How to Invest in Real Estate: 7 Ways for Beginners

Real estate investing can be an effective way to hedge against the effects of inflation in a portfolio while generating a steady stream of income. When it comes to how to invest in real estate, there’s no single path to entry.

Where you decide to get started can ultimately depend on how much money you have to invest, your risk tolerance, and how hands-on you want to be when managing real estate investments.

Key Points

•   Real estate investing offers portfolio diversification and potential income generation.

•   Benefits of real estate investing include hedging against inflation and potential tax breaks.

•   Different ways to invest in real estate include REITs, real estate funds, REIT ETFs, real estate crowdfunding, rental properties, fix and flip properties, and investing in your own home.

•   Each investment option has its own requirements, fees, holding periods, and risk factors.

•   Consider your financial goals, risk tolerance, and available capital when deciding which real estate investment strategy is right for you.

Why Invest in Real Estate?

Real estate investing can yield numerous benefits, for new and seasoned investors alike. Here are some of the main advantages to consider with property investments.

•   Real estate can diversify your portfolio, allowing you to better balance risk and rewards.

•   Provides the opportunity to generate investment returns outside of owning securities such as stocks, ETFs, or bonds.

•   Historically, real estate is often seen as a hedge against inflation, since property prices tend to increase in tandem with price increases for other consumer goods and services.

•   Owning real estate investments can allow you to generate a steady stream of passive income in the form of rents or dividends.

•   Rental property ownership can include some tax breaks since the IRS allows you to deduct ordinary and necessary expenses related to operating the property.

•   Real estate may appreciate significantly over time, which could result in a sizable gain should you decide to sell it. However, real estate can also depreciate in value, leading to a possible loss or negative return. Investors should know that the real estate market is different than the stock market, and adjust their expectations accordingly.

There’s one more thing that makes real estate investing for beginners particularly attractive: There are many ways to do it, which means you can choose investments that are best suited to your needs and goals.

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7 Ways to Invest in Real Estate

Real estate investments can take different forms, some of which require direct property ownership and others that don’t. As you compare different real estate investments, here are some important things to weigh:

•   Minimum investment requirements

•   Any fees you might pay to own the investment

•   Holding periods

•   Past performance and expected returns

•   Investment-specific risk factors

With those things in mind, here are seven ways to get started with real estate investing for beginners.

1. Real Estate Investment Trusts (REITs)

A real estate investment trust (REIT) is a company that owns and operates income-producing properties. The types of properties you might find in a REIT include warehouses, storage facilities, shopping centers, and office space. A REIT may also own mortgages or mortgage-backed securities.

REITs allow investors to enjoy the benefits of property ownership without having to buy a building or land. Specifically, that means steady income as REITs are required to pay out 90% of taxable income annually to shareholders in the form of dividends. Most REIT dividends are considered to be ordinary income for tax purposes.

Many REITs are publicly traded on an exchange just like a stock. That means you can buy shares through your brokerage account if you have one, making it relatively easy to add REITs to your portfolio. Remember to consider any commission fees you might pay to trade REIT shares in your brokerage account.

2. Real Estate Funds

Real estate funds are mutual funds that own a basket of securities. Depending on the fund’s investment strategy, that may include:

•   Individual commercial properties

•   REITs

•   Mortgages and mortgage-backed securities

Mutual funds also trade on stock exchanges, just like REITs. One of the key differences is that mutual funds are not required to pay out dividends to investors, though they can do so.

Instead, real estate funds aim to provide value to investors in the form of capital appreciation. A real estate fund may buy and hold property investments for the long term, in anticipation of those investments increasing in value over time.

Investing in a real estate fund vs. REIT could offer broader exposure to a wider range of property types or investments. A REIT, for instance, may invest only in hotels and resorts whereas a real estate mutual fund may diversify with hotels, office space, retail centers, and other property types.

3. REIT ETFs

A REIT ETF or exchange-traded fund is similar to a mutual fund, but the difference is that it trades on an exchange just like a stock. There’s also a difference between REIT ETFs and real estate mutual funds regarding what they invest in. With a REIT ETF, holdings are primarily concentrated on real estate investment trusts only.

That means you could buy a single REIT ETF and gain exposure to 10, 20 or more REITs in one investment vehicle.

Some of the main advantages of choosing a REIT ETF vs. real estate funds or individual REITs include:

•   Increased tax efficiency

•   Lower expense ratios

•   Potential for higher returns

A REIT ETF may also offer a lower minimum investment than a REIT or real estate fund, which could make it suitable for beginning investors who are working with a smaller amount of capital.

But along with those advantages, investors should know about some of the potential drawbacks:

•   ETF values may be sensitive to interest rate changes

•   REIT ETFs may experience volatility related to property trends

•   REIT ETFs may be subject to several other types of risk, such as management and liquidity risk more so than other types of ETFs.

As always, investors should consider the risks along with the potential advantages of any investment.

4. Real Estate Crowdfunding

Real estate crowdfunding platforms allow multiple investors to come together and pool funds to fund property investments. The minimum investment may be as low as $500, depending on which platform you’re using, and if you have enough cash to invest you could fund multiple projects.

