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Q: What are common student loan terms?

Student loan terms include Direct Loans — which are any loans in the Federal Direct Loan program. These include Direct Subsidized and Unsubsidized loans in addition to Direct PLUS Loans.

Sep

2024

Student Loan Terminology Cheat Sheet

By Kayla McCormack | Debt Payoff, Fresh Out of School, Student Loans, student_loan | No Comments

There are so many upsides to investing in your education — the personal enrichment and possibility of a bright and fruitful future being the most obvious. But, there are also some potential downsides that are hard to ignore, one of the main ones being the debt you may accrue.

If you’re a student loan borrower, you’ve probably noticed that your loans have a language all their own. Getting a grasp on terms like interest rate vs. APR, subsidized vs. unsubsidized loans, and fixed vs. variable interest rates can help you make more informed, confident decisions.

Instead of enrolling in Student Loan Language 101, you can use our quick reference guide to find some answers without information overload. Borrowing money can have long-term financial consequences, so it’s important to fully understand the fees and interest rates that will affect the amount of money you owe.

Here are a few of the most important terms to understand before you take out a student loan:

Common Student Loan Terminology

Academic Year

An academic year is one complete school year at the same school. If you transfer, it is considered two half-years at different schools.

Accrued Interest

Accrued interest is the amount of interest that has accumulated on a loan since your last payment. You can keep student loan accrued interest in check by making your payments on time each month. However, after a period of missed or reduced payments, accrued interest may be “capitalized,” which essentially means you have to pay interest on the interest!

Adjusted Gross Income (AGI)

AGI is an individual’s gross income, less any payroll deductions or adjustments. Income includes things like wages, salary, any interest or dividends you may earn, and any other sources of income. You can find your AGI on your federal income tax returns.

Aggregate Loan Limit

The aggregate loan limit is the maximum amount of federal student loan debt a borrower can have when graduating from school. The aggregate loan limits vary depending on whether you are a dependent or independent student.

Amortization

Amortization refers to the amount of loan principal and interest you pay off incrementally over your loan term. Each student loan payment is a fixed amount that contributes to both interest and principal. Early in the life of the loan, the majority of each payment goes toward interest. But over time as you pay down your loan balance, the ratio shifts and most of the payment goes toward the principal.

Annual Percentage Rate (APR)

APR is the annual rate that is charged for borrowing, expressed as an annual a percentage. APR is a standardized calculation that allows you to make a more fair comparison of different loans. Consider the difference between interest vs. APR — APR reflects the cost of any fees charged on the loan, in addition to the basic interest rate. Generally speaking, the lower your APR, the less you’ll spend on interest over the life of the loan.

Annual Loan Limit

The yearly borrowing limit set for federal student loans.

Automated Clearing House (ACH)

An electronic funds transfer is sent through the Automated Clearing House system. The ACH is an electronic funds transfer system that helps your loan payment transfer directly from your bank account to your lender or loan servicer each month.

The benefits of ACH are two-fold — not only can automatic payments keep you from forgetting to pay your bill, but many lenders also offer interest rate discounts for enrolling in an ACH program.

Award Letter

An award letter is sent from your school and details the types and amounts of financial aid you are eligible to receive. This will include information on grants, scholarships, federal student loans, and work-study. You will receive an award letter for each year you are in school and apply for financial aid.

Award Year

The academic year that financial aid is applied to.

Borrower

The borrower is the person who took out a loan. In doing so, they agreed to repay the loan.

Campus-Based Aid

Some financial aid programs are administered by specific financial institutions, such as the federal work-study program. Generally, schools receive a certain amount of campus-based aid annually from the federal government. The schools are then able to award these funds to students who demonstrate financial need.

Recommended: Am I Eligible for Work-Study?

Cancellation

This refers to the cancellation of a borrower’s requirement to repay all or a portion of their student loans. Loan forgiveness and discharge are two other types of loan cancellation.

Capitalization

Capitalization is when unpaid interest is added to the principal value of the student loan. This generally occurs after a period of non-payment such as forbearance. Moving forward, the interest will be calculated based on this new amount.

Capitalized Interest

Accrued interest is added to your loan’s principal balance, typically after a period of non-payment such as forbearance. When the interest is tacked onto your principal balance, your interest is now calculated on that new amount.

Most student loans begin accruing interest as soon as you borrow them. While you are often not responsible for repaying your student loans while you are in school or during a grace period or forbearance, interest will still accrue during these periods. At the end of said period, the interest is then capitalized, or added to the principal of the loan.

When interest is capitalized, it increases your loan’s principal. Since interest is charged as a percent of principal, the more often interest is capitalized, the more total interest you’ll pay. This is a good reason to use forbearance only in emergency situations, and end the forbearance period as quickly as possible.

Cosigner

A cosigner is a third party, such as a parent, who contractually agrees to accept equal responsibility in repaying your loan(s). A student loan cosigner, also known as an endorser, can be valuable if your credit score or financial history are not sufficient enough to allow you to borrow on your own.

With a cosigner, you are still responsible for paying back the loan, but the cosigner must step in if you are unable to make payments. A co-borrower applies for the loan with you and is equally responsible for paying back the loan according to the loan terms on a month-to-month basis

Consolidation (through the Direct Loan Consolidation Program)

Student loan consolidation is the act of combining two or more loans into one loan with a single interest rate and term. The resulting interest rate is a weighted average of the original loan rates — rounded up to the nearest one-eighth of a percentage point.

Only certain federal loans are eligible for the Direct Consolidation Program. Consolidating can make your life simpler with one monthly bill, but it may not actually save you any money. You may be able to reduce your monthly payments by increasing the loan term, but this means you’ll pay more interest over the life of the loan.

Consolidation (through a Private Lender)

Consolidation is the act of combining two or more loans into one single loan with a single interest rate and term. When you consolidate loans with a private lender, you do so through the act of refinancing, so you’re given a new (hopefully lower) interest rate or lower payments with a longer term.

By refinancing, you may be able to lower your monthly payments or shorten your payment term. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.)

Recommended: What Is a Direct Consolidation Loan?

Cost of Attendance

Cost of attendance is the estimated total cost for attending a college based on the cost of tuition, room and board, books, supplies, transportation, loan fees, and miscellaneous expenses. Schools are required to publish the cost of attendance.

Credit Report

Credit reports detail an individual’s bill payment history, loans, and other financial information. These reports are used by lenders to evaluate your creditworthiness.

Default

Default is failure to repay a loan according to the terms agreed to in the promissory note. Defaulting on your student loans can have serious consequences, such as additional fees, wage garnishment, and a significant negative impact on your credit. It’s always better to talk to your lender about potential hardship repayment options, such as deferment or forbearance, before defaulting on a loan.

Deferment

Deferment is the temporary postponement of loan repayment, during which time you may not be responsible for paying interest that accrues (on certain types of loans). Student loan deferment can be useful if you think you’ll be in a better place to pay your loans at a later date. However, deferment is usually only available for certain federal loans. To potentially cut down on interest, it may be wise to weigh your deferment options.

Delinquency

When you miss a student loan payment, the loan becomes delinquent. The loan will be considered delinquent until a payment is made on the loan. If the loan remains in delinquency for a specified period of time (which varies for federal vs. private student loans), it may enter default.

