still run a hard credit inquiry when you apply, which can negatively impact your credit in the short term.

Recommended: What Is the Average Credit Limit and How Can You Increase It?

What Are Credit Builder Loans?

Credit builder loans are another option for people looking to build their credit. They work a little differently than a traditional loan does. Rather than receiving the money you’ve applied for right away, you’ll get the money later, after you’ve repaid the full amount.

How Do Credit Builder Loans Work?

Applying for a credit builder loan is a lot like applying for any other unsecured or secured personal loan. You’ll provide a variety of information, including details about your existing monthly expenses and income, as part of the approval process. (The lender may or may not run a credit check or look into your banking history.)

These loans are typically for relatively small amounts of $300 to $1,000. The term is likely to be between six and 24 months; rates will vary.

If you’re approved, the bank will create a savings account or certificate of deposit (CD) in the amount of the loan. The money is held there rather than paid out to you, and you repay the debt over time. It’s only when you’ve successfully completed repayment that the money be disbursed to you (sometimes including accrued interest).

In this way, it’s kind of like an enforced savings plan: You could slowly put money away into a savings account yourself, but taking out a credit builder loan keeps you accountable.

Plus, your payments are reported to the credit bureaus, which means you have the opportunity to build your credit history and credit report in the meantime. Win-win!

Note: Credit builder loans may not be available at your financial institution. If that’s the case, check credit unions, CDFIs (Community Development Financial Institutions), and online lenders.

Credit Builder Loan’s Effect on Credit

The loan company will report your on-time payments to the credit bureaus, which can help you build your credit. This can make it a lot easier to take out other loans in the future.

Of course, if you fail to pay on time or default, a credit builder loan could have a negative effect on your credit.

Pros and Cons of Credit Builder Loans

Credit builder loans also have both positives and negatives to consider.

Pros of credit builder loans:

•   They are available to people with low or no credit.

•   They may not require a hard credit inquiry.

•   They can help people build credit without risking going into credit card debt.

Cons of Credit Builder loans:

•   You won’t have access to the funds until after you’ve paid the loan off. Credit builder loans might not be right for those who have immediate financial needs.

•   There may be a nonrefundable fee for taking out the loan.

•   These loans can be difficult to find.

Credit Builder Loans vs Secured Credit Cards

Which of these two credit-building options might be right for you? The answer depends on your circumstances, but this table might prove helpful in comparing the options.

Credit Builder Loans	Secured Credit Cards
Your money will be locked up until you pay off the loan	You’ll have immediate access to funds but not the full amount of the deposit
May come with a one-time fee, but doesn’t pose the financial risk of revolving debt	Can be easy to accrue interest, late fees, and other penalties
Required cash security deposit can be as low as a few hundred dollars	Required cash security deposit can be as low as a few hundred dollars
Available to those with poor or non-existent credit	Available to those with poor or non-existent credit
Can help build credit history over time	Can help build credit history over time

Is a Secured Credit Card or Credit Builder Loan Right for You?

Depending on your specific financial circumstances, either of these products might be a valuable way to enhance or establish your credit. Both are relatively easy to access for those with imperfect financial histories. Although both require an up-front cash deposit, the deposit may only be a few hundred dollars.

If you need to use your money right away, a secured credit card may make more sense; you’ll be able to use your credit card to pay bills and cover other expenses.

A credit builder loan, on the other hand, ties up your money for a longer period of time, but comes with less risk of paying large amounts of interest on revolving debt.

The Takeaway

Credit builder loans and secured credit cards make it possible to create a favorable credit history. A credit builder loan may be a better option for those who have more cash available, whereas a secured credit card helps build credit while (responsibly) spending.

If you’ve established your credit and are looking for a new credit card, see what the SoFi Credit Card offers. With cash-back rewards and Mastercard ID Theft Protection, among other perks, it can be a great option.

The SoFi Credit Card: Smart, simple, and you’ll love the rewards!

FAQ

What is the difference between a credit builder loan and a secured credit card?

A credit builder loan is a loan that disburses money to the borrower only once the entire amount has been paid to the bank. A secured credit card is a credit card that requires a cash deposit to open. Both of these strategies require an up-front cash investment, but they also give people with poor or nonexistent credit the opportunity to build positive credit history and improve their credit score.

Which is better for building credit: a loan or a credit card?

