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The economy is in a volatile place as of early 2025. Because of economic uncertainty, some companies have resorted to pay cuts to help cut costs. For the workers affected, it likely means scouring their budgets to trim some of their expenses. Taking a pay cut means facing the reality of no longer living the same financial life.

If you’ve just taken a pay cut — or you’re worried that you might soon be facing one — here are four strategies to handle your finances after your salary is reduced.

1. Update Your Budget

First and foremost, create a budget if you don’t already have one. There are many options, including the popular 50/30/20 budget rule, which allocates 50% of your take-home pay to needs, 30% to wants, and 20% to savings or additional debt payments.

Whichever of the different types of budgets you choose, you’ll likely need to list all your expenses for weekly purchases, from groceries to gasoline and parking fees. Add monthly bills, including rent or mortgage, car loan, streaming services or cable, cellphone, utility bills, credit cards, student loans, and any other debt such as personal loans.

Next, examine all your expenses to see which ones you can lower or eliminate for the next six months. Add your income and include part-time jobs or side hustles, tax refunds, bonuses, and any child support or alimony. This will help you determine how much money you can spend for necessities, expenses, entertainment, and other things such as doctor visits.

In addition to a budget, create a plan for both short-term financial goals and long-term goals. A plan will help you determine when you can pay off any loans and how much you want to save for something like a down payment on a house.

Recommended: 50/30/20 Budget Calculator

2. Track Your Spending

You could use a free money tracking app that can help you keep tabs on your spending and help manage your debt. To track your spending, decide if you want to track it daily, weekly, or biweekly. You might try different time periods before you decide on one.

After you track your spending for a couple of months, you’ll see a pattern emerge that indicates where most of your money goes. You’ll also be able to gauge the impact a pay cut has had on your finances. Are you overall in good shape but no longer able to apply additional payments to a loan’s principal? Or are you now living paycheck to paycheck? The answer can help guide your next steps.

3. Cut Expenses

The next step should help keep more money available in your bank account for necessities: trimming how much money goes to the “wants” in life. One place many consumers can cut costs is from entertainment, such as their streaming services. These can really add up. Canceling all or some of these services can improve your cash flow, which is how much money you have left over at the end of the month.

Another place where you can slash expenses is from your food budget. Consider using digital coupons, shopping at warehouse clubs, or going out to eat for lunch instead of dinner to save money on food.

Your expenses include debt such as credit cards, student loans, and personal loans. Paying more than the minimum balance, refinancing to a lower interest rate. and making extra payments can help you pay down the loan sooner.

Consider refinancing your student loans by checking out both fixed and variable rates. Interest rates are at historic lows. You might be able to pay down your credit card bills faster by taking out a personal loan; those interest rates are often lower. And if that’s the case, the debt could be paid sooner.

Automating your finances can make your life easier. This will also help you avoid paying late fees. You can either have your bills paid automatically through your checking account or set yourself a reminder on your calendar if you have some bills such as utilities that are a different amount each month.

You can also automate your savings. You can have money taken out of your checking or savings account each month and have it automatically invested into your workplace 401(k) plan or an individual retirement account (IRA).

In addition, you could consider opening an online bank account with a high-yield APY. That way, your savings could earn money for you as it’s sitting in your account.

Ways to Save

When your salary has been slashed, there are several ways you can save money immediately and long term.

•  Call your mortgage, auto loan, utilities, credit card, and student loan companies to see if you can defer loan payments for several months. Skipping a few payments can help you get back on your feet sooner. If the company cannot provide this option, see if the interest rate can be lowered on, say, credit cards.

•  Check with your local nonprofit organizations. Many provide food or partial payments for utility bills. Look online to see if stores are offering deals. Stock up on staples such as beans, rice, and pasta if they are on sale.

•  If you are still short of money, you might consider talking to family members and friends about obtaining a short-term loan.

•  Now might be the time to use credit card rewards for cash, food, or gift cards. People who have been saving credit card rewards for a vacation might want to go ahead and use them now. Some credit card companies will let you transfer the rewards for cash to your statement or use them for food delivery.

•  Other companies let you use your rewards to receive gift cards. Using these gift cards at retailers that sell staples and necessities such as food, detergent, and other personal items can help you spend less money.

•  Many credit cards will give cash back on purchases such as food and gasoline. See which credit cards are the most beneficial for your financial needs before signing up for a brand-new credit card.

•  Another way to save money is to use cash for gasoline. Some gas stations offer a cheaper price for consumers who use cash. The savings can add up quickly, especially if you have a longer commute.