Direct Loan

The Direct Loan program is administered via the U.S. Department of Education. There are four main types of direct loans including Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans.

Direct PLUS Loan

Direct PLUS Loans are types of federal loans that are made to graduate or professional student borrowers or to the parents of undergraduate students. Direct PLUS Loans made to parents may be referred to as Parent PLUS Loans.

Disbursement

When funds for a loan are paid out by the lender.

Discharge

Student loan discharge occurs when you are no longer required to make payments on your loans. Typically, student loan discharge occurs when there are extenuating circumstances, such as the borrower has experienced a total and permanent disability or the school at which you received your loans has closed.

Discretionary Income

Discretionary income is the money remaining after you pay for necessary expenses. An individual’s discretionary income is used to help determine their loan payments on an income-driven repayment plan.

Enrollment Status

Determined by the school you attend, your enrollment status is a reflection of where you stand with the school. It includes full-time, half-time, withdrawn, and graduated.

Expected Family Contribution (EFC)

Now known as the Student Aid Index (SAI), it’s an estimation of the amount of money a student and their family is expected to pay out of pocket toward tuition and other college expenses.

Federal Work-Study

A type of financial aid, students who demonstrate financial aid may qualify for the federal work-study program, where they work part-time to earn funds to help pay for college expenses.

Financial Aid

Financial aid is funds to help pay for college. Financial aid includes grants, scholarships, work-study, and federal student loans.

Financial Aid Package

An overview of the types of financial aid you are eligible to receive for college, financial aid packages provide information on all types of federal financial aid and college-specific aid such as scholarships, grants, work-study, and federal student loans.

Financial Need

Some types of financial aid are determined by financial need. Financial need is determined by the Free Application for Federal Student Aid (FAFSA®).

Fixed Interest Rate

Fixed interest rates remain the same for the life of the loan. The interest rate does not fluctuate.

Forbearance

Forbearance is the temporary postponement of loan repayment, during which time interest typically continues to accrue on all types of federal student loans. If your student loan is in forbearance, you can either pay off the interest as it accrues or you can allow the interest to accrue and it will be capitalized at the end of your forbearance.

Use forbearance wisely, because interest that accrues during the forbearance period is typically capitalized, making your loan more expensive. If you can afford to make even small payments during forbearance, it can help keep interest costs down.

You will usually have to apply for student loan forbearance with your loan holder and will sometimes be required to provide documentation proving you meet the criteria for forbearance. For a loan to be eligible for forbearance, there must be some unexpected temporary financial difficulty.

Forgiveness

Loan forgiveness is another situation in which you are no longer responsible for repaying all or a portion of your student loans. Public Service Loan Forgiveness and Teacher Loan Forgiveness are two types of loan forgiveness programs in which your loans are forgiven after meeting specific requirements, such as working in a qualifying job and making qualifying loan payments.

In August 2022, President Biden announced a loan forgiveness plan for borrowers with student loan debt. Under this plan, borrowers earning up to $125,000 (when filing taxes as single) may qualify for up to $10,000 in student loan forgiveness. He also announced that Pell Grant recipients may qualify to have up to $20,000 of their loans forgiven.

Free Application for Federal Student Aid (FAFSA)

This is the application students use to apply for all types of federal student aid, including federal loans, work-study, grants, and scholarships. The FAFSA must be completed for each year a student wishes to apply for financial aid.

Recommended: FAFSA Guide

Grace Period

The grace period is a period of time after you graduate, leave school, or drop below half-time during which you’re not required to make payments on certain loans. Some loans continue to accumulate interest during the grace period, and that interest is typically capitalized, making your loan more expensive.

Grad PLUS Loans

Another term to refer to a Direct PLUS loan, specifically one borrowed by a graduate or professional student.

Graduate or Professional Student

A student who is pursuing educational opportunities beyond a bachelor’s degree. Graduate and professional programs include master’s and doctoral programs.

Graduated Repayment Plan

A type of repayment plan available for federal student loan borrowers. On this repayment plan, loan payments begin low and increase every two years. This plan may make sense for borrowers who expect their income to increase over time.

Grant

Grants are a type of financial aid that does not need to be repaid. Grants are often awarded based on financial need or merit-based.

In-School Deferment

Students who are enrolled at least half-time in school are eligible to defer their federal student loans. This type of deferment is generally automatic for federal student loans. Note that unless you have a subsidized student loan, interest will continue to accrue during in-school deferment.

Interest

Interest is the cost of borrowing money. It is money paid to the lender and is calculated as a percentage of the unpaid principal.

Interest Deduction

A tax deduction that allows you to deduct the student loan interest you paid on a qualified student loan for the tax year. Interest paid on both private and federal student loans qualifies for the student loan interest deduction.

Lender

The financial institution that lends funds to an individual borrower.

Loan Period

A loan period is the academic year for which a student loan is requested.

Loan Servicer

A loan servicer is a company your lender may partner with to administer your loan and collect payments. For questions about your student loan payments or administrative details such as account information, you should contact your student loan servicer.

Origination Fee

Some lenders charge an origination fee for processing a loan application, or in lieu of upfront interest. To minimize incremental costs on your loan, look for lenders that offer no or low fees.

Part-Time Enrollment

Students who are enrolled in school less than full-time are generally considered part-time students. The number of credit hours required for part-time enrollment are determined by your school.

Pell Grant

Pell Grant is awarded by the federal government to undergraduate students who demonstrate exceptional financial need.

Perkins Loan

Perkins Loans were a type of federal loan available to undergraduate and graduate students who demonstrated exceptional financial need. The Perkins Loan program ended in 2017.

PLUS Loans

Another way to describe Direct PLUS Loans, PLUS Loans are federal loans available for graduate and professional students or the parents of undergraduate students.

Prepayment

Prepayment is paying off the loan early or making more than the minimum payment. All education loans, including private and federal loans, allow for penalty-free prepayment, which means you can pay more than the monthly minimum or make extra payments without incurring a fee. The faster you pay off your loan, the less you’ll spend on interest.

Prime Rate

Prime rate is the interest rate that commercial banks charge their most creditworthy customers. The basis of the prime rate is the federal funds overnight rate. The federal funds overnight rate is the interest rate that banks use when lending to each other. The prime rate can be used as a benchmark for interest rates on other types of lending.

Principal

Principal is the original loan amount you borrowed. For example, if you take out one $100,000 loan for grad school, that loan’s principal is $100,000.

Private Student Loan

A private student loan is lent by a private financial institution such as a bank, credit union, or online lender. These loans can be used to pay for college and educational expenses, but are not a part of the Federal Direct Loan Program. These loans don’t offer the same borrower protections available to federal student loans — like income-driven repayment plans or deferment options.

Promissory Note

A promissory note is a contract that says you’ll repay a loan under certain agreed-upon terms. This document legally controls your borrowing arrangement, so read it carefully. If you don’t fully understand the agreement, contact your lender before you sign.

Repayment

Repayment is repaying a loan plus interest.

Repayment Period

The agreed upon term in which loan repayment will take place.

Scholarship

A scholarship is a type of financial aid which typically doesn’t need to be repaid. Scholarships can be awarded based on merit.

Secured Overnight Financing Rate (SOFR)

The Secured Overnight Financing Rate is an interest rate benchmark that is commonly used by banks and other lenders to set interest rates for loans. The SOFR is the cost of borrowing money overnight collateralized by Treasury securities. Starting in June 2023, the SOFR will begin replacing the LIBOR as a benchmark interest rate.