Both loans and credit cards can build credit over time if the borrower makes their payments on-time and in full. However, both can also pose risk if the borrower is unable to keep up with repayment. Deciding whether to get a credit builder loan or a secured credit card may depend on how soon you need access to your cash.

What is one disadvantage of a credit builder loan?

When you take out a credit builder loan, you won’t have access to the money you’re applying for until the loan’s term is up, which may be as long as 24 months. That means credit builder loans might not be right for people with short-term financial needs to take care of.

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Photo credit: iStock/staticnak1983

¹See Rewards Details at SoFi.com/card/rewards.
SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back rewards when redeemed for a statement credit.¹
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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While credit scores and credit histories don’t merge when you get married, there are some scenarios when your spouse’s credit can impact yours, and vice versa. That said, you may wonder if your union spells good or bad news for your credit. Your three-digit credit score can be an important factor in borrowing money at the best possible rate, among other aspects of your financial life.

So, in a world where many people are trying to establish their credit scores, how might adding a spouse to a credit card build credit? Could it wind up bringing both of you down? Adding your spouse as a co-borrower can indeed have an impact depending on how responsibly you use a particular financial product. And beyond being added to a credit card, there are ways that you and your beloved might team up to build credit.

Read on to take a closer look at this situation, including:

•   If I add my spouse to my credit card, will it help their credit?

•   Does adding your spouse as a co-borrower affect my credit?

•   What are some ways to help my spouse build credit?

Can Adding Your Spouse as a Co-Borrower Affect Your Credit Score?

Co-borrowing for a mortgage, car loan, personal loan, or credit card with your significant other may impact your credit score. These are major financial moves, and here are the ripple effects they may trigger:

•   If you’re applying jointly from the get-go, and your spouse has the lower of the two credit scores, it could hinder the approval of your application or lead to lower loan amounts and less favorable rates and terms.

•   If, however, you have the lower credit score between the two of you, adding your spouse as a co-borrower can boost your odds of getting approved. Plus, it might enhance the amount, rates, and terms for that line of credit or loan for which you are applying.

•   Keep in mind that when you apply as co-borrowers or add your spouse as a co-borrower on a credit card or line of financing, you are legally bound to manage the account, and you’re both financially responsible. That means you’re both on the hook for making payments on the credit or loan, no matter who did the spending.

•   Payment history on the account will be reported to the credit bureaus on both your respective credit profiles. If payments are missed or late, it will negatively impact both your credit scores. And if you stay on top of payments, it can help you both build credit from scratch. This holds true whether you are both initially applying as co-borrowers or whether one spouse adds the other as a co-borrower.

Recommended: What Happens to Credit Card Debt When You Die?

How Can Cosigning Affect Your Credit Score?

So does adding a spouse to a credit card affect your credit score? As you’ll see, just as there are pros and cons of joint bank accounts and other shared financial arrangements, so too can cosigning have upsides and downsides.

•   If you’re adding your spouse as an authorized user on your card, it won’t immediately impact your credit. Nor will the credit card issuer be required to run a credit check on your spouse.

•   However, when you cosign on a credit card or loan (that is, become a co-borrower), both parties are responsible for making payments. If one struggles financially, falls behind on payments, or the account goes into collection, both individuals are legally on the hook to make those payments.

•   If the above situation occurs, it will most likely hurt the credit of both parties. Conversely, if the account holders stay on top of their payments, it can help build credit.

10 Ways in Which You Can Help Your Spouse Build Credit

Adding your significant other as an authorized user to your credit card or signing up to be a loan or credit card cosigner aren’t the only ways your spouse can build credit. Here, 10 other tactics to consider.

1. Authorized User

As mentioned, adding an authorized user to your credit card account doesn’t impact your credit in the slightest. And if you practice responsible credit card use and habits, your spouse, as an authorized user on your card, could benefit.

Worth noting: It’s not just your spouse who can be added to your account. You could add a friend, family member, or employee as an authorized user to your account. Depending on the credit card issuer, you may be able to add multiple people.

For instance, the SoFi credit card allows you to add up to five authorized users. Plus, having others make purchases on your credit card can help you earn rewards.