•  Finally, each month, look for other ways you can save money. If your credit card company denied your request last month to lower your interest rate, try calling again. Rules can change often.

4. Save for Retirement

While you could skip saving for retirement, it’s ideal to continue socking away some money (even if it’s less than previously) each month from your paycheck into a 401(k) plan or IRA. The money you stash away for retirement can lower your taxable income, meaning you’ll owe the IRS less.

Continuing to save money for retirement is a good habit, especially if your salary reduction is temporary. Once you stop contributing to a retirement account, it can be difficult to catch up on your retirement savings. If you have your retirement contribution automatically deducted from your checking or savings account, saving for your future is easier.

The Takeaway

While it can be difficult to navigate a pay cut, creating a budget, tracking your spending, shopping for deals, and cutting expenses can help you save and get through a tough time. These moves can help you stay afloat during a challenging financial period. In addition, opening a new bank account with low or no fees and favorable interest rates could help you maximize your money.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

How to survive taking a pay cut?

If you’ve experienced a pay cut, smart moves to survive include creating or updating a budget, tracking your spending, shopping for deals, and reducing expenses.

How to budget after a pay cut?

After a pay cut, take a fresh look at your budget. Review and trim expenses, prioritize debt payments, and consider using credit card rewards to fund essentials. It can be wise to funnel a small amount of money into an emergency fund to provide a cushion.

Is it ever wise to take a pay cut?

Yes, it could be wise to take a pay cut for an opportunity to work in an industry or company you have set your sights on. Or, if you are working at a job and pay cuts happen, accepting that situation could allow you to maintain cash flow and benefits while you wait to see if your pay goes back up or you find another job.

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SoFi Relay offers users the ability to connect both SoFi 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. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. 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 is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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

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

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

SOBNK-Q225-022

Inflation has hit all aspects of daily life, including that fun and romantic ritual known as date night. The average cost of date, from grooming costs to gas money, comes in at a whopping $168, according to the most recent BMO Real Financial Progress Index, released in February 2025.

But that doesn’t mean you need to go broke enjoying fun times with your sweetie or getting to know someone new.

Here, you’ll find 27 ideas for date nights that don’t cost much. In fact, some of these date night ideas are more than cheap; they’re free.

Fun Date Ideas for Couples on a Budget

Whether you’re just getting to know each other or you’ve been married for years, here are some ways to enjoy a romantic day or evening out without busting your monthly budget.

1. Watching the Sunrise or Sunset Together

Watching the sun come up or sink over the horizon with your sweetie can be a very romantic and cute date idea. Depending on which time of day you choose, you can bring coffee and donuts or a bottle of wine and some cheese and crackers to mark the occasion.

2. Taking Dance Lessons

Couples can show off their moves while taking a lesson in salsa, ballroom dancing, or swing. Consider a home viewing of “Dirty Dancing” afterwards to close out the date.

💡 Quick Tip: If you’re saving for a short-term goal — whether it’s a vacation, a wedding, or the down payment on a house — consider opening a high-yield savings account. The higher APY that you’ll earn will help your money grow faster, but the funds stay liquid, so they are easy to access when you reach your goal.

3. Going on a Hike

Getting some fresh air and walking in a beautiful area together can be a great bonding experience. To make sure you don’t take on more miles (or hills) than you can handle, you can read reviews of hikes and check out trail maps online before you head out.

4. Picking Apples or Berries

This can be a great idea for a “sweet” date. In the fall, couples can pick apples together and then go home and make some baked apples or an apple pie. In the summer, consider heading to a local farm to pick berries. You can use your harvest to make some tarts or smoothies afterwards.

5. Checking Out a Botanical Garden

Many towns have beautiful botanical gardens where people can walk around. This can be a lovely way to spend a Sunday afternoon and it should be either free or low cost.

6. Staying In and Watching a Movie

One (or both) or you may have a Netflix, Hulu, or Amazon Prime subscription. Why not take advantage and watch a movie together at home? You can open some wine and order a pizza or inexpensive takeout.

Not a member of those networks? Look into free services like Hoopla or Kanopy.

Recommended: How to Save Money on Streaming Services

7. Gardening Together

Another cute date idea is to garden together. Whether you and your honey live together or apart, you can start your own garden and fill it with flowers, herbs, and vegetables. At the end of the day, you’ll have a shared sense of accomplishment.

8. Checking Out a Free Museum

Some museums are always free, while others will have free days or evenings throughout the month. Couples can go and see cool artwork and have stimulating conversations about the artists.

9. Going to a Free Concert

Many towns will hold free concerts in the park during the summer. You can bring a blanket and some food and enjoy a picnic dinner while listening to great live music.