Compared to REITs, REIT ETFs, or real estate funds, crowdfunding is less liquid since there’s usually a required minimum holding period you’re expected to commit to. That’s important to know if you’re not looking to tie up substantial amounts of money for several years.

You’ll also need to meet a platform’s requirements before you can invest. Some crowdfunding platforms only accept accredited investors. To be accredited, you must:

•   Have a net worth over $1 million, excluding your primary residence, OR

•   Have an income of $200,000 ($300,000 if married) for each of the prior two years, with the expectation of future income at the same level

You can also qualify as accredited if you hold a Series 7, Series 65, or Series 82 securities license.

5. Rental Properties

Buying a rental property can help you create a long-term stream of income if you’re able to keep tenants in the home. Some of the ways you could generate rental income with real estate include:

•   Buying a second home and renting it out to long-term tenants

•   Buying a vacation home and renting it to short-term or seasonal tenants

•   Purchasing a multi-unit property, such as a duplex or triplex, and renting to multiple tenants

•   Renting a room in your home

But recognize the risks or downsides associated with rental properties, too:

•   Negative cash flow resulting from tenancy problems

•   Problem tenants

•   Lack of liquidity

•   Maintenance costs and property taxes

Further, the biggest consideration with rental properties usually revolves around how you’re going to finance a property purchase. You might try for a conventional mortgage, an FHA loan if you’re buying a multifamily home and plan to live in one of the units, a home equity loan or HELOC if you own a primary residence, or seller financing.

Each one has different credit, income, and down payment requirements. Weighing the pros and cons of each one can help you decide which financing option might be best.

6. Fix and Flip Properties

With fix-and-flip investments, you buy a property to renovate and then resell it for (ideally) a large profit. Becoming a house flipper could be lucrative if you’re able to buy properties low, then sell high, but it does take some knowledge of the local market you plan to sell in.

You’ll also have to think about who’s going to handle the renovations. Doing them yourself means you don’t have to spend any money hiring contractors, but if you’re not experienced with home improvements you could end up making more work for yourself in the long run.

If you’re looking for a financing option, hard money loans are one possibility. These loans let you borrow enough to cover the purchase price of the home and your estimated improvements, and make interest-only payments. However, these loans typically have terms ranging from 9 to 18 months so you’ll need to be fairly certain you can sell the property within that time frame.

7. Invest in Your Own Home

If you own a home, you could treat it as an investment on its own. Making improvements to your property that raise its value, for example, could pay off later should you decide to sell it. You may also be able to claim a tax break for the interest you pay on your mortgage.

Don’t own a home yet? Understanding what you need to qualify for a mortgage is a good place to start. Once you’re financially ready to buy, you can take the next step and shop around for the best mortgage lenders.

How to Know If Investing in Real Estate Is a Good Idea for You

Is real estate investing right for everyone? Not necessarily, as every investor’s goals are different. Asking yourself these questions can help you determine where real estate might fit into your portfolio:

•   How much money are you able and willing to invest in real estate?

•   What is your main goal or reason for considering property investments?

•   If you’re interested in rental properties, will you oversee their management yourself or hire a property management company? How much income would you need them to generate?

•   If you’re considering a fix-and-flip, can you make the necessary commitment of time and sweat equity to get the property ready to list?

•   How will you finance a rental or fix-and-flip if you’re thinking of pursuing either one?

•   If you’re thinking of choosing REITs, real estate crowdfunding, or REIT ETFs, how long do you anticipate holding them in your portfolio?

•   How much risk do you feel comfortable with, and what do you perceive as the biggest risks of real estate investing?

Talking to a financial advisor may be helpful if you’re wondering how real estate investments might affect your tax situation, or have a bigger goal in mind, like generating enough passive income from investments to retire early.

💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

The Takeaway

Real estate investing is one of the most attractive alternative investments for portfolio diversification. While you might assume that property investing is only for the super-rich, it’s not as difficult to get started as you might think. Keep in mind that, depending on how much money you have to invest initially and the degree of risk you’re comfortable taking, you’re not just limited to one option when building out your portfolio with real estate.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.

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FAQ

How Can I Invest in Property With Little Money?

If you don’t have a lot of money to invest in property, you might consider real estate investment trusts or real estate ETFs for your first investments. REITs and ETFs can offer lower barriers to entry versus something like purchasing a rental property or a fix-and-flip property.

Is Real Estate Investing Worth It?

Real estate investing can be worth it if you’re able to generate steady cash flow and income, hedge against inflation, enjoy tax breaks, and/or earn above-average returns. Whether investing in real estate is worth it for you can depend on what your goals are, how much money you have to invest, and how much time you’re willing to commit to managing those investments.

Is Investing in Real Estate Better Than Stocks?

Real estate tends to have a low correlation with stocks, meaning that what happens in the stock market doesn’t necessarily affect what happens in the property markets. Investing in real estate can also be attractive for investors who are looking for a way to hedge against the effects of inflation over the long term.

Is Investing in Real Estate Safer Than Stocks?