2. Secured Credit Card

Your spouse might build credit via a secured credit card. These cards may look like a conventional card but they work differently and give the lender an additional layer of security. You put down a refundable deposit, which is usually the same amount as your credit limit. For instance, if you put down $250, that is your credit limit is $250. If you’re new to credit and building credit from scratch, these cards can be helpful if used responsibly because activity is reported to the credit bureaus.

3. Joint Credit Account

Joint credit cards are held in two people’s names, with two people being able to make charges and liable for the debts. If you sign up for a joint credit card, you can build both of your credit scores, provided you stay on top of your payments. (Of course, if you fall behind, both of your credit scores would likely dip.) However, these accounts can be a challenge to find; most lenders prefer extending credit to a single individual.

Recommended: Is a Joint Bank Account Right for You?

4. Applying for a Small Loan

If you’re looking for a financing option to help build credit, consider a loan with a small amount. That way, you gain the benefit of establishing credit, plus the debt repayment will be manageable and you can pay it off quicker. You might look at credit unions and online lenders, where personal loans are available for $250 and up.

5. Applying for a Credit Builder Loan

A credit builder loan is a short-term personal loan created with the primary intention of helping someone establish credit. Typically, you borrow a low sum generally up to $1,000, with repayment terms from six to 24 months. In this kind of loan, the funds aren’t disbursed to you when you are approved. Rather, they are typically placed in an interest-earning savings account or CD for you while you make payments. You might think of it as a structured savings plan. At the end of the term, the money plus any interest is yours, and your payment history is reported to the credit bureaus, hopefully building your score.

6. Applying for a Secured Personal Loan

A secured personal loan works in a similar fashion to an unsecured loan. You receive a single lump sum upfront and are responsible for monthly payments. But you’ll need to back up it with a valuable asset, such as a home or car. Should you struggle with keeping up with payments, the lender will be able to collect on your collateral to pay back the loan. Again, this is a way to build a credit score if you handle the repayment responsibly.

Secured personal loans usually have less stringent credit requirements, so are easier to get approved for when you’re new to credit.

7. Reviewing Credit Reports Together

It may not be as fun as heading out to try the new ramen place, but making a date to review one another’s credit reports together can be a valuable use of a couple of hours. It can help you spot errors to be corrected by contacting the credit bureau. It can also allow you to brainstorm together about ways to optimize your respective credit scores. You can order free reports from each of the three credit bureaus at AnnualCreditReport.com .

For instance, maybe your partner has a history of late or missed payments. In that case, they can build their score by staying on-time with their payments. And perhaps you realize your credit card balance is growing rapidly and you need to investigate debt consolidation to remedy the situation.

8. Engaging in Money Management Discussions

Just as you might discuss your dreams for exotic travel and starting a family, you and your mate should hash out financial goals and how money management plays into helping you achieve your aspirations. You can tackle such issues as whether to have joint bank accounts vs separate bank accounts in marriage, prioritizing your financial plans, and more.

You might also both read financial blogs or listen to podcasts to boost your financial literacy.

9. Get Educated About Credit

About that reading and education: It can also be wise to drill down on the basic rules of credit and how to use credit responsibly. In turn, this learning might be able to help you establish credit with greater ease and more quickly.

10. Establishing and Sticking to Budgets

Your credit score can reflect how well you are handling your inflow and outflow of funds. As you contemplate your credit, take a look at how you can better allocate funds to pay down debt and pay bills on time.

If you’re not sure where to start, consider popular budgeting methods such as the 50-30-20 rule, the zero-sum budget, and the envelope system.

The Takeaway

Credit files are built individually, and getting married won’t combine your credit scores and profiles. However, if you want to help your spouse build credit or establish your own, there are smart moves you can make. Options can include credit builder loans, secured credit cards, and secured personal loans.

As you build good credit and move ahead with your financial life, picking the right credit card is an important decision. The SoFi Credit Card can be a terrific option, with 2% cash back rewards on every eligible purchase. Plus, you’ll enjoy free credit monitoring and our app that makes it easy to check your balance and pay bills.

The SoFi Credit Card: The smart, simple way to pay.

FAQ

Will adding my spouse to my credit card build our credit?

Adding your significant other as an authorized user can help build their credit if you both use the account responsibly.

Does my spouse affect my credit score?

Your credit score is tracked and reported individually. So your spouse’s financial behaviors and credit history won’t impact yours. But if you apply for a line of credit or loan jointly, then your respective credit scores can impact getting approved for loan and what terms and rates you’ll get.