Recommended: 33 Ways to Save Money

10. Taking a Scenic Drive

You can pick somewhere you’ve never been or head to a favorite spot, such as a nice drive in the country or along the coastline. Consider creating a playlist of tunes you both love for the ride.

11. Breaking Out the Board Games

Who doesn’t love a little competition? This can be a great idea whether you play against one another or with another couple. You can even throw in some prizes from the Dollar Store to up the ante just a bit.

12. Eating at Happy Hour

Want to sidestep a pricey dinner? Here’s a way to save money on food: Find out which establishments have a happy hour and then enjoy some discounted appetizers and drinks for a cheap date idea.

13. Visiting Open Houses

Whether you are actually looking to buy a house or just want to be a voyeur, or pick up some design ideas, consider checking out open houses in your area. You can search for open houses on sites like Redfin and Zillow.

14. Cooking a Dish Together

For a fun and tasty evening, you might go to your local farmer’s market or grocery store and then come home and make a gourmet meal together. If neither of you are skilled in the kitchen, you can order a meal delivery service that sends all the instructions and ingredients you need.

15. Checking Groupon for Deals

You can often find some interesting things to do for date night by checking Groupon to see what experiences are on sale. You might find a good deal on a couples massage or local interactive art exhibit.

16. Renting a Pool

For a fun date on a hot summer day (or night), consider checking out Swimply to see if you can rent out a private pool in your area by the hour. Pool toys and snacks may not be included, so be sure to pack everything you need before heading over for a swim.

17. Going on a Bike Ride

Another cute date idea is to go on a bike ride together. If you don’t own bikes, you may be able to rent them from the city or a local company. You can research local biking trails online before you go.

💡 Quick Tip: When you feel the urge to buy something that isn’t in your budget, try the 30-day rule. Make a note of the item in your calendar for 30 days into the future. When the date rolls around, there’s a good chance the “gotta have it” feeling will have subsided

18. Taking a Ferry Ride

Typically, ferry rides are pretty cheap. They may even be free. Consider taking a ride at sunset so you can enjoy a beautiful view.

19. Checking Out a Local Park

When the weather is nice, you might want to pack a blanket and some food and head to a nearby park to enjoy a lazy afternoon together. Have any leftover bread? Maybe you can feed it to the ducks or birds.

20. Going to a Pet Cafe

Pet cafes are now located in many towns around the county. Couples can sip on lattes while petting cute dogs and cats at the same time.

Recommended: Tips to Save Money on Pets

21. Renting a Canoe or Kayak

If you split the cost of a kayak or canoe rental, you can enjoy a relatively inexpensive afternoon paddling around a lake or bay together.

22. Taking a Walk in the Mall

Just because you go to the mall, it doesn’t mean you have to shop. Instead, you can do some browsing and not spend any money. Though you might want to share some favorite relatively low-cost mall treats like Cinnabons and Auntie Anne’s Pretzels.

23. Listening to a Podcast

Podcasts can be just as entertaining as television and movies. Consider grabbing some drinks and snacks and listening to a great podcast together.

24. Thrifting Together

Here’s a great way to save money on clothes and spend time together: Hit some local thrift stores for a cute and cheap date night. Maybe you’ll find some treasures or just try on outfits from decades past and make each other laugh.

25. Competing in a Video Game Competition

If you and your mate enjoy playing video games, consider challenging each other in a video game competition. You can offer fun rewards, such as the winner gets a gourmet home-cooked meal or doesn’t have to do any dishes all week.

26. Having a Spa Night

For couples who live together, a nice date night idea is to have a spa night at home. You can include foot massages, a bubble bath, and face masks for some relaxation, and laughs.

27. Doing Crafts Together

Couples that are feeling crafty can go to their local art store and buy supplies they need to create something together. You might even choose a sentimental project like a wreath made of corks from bottles you’ve shared or a scrapbook of vacation memories.

Recommended: How to Create a Budget in 6 Steps

The Takeaway

Going out on a “date” doesn’t have to put a major dent in your bank account. With a little bit of imagination and planning, you and your significant other can enjoy a night (or day) out that costs considerably less than the usual “dinner and a movie,” yet can be just as romantic and fun.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

About the author

Kylie Ora Lobell

Kylie Ora Lobell is a personal finance writer who covers topics such as credit cards, loans, investing, and budgeting. She has worked for major brands such as Mastercard and Visa, and her work has been featured by MoneyGeek, Slickdeals, TaxAct, and LegalZoom. Read full bio.

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
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.