Just like stocks, real estate investments carry risk meaning one isn’t necessarily safer than the other. Investing in both real estate and stocks can help you create a well-rounded portfolio, as the risk/reward profile for each one isn’t the same.


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Protecting Your Credit Card From Hackers

Protecting Yourself Against Credit Card Hacks

Protecting yourself against credit card hackers — criminals that engage in credit card fraud and identity theft — is a vital part of using your credit card responsibly. Understanding how credit card hacking works and the many ways thieves can gain access to your personal financial information can help you protect both your physical credit card and your digital credit card account information.

Read on to learn how to protect your credit card from hackers, as well as what to do if your credit card is hacked.

What It Means for a Credit Card To Be Hacked

A credit card hack occurs anytime your credit card or credit card account number falls into the wrong hands. That information is then used fraudulently to make purchases and/or to engage in identity theft.

Credit card theft can entail everything from stealing your wallet to hacking into large databases holding hundreds of thousands of credit card numbers.

Ways Credit Cards Can Be Hacked

Thieves use a variety of ways to get their hands on your credit card information. The biggest money scams in the U.S. are now done digitally through email, text messages, or fake websites. But there are still plenty of old-fashioned scammers who use snail mail, phone calls, and in-person ruses.

Here are some of the most common forms of both types of fraud:

•   Lost or stolen wallet containing credit cards. An old but still common trick for credit card thieves is to steal the physical card, then use it and the information it contains to make fraudulent purchases. In addition, if other personal information is included in your stolen wallet, such as your address and even your Social Security number, thieves can use your identifying information to set up other fraudulent credit accounts.

•   Phishing. Another common credit card hacking method is for a thief to attempt to get ahold of your credit card information through a phone call, text message, or email in which they impersonate a legitimate institution. For instance, a phishing email that appears as if it’s from your banking institution may entice you to click a link that takes you to a page where you’re then asked to enter your account information.

•   Dumpster diving. Criminals search through trash to find discarded statements, receipts, and other documents that contain your credit card number and identifying information such as your name and address. They then use that information to make fraudulent purchases or engage in identity theft.

•   Data breaches. Professional hackers can break into large retail, bank, financial, healthcare, social media, and other websites and steal reams of personal information that often include credit card and other personal financial information from thousands of users. The usual aim is to resell that data on the dark web. From there, criminal buyers use the data to commit credit card fraud and identity theft. If your data is on file at a breached site, you’re at risk.

•   Credit card skimmers. Thieves also can use gadgets that can extract your credit card information when you swipe it to pay or to withdraw money from an ATM. These most commonly are found at gas stations or on outside ATMs, though they’re becoming less common with the introduction of chip technology.

•   Inside jobs. Unscrupulous wait staff, store clerks, health-care billing workers, and others with access to credit card data may take a photo or otherwise copy your card information and use it to make fraudulent purchases. On a larger scale, sometimes these workers are part of a criminal ring that helps access financial data from thousands of individuals that’s then sold on the dark web.

•   Public Wi-Fi networks. Your credit card also may be vulnerable to a credit card hack if you use a public internet connection, which is why it’s important to follow cybersecurity tips. If someone is monitoring the network and you enter any sensitive information, such as your account information, a thief may be able to swipe it.

Protecting Your Physical Card

Although digital credit card theft is more common than ever, plenty of old-fashioned thieves are still out there and would like to get their hands on your physical card. So, it makes sense to stay diligent. Taking these steps can help:

•   Don’t reveal your physical card. Avoid giving your physical card to anyone, and never post photos on social media with your credit card showing.

•   Black out the security code on the back of your card. Instead, you can file it in your password manager or another safe place. If your card is stolen, it’s harder for thieves to use the account information for online purchases if they don’t have your security code.

•   Don’t sign your card. You can limit fraudulent in-person purchases if your stolen card is unsigned. You can write “See ID” in the blank area, then show your ID to store clerks in lieu of a signature. When a thief is asked for ID, they won’t be able to provide it, potentially preventing the transaction from going through.

•   Use a protective sleeve or wallet. These RFID-blocking layers can prevent your card from being read by a technical device.

•   Report lost or stolen cards immediately. If your card is compromised, make sure to alert your credit card issuer immediately. They will then close your card and issue a new one immediately. This is also a good idea if you’re notified that you’ve been part of a data breach.

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

Protecting Your Credit Card Account Information

In addition to your physical card, you need to protect your credit card data as well. Big credit card data hacks can mean your personal financial details and credit card account information are vulnerable. But there are steps you can take to protect yourself:

•   Only use reputable shopping sites. Often, fraudulent sites are set up as a ruse to collect credit card information. When you shop online, always buy from trusted merchants.

•   Avoid using your credit card when you’re on public WiFi. It can be easy for criminals to pick up your data when you’re using public internet networks. As such, you’ll want to avoid entering any personal or sensitive information while you’re using these networks, even if you’re on your own personal device.

•   Check your account frequently. Don’t just wait for your statement to arrive in your email every month. Get in the habit of regularly monitoring your credit card activity online, especially if you find your credit card keeps getting hacked. If you find a suspicious charge, report it immediately.