What happens if I have a good credit score, but my spouse doesn’t?

If you have a solid credit score and your spouse doesn’t, when you apply as co-borrowers on a line of credit or loan (such as a personal loan, car loan, or mortgage), the spouse with the lower credit score could gain access to more favorable perks.

On the flip side, if your spouse has a poor credit score, it could hurt the odds of you getting approved for financing or credit with the best terms and rates — or you might get denied outright.

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Photo credit: iStock/PeopleImages

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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SoFi’s Insights tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
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In a rising interest rate climate, especially after historic lows, you may be more aware of purchase interest charges on your credit card statement. These charges are a wordy way of saying interest, which you owe when you don’t pay your credit card statement balance in full.

Americans pay about $120 billion per year in credit card interest and fees — about $1,000 per year for each household. Read on for more about credit card interest, including how it works and how to find your card’s interest rate.

What Is Credit Card Interest?

Credit card interest is what you’re charged by a credit card issuer when you don’t pay off your statement balance in full each month. Card issuers may charge different annual percentage rates (APRs) for different types of balances such as purchases, balance transfers, cash advances, and others. You may also be charged a penalty APR if you’re more than 60 days late with your payment.

An interest charge on purchases is the interest you are paying on the purchases you make with the credit card but don’t pay in full by the end of the billing cycle in which those purchases were made. The purchase interest charge is based on your credit card’s annual percentage rate (APR) and the total balance on that card — both of which can fluctuate.

Taking a closer look at your credit card balance and interest rate can help you figure out the best way to pay it off. Here’s some information about how purchase interest charges work and, in general, how interest works on a credit card.

Recommended: Average Credit Card Interest Rates

How Does Credit Card Interest Work?

Credit cards charge different APRs on purchases, cash advances, and balance transfers. The cardmember agreement that was included when you first received your credit card outlines the different APRs and how they’re charged. This information is also included in brief on each monthly billing statement, or you can contact your credit card issuer’s customer service department for this information. Another place to find how interest works on various credit cards is through the Consumer Financial Protection Bureau, which maintains a database of credit card agreements from hundreds of card issuers.

Some credit cards offer an introductory 0% interest rate. But once that promotional period ends, paying your balance in full each month is how you can avoid interest charges.

For example, you get a new credit card with a $5,000 available credit limit and 0% interest for three months. You use the credit card to buy a new computer that costs $3,000 and a designer dog house for your poodle that costs $1,000.

For each of the three interest-free months you pay only the minimum balance due. But since the full balance hasn’t been paid, your fourth statement will include a purchase interest charge. That is the interest you now owe because you did not pay off your credit card statement balance in full.

Credit card interest is variable, based on the prime rate, and banks typically calculate interest daily. A typical interest calculation method used is the daily balance method.

•   The bank will calculate the daily periodic rate, which is the APR divided by 365.

•   To each day’s balance, the bank will add any interest charge from the previous day (compounded interest) and any new transactions and fees, then subtract any payments or credits. This is the new daily balance.

•   The daily periodic rate is multiplied by the daily balance each day.

•   At the end of the billing cycle, each day’s balance is added together, resulting in the amount of interest owed.

•   If the amount owed is less than the minimum interest charge shown on the credit card’s fee schedule, the bank will charge the minimum.

You can make a payment toward your balance due at any time — you don’t have to wait until the due date. Since interest is commonly calculated daily, making multiple smaller payments rather than one large payment on the due date is one way to decrease the amount of interest you might owe at the end of the billing cycle. This can be a good strategy to use if you don’t pay your credit card bill in full each month. You’ll still owe some interest, but it may be less.

Recommended: APR vs. Interest Rate

What is a Purchase Interest Charge?

Sometimes also known as a finance charge, an interest charge on purchases is simply interest you pay on your credit card balance for purchases you made but didn’t pay in full. If you don’t pay off your balance each billing cycle, a purchase interest charge for the unpaid amount then becomes part of the total balance you owe.

For example, let’s say you owe $1,000 on a credit card, and because you did not pay that $1,000 in full you were charged a purchase interest charge of $90. You now owe $1,090, and then the next month’s purchase interest charge will be calculated based on a balance of $1,090.