Stafford Loans

Stafford loans were a type of federal student loan made under the Federal Family Education Loan Program. Beginning in 2010, all federal student loans were loaned directly through the William D. Ford Federal Direct Loan Program.

Standard Repayment Plan

The Standard Repayment Plan is one of the repayment plans available for federal student loan borrowers. This repayment plan consists of fixed payments made over a 10 year period.

Student Aid Report

After submitting the FAFSA, you will receive a student aid report (SAR). The SAR is a summary of the information you provided when filling out the FAFSA.

Student Loan Refinancing

Student loan refinancing is using a new loan from a private lender to pay off existing student loans. This allows you to secure a new (ideally lower) interest rate or adjust your loan terms.

Subsidized Loan

A Direct Subsidized Loan is a type of federal loan available to undergraduate students where the government covers the interest that accrues while the student is enrolled at least half-time, during the grace period, and other qualifying periods of deferment.

Term

Term is the expected amount of time the loan will be in repayment. Generally speaking, a longer term will mean lower monthly payments but higher interest over the life of the loan, while a shorter term will mean the opposite. Loan terms vary by lender, and if you have a federal loan, you are usually able to select your student loan repayment plan.

Tuition

The cost of classes and instruction.

Undergraduate Student

A college student who is enrolled in a course of study, typically lasting four years, with the goal of receiving a bachelor’s degree.

Unsubsidized Loan

A Direct Unsubsidized Loan is a type of federal loan available to undergraduate or graduate students. The major difference between subsidized vs. unsubsidized loans is that the interest on unsubsidized loans is not paid for by the federal government.

Variable Interest Rate

Unlike a fixed interest rate, a variable interest rate fluctuates over the life of a loan. Changes in interest rates are tied to a prevailing interest rate.

The Takeaway

Understanding key terms is essential for navigating student borrowing. Prioritizing sources of financial aid that don’t need to be repaid like scholarships and grants can be helpful. But these don’t always meet a student’s financial needs.

Federal student loans have low-interest rates and, for the most part, don’t require a credit check. Plus they have borrower protections in place, like income-driven repayment plans and deferment options, that make them the first choice for most students looking to borrow money to pay for college.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

What are common student loan terms?

Common student loan terms include the principal (the original borrowed amount), interest rate (the cost of borrowing), and repayment term (the length of time to repay the loan). Other terms involve grace periods (time before payments start after graduation), deferment, forbearance (temporary relief from payments), and fixed or variable interest rates.

What are the most important loan terms to understand?

It’s important to understand terms associated with borrowing because you’ll be required to repay the loan. Understand the interest rate and any fees associated with the loan.

What does APR mean in relation to student loans?

APR stands for annual percentage rate. It’s a reflection of the interest rate on the loan in addition to any other fees associated with borrowing. APR helps make it easier to compare loans from different lenders.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

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Aug

2024

Easiest College Majors That Can Lead to High Pay

By Marcy Lovitch | Fresh Out of School, Life & Career, student_loan | Comments Off

Every college major requires work, but some fields of study are more rigorous than others. For instance, you won’t find too many people who think that pre-med is a snap. While earning your undergrad degree isn’t going to be effortless, there are definitely some easier college majors out there that won’t be as taxing.

Choosing a less complex major doesn’t mean you’re doomed to a low-paying job for life. In fact, it can be quite the opposite. Read on to learn about 12 relatively easy college majors that can lead to jobs that pay well.

Key Points

• Some college majors are considered easier due to lighter workloads, fewer technical requirements, or more flexible coursework.

• Majors like marketing, human resources, hospitality, communications, public relations, and sports management can lead to well-paying careers.

• Fields such as history, anthropology, liberal studies, and English can also offer strong salaries in roles like public policy, publishing, or museum curation.

• Job outlook, passion for the subject, and the school’s prestige should all be considered when selecting a major.

• Regardless of the major chosen, financial planning is crucial, and students may need a mix of federal and private student loans to fund their education.

What Makes a Major “Easy”?

The workload for an easier major, like creative writing, probably won’t be as intensive as that of, say, biomedical engineering, neuroscience, or applied mathematics. You likely won’t have long lab sessions, tons of problem sets, and other arduous assignments.

This could make achieving higher grades a simpler proposition. Your noteworthy grades could, in turn, help you get a leg up after graduation. You might be able to step into a higher-paying job more easily, which could help you pay off any private school loans for college you might have.

A college major can also feel easier if it’s a field you’re interested in and passionate about. Your excitement about a major will likely make going to class something you’ll look forward to and the work required seem like less of a drag.

12 Easy College Majors That Ultimately Pay Well

While getting an entry-level job paying a six-figure salary isn’t the norm for these easy college majors, you could still earn big bucks down the road.

Here, you’ll learn about 12 easy majors along with some average entry-level salaries and mid-career pay for positions within each field, according to Salary.com.

1. Marketing

A marketing degree opens up many career possibilities. People who major in marketing can find positions in all types of companies, industries, institutions, and nonprofits. Jobs in marketing include positions focusing on a business’s or brand’s strategy, sales techniques, advertising and communications, or public relations.

Marketing careers can pay off over time.

• Average entry-level salary: $35,516 for a marketing assistant.

• Average mid-career salary: $91,870 for a marketing manager.

As you see from that mid-career pay grade, a six-figure salary could be just around the corner.

2. Human Resources

With a college degree in human resources (HR), you can work in many different roles, including talent recruitment, benefits administration, DEI initiatives, or workplace development training.

In terms of landing a well-paying job, here are some salaries to note:

• Average starting salary: $43,386 for an HR assistant.

• Average mid-career salary: $94,576 for an HR manager.

3. Hospitality

Do you love looking at fab resorts and restaurants in your social media feeds? This major might be a perfect fit for you. With a degree in this field (which likely doesn’t involve any science labs), you might work in an array of positions. Some examples: hotel, resort, or restaurant management; event planning; or travel booking and tourism, among others.

Some salaries to note for this college major:

• Average starting salary: $50,949 for an event planner.

• Average mid-career salary: $76,898 for a hotel manager.

These figures are notably higher than $43,262, which Indeed cites as the current average starting salary in the U.S.

4. Communications

As one of the most popular college majors, a communications degree can prepare you for many different career paths. Marketing (mentioned previously) can fall under the umbrella of communications. Other areas for employment with this degree include public relations, advertising, journalism, writing, broadcasting, publishing, and social and digital media development.

A sample of the salaries you might expect at different points in your career:

• Average starting salary: $51,928 for a corporate communications assistant or $45,955 for a social media assistant.

• Average mid-career salary: $125,700 for a corporate communications manager and $116,090 for a social media manager.

5. Public Relations

Public relations (PR) has a broad reach. If you’re looking to capitalize on a degree in public relations, you might find a job in a small or large PR agency, a corporate PR department, or as an independent consultant to various clients. Since working in PR often involves frequent communication with clients and the public, this field can offer some of the better jobs for extroverts.

• Average starting salary: $49,383 for a public relations specialist.

• Average mid-career salary: $93,556 for a public relations manager.