•   Be wary of phishing scams. You may get an authentic-looking email, text, or phone call asking for your credit card information. This may be a completely cold call or a data thief looking to fill in information they may not have for you, such as your expiration date or CVV security code. Never give your information to anyone asking for it. Banks, credit card companies, retailers, and other reputable places only take your information if you contact them.

•   Use smart passwords. Use strong passwords that include lowercase and capital letters, numbers, and symbols. Change your passwords frequently and remember that if it’s easy for you to remember, it’s probably easy for a thief to figure out. Password manager software can help you generate and keep track of strong passwords.

•   Sign up for two-factor authentication. With two-factor authentication, a one-time code is texted or voiced to your phone when you log into a financial account. This helps to ensure the account holder is the one logging on. Other types of secure authentication, such as face ID, are used by some organizations.

Recommended: Tips for Using a Credit Card Responsibly

Steps to Take When Your Credit Card is Compromised

If you think you were a victim of credit card fraud and/or identity theft, it’s important to act fast. The Fair Credit Billing Act (FCBA) limits your financial responsibility for credit card fraud to up to $50, so you won’t be on the hook for more than that in the case of bogus credit card charges that have led you to request a credit card refund. Even better, many major credit card issuers offer zero-dollar liability protection.

But if the thieves go on to use your personal information to commit other types of financial fraud, you may be liable. Acting fast will also help minimize the onerous work involved in untangling identity theft.

Here’s what to do if what to do if your credit card is hacked, or you see suspicious charges on your statement or other signs of fraudulent activity:

Contact Your Credit Card Company

As soon as you spot anything, call your credit card company. Tell them you think your card and card information is vulnerable and request a new card with a new account number. Most credit card issuers will comply right away (unlike if you were falsely disputing a credit card charge). However, you may be without a credit card for a bit while you wait for the new one to arrive.

Sign Up for Fraud Alerts

If you’ve received a letter or other notification that your personal data may have been compromised, you can place a fraud alert at all three credit bureaus — Equifax®, Experian®, and TransUnion® — that may be monitoring your account. This stops unauthorized individuals from accessing your account information for a year, at which point you can request for it to be renewed.

Freeze Your Credit

A stronger step than setting up a fraud alert is to freeze your credit. When you ask for a freeze, the three top credit reporting agencies will make sure no one can ask for your credit report without your approval. The downside: A freeze can make it more cumbersome for you to legitimately apply for new credit.

File a Police Report

If you’re a victim of credit card fraud, you may need to file a police report. You may need that documentation as you move through different steps to report identity theft and other fraud as you try to recoup your losses. Your credit card issuer can help you determine if a police report is necessary. You can also report the fraud to the Federal Trade Commission on its website.

Recommended: When Are Credit Card Payments Due

Credit Card Security and Fraud Protection

There are a number of steps that credit card companies can take to increase credit card security and curb credit card hacks. For instance, some credit cards have two-factor authentication to protect access to your account.

Credit card companies can also offer the option to freeze your card immediately. You often can do so through their website or via their app if you notice suspicious charges or other activity.

And, as mentioned previously, some credit card issuers offer a zero-liability policy. As long as you report unauthorized or erroneous card transactions no later than, say, 60 days after the first statement on which the problem occurred, the card issuer won’t hold you liable for any fraudulent charges.

The Takeaway

Credit card hacks can be costly, onerous, and time-consuming. But you can take steps to avoid hacks by protecting both your physical card and your online credit card information.

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

FAQ

How can I protect my credit card from being hacked?

You can fight credit card hacking by checking your account regularly for any suspicious charges, being mindful of phishing scams, shopping online with caution, and keeping your physical card and your digital card information safe. If anything were to happen, make sure to report any suspicious activity as soon as possible and to use credit freezes and fraud alerts when necessary.

Can a hacker steal my credit card information?

Yes. Credit card hacks include stealing your physical card or credit card information and making fraudulent purchases directly with your account. Or thieves may use your stolen personal information to set up a new fraudulent account in your name. Credit card hacks also happen when thieves steal financial information from databases at large retailers, financial institutions, and other businesses.

Can hackers use a credit card without a CVV?

Yes, although it can be more difficult for hackers to use a credit card without a CVV. The CVV number is often requested in transactions that don’t occur in-person as an additional layer of security to ensure that the person actually has the physical card.


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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.

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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What Is a Credit Card Number? What Each Digit Means

All You Need to Know About Credit Card Numbers

A credit card number — that long string of digits on the front or back of every credit card — contains more information than you might think. Though credit card numbers may seem rambling and random, each digit actually has a specific purpose and place. The number you see on a credit card provides information about the individual account holder, the payment network, and the card issuer. It also uses a special formula to help prevent transaction errors and fraud.

Here, gain a deeper understanding of the significance of each digit.

What Is a Credit Card Number?

A credit card number is a set of digits — usually 16 — that’s printed on the front or back of a credit card.

It’s important to note that your credit card number is not the same thing as your account number. Your credit card number includes your account number, but it has additional digits (an account number typically has 12), and it provides more information. When you make a credit purchase online or on the phone, you can expect to be asked for your full card number to authenticate the transaction.