This is called compound interest and can lead to a cycle of credit card debt. The interest charges continue to accrue if you’re not paying your balance in full every month.

How Do You Get Rid of a Purchase Interest Charge?

For a temporary reprieve from paying an interest charge on purchases, you might look for a credit card that has an introductory 0% APR. Some credit card issuers offer introductory rates for anywhere from 12 to 18 months for qualified applicants. If you make a plan for paying off the balance before the promotional period ends and you’re diligent about sticking to it, you could forgo paying interest on purchases made during that period.

Some people might choose this strategy rather than taking out a personal loan for a specific purchase. If you’re sure you can pay the balance in full while the APR remains at 0%, it could be a good strategy.

The only sure way not to pay a purchase interest charge is to pay your credit card balance in full each month.

Recommended: 11 Types of Personal Loans & Their Differences

Different Types of Credit Card Interest

Interest charges on purchases are just one type of interest charged on a credit card. Other transactions and fees may apply and must be disclosed to credit card applicants. The information can be found in a credit card’s rates and fees table often referred to as the “Schumer Box” after legislation introduced by Sen. Chuck Schumer as part of the Truth in Lending Act. The APR for purchases is typically at the top of the list, with others below.

•   Balance transfer APR: If you transfer a balance from one credit card to another, this is the rate you’ll pay on the amount of the transfer. You’ll also be charged interest at this APR on any balance transfer fee your card issuer might charge you.

•   Cash Advance APR and fee: Cash advance APRs tend to be much higher than purchase APRs, and there’s typically no grace period — interest starts accruing immediately. Like a balance transfer fee, you’ll be charged interest on a cash advance fee, too.

•   Penalty APR: If your credit card payment is more than 60 days late, your credit card issuer may increase your APR. If you make the next six consecutive payments on time, the card issuer must reinstate your original APR on the outstanding balance. But they are allowed to keep the higher penalty APR on any new purchases.

In addition to interest charges, there may also be fees charged. All of these fees could potentially accrue interest at their respective rates if the credit card’s balance is not paid in full by the payment due date.

•   Annual fee: Some credit cards charge an annual fee to the card holder.

•   Balance transfer fee: A fee of 3% to 5%, typically, on the amount transferred.

•   Cash advance fee: The greater of a flat dollar amount or a percentage of the cash advance.

•   Foreign transaction fee: A percentage of each transaction amount, in U.S. dollars.

•   Returned payment fee: Having insufficient funds in the bank account used to pay your credit card bill could result in a returned payment fee.

•   Late payment fee: Payments made after the statement due date will incur a late fee of at least $29 and not more than $40.

Where Can I Find My Credit Card’s Interest Rates?

There are several places you can locate your credit card’s interests rates and fees.

Anytime you receive a solicitation for a credit card, which is basically an advertisement, the credit card issuer is required by law to disclose the card’s possible interest rates and fees, as well as how interest is calculated. Since the recipient of this advertisement hasn’t been approved for the credit at this point, these numbers are estimations.

If you are going through a prequalification process for a credit card, the issuer should be able to provide you with more specific APRs so you can decide if that card is a good financial tool for you.

After you’ve been approved, the credit card issuer will mail you a packet containing your physical credit card and detailed information in a cardmember agreement. It’s a good idea to read this document thoroughly so you’re aware of all possible APRs and fees you could be charged.

If you access your credit card account online, you can also find this same detailed information on the card issuer’s website. You can call the card’s customer service telephone number for the information.

The Takeaway

If you’re one of the many people who carry a credit card balance, knowing how much interest you’re paying on different types of charges is important. Interest charges on purchases are likely the most common interest charges, and the amount of interest you may pay can add up quickly.

To keep from paying interest on purchases at all, it’s important to pay your credit card balance in full each month. If you don’t, you’ll accrue interest, which compounds and can create a debt cycle.

3 Personal Loan Tips

1. Before agreeing to take out a personal loan from a lender, you should know if there are origination, prepayment, or other kinds of fees. If you get a personal loans from SoFi, there are no-fee options.
2. If you’ve got high-interest credit card debt, a personal loan is one way to get control of it. But you’ll want to make sure the loan’s interest rate is much lower than the credit cards’ rates — and that you can make the monthly payments.
3. Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.

Learn more about how a personal loan from SoFi can help you get out of credit card debt.

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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.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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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