SOBNK-Q225-028

Credit matters when looking to buy a house, car, or any other pricey asset. Unless a consumer is flush with cash, the path to home and vehicle ownership may go through a mortgage or a loan. Good credit can provide you with terms and privileges not available to a person with poor credit, including lower interest rates and increased borrowing capacity.

We delve into what constitutes a good credit score and the reasons why it is important to have a good credit score.

What’s Considered Good Credit?

Consumers with standard credit scores of 661 or greater are generally considered to have good credit, because they rank as prime or super prime in terms of their risk assessment. A bad credit score falls on the lower end of the range, and a good credit score falls on the higher end of the range.

Many credit scoring models, including the standard FICO® Score and VantageScore®, measure an individual’s credit risk on a three-digit scale ranging from 300 to 850. The highest risk group are consumers with deep subprime credit scores from 300 to 500, and the lowest risk group are consumers with super prime credit scores from 781 to 850, according to Experian.

Consumers may build and attain good credit by paying their bills on time, maintaining a mix of accounts, and keeping their revolving balances under 30% of credit limits.

Recommended: What Is the Difference Between TransUnion and Equifax?

8 Benefits of Good Credit

Here are the eight core benefits of good credit, which highlight why it is important to have a good credit score:

Benefit #1: Easier Access to Credit

Good credit may provide you with easier access to additional credit. When a consumer applies for a credit card or personal loan, lenders may analyze the consumer’s credit report and credit score to make an informed decision on whether to approve or deny the application. A person with good credit is considered low-risk and therefore has an easier time getting approved for a personal loan compared to high-risk borrowers.

SoFi’s money tracker app allows you to monitor and keep track of your credit score, among other perks that could assist with financial planning and managing your net worth.

Benefit #2: Lower Interest Rates

Consumers with good credit may qualify for lower interest rates when borrowing money. For example, available financing data for new vehicle purchases in the fourth quarter of 2024 show consumers in the deep subprime category of bad credit have obtained auto loans with 15.75% interest on average. Meanwhile, consumers in the super prime category of excellent credit secured 4.77% interest rates on average. That amounts to a nearly 11 percentage point difference in interest rates.

Benefit #3: Lower Car Insurance Premiums

Many auto insurance companies use credit-based insurance scores to help categorize consumers by risk and determine what premiums they may pay. Under this practice, higher-risk consumers may pay higher auto insurance premiums than lower-risk consumers. In some states, having good credit or improving your credit score may lead to lower auto insurance premiums over time.

Benefit #4: Increased Borrowing Capacity

Consumers with good credit may obtain larger credit limits than those with poor credit. This could translate to greater spending power on a credit card and the ability to make larger purchases on credit. Having good credit also puts you in a better position to apply for and obtain new credit.

A bolstered borrowing capacity is not limited to credit cards either — credit unions and banks may offer personal loans to consumers with good credit. Such loans can help you consolidate debt, finance large purchases or obtain fast cash to weather an unforeseen emergency. Personal loans also may command lower interest rates than credit cards.

Benefit #5: Easier to Buy a Home or Car

Good credit can help you buy a house with a good mortgage rate or a car with affordable financing. Borrowing money to own a home or vehicle comes at a price that includes principal and interest. Consumers with good credit may qualify for 0% annual percentage rate loans for a car, where no APR means no interest or finance charges. Establishing good credit may also improve your likelihood of obtaining a low-APR mortgage, which translates to lower debt repayment obligations.

Automotive consumers had an average credit score of 749 for new vehicle purchases and 687 for used vehicle purchases in the fourth quarter of 2024, according to Experian’s quarterly report. This shows the average automotive consumer boasted good credit within the prime category of low risk.

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

Benefit #6: More Apartment Lease Options

Signing a lease to an apartment may require good credit. Landlords who conduct credit checks might deny lease applications if a prospective tenant has bad credit. Or, those with poor credit may have to provide a higher security deposit for rental housing compared with a prospective tenant who boasts good credit. Tenants with good credit also may have more leverage to negotiate for lower rent.

Benefit #7: Helps Satisfy Employment Background Checks

Jobseekers can benefit from good credit, as some employers may consider a person’s credit score when making hiring decisions. The U.S. Department of Housing and Urban Development says that a low credit score or credit invisibility is a burden that can “limit housing choice and employment opportunity,” whereas “a good credit score is part of the pathway to self-sufficiency and economic opportunity.” The term “credit invisible” refers to consumers who lack a credit score or credit history.

Benefit #8: Ability to Obtain Security Clearances

Law enforcement officers with good credit could gain privileged access to classified national security information and FBI facilities. Any state or local law enforcement officer seeking a security clearance has to first satisfy a comprehensive background check that includes a review of credit history. The FBI shares secret or top secret information with local law enforcement officers who have obtained security clearances.