6. Liberal Studies

A liberal arts or liberal studies major allows for a lot of flexibility and variety when it comes to job prospects. Students majoring in liberal arts or studies participate in a multi-disciplinary program, often including courses in humanities, history, art, literature, science, and philosophy. Earning a liberal studies degree can offer students a chance to develop many important “soft skills,” including problem solving, communication, and analytical and critical thinking.

Someone with a liberal arts degree may be drawn toward work in libraries, arts administration, government, or education and academia.

• Average starting salary: $66,575 for a public policy analyst.

• Average mid-career salary: $147,140 for a public policy manager.

7. Anthropology

Anthropology focuses on the study of humans in different cultures and societies, spanning various time periods and locations. It may not involve the kind of coursework that, say, studying law does, but it can be a fascinating field.

An anthropologist can work for ethnic or cultural organizations, museums, historical sites, research firms, or as a social or community services manager.

• Average starting salary: $47,660 for a museum collectors curator.

• Average mid-career salary: $64,962 for a museum director.

8. History

Knowledge of the past can be a powerful career springboard. Besides becoming a historian, history majors may find work in journalism, teaching, and politics. People with history degrees can also possibly find work at historical societies, museums, and libraries.

• Average entry-level salary: $57,015 for a library archivist.

• Average mid-career salary: $85,724 for a senior librarian.

9. Advertising

Advertising often taps a student’s interest in sales and contemporary consumer culture. Careers for advertising majors range from creative pursuits (copywriting or art direction, for instance) to more business-driven ones, such as being an account coordinator or a sales rep.

• Average starting salary: $47,346 for junior copywriter, $45,686 for a junior graphic designer, or $43,300 for a junior sales rep.

• Average mid-career salary: $122,524 for a copywriting manager, $122,236 for a graphic design director, or $107,183 for a senior advertising account manager, all of which can be a good salary for a single person.

10. English/Creative Writing

An English or creative writing major may be what many people consider easy. Depending on the path you take, it could lead to a high-paying job. People who choose this field may pursue a job as a proofreader, copy editor, technical writer, book editor, author, or an editor at a publishing company or magazine. These may all be lower stress jobs that are good for introverts.

• Average starting salary: $44,750 for an entry-level proofreader.

• Average mid-career salary: $98,101 for a senior editor.

11. Sports Management

Anyone who loves sports (whether participating, watching, or both) may be attracted to a major in sports management. Sports management encompasses a wide array of jobs, including becoming a sports agent, an athletic director, or a sports facility manager.

• Average starting salary: $51,539 for a sports coordinator position.

• Average mid-career salary: $69,061 for a sports manager job.

12. Criminal Justice

If you’re always watching procedural dramas on TV, you might be interested in majoring in criminal justice. While this field of study may be considered easy as compared with, say, a mathematics major, that doesn’t mean a career in criminal justice isn’t going to be challenging and rewarding.

Jobs for criminal justice majors can include working in the areas of law enforcement, forensics, investigations, and crime prevention.

• Average starting salary: $50,733 for a fraud investigation officer or $56,376 for a police officer (plus, you might eventually qualify for federal student loan forgiveness programs) .

• Average mid-career salary: $123,694 for a fraud manager or $90,671 for a chief detective position at a business.

Factors Besides Difficulty

Now you know 12 relatively easy majors that can lead to a job with high pay. But it’s worthwhile to consider some other factors that should be considered when choosing a college major.

Job Outlook

Some fields are growing faster than others. As you think about your major, it can be a good idea to make sure the one you choose will lead to a field that is growing and will have plentiful job opportunities after college. For instance, if you have a criminal justice degree and want to work in fraud investigations, you might find that there’s considerable growth in digital fraud and focus your education to prepare you for that kind of work.

Passion/Interest

Sometimes what makes coursework in college seem easy is that you love it. Ask any astrophysics major. They may think what they are studying is hard, but because they love it, the pursuit feels engaging and worthwhile.

In other words, if you are passionate about a subject, that can be a good reason to major in it, even if it has a reputation for being hard.

School Prestige

When it comes to getting a high-paying job after graduation, it can help if you pursue a program that your school is known for. For instance, some universities are renowned for having great journalism programs, and that reputation could give graduates an advantage in the job market.

The Takeaway

Getting an undergraduate degree, no matter what the major, requires hard work and dedication. However, there are some majors that fall into the “easier” category such as communications, anthropology, and history. These majors may not require as intensive a curriculum as others (say, chemical engineering), but grads can still go on to earn high salaries.

Regardless of whether your major is considered hard or easy, you may need some help paying for your education.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

Is an “easy” major looked down on?

There may be some people who think certain majors are easy, but virtually all college majors require hard work. After graduation, hiring managers are likely looking for someone who performed well in school, is enthusiastic about their studies, and wants to apply their skills to their chosen career.

Do easy majors require less study time?

How much time and effort a college major requires can depend on the school, the curriculum, and a student’s approach to their studies and their aptitude. It’s not possible to say that all easy majors require less study time.

What are the highest paying majors overall?

According to a 2024 report from the National Association of Colleges and Employers, the highest paying majors are those in the STEM (science, technology, engineering, and math) category. The three highest paying majors are engineering, computer sciences, and math and sciences.

Photo credit: iStock/Drazen Zigic

SOIS-Q224-1940086-V1

Jun

2024

What Is the APR for Student Loans and How Is It Calculated?

By Kayla McCormack | Debt Payoff, Fresh Out of School, Student Loans, student_loan | No Comments

Student loans are complicated, especially when it comes to figuring out how much the loan will actually cost you over time. APR, or annual percentage rate, reflects the total cost of the loan, including the interest rate and any fees.

Knowing how APR formulas affect your student loans is an important part of maintaining financial health, and can even help you decide whether or not you should look into alternative loan repayment strategies, like consolidation or refinancing.

What Is APR For Student Loans?

As briefly mentioned, your annual percentage rate, known as “APR,” is the interest and fees you are responsible for paying on your student loan balance over the course of a year. The APR formula shows you your actual cost of borrowing, including your interest rate and any extra fees or costs, like origination fees or forbearance interest capitalization.

APR vs Interest Rate on Student Loans

The interest rate on your student loan is the amount your lender is charging you for the loan, expressed as a percentage of the amount you borrowed. For example, the interest rate for Federal Direct Subsidized Loans and Unsubsidized Direct Loans is currently 6.53% for 2024-25, which means that you would be responsible for paying your lender 6.53% of the amount of money you borrowed in yearly interest.

That 6.53%, however, does not include other costs that are considered in the APR formula, including disbursement costs. For loans with no fees, it is possible that the APR and interest rate will match. But in general, when comparing APR vs interest rate, the APR is considered a more reliable and accurate explanation of your total costs as you pay off your student loans. If you’re shopping around for student loans or planning to refinance your loans, the APR offered can help you decide which lender you would like to work with.

Recommended: Student Loan Info for High Schoolers

An Example of How APR Is Calculated for Student Loans

Let’s say you take out a student loan for $20,000 with an origination fee of $1,000 and an interest rate of 5%. An origination fee is the cost the lender may charge you for actually disbursing your loan, and it is usually taken directly out of the loan balance before you receive your disbursement.

So, in this example, even though you took out $20,000, you would only receive $19,000 after the disbursement fee is charged. Even though you only receive $19,000, the lender still charges interest on the full $20,000 you borrowed.