Though the information provided by every credit card number is basically the same, the format may differ a bit from card to card: Sometimes the numbers are raised; sometimes they’re flat. And generally, although not always, the digits are divided into four sets of four (xxxx xxxx xxxx xxxx).

The format for credit cards and debit cards is similar — which is why you might pull out the wrong card from time to time.

Who Decides What Your Credit Card Number Is?

Your credit account number is assigned by the financial institution that is your credit card issuer. But the structure and sequence of the digits in your credit card number must follow a rigid set of standards imposed by the International Organization of Standardization (ISO) and enforced by the American Network of Standards Institute (ANSI).

All card issuers follow these rules, so consumers can use their cards or card numbers no matter where they are in the world.

Credit Card Number Structure

Even if you know what a credit card is and how credit cards work, you may not be familiar with what the numbers on your card mean. Though most credit card numbers have 16 digits, the length may vary. Of the four major card networks, Visa, Mastercard, and Discover card numbers all have 16 digits, while American Express card numbers have only 15. Here’s what those digits actually mean.

The First Number: Industry Identifier

The first digit in a credit card number is known as the Major Industry Identifier (MII), and it can tell you both the industry associated with the card and the payment network.

Payment Network

Most credit cards start with a 3, 4, 5, or 6. These numbers represent the major payment networks, each of which has its own identifier:

•   American Express cards begin with a 3

•   Visa cards begin with a 4

•   Mastercard cards typically start with a 5, but may start with a 2

•   Discover cards start with a 6

Knowing your credit card’s payment network can be useful, because the network determines which merchants will accept the card. Your favorite local market or small boutique might accept credit card payments with a Mastercard, Visa, or Discover card, for example, but they may not let you pay with American Express.

Recommended: When Are Credit Card Payments Due

Industry Association

There are many different types of credit cards. Some credit cards are meant for general use, while others may be geared to a more specific purpose. The MII can tell you which type of industry your card is most associated with. Here’s what some MIIs generally mean:

•   1: Airlines

•   2: Airlines and financial

•   3: Travel and entertainment

•   4: Banking and financial

•   5: Banking and financial

•   6: Merchandising and banking

•   7: Petroleum

•   8: Health care and communications

•   9: Government and other

The Next 5 Numbers: Identification Numbers

The next five digits complete the Bank Identification Number (BIN), or Issuer Identification Number (IIN). This can tell you who the card issuer is.

The credit card issuer is the financial institution that offers the card and manages your account. Some of the largest credit card issuers in the U.S. include American Express, Bank of America, Capital One, Chase, Citi, Wells Fargo, and Discover.

When you apply for a credit card, it’s the issuer who accepts or declines your application. When you make a purchase, you’re borrowing money from the credit card issuer, and when you pay your bill, you’re paying back that money. Any time you check your balance, request a higher credit limit or a lower interest rate, or obtain a replacement card, you’re doing it through your credit card issuer.

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

The Next 9-12 Numbers: Account Identifier

The remaining digits on the card — except for the very last one — identify the account and the cardholder.

Don’t worry, there isn’t a secret indicator in your card number that tells people how often you’re using your credit card or if you’re paying your bills on time. This part of your card number simply represents what account the card is connected to.

If your card is lost or stolen, or your card number is compromised in a credit card scam, you may notice that the number on your replacement card has changed, even if your account number hasn’t. So if you’re keeping a list of card numbers in a secure place, you may have to update that card number.

Recommended: Tips for Using a Credit Card Responsibly

The Last Number: Checksum

The last digit of a credit card number is referred to as the “checksum” or “check digit.” Card issuers and payment networks use it to catch errors and help protect against unauthorized card use. (Let’s face it: Even if you follow all the so-called credit card rules, things can happen.)

When a card is used for a purchase or payment, this digit is used as part of a mathematical formula called the Luhn algorithm to verify the card’s validity. If the checksum doesn’t work, the transaction is quickly rejected. (If you’ve ever mistyped your card number when shopping online, you’ve seen this algorithm in action.)

Most major networks use the final digit as the checksum. However, if you have a Visa credit card, it may be the 13th digit.

What About the Other Numbers on the Card?

Besides the card number, there are two other sets of digits that also can play a critical role when you use your credit card.

Card Verification Value (CVV)

The Card Verification Value (or CVV number on a credit card) or Card Verification Code (CVC) is also used to protect the card owner. If you do a lot of online shopping, you’re probably very familiar with this three- or four-digit number, which usually is found on the back of a credit card near or inside the signature strip.

On some cards, there may be seven digits in this spot. If this is the case, the first four digits you see are the last four digits of your credit card number. The last three digits in the grouping represent the CVV.

If you have an American Express card, the CVV is a four-digit number located on the front of the card, just above the logo.

The CVV is designed to help protect against identity theft. If you aren’t presenting your card in person during a transaction (because you’re using it online or over the phone), providing the CVV can help prove you’re in possession of the physical card.

Expiration Date

The expiration date offers yet another layer of protection for the card holder. Most businesses require that you provide the credit card number, the CVV, and the card’s expiration date when you make an online purchase.