Poor credit history would not necessarily disqualify an officer from obtaining a security clearance, but significant credit history issues “may prevent a clearance from being approved,” according to information posted on the FBI’s website.

The Takeaway

Good credit is important for anyone who wishes to borrow money to help finance key purchases. Many consumers rely upon mortgages and loans to buy houses and cars, while many cash-strapped individuals turn to credit cards to buy essential goods and services ranging from food and electricity to water and rent for housing. The eight benefits of good credit highlighted above showcase why it is critical to pay your bills on time and practice good budgeting.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

Photo credit: iStock/AndreyPopov

SoFi Relay offers users the ability to connect both SoFi 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. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. 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 is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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 .

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

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.

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.

SORL-Q225-007

A lot of basic “adulting” involves a credit score. Renting an apartment? The landlord will want a credit score. Financing a car? Lenders need to see a credit score. Buying a home? You get the point.

A low or nonexistent score can get in the way of your life plans. But a few simple steps can set you on the path to success.

How Many Credit Cards Do You Need?

Don’t own a credit card yet? Getting a card is a simple way to start establishing credit. (People who already have a card with a balance might want to focus on paying it off instead of applying for a new one, though.) However, it’s crucial to use a card wisely. Otherwise, cards can do more harm than good.

Most people should consider applying for just one card, not five. And keep in mind that just because someone has a card doesn’t mean they have free money. Opening one new line of credit and using it responsibly is a good way to build credit.

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

How Credit Cards Impact Your Credit Score

While some people out there believe credit cards are the root of all evil, they can boost credit scores in multiple ways if used correctly. The most common credit score model is issued by FICO®. Your FICO Score is comprised of five factors:

•   Payment history: 35%

•   Amount owed: 30%

•   Length of credit history: 15%

•   Credit mix: 10%

•   New credit: 10%

Credit cards can be an effective tool in a new credit builder’s toolbox. When someone uses a credit card responsibly, this can potentially have a positive effect on all five FICO categories.

Payment history: Making monthly payments on time (even just minimum payments) can help your credit score. As you make consecutive monthly payments, your score should gradually increase — as long as you remain responsible with your finances in other areas of your lives.

Amount owed: Everyone has something called a credit utilization ratio, sometimes referred to as a debt-to-credit ratio. This is the ratio of debt you owe versus how much debt you can owe.

Credit cards have credit limits. Let’s say Dana’s credit limit is $10,000, and she owes $5,000 on her card. Her credit utilization ratio is 50%. If she pays off $1,000 and only owes $4,000, her ratio is 40%. The lower the ratio, the better. That’s why older adults often lecture teens and early 20-somethings to pay off their card balances in full. A low ratio means better things for borrowers’ credit scores.

Length of credit history: The longer you have a line of credit, the better it is for your score. Ideally, someone would open their first credit card and keep it for years while making payments on time and keeping their balance low.

Those who already have a credit card but have racked up debt may want to think twice before canceling their card for this very reason. They might be better off working to pay off the balance aggressively and keeping the card for longer. But if they want to remove the temptation to keep charging the card, they can cut up the credit card, like Rachel does in Friends. This way, the card isn’t sitting in their wallet, but their line of credit is still open.

Credit mix: FICO likes it when people have multiple types of debt. A recent college graduate’s only debt might be student loans. To improve their credit mix, they might consider getting a credit card as well.

New credit: When someone applies for a card, the issuer checks their credit score to determine whether they’ll be approved and what the interest rate should be. This is known as a hard credit inquiry.

A bunch of hard credit inquiries in a short amount of time looks bad for a credit score, especially for someone whose score is already low. Besides, by limiting themselves to only one card, young people who are still learning the ropes of establishing credit might be less inclined to spend recklessly.

Recommended: What Is the Average Credit Card Limit?

Consider a Secured Credit Card

Young people with low credit scores (or even no scores at all) may not be accepted if they apply for a top-notch credit card. Another option is to apply for a secured credit card. This type of card is meant specifically for people who want to build credit.

To use a secured credit card, people make a cash deposit to back their credit card account. The deposit amount typically becomes their spending limit. For example, John makes a $100 deposit when he receives his secured credit card. He can charge up to $100 to his card before paying it off. As long as he makes payments, he can keep charging to the card as long as the balance doesn’t exceed $100. If John doesn’t make payments on time, the issuer can take money from his cash deposit.