The APR accounts for both your 5% interest rate and your $1,000 origination fee to give you a new number, expressed as a percentage of the loan amount you borrowed. That percentage accurately reflects the true costs to the consumer. (In this example, if the loan had a 10-year term, the APR would be 6.124% )

What Is a Typical Student Loan APR?

For federal student loans, interest rates are determined annually by Congress. Federal loans also have a disbursement fee, which is a fee charged when the loan is disbursed.

APRs for federal student loans may vary depending on the loan repayment term that the borrower selects. Federal student loans are eligible for a variety of repayment plans, some of which can extend up to 25 years. Generally speaking, the longer the repayment term, the larger amount of interest the borrower will owe over the life of the loan.

Typical APR for Private Student Loans

The interest rate on private student loans will vary by lender and so will any fees associated with the loan. As of June 2024, APRs on private student loans may vary from around 4% to upwards of 16% for fixed interest rates.

The interest rate you qualify for is generally determined by a variety of personal factors including your credit score, credit history, and income, among other factors. In addition to varying APRs, private student loans don’t offer the same benefits or borrower protections available for federal student loans — things like income-driven repayment plans or deferment options. For this reason, they are generally considered only after all other sources of funding have been reviewed.

How to Find Your Student Loan APR

By law, lenders are required to disclose the APR on their loans — including student loans. These disclosures help you make smart financial choices about your loans and ensure that you’re not blindsided by mystery costs when you take out a loan.

For federal student loans, the government lists the interest rates and fees online, but make sure to carefully examine any loan initiation paperwork for your exact APR, which will depend on other factors including the amount you plan to borrow, the interest rate, and origination fees.

If you’re currently paying off federal student loans, your student loan servicer can tell you your APR. If you use online payments, you can probably see your APR on your student loan servicer’s website or on your monthly bill.

If you’re shopping around for private student loans, your potential lenders must disclose the APR in their lending offer to you. Your APR will vary from lender to lender depending on many factors, which can include your credit score, any fees the lender charges, and how they calculate deferred interest, which is any unpaid interest that your minimum payment doesn’t cover.

One student loan tip — compare quotes and offers from various lenders closely. Once you’ve decided on a lender and taken out a loan, your APR should be reflected on your loan paperwork and usually on your lender’s online payment system.

The Takeaway

APR is a reflection of the total amount you’ll pay in both interest rate and fees for borrowing a student loan. Interest rate is just the amount of interest you will be charged. On loans with no fees, it’s possible for the interest rate and APR to be the same. Interest rates and fees for different types of federal student loans are published, but individual APRs may vary based on the amount you borrow and the repayment term you select.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

What is the APR on student loans?

APR or annual percentage rate is a reflection of the interest rate plus any fees associated with the loan. It provides a picture of the total cost of borrowing a loan and is helpful in comparing loans from different lenders.

Is the APR the same on subsidized and unsubsidized student loans?

The interest rate for unsubsidized and subsidized federal student loans is sent annually by Congress. These loans also have an origination fee. For the 2024-2025 school year the interest rate on Direct Subsidized and Unsubsidized loans is 6.53% and the origination fee is 1.057%. The APR for your loan will be determined by factors including the repayment term you select.

What is the typical interest rate on private student loans?

Interest rates on private student loans vary based on a variety of factors such as the lender’s policies, and individual borrower characteristics such as their credit score and income, among other factors. As of June 2024, interest rates on fixed private student loans hovered around 4% to upwards of 16%.

SOIS-Q224-1914653-V1

Jun

2024

Is There a Statute of Limitations on Debt?

Statute of Limitations on Debt: Things to Know

By Kayla McCormack | Debt Payoff, Fresh Out of School, Student Loans, student_loan | No Comments

A statute of limitations is a state law that limits the period during which a creditor or debt collector can bring action in court to enforce a contract, such as a loan agreement or note. This means a creditor may not be allowed to sue a borrower in court to force them to pay a debt after the period has expired.

However, the statute of limitations on debt isn’t a wait-it-out solution that simply erases debt once it’s been owed for a few years. There may still be consequences to failing to pay back debts once the statute of limitations for debts has expired — and statutes of limitations don’t apply to some debts, including federal student loans. Here’s what you should know about statutes of limitations on debt.

Key Points

• Definition: The statute of limitations on debt is the time period a creditor or debt collector can sue you in court to collect; once expired, debt is “time-barred,” but you still owe the money.

• Timeframes: Vary by state and debt type — generally 3 to 10+ years; the “clock” starts from your last activity on the account (such as a payment or entering a repayment plan).

• Types of debt: Covers written/oral contracts, promissory notes (like student loans or mortgages), and open-ended accounts (like credit cards). Federal student loans have no statute of limitations.

• Consequences: Even if time-barred, creditors can still contact you, and debts remain on your credit report for up to 7 years, affecting credit and borrowing power.

• Legal protection: Debt collectors cannot sue for time-barred debts under the Fair Debt Collection Practices Act — but they may try, so it’s crucial to respond and assert the statute of limitations if sued.

What Is The Statute of Limitations on Debt?

Essentially, a statute of limitations on debt puts a time restriction on how long a creditor or debt collector is able to sue a borrower in state court to enforce the loan agreement and force them to repay the outstanding debts. In practice, this means that if a borrower chooses not to pay a debt, after the statute of limitation runs out, the creditor or debt collector doesn’t have a legal remedy to force them to pay.

To be clear, just because the statute of limitations has expired, it doesn’t mean that the borrower no longer owes the money, even though it does mean that the lender may not be able to take them to court for non-payment. The borrower will continue to owe the money borrowed, and their non-payment could be reported to the credit bureaus, which would then remain on the report for as long as allowed under the applicable credit reporting time limit. (For further evidence of how long debt can stick around, you might consider what happens to credit card debt when you die.)

Statutes of limitations don’t apply to all debts. They don’t, for example, apply to federal student loans. Federal student loans that are in default may be collected through wage or tax refund garnishment without a court order.

How Long Until a Debt Expires?

The length of the statute of limitations is determined by state law. State statutes of limitations on debt typically vary from three years to more than 10 years, depending on the type of debt and when the contract was entered into.

Figuring out exactly which state’s laws your debt falls under isn’t always as simple as you might imagine. The applicable statute of limitations may be determined by the state you live in, the state you lived in when you first took on the debt, or even the state where the lender or debt collector is located. The lender may even have included a clause in the contract you signed mandating that the debt is governed by a specific state’s laws.

One commonality in every state’s statutes of limitations on debt is that the “clock” does not start ticking until the borrower’s last activity on the relevant account. Say, for example, that you made a payment on a credit card two years ago and then entered into a payment plan with the debt collector last year but never made any subsequent payments. In that case, the statute of limitations clock would start on the date that you entered into the payment plan.

In this example, simply entering into a payment plan counts as “activity” on the account. This can make it confusing to determine if the statute of limitations has expired on your old debts, especially if you haven’t made a payment in a long time.

It may be possible to find out what the statute of limitations is by contacting the lender or debt collector and asking for verification of the debt. Remember that agreeing to make a payment, entering a payment plan, or otherwise taking any action on the account — including simply acknowledging the debt — may restart the statute of limitations.

After the statute of limitations on the debt has expired, the debt is considered time-barred.

Types of Debt

As mentioned, the length of the statute of limitations on debt can vary depending on the type of debt it is. To know which timeline applies, it helps to understand the different types of debt.