The credit card expiration date typically appears on the front of the card with two digits for the month and two digits for the year (xx/xx). But if the account number is printed on the back of the card, you’ll likely find the expiration date there.

Even if you never need to use it to make a remote purchase or payment, it can be a good idea to glance at your card’s expiration date from time to time. That way, you can ensure you always have a current card in your wallet.

You’ll also know when it’s time to watch for the arrival of a replacement card. If a new card doesn’t arrive in the month the old card expires, you can call the issuer and immediately take steps to protect yourself if it appears the card has been lost or stolen. (The phone number for customer service is also on your card.)

The Takeaway

At first glance, the number on your credit card might look like a meaningless jumble. But if you take a closer look, you’ll find each digit has a purpose — to provide information, to help keep your account secure, and to make the card more user-friendly.

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

FAQ

Where do I find my credit card number?

Your credit card number may appear on the front or back of your credit card.

Is the credit card number the same as the account number?

No, the two numbers are linked, but they are not the same. Your credit card number includes your account number, but it has more digits, and those extra digits are important to how each transaction is processed.

How long is a credit card number?

A credit card number typically has 16 digits, but the number can vary. American Express uses a 15-digit format for its credit cards.

Can a credit card number be stolen?

Yes. A credit card number can be stolen in multiple ways: through the theft of a physical card, during a data breach, with a card skimmer, or if the cardholder uses an unsecured website or public Wi-Fi when making a credit transaction.


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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.

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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What Is a Credit Limit and How Is It Determined?

What Is a Credit Limit and How Is It Determined?

A credit limit is basically what the term suggests: A financial cap on a credit card account that limits how much money the cardholder can borrow from the card issuer. By including a maximum spending amount, the card issuer buys itself some protection against the cardholder borrowing more than they can pay back on an ongoing basis.

There’s more to the story, however, when it comes to credit card limits and how they’re determined. Here’s a closer look at what a credit limit is and what happens if you go over your credit limit.

What Is a Credit Limit?

As mentioned, a credit limit is the maximum amount that you can charge with your credit card, which represents a line of credit. The amount is determined based on information provided in a credit card application, such as the applicant’s credit score, income, and existing debts. Usually, the higher the credit, the higher above the average credit card limit someone will receive.

It’s also important to note that credit card limits aren’t set in stone. A cardholder may receive a higher credit card limit if they make their payments on time and stay well within their credit limit. Conversely, if card payments are late (or worse, not made at all) or if there are other signs of risk, such as nearing or exceeding their credit card spending limit, then the card issuer may decrease someone’s credit limit.

Recommended: What is a Charge Card

Credit Limit and Available Credit

Each purchase made with a credit card is deducted from your total credit limit, resulting in your available credit. For example, let’s say someone has a credit limit of $10,000. If they spend $2,000 at a store that accepts credit card payments, their available credit falls to $8,000. If they were then to make a $1,000 payment toward their balance, their available credit would increase to $9,000.

In this way, your available credit will fluctuate over time depending on purchases and other transactions you’ve made, as well as any payments, including credit card minimum payments, made on the account. Your credit limit, on the other hand, remains constant regardless of account activity.

Credit Limit and Credit Scores

There’s another good reason to keep your credit card spending in check, and significantly below your card limit — it affects your credit score.

When FICO® (one of the most popular credit scoring systems) calculates its benchmark credit scores, it places a significant weight (30% of its total credit score calculations) on credit utilization. Credit utilization ratio compares the amount of credit a cardholder is using to the total available credit they have.

For instance, a card owner may have $10,000 in total available credit, but owe a total of $9,000 on the card. That represents a 90% card utilization, which is considered high and may raise a red flag for lenders. It may suggest overspending and potentially an inability to pay. As such, a high credit utilization ratio could result in a lower credit limit for the cardholder, whether that’s a decrease on their existing limit or lower limits offered on new accounts.

It’s usually recommended that cardholders keep their card utilization rate below 30% to avoid negative effects on their credit score. In the above example, that means the cardholder with a $10,000 credit card limit shouldn’t owe more than $3,000 on the card.

How Much of Your Credit Limit Can You Use?

Technically, you can spend up to your credit limit. However, using too much of your total credit can adversely affect your credit utilization ratio, a key factor in determining your credit score.

It’s suggested to keep your credit utilization below 30% — which means using no more than 30% of your overall credit limit. This is why it’s always important to make payments, even if you’re in the process of requesting a credit card chargeback or other dispute.

How Is Your Credit Limit Determined?

The formula for determining a credit card limit depends on which scoring model the card provider uses. Generally, one of three distinct credit limit models is used: credit-based limits, predetermined credit limits, or customized limits.

Credit-Based Limits

With credit-based limits, card providers leverage your credit score to determine credit limits. In doing so, card companies rely on the same financial formula that credit scoring agencies use to create a credit score — a cardholder’s payment history, credit utilization rate, total length of credit history, credit mix, and any new credit inquiries. Card companies may also take a close look at the card owner’s total annual income, total household expenses, and type of employment.