Secured cards benefit both the consumer and issuer. The consumer can build credit, and a cash deposit makes it less risky for the issuer to do business with someone who hasn’t yet proven that they can make payments on time.

What happens to that cash deposit down the road? If all goes well, people should get back their money. Many reputable credit card issuers offering secured credit cards give consumers the option to upgrade to a regular “unsecured” credit card once their credit score improves. When the user upgrades, they should receive that deposit back.

People researching secured credit cards may want to look for issuers who will let them transition to an unsecured card. This can simplify the process of switching to a regular credit card. Plus, the borrower won’t have to hang onto an unnecessary card or cancel the secured card later — which can help the “length of credit history” part of their FICO score!

Become an Authorized User on a Parent’s Credit Card

Some people may not trust themselves to use a credit card without racking up a ton of debt. Or they have the exact opposite fear: They might never use it, so they wouldn’t be making payments to boost their payment history. The latter fear may be the case for young people who are still receiving financial help from their parents and therefore don’t have many expenses to put on a card.

In either of these cases, young people might consider becoming an authorized user on a parent’s credit card. The parent can call the credit card issuer to officially put their child’s name on the card.

Young people should only add their name to a parent’s card if the parent has a high credit score and solid financial habits. If the parent starts to miss payments or accumulate a ton of debt, it will negatively affect the authorized user’s credit score.

Establishing credit through a parent’s card can help someone acquire a decent score before getting their own credit card. If they have a good credit score prior to applying for their first card, they might be approved for a harder-to-get card at an attractive interest rate. After receiving their own card, they might decide to remove their name from the parent’s card so they can have sole control over their personal credit score.

Pay Bills on Time

We’ve established that making monthly credit card payments positively contributes to the “payment history” part of a credit score. Credit cards aren’t the only things people can pay on time, though. Making timely payments on things like car loans or student loans also helps.

Certain bills don’t show up on credit reports, such as cell phone bills and insurance payments. While paying those bills doesn’t improve people’s credit scores, skipping payments can certainly hurt their scores. When people default on their payments, their credit scores can take a major hit. So it’s important for people to pay all their bills, even the ones that aren’t on their credit reports.

Take Out a Credit-Builder Loan

Just as secured credit cards exist for people trying to build credit, there are special loans for this purpose as well. These are called credit-builder loans, and they are usually offered by smaller banks and credit unions.

When people take out credit-builder loans, the loan amount is held in a separate bank account until the borrower pays off the full amount. By making payments on time, the “payment history” part of people’s scores should gradually improve. Borrowers do have to pay interest on the loan, and the percentage will depend on the lender. But there’s a huge bonus: Once people pay off the loan, they get to pocket the full loan amount and the interest they’ve paid. Not only do they walk away with a better credit score, but they now have money to put toward their emergency fund or student loan payments.

While people don’t need a good score to be approved for a credit-builder loan, they do need proof that they earn enough money to make monthly payments on time. They may need to provide documents such as bank statements, employment information, housing payments, and more.

Considering taking out a credit-builder loan? When shopping around, it is a good idea to keep an eye out for factors like APR, required documents, term length, loan amount, and additional fees before making a decision.

Keep Track of Your Credit Score

Many people have no idea what their credit score is. By regularly checking their score, they can know exactly where they stand and how much progress they need to make to reach their goals.

Some people may be concerned that checking their credit score can lower their score. But don’t worry, only “hard inquiries” affect credit scores. Hard inquiries occur when issuers or lenders check borrowers’ scores to determine whether to approve them for a credit card or auto loan, for example. But when a person checks their own score on a website or money tracker app, this is considered a “soft inquiry” and doesn’t affect their score.

The Takeaway

When establishing credit, keep in mind that “slow and steady wins the race.” People shouldn’t get discouraged when their credit score doesn’t surge after two months of making payments on time. And if they do get discouraged, they shouldn’t give up. The important thing is to continue making payments on time and using a card responsibly. The reward will come.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

SoFi Relay offers users the ability to connect both SoFi 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. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. 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 is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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 .

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

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.

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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A promissory note is a written agreement between a borrower and a lender to formalize the lending of money.

Through this legal agreement, both the borrower and the lender consent to clearly defined repayment terms. Promissory notes can be used for a variety of purposes, including personal and commercial transactions.

Here’s a guide to common types of promissory notes, how to create one, and when they may be a good option for borrowing or lending money.

What Is a Promissory Note?

Put simply, a promissory note is a written promise to pay someone a certain amount by a specified time. The type of promissory note and agreement between the issuer and payee dictate the payment schedule and amount. If the borrower is a business, the issuer may wish to see its pro forma income statement when setting up a repayment schedule.