Written Contract

A written contract is an agreement that is signed in writing by both you and the creditor. This contract must include the terms of the loan, such as how much the loan is for and how much monthly payments are.

Oral Contract

An oral contract is bound by verbal agreement — there is no written contract involved. In other words, you said you would pay back the money, but did not sign any paperwork.

Promissory Notes

Promissory notes are written agreements in which you agree to pay back the amount of money by a certain date, in agreed upon installments and at a set interest rate. Examples of promissory notes are student loan agreements and mortgages.

Open-Ended Accounts

Open-ended accounts include credit cards and lines of credit. With an open-ended account, you can repeatedly borrow funds up to the agreed upon credit limit. Upon repayment, you can then borrow money again.

Statute of Limitations on Debt Collection

Each state has its own statute of limitations on debt collection. Here’s a breakdown of the varying timelines by state:

Statute of Limitations For Debts By State and Type of Debt

State	Written Contract	Oral Contract	Promissory Note	Open-Ended Account
Alabama	6	6	6	3
Alaska	3	3	3	3
Arizona	6	3	6	3
Arkansas	5	3	5	5
California	4	2	4	4
Colorado	3	3	3	3
Connecticut	6	3	6	3
Delaware	3	3	3	3
District of Columbia	3	3	3	3
Florida	5	5	4	4
Georgia	6	4	4	4
Hawaii	6	6	6	6
Idaho	5	4	5	4
Illinois	10	5	10	5
Indiana	6	6	6	6
Iowa	10	5	10	5
Kansas	5	3	6	3
Kentucky	15	5	10	5
Louisiana	10	10	10	3
Maine	6	6	6	6
Maryland	3	3	6	3
Massachusetts	6	6	6	6
Michigan	6	6	6	6
Minnesota	6	6	6	6
Mississippi	3	3	3	3
Missouri	10	6	10	5
Montana	8	5	5	5
Nebraska	5	4	5	4
Nevada	6	4	3	4
New Hampshire	3	3	6	3
New Jersey	6	6	6	6
New Mexico	6	4	6	4
New York	6	6	6	6
North Carolina	3	3	3	3
North Dakota	6	6	6	6
Ohio	8	6	6	6
Oklahoma	5	3	5	3
Oregon	6	6	6	6
Pennsylvania	4	4	4	4
Rhode Island	10	10	10	10
South Carolina	3	3	3	3
South Dakota	6	6	6	6
Tennessee	6	6	6	6
Texas	4	4	4	4
Utah	6	4	4	4
Vermont	6	6	14	3
Virginia	5	3	6	3
Washington	6	3	6	6
West Virginia	10	5	6	5
Wisconsin	6	6	10	6
Wyoming	10	8	10	6

Statutes of limitations on certain old debts may prevent creditors or debt collectors from suing you to recover what you owe. However, it’s important to realize that debt statutes of limitations don’t protect you from creditors or debt collectors continuing to attempt to collect payments on the time-barred debt, such as in the case of credit card default. Remember, you still owe that money, whether or not the debt is time-barred. The statute of limitations merely prevents a lender or debt collector from pursuing legal action against you indefinitely.

Debt collectors may continue to contact you about your debt. But under the Fair Debt Collection Practices Act, debt collectors cannot sue or threaten to sue you for a time-barred debt. (Note that this act applies only to debt collectors and not to the original lenders.)

Some debt collectors, however, may still try to take you to court on a time-barred debt. If you receive notice of a lawsuit about a debt you believe is time-barred, you may wish to consult an attorney about your legal rights and resolution strategies.

Disputing Time-Barred Debt With Debt Collectors

If a debt collector is contacting you to attempt to collect on a debt that you know is time-barred and you don’t intend to pay the debt, you can request that the debt collector stop contacting you.

One option is to write a letter stating that the debt is time-barred and you no longer wish to be contacted about the money owed. If you’re unsure, it may be possible to state that you would like to dispute the debt and want verification that the debt is not time-barred. If the debt is sold to another debt collector, it may be necessary to repeat this process with the new collection agency.

Remember, even though a collector can’t force you to pay the debt once the statute of limitations expires, there may still be consequences for non-payment. For one, your original creditor may continue to contact you through the mail and by phone.

Additionally, most unpaid debts can be listed on your credit report for seven years, which may negatively affect your credit score. That means that failing to pay a debt may impact your ability to buy a car, rent a house, or take out new credit cards, even if that debt is time-barred.

Statute of Limitations on Student Loan Debt

Statutes of limitations don’t apply to federal student loan debt. If you default on your federal student loan, your wages or tax refunds may be garnished.

If you have federal student loan debt, you may consider managing your student loans through consolidating or refinancing. This can help you decrease your loan term or secure a lower interest rate.

Borrowers who hold only federal student loans may be able to consolidate their student loans with the federal government to simplify their payments.

Those with a combination of both private and federal student loans might consider student loan refinancing to get a new interest rate and/or loan term. Depending on an individual’s financial circumstances, refinancing can potentially result in a lower monthly payment (though it may also mean paying more in interest over the life of the loan).

All borrowers with federal loans should keep in mind that refinancing federal loans can mean relinquishing certain benefits, like forbearance and income-based repayment options.

Statute of Limitations on Credit Card Debt

The statute of limitations on credit card debts can generally range anywhere from three years to 10 years, depending on the state. However, the laws in the state in which you live aren’t necessarily what dictates your credit card statute of limitations. Many of the top credit issuers name a specific state whose laws apply in the credit card agreement.

How Long Does the Statute of Limitations on Credit Card Debt Last?

Here’s a look at how long can credit card debt be collected through court proceedings for each state in the U.S.:

Statute of Limitations on Credit Card Debt By State
State	Number of years
Alabama	3
Alaska	3
Arizona	6
Arkansas	5
California	4
Colorado	6
Connecticut	6
Delaware	3
District of Columbia	3
Florida	5
Georgia	6
Hawaii	6
Idaho	5
Illinois	5
Indiana	6
Iowa	5
Kansas	3
Kentucky	5 or 15
Louisiana	3
Maine	6
Maryland	3
Massachusetts	6
Michigan	6
Minnesota	6
Mississippi	3
Missouri	5
Montana	8
Nebraska	4
Nevada	4
New Hampshire	6
New Jersey	6
New Mexico	4
New York	6
North Carolina	3
North Dakota	6
Ohio	6
Oklahoma	5
Oregon	6
Pennsylvania	4
Rhode Island	10
South Carolina	3
South Dakota	6
Tennessee	6
Texas	4
Utah	6
Vermont	6
Virginia	3
Washington	6
West Virginia	10
Wisconsin	6
Wyoming	8

Effects of the Statute of Limitations on Your Credit Report

The statute of limitations on credit card debt doesn’t have an impact on what appears on your credit report. Even if the credit card statute of limitations has passed, your debt can still appear on your credit report, underscoring the importance of using a credit card responsibly.

Unpaid debts typically remain on your credit report for seven years, during which time they’ll negatively impact your credit (though its effect can wane over time). So, for instance, if the state laws of Delaware apply to your credit card debt, your statute of limitations would be four years. Your unpaid debt would remain on your credit report for another three years after that period elapsed.

This is why it’s important to consider solutions, such as negotiating credit card debt settlement or credit card debt forgiveness, rather than just waiting for the clock to run out.