Basically, the better you are at making on-time credit card payments, curbing household debt, and handling consumer credit, the more likely you are to get a higher credit card limit under the credit-based limits model.

Predetermined Credit Limits

This credit limit calculation model relies on a “ladder approach” to determine credit limits. In this scenario, credit card issuers assign a credit limit based on the type of card. In other words, every card in a certain tier — such as an entry-level card or a premium rewards card — would come with the same credit limit rather than the credit limit being determined based on the individual consumer.

The more features and amenities a chosen credit card has, the higher the credit limit typically is under this model. For example, a premium credit card with robust benefits and generous cash-back rewards may have a credit limit of $10,000. Meanwhile, a more bare bones credit card for entry-level cardholders may have a credit limit of $500.

Customized Credit Limits

With customized credit limits, card providers tailor the credit limit to the individual credit card consumer. They may do so in different ways based on different criteria.

For example, one credit card issuer may base its decision on a cardholder’s annual household income, while another may prioritize the number of credit cards an individual already owns, along with their existing credit limits.

In that way, card companies are drilling down into an individual’s financial history and basing their credit limit decision on myriad factors. Once again, the stronger a card candidate’s financial resume, the more likely that individual is to receive a higher credit card limit.

Can You Spend Over Your Credit Limit?

In general, credit card companies prevent spending over the credit card limit.

When a cardholder has reached their limit and attempts to use their credit card, the transaction may be declined.

In some instances, however, the card issuer may allow the transaction to go through and instead impose a financial penalty for spending over the credit card limit. According to the Credit Card Act of 2009 (CCA), the card company can’t assess a fee that’s more than the amount spent over the credit limit. So, for instance, if you overspent by $30, your fee couldn’t be more than $30.

Typically, the card owner must opt in to allow for purchases over the credit limit to be approved. The CCA legislation mandates that credit card companies can’t arbitrarily charge an over-the-limit fee without the cardholder’s signed consent. For that reason, most card providers have eliminated over-the-limit fees and simply deny the transaction instead.

Check with your card company to see if it still charges over-the-limit fees. If so, and you object, ask to opt out and focus on keeping your credit card balance well below your card spending limit.

Is It Possible to Increase Your Credit Card Limit?

Credit card limits aren’t static. They can go up — especially if a card customer asks for a credit limit increase — and they can also go down.

Perhaps the easiest way to increase your credit limit is to contact your card provider and ask for a credit limit boost. You can usually make this request over the phone or on the card issuer’s website or mobile app.

Before you make any request for a credit card limit increase, check your credit report to see that your financial health is in good standing, as your card provider will likely treat your request for a credit limit hike like any request for credit. That means a thorough credit check to ensure your credit card payment history is strong, your credit score is good, and your job situation or annual household income hasn’t deteriorated.

The credit card company will review those financial factors and let you know whether or not your request for a credit increase is approved. If you’re denied a higher credit limit, your best recourse is to take some time to improve your credit score and build a stronger credit profile.

In some cases, you can apply for a new credit card with a higher credit limit. However, expect any new card issuer to conduct the same rigorous credit vetting your original card company conducted given how credit cards work.

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

The Takeaway

Credit card companies assign credit card limits to consumers based on one of three typical models. Often, your ability to handle credit and pay it back on a timely basis comes into play when determining how high your credit limit is. If you’d like a higher credit card limit, you can ask your current card issuer if your financial status has improved, or you could consider applying for a new credit card.

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

FAQ

Can lenders change credit limits?

Yes, lenders can change credit limits — particularly if a credit card holder asks them to do so. But credit limits are unlikely to change for the better unless the cardholder has a solid credit history and financial situation.

What is a normal credit card limit?

That depends on the individual and credit card companies, but the average credit limit for U.S. cardholders is currently almost $30,000. That said, individual credit card limits can vary depending on a variety of factors, and can be as low as $300.

How do I get a high credit card limit?

The best way to get a high credit limit is to display habits that show creditors that you’re a low credit risk. That means paying your bills on time, keeping debt low, and having a robust credit history.


Photo credit: iStock/RgStudio

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 .

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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Guide to Applying for an International Student Credit Card

Guide to Applying for an International Student Credit Card

Applying for a credit card as an international student in the United States can be challenging — but it’s not impossible. And if you plan to stay in the U.S. after you graduate, having an established credit history through an international student credit card can be instrumental as you start the next phase of your life, from getting a job to buying a car or a house.

Wondering how to get a credit card as an international student? This guide will share the typical requirements and the steps for an international student to apply for a credit card.

Benefits of Having a Credit Card as an International Student

Getting a credit card as an international student can have a number of benefits:

•   Spending with ease: When you’re attending college in the U.S., you’ll have to pay more than tuition. Having a U.S. credit card can make it easier to pay for monthly expenses like groceries and entertainment. Even if you have a credit card issued in your home country, getting a card from a U.S.-based credit card issuer can be a good idea. Cards from other countries might charge foreign transaction fees here in the States.