Similar to loans, promissory notes may be secured or unsecured. Unsecured notes are issued based on the borrower’s ability to repay, whereas secured notes use collateral such as real estate or a vehicle.

A promissory note may be issued by a financial institution, but this financing is commonly provided by individuals or businesses, too. Essentially, promissory notes allow anyone to act as a lender, which can be useful for creating legal documentation of a lending agreement between family members and friends.

Core Components

Promissory notes generally include the principal amount, interest rate, date and place of issuance, and signatures from the lender and borrower. There may also be provisions for late fees and recourse if a borrower defaults.

💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.

Types of Promissory Notes

There are several types of promissory notes. Usually, the nature of the loan determines the appropriate type. Let’s take a closer look at some of the most common varieties.

Line of Credit Promissory Note

Borrowers can withdraw any portion of funds from a line of credit, up to the established maximum loan amount. Once the money is taken out, the borrower is liable for repaying the lender.

A promissory note can be used to guarantee that the borrower repays money withdrawn from the line of credit. The promissory note can specify the interest rate, repayment schedule, and whether the line of credit is secured or unsecured.

Investment Promissory Note

Businesses looking to access capital can sell promissory notes to investors instead of taking out a conventional business loan or a line of credit. As with a conventional loan, however, the company will typically be expected to show the lender its balance sheet indicating that it is solvent.

Through an investment promissory note, businesses receive capital from investors in exchange for fixed repayments. In the event a business is unable to repay, the investors may acquire the company.

Generally, investment promissory notes are sold at a discount to account for the impact of inflation on future payments. Promissory notes may be sold publicly in some cases but are most often purchased by corporate entities and experienced investors with high net worth who can handle the greater level of risk.

Real Estate Promissory Note

Promissory notes can be used in mortgages and other real estate purchases. In practice, borrowers use a home or other property as collateral for a real estate promissory note.

While promissory notes can accompany a mortgage, they are in fact different. The note provides legal documentation of the borrower’s promise to repay the loan, whereas the mortgage outlines the lender’s recourse for foreclosure in case the borrower cannot pay. Qualifying for a mortgage may also require a loan contract and more detailed financial information.

Real estate promissory notes can be used outside a mortgage. For example, two individuals could create such an agreement. Although the lender may not have the power of foreclosure, they can secure the agreement with the authority to place a lien on the property if a borrower defaults. A property lien creates a public record of a borrower’s unpaid debt.

Keep in mind that real estate promissory notes can be traded through brokerages without the borrower’s consent.

Recommended: A Guide to What Mortgage Notes Are and What They Do

Student Loan Promissory Note

College students will likely be required to sign a promissory note for both private and federal student loans.

For private lenders, each student loan may carry its own promissory note, as terms can vary. Anyone taking out federal student loans must sign a Master Promissory Note to promise repayment of loans, fees, and interest to the U.S. Department of Education. The MPN can cover multiple loans within a 10-year time frame for authorized schools.

Recommended: Understanding Your Student Loan Promissory Note

Vehicle Promissory Note

A vehicle promissory note creates a binding document that promises a borrower will pay a lender for a car or other type of vehicle. This agreement can be between two individuals or a borrower and a conventional lender, such as a bank.

Aside from repayment terms and conditions, it’s important to include the vehicle’s make, model, year, body, and VIN in a promissory note.

Personal Loan Promissory Note

It’s not uncommon to sign a promissory note when acquiring a personal loan from a traditional lender.

A promissory note can also be used for a personal loan between friends and family. Formalizing the loan amount and repayment terms through a promissory note can help avoid disagreement and protect both parties down the line. Compared with typical personal loan requirements, a promissory note can be a more flexible financing option.

Having financial information like credit score and proof of income at the ready can streamline getting approved for a personal loan.

💡 Quick Tip: With fixed interest rates on loans from $5K to $100K, a SoFi personal loan for credit card consolidation can substantially lower your payments.

Promissory Note Repayment Options

Besides type, promissory notes can differ by repayment method. Borrowers can expect to repay money and interest through one of the following options:

•  Lump sum: This requires the entire amount to be repaid in a one-time payment on a specific date. Lump-sum payments are more common with small loans.

•  Due on demand: The borrower must repay the loan upon the lender’s request. Due on demand payment is used frequently for promissory notes between friends and family members. Any promissory note without written payment terms is considered due on demand.

•  Installment: Installment payments follow a specified schedule (monthly, for instance) to pay back a loan over a longer period of time. Usually payments are structured as equal amounts and include interest.

•  With (or without) interest: A promissory note can define the interest rate and any related contingencies.