How to Know If a Debt Is Time-Barred

To determine if a debt is time-barred — meaning the statute of limitations has passed — the first step is figuring out the last date of activity on the account. This generally means your last payment on the account, though in some cases it can even include a promise to make a payment, such as saying you’d soon work on paying off $10,000 in credit card debt.

You can find out when you made your last payment on the account by pulling your credit report, which you can access at no cost once per year at AnnualCreditReport.com.

Once you have that information in hand, you can take a look at state statutes of limitation laws. Keep in mind that it might not be your state’s laws that apply. If you’re looking for the statute of limitations for credit card debt, for instance, check your credit card’s terms and conditions to see which state’s laws apply.

Figuring out all of the relevant information isn’t always easy. If you’re unsure or have any questions, consider contacting a debt collections lawyer, who should be able to assist with answers to all your credit card debt questions.

What to Do If You Are Sued Over a Time-Barred Debt

Even if you know a debt is time-barred, it’s important to take action if you’re sued over it. You’ll need to verify that the statute of limitations has indeed passed, and you’ll need to come forward with that information. It may be helpful to work with an attorney to help you respond appropriately and avoid any missteps.

If you do end up going to court, it’s critical to show up. The judge will dismiss your case as long as you can prove that the debt is indeed time-barred. However, if you don’t show up, you will lose the case.

How to Verify Whether You Owe the Debt

If you’re not sure whether a debt you’ve been contacted about is yours, you can ask the debt collector for verification. Request the debt collector’s name, the company’s name, address and phone number, and a professional license number. Also ask that the company mail you a validation notice, which will include the name of the creditor seeking payment and the amount you owe. This notice must be sent within five days of when the debt collector contacted you.

If, upon receiving the validation notice, you do not recognize the debt is yours, you can send the debt collector a letter of dispute. You must do so within 30 days.

The Takeaway

Statutes of limitations on debt create limits for how long debt collectors are able to sue borrowers in a court of law. These limits vary by state but are often between three to 10 or more years. Once the statute of limitations on a debt has expired, the debt is considered time-barred. However, any action the borrower takes on the account has the potential to restart the statute of limitations clock.

While borrowing money can leave you in a stressful situation where you’re waiting for the clock to run out, it can also help you build your credit profile and access new financial opportunities.

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

Do I still owe a debt after the statute of limitations has passed?

Yes. The statute of limitations passing simply means that the creditor cannot take legal action to recoup the debt. Your debt will still remain, and it can continue to affect your credit.

Can a debt collector contact me after the statute of limitations has passed?

Yes, a debt collector can still contact you after the statute of limitations on debt passes as there isn’t a statute of limitations on debt collection. However, you do have the right to request that they stop contacting you. You can make this request by sending a cease communications letter.

Additionally, if you believe the contact is in violation of provisions in the Fair Debt Collection Practices Act — such as if they are harassing or threatening you — then you can file a complaint by contacting your local attorney general’s office, the Federal Trade Commission, or the Consumer Financial Protection Bureau.

When does the statute of limitations commence?

The clock starts ticking on the statute of limitations on the last date of activity on the account. This generally means your last payment on the account, but it also could be when you last used the account, entered into a payment agreement, or made a promise to make a payment.

After the statute of limitations has passed, how do I remove debt from my credit report?

Even if the statute of limitations has already passed, debt will remain on your credit report for seven years. At this point, it should automatically drop off your report. If, for some reason, it does not, then you can dispute the information with the credit bureau.

What state’s laws on statute of limitations apply if I incur credit card debt in one state, then move to another state?

If you’re unsure of what the statute of limitations on credit card debt is, the first thing to do is to check your credit card agreement. Which state you live in may not have an impact, as many credit card companies dictate in the credit card agreement which state court will preside.

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

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.

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.
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.

SOCC-Q224-1909476-V1

Jun

2024

Guide to Choosing a Credit Card

By Bob Haegele | Credit, Fresh Out of School, money | Comments Off

With so many options available, choosing a credit card isn’t as simple as signing up for whichever card happens to be popular at the moment. Instead, you should consider things like your credit score, preferred features, and spending habits.

After all, there are many different types of credit cards meant for different purposes. Making the best choice is about not only knowing your approval odds, but also how you intend to use the card after signing up. Using a step-by-step approach for how to choose a credit card will help you make the right decision for your situation.

Where To Begin When Choosing a Credit Card

Choosing a credit card is a matter of understanding which type of credit card works best for you. You’ll want to consider a number of factors, including:

• Your credit score

• How you plan to use your new credit card and which features you’ll need

• How the card stacks up to other options

• The card’s interest rates and fees

• Which rewards you want

• Any sign-up bonuses offered

Read on to learn more about each of these items and what specifically to look for.

Checking Your Credit Score

Checking your credit score should be one of the first steps you take before applying for a new credit card. One of the best ways to know your approval odds is to check your score.

One way to do so is to use AnnualCreditReport.com . This website allows you to request a copy of your credit report from each of the major credit reporting bureaus: Experian^®, Equifax^®, and TransUnion^®. Federal law allows you to request one copy of your credit report from each reporting bureau per year.

However, you may want to check your credit score more often than once per year, especially if you are in the process of building your credit. Fortunately, several big banks allow you to check your FICO^® score — the most widely used credit score — on a monthly basis.

There are several credit scoring models available, but most lenders use FICO, so getting this score can be a good way to gauge your chance of approval. These checks won’t guarantee you’ll get approved for a credit card, but they can help you get a better sense of where you stand. Plus, pulling your credit report won’t hurt your credit score.

Identifying the Features You Need

There are many different types of credit cards, each of which has its own set of features. Identifying the features you need can help you find the right credit card, as how credit cards work varies depending on the type.

Credit Builder Credit Cards

Some credit cards are meant for those who are working on building their credit. This could include college students, those trying to repair their credit, or anyone with little to no credit history.

In those cases, you might need a secured credit card or a student credit card. Secured credit credit cards require a security deposit, usually around a couple or a few hundred dollars, that is fully refundable. Your credit limit is usually equal to your security deposit, so the card issuer has little risk of losing money. Student credit cards, on the other hand, are usually unsecured and may have special perks for students.

Here are some features to look for in credit builder credit cards:

• No annual fee: If you are working to build your credit, annual fees could make things more difficult.

• Credit limit increases: Credit limits often start low with these cards; some offer credit limit increases if you use your card responsibly.

• Free credit score: Some credit builder cards offer free credit score monitoring to let you know where you stand.

Balance Transfer Credit Cards

Balance transfer credit cards are ideal for consolidating and paying off debt. Thus, the key with this type of card is finding one that keeps fees as low as possible:

• 0% introductory APR: Balance transfer credit cards may come with low or 0% balance transfer APR for a specified introductory period, sometimes lasting a year or more. Some even have a separate 0% APR introductory period for purchases. This can allow you to avoid paying much in interest for a certain period of time and instead put your money toward paying down the principal balance.

• Balance transfer fees: These cards often charge separate balance transfer fees, which you should be aware of if you plan to transfer large balances.

Rewards Credit Cards

Credit card rules say that you shouldn’t get a card just for the points. However, rewards credit cards may come with a variety of benefits. These include cash back, points and miles, and various perks, such as rental car insurance and airport lounge access. You can redeem points and miles for statement credits, gift cards, flights, and hotels, so you’ll have to decide what’s most important to you.