•   Establishing credit in the U.S.: International students in the United States likely do not yet have a U.S. credit score. Having a credit history is important for things like applying for a job, getting approved to rent a home, and buying a car. If you plan to remain in the United States after graduation, establishing credit history as a student with a credit card can be a good idea.

•   Learning how to manage credit: Whether you plan to remain in the United States after graduation or return home, learning how to use a credit card responsibly can be an important lesson.

As a student with fewer bills, now might be a good time to learn how credit cards work and get used to the monthly payments and interest rates.

Recommended: Can International Students Get Student Loans in the U.S.?

Disadvantages of Having a Credit Card as an International Student

Applying for a credit card as an international student can also have its drawbacks:

•   Difficult requirements: Getting a credit card as an international student is usually more challenging than it is for U.S. citizens. Students who are already overwhelmed by a new place with a new culture — plus their challenging curriculum — may not have the time or energy to apply for a credit card.

•   No effect on credit score back home: Getting a credit card from a U.S. credit card issuer is a good step toward establishing a credit history in the United States. Students who plan to return to their home countries after college, however, will not see a benefit to their credit scores back home by using a U.S.-issued card.

Typical Credit Card Requirements for International Students

An international student can get a credit card — but they may have a harder time than the average U.S. student.

Typically, you will need a Social Security number (SSN) to apply for a credit card. Some issuers may accept an Individual Taxpayer Identification number (ITIN), which can be easier for international students to obtain. While most credit cards will require a SSN or ITIN, you might be able to find a credit card issuer that only requires a passport.

Recommended: Guide to Opening a Bank Account as a Non-US Citizen

Applying for a Social Security Number

Even if you are not a U.S. citizen, you may be able to apply for a Social Security number. For example, if you have an F-1 student visa (or another type of student visa), you might be eligible to apply, though you may need to have a part-time job and receive the proper authorization first.

Review the Social Security Administration’s guidelines, and don’t be afraid to ask a member of your school’s international student office for assistance. The advisors there are likely well-versed in common international student challenges, including applying for a Social Security number.

If you are having trouble getting a Social Security number, try instead to get an ITIN through the IRS. The IRS offers guidelines for obtaining an ITIN as a foreign student, but again, your international student office can likely walk through the process with you.

Applying for Credit Cards

Once you’ve gotten a Social Security number (or an ITIN), you may be wondering, you can start looking for relevant credit card offers. Many credit card issuers offer cards specifically targeted at students.

Note that you will need to provide a permanent address for your application. You can use your U.S.-based school address for this field.

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

Tips for Avoiding Credit Card Rejections as an International Student

Because nobody likes rejection — and because multiple hard inquiries for credit card applications might eventually take a toll on your credit score — it’s important to avoid credit card rejections. Here are some tips for improving your chances of approval:

•   Open a bank account. Having a checking or savings account can improve your success rate. It also simplifies money management while you’re here in the States.

•   Get a part-time job. Having a job might be a requirement to get your Social Security number. Having a steady income is a sign to creditors that you are reliable enough to lend money to. Just check with your advisor to ensure you are allowed to seek employment as an international student.

•   Consider a secured credit card. Secured credit cards require a security deposit, often equal to the credit limit for the card in question. Because these cards are backed by collateral, they pose less risk to the credit card issuer and thus make it easier for those with bad or no credit to get approved.

After you use your secured credit card responsibly for several months, you might have a strong enough credit score to apply for an unsecured card. Just make sure the card issuer reports usage of the secured card to the credit bureaus to ensure an impact to your score.

Using a Credit Card Responsibly

Responsible credit card usage is a good way to improve your credit score. When you get your international student credit card, be sure to follow our general credit card rules to improve your chances of building your credit score.

In general, responsible credit card usage entails:

•   Avoiding impulse purchases.

•   Signing up for automatic payments.

•   Regularly checking your statements.

Paying your card off in full each month and maintaining a low credit utilization — meaning the amount of credit you’re currently using compared to the total credit you have available — are good ways to build a solid credit history. Following these guidelines can also help you to avoid some of the costs of credit cards, such as late payment fees and interest charges.

The Takeaway

International students can apply for a credit card while studying here in the United States. Doing so can allow you to establish a credit history in the U.S. and spend money more easily during your time here. Applying for an international student credit card is more complicated, however, and typically requires a Social Security number or Individual Taxpayer Identification number.

If you are looking for the right credit card during your time in the U.S., it’s worthwhile to research your options.

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

FAQ

What is a good credit card interest rate for international students?

Interest rates will vary by credit card, but some of the best international student credit cards currently offer APRs between 18.24% and 29.99%; some go higher still.

Do I need a Social Security number to open a credit card?

Having a Social Security number is a common requirement for opening a credit card, but many issuers will accept an Individual Taxpayer Identification number instead. Some credit card issuers may even accept only a passport for the credit card application.

Do international students have to use a secured credit card?

International students may have an easier time getting approved for a secured credit card, but it is not the only option. If a student has an established credit history in the United States, they might be able to get approved for a specific unsecured credit card designed for students. Some cards might even offer basic rewards.


Photo credit: iStock/FatCamera

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.

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

This article is not intended to be legal advice. Please consult an attorney for advice.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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

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