In some cases, a promissory note may employ a combination of repayment options. For example, a vehicle promissory note may include an upfront lump sum followed by installment payments.

Structured Repayment Strategies

Here are some effects of the various repayment plans to consider.

•  Amortized payments: The borrower makes equal payments each month, paying down principal and interest together. The plus: The consistency makes it easy to plan and budget. The minus: The monthly installments may be costly.

•  Equal monthly payments and a final balloon payment: Installments are likely smaller than with full amortization, because the borrower pays less toward principal; the balloon payment resolves that at the end. Upside: Lower monthly payments preserve more cash on hand for other needs. Downside: If the borrower plans to refinance the loan before the balloon’s due date, they run the risk that interest rates may go up.

•  Interest-only payments and a final balloon payment: With monthly payments applied only to interest, the borrower owes the entire principal until the final balloon payment. Pro: This method allows for the lowest monthly payments. Con: The borrower pays more interest because they have possession of the full principal throughout the term of the loan.

•  Single payment of principal and interest: This is the lump sum method, where everything is paid back on the specified date. For the most part, only friends and family members will accept this arrangement. Good news: Borrowers need not pay anything toward the loan each month (though escrowing money would be wise). Bad news: If the business cycle is in a contraction phase when the note comes due, repayment of a large sum all at once could be very tough.

Legal Implications of Repayment

Signing a promissory note makes the borrower legally liable for the loan according to the terms of the note. In many states, defaulting on a promissory note that’s part of a mortgage contract could allow the lender to foreclose on the house and then sue the borrower personally for any deficiency.

What Does a Promissory Note Look Like?

There are different laws in every state regarding promissory notes. One common feature of promissory notes is that they must be written. A verbal agreement between two parties will not qualify as a promissory note or carry the same legal enforceability.

Standard Template

Promissory notes must include language outlining an agreement and unconditional promise for the borrower to repay the loan. Additionally, the repayment must be money, rather than labor, professional services, or other capital.

Other details and elements generally needed in a promissory note include the following:

•  Amount or principal: How much was borrowed and is to be repaid

•  Payor: The party promising to repay the debt

•  Payee: The party lending the money

•  Interest rate: States how much interest is charged and how it is calculated

•  Start date: The date the promissory note becomes effective and funding is released to the payor

•  Maturity date: When the interest and principal must be repaid in full

Without these elements, lenders may have trouble enforcing the promissory note.

Risks and Protections

Like any loan contract, a promissory note involves financial risk to both borrower and lender.

Unsecured promissory notes will likely entail a higher interest rate than secured ones. A higher interest rate makes paying off a loan more expensive, increasing the possibility of default.

Promissory notes secured with collateral tend to have lower rates, but borrowers who can’t pay the debt risk having their collateral seized.

Depending on due diligence, providing capital based on a promissory note may expose the lender to some financial risk if the borrower is untrustworthy. As noted, having collateral helps mitigate that risk.

As for protection, a promissory note safeguards the lender by recording the terms of the loan in a valid and enforceable contract. It protects the borrower by providing documentation of the loan in case of an audit.

Both parties should make sure the note follows state or federal laws governing loans or investments to ensure additional safety.

The Takeaway

Promissory notes create a binding promise to repay borrowed money. This financial agreement can be used when borrowing money from individuals, financial institutions, or both. To be valid, the note must contain all the important details about the principal, the loan term, the interest rate, and must be signed by both parties to the agreement.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What makes a promissory note legally binding?

A promissory note is legally binding if it includes the date of the loan, the dollar amount being borrowed, the signatures of both the lender and the borrower, the rate of interest, any collateral involved, the start date, and the repayment time frame. The note must also comply with any applicable state laws.

How is a promissory note different from a loan agreement?

A loan agreement is more comprehensive than a promissory note, with specific terms and defined rules and restrictions. Promissory notes usually suffice for loans from one person to another. If a business is involved or the loan amount is large, a loan agreement is more appropriate.

Can a promissory note be transferred?

Yes, it is possible to transfer ownership of the promissory note. If the borrower defaults, for example, the lender may sell or transfer the note to a debt collector. Or, if the lender needs to raise cash, they can negotiate with a buyer and sell the note.

What happens if someone defaults on a promissory note?

If a borrower defaults, the lender usually sends them a demand letter. If the borrower still does not pay, the lender can hire a collections lawyer to sue and get restitution through a court judgment. The lender may also have the right to seize any collateral and sell it at auction.

How long is a promissory note valid?

Depending on your state, the statute of limitations for promissory notes can range from three to 15 years.

Photo credit: iStock/fizkes

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

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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