Here are some rewards credit card features to consider:

• Sign-up bonuses: Some rewards credit cards include sign-up bonuses that can be worth hundreds of dollars.

• Low or no annual fee: While some of these credit cards have annual fees, not all of them do.

• Rewards categories: Rewards credit cards generally let you earn a percentage of your purchases in cash back or points/miles. Some have higher earning rates for certain categories, such as groceries or travel. Look for one that earns a lot of points where you normally spend the most.

• Other perks: These cards can come with a variety of other perks, from UberEats credits to free hotel nights. If you never travel, for example, you may not be interested in free hotel stays.

Narrowing Your Choices by Doing Research and Asking Questions

The key to how to pick a credit card is understanding how you want to use it. While some credit cards are more like generalists, doing many things somewhat well, others are niche cards that are great in certain scenarios. Consider what’s most important to you and how much you need certain features.

Once you’ve decided which type of credit card you want, the next step is to compare some of the best options. For instance, if you want a rewards credit card and don’t want to pay a high annual fee, look for no annual fee rewards credit cards. For balance transfer credit cards, you can look for ones with the lowest fees, including a lengthy 0% introductory APR. Also keep in mind you don’t need to rely on one card to meet all of your needs — here’s a primer on how many credit cards you should have.

Identify a handful of cards that look like good candidates based on your research. Once you have two to three cards that seem like the right fit, you might want to submit a prequalification form. This process will give you a hint about whether you might qualify — and it won’t affect your credit score. Prequalification doesn’t guarantee approval, but it will help you know where you stand.

Familiarizing Yourself With the Interest Fees and Rates

Having a basic understanding of interest rates and fees will help you avoid paying more than expected to use your new credit card.

Different types of credit cards tend to come with varying interest rates. For instance, the minimum annual percentage rate (APR) for travel cards tends to currently range between 18.24% and 29.99%. However, the maximum APR for these credit cards can be slightly lower than the maximum for 0% APR and low-interest credit cards.

Of course, fees also matter. Balance transfer cards might have a 0% introductory period, but a fee may apply every time you initiate a balance transfer. Depending on the card, other fees may be involved, such as late fees and penalties, annual fees, and foreign transaction fees. Be sure to review all relevant fees before signing up for and using a credit card.

Deciding Which Rewards You Want

You also may need to decide which type of rewards you’ll want to earn. There are a few different types of rewards that credit cards can offer:

• Cash back: With a cash back rewards credit card, you will earn a percentage in cash on each eligible purchase you make with your card. You could get a flat rate across categories, or you may earn a higher rate in specific categories. Or you might see offers for unlimited cash back. If you want to earn rewards across spending categories and don’t want to worry about calculating and converting, cash back might be the right rewards option for you.

• Points: Another way to earn credit card rewards is through points. You’ll earn a certain number of points for every dollar spent, with the rate and redemption options varying depending on the issuer. The perk of points is that you can redeem them in a number of different ways, including cash back, travel, charitable donations, statement credits, gift cards, and more.

• Miles: If you’re a frequent flier, you might prefer earning airline miles. Credit cards that allow you to earn miles let you redeem your rewards for flights and other travel-related perks, such as hotel stays or access to airport lounges.

Looking at Sign-Up Bonuses

Some credit cards feature sign-up bonuses to attract new customers. Usually, you have to spend a certain amount in the first three or four months of opening the card. If you meet the minimum spending threshold within that time frame, you’ll receive cash, points, or miles as a reward. The trick is to ensure you can meet the spending threshold on time.

There can be a wide range of bonus amounts; for instance, the Chase Freedom® Student credit card has a $50 bonus for making a purchase in the three months. On the other end of the spectrum is the American Express Platinum Card, which at the time of writing offers 125,000 points after spending $8,000 in the first six months. Most sign-up bonuses, however, fall somewhere in between.

Choosing the Card With the Highest Overall Value

There are several credit cards available that offer similar benefits. In those cases, you will want to compare them directly to one another and find features that give one card the edge. Here are a few things to consider for each type of credit card:

Student and secured credit cards:

• Credit limit increases: Some student credit cards will automatically increase your credit limit if your account remains in good standing.

• Flexible credit lines: Some secured credit cards give you access to a larger credit line than your deposit.

0% introductory APR or balance transfer credit cards:

• No late fees or penalties: Some credit cards waive these fees, which might be helpful when transferring balances.

• Installment plans: Some balance transfer cards offer installment plans to help you repay your balance over time.

Rewards or travel credit cards:

• Low spending threshold: Requirements to earn sign-up bonuses can vary; look for one that’s well within your budget.

• Points transfer: Some travel credit cards let you transfer points to airlines or hotels, which can lead to better redemption rates in some cases.

How Your Credit Score Affects Your Chance of Approval

Your credit score is one of the biggest factors in determining whether you’re approved for a credit card. If you have poor or no credit, you probably won’t get approved for a card that requires very good to excellent credit, regardless of other factors, given what a credit card is and how the approval process works.

Luxury credit cards, for example, may require a credit score of 670 or higher. If your score is higher, you might be approved for one of these cards (though approval is not guaranteed). If your credit score is below 670, however, your approval odds will probably be quite low.

While a credit score and credit card offers are intertwined, that may not be the only factor a card issuer considers. Issuers might also look at things such as your employment status and income. This is one of the reasons that a good credit score doesn’t guarantee approval.

Still, a better credit score can help you secure the credit card you want. As such, you might consider taking steps to build your credit score before applying for a credit card, such as by making on-time payments or lowering your credit utilization ratio.

What Comes Next After Choosing a Credit Card?

If you’ve already submitted prequalification forms, you should have some idea about your approval odds for each card. As mentioned, those forms do not guarantee approval but can serve as a valuable guideline.

Once you have chosen a credit card, it’s time to apply. Some general steps are to:

1. Visit the card issuer’s website and click apply.

2. Fill in the required information.

3. Submit your application.

In some cases, you may receive instant approval (or denial). In others, the card company will need more time to review your application. If approved, you can usually expect to receive your card in the mail in seven to 10 business days.

If you are denied, you can call the card’s reconsideration line and provide additional information. Perhaps you forgot some additional sources of income that could help your case. Anything that may help is worth mentioning.

The Takeaway

Deciding which credit card is best for you can be a long and arduous process. However, once you have a better understanding of what you need, the process of choosing a credit card doesn’t have to be so complicated. Some credit cards are simply better than others, and picking them is a surprisingly easy choice after comparison shopping.

FAQ

How does your credit score determine the card to choose?

Your credit score is one of the most important factors in deciding which credit card to choose. For example, if your credit score is poor, you probably won’t be approved for a premium card with excellent rewards that requires good to excellent credit.

How do you choose a credit card for the first time?

In most cases, the best choice for your first card should have no annual fee. Some good choices are student credit cards (for students) or secured credit cards. These cards are ideal for building credit and often have low fees.

What is the most important factor when choosing a credit card?

The most important factor when choosing a credit card is probably how you intend to use it. For example, a premium credit card may offer excellent benefits for the frequent traveler, but someone who just wants to earn cash back on groceries may not benefit from travel perks.

Photo credit: iStock/Eva-Katalin

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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