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If someone has opened a credit card in your name, it’s important to act fast. There are clear steps you can take to stop the fraudster in their tracks and avoid any harm to your credit score and bank account.

Read on to learn what is likely happening and how to protect yourself.

Finding Out That Someone Opened a Credit Card in Your Name

You won’t always immediately know that someone has stolen your identity. However, there are several ways to stay on top of potential identity theft and keep it from getting out of control.

Watch out for some of these common signs of credit card fraud:

•   Bills in the mail for an unfamiliar account in your name

•   Email or text notifications for a new account opening that you did not initiate

•   Notification that an account in your name has gone to a debt collections agency

•   Notification from an identity monitoring service or free credit monitoring service that a new account has been opened

•   Unfamiliar activity while reviewing your free credit report

•   An unexplained drop in your credit score

•   Credit application rejection because of a drop in your score

These signals can indicate that a form of bank fraud is underway.

Recommended: Credit Card Scams You Should Know About

7 Steps to Take When Someone Opens a Credit Card in Your Name

If someone opens a credit card in your name, know that it can happen to anyone. In 2023, the Federal Trade Commission (FTC) received 2.6 million fraud reports from consumers, though it’s likely that many more cases of fraud went unreported.

If your identity has been stolen, it’s important to take a breath but remain focused. Knowing what to do if someone applies for a credit card in your name allows you to act quickly. That’s why we’ve put together seven steps to take as soon as you realize someone has opened a credit card in your name.

1. Contact the Bank or Card Issuer

You may not be a customer of the specific financial institution where the credit card was opened, but that doesn’t mean you can’t call them. In fact, the first thing you should do is contact the credit card issuer’s fraud department and file a report. You can usually find the bank’s customer service information online.

The credit card issuer should be able to close the account during the fraud investigation. But if they won’t, you can ask them to freeze the account until the investigation is complete.

Just in case, it’s a good idea to change the username and password of major online accounts, including your email and online bank logins.

2. Report the Identity Theft to the FTC

The report you file with the credit card issuer is the first of many. Next, file an identity theft report with the FTC at IdentityTheft.gov . The FTC will create a recovery plan and issue you an Identity Theft Report, which you may need when working with the credit card issuer and credit bureaus. When you file the report online, you’ll even be able to access form letters to send to creditors about the fraud.

3. File a Police Report

The FTC also recommends filing a police report any time your identity is stolen. The police can provide you with a copy of the report, which may be helpful in closing new accounts, disputing fraudulent charges, and working with credit bureaus to repair your credit report.

Recommended: What Is a Charge Card?

4. Consider a Fraud Alert or Credit Freeze

To further protect your identity, the FTC recommends that you place a free, one-year fraud alert on your credit report or a credit freeze. You should only have to contact one of the three credit bureaus — Equifax®, Experian®, and TransUnion® — and that bureau must coordinate with the other two. Such alerts ensure that lenders are more thorough in verifying your identity before awarding a line of credit in your name.

Victims of identity fraud can choose between two fraud alerts: initial and extended.

•   Initial fraud alerts last one year but don’t require evidence of identity theft; these alert periods are renewable.

•   Extended fraud alerts require the FTC Identity Theft Report and last for seven years. They also remove you from any credit card and insurance offers for the next five years.

You may also want to freeze your credit report with each of the three credit bureaus. To do so, you’ll need to contact each bureau independently. When you freeze your credit report, creditors won’t be able to access it unless you temporarily unfreeze it. This prevents fraudsters from opening credit in your name.

5. Check Your Credit Reports in Detail

As a consumer, you have access to a free credit report every year from AnnualCreditReport.com , and that increases to two a year if you have an extended fraud alert. Creating accounts with individual credit bureaus may also get you access to free credit reports.

It’s important to comb through your credit report upon becoming a victim of credit card fraud. Doing so allows you to identify any other fraudulent accounts or activity you may not yet be aware of.

6. Dispute Fraud with Credit Bureaus

To protect your credit score and remove fraudulent activity found in your report, you’ll need to contact the credit bureaus. You can dispute the fraud online with all three bureaus:

•   Dispute fraud at Experian

•   Dispute fraud at Equifax

•   Dispute fraud at TransUnion

You’ll need a valid copy of your FTC Identity Theft Report for this process, as well as proof of identity and a letter that details which information on the report is fraudulent. Credit bureaus can then work with creditors on any fraudulent account and block them from sending your information to debt collectors.

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

7. Remove Charges and Close the Account

Some credit card issuers and banks will immediately remove false charges and close the fraudulent account when you contact them in step one. However, if they could not do that when you first filed, it’s a good idea to get back in touch with them now that you have reports from the FTC and local police.

At this point, you should be able to close the fraudulent account and remove any fraudulent charges.

Recommended: Understanding Purchase Interest Charges on Credit Cards

What If a Relative Opens the Card in Your Name?

Because of their close proximity to personal information, family members can more easily commit identity fraud. While it may be hard to believe, family members do occasionally steal relatives’ identity, especially those of children and seniors.

In fact, around 75% of child identity fraud is committed by a friend or family member with access to the child’s information. Identity theft is also a form of elder abuse. Overall, about 72% of the funds lost by those over age 60 involves a person known to the elder, whether a family member, friend, or caregiver.

You now know what to do when someone opens a credit card in your name. But what about when it’s a family member you care about? While it’s ultimately your decision, you risk significant damage to your financial future by not taking action.

Not only will you be on the hook for any expenses in your name and damage done to your credit score, but you’ll also face other future barriers:

•   Your lower credit score may make it more difficult to rent an apartment, get utilities turned on, or find discounts on auto insurance.

•   You may have issues with government support, student loans, and even tax returns if the family member is using your identity in more than one way.

•   You could obtain a criminal record if the family member uses your identity when/if arrested. You also risk being complicit in a crime if you do not report the family member who is committing identity theft.

Ultimately, the steps are the same when reporting a friend or family member, whether it’s a spouse (or an ex), sibling, parent, child, or another relative. You may face one additional task — and that’s confronting the family member before filing your reports.

The Takeaway

When someone opens a credit card in your name, that can indicate identity theft. It’s crucial that you stay calm and act quickly by filing reports with the credit card issuer, FTC, police, and credit bureaus. You may also want to add alerts to or freeze your credit. By taking swift action, you may be able to avoid long-term damage to your finances.

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

FAQ

What happens if someone applies for a credit card in your name?

If someone applies for a credit card in your name, it’s important to remain calm and act fast. You’ll need to file reports with the credit card issuer, FTC, local police, and credit bureaus. You may want to put fraud alerts and/or freezes on your credit report and work closely with the credit card issuer to remove any fraudulent charges and close the account.

How do I stop someone from opening a credit card in my name?

While identity theft can happen to anyone, you can make it more difficult for fraudsters to open a credit card in your name by freezing your credit report. You can also put a fraud alert on your account and use credit and identity monitoring services to get notifications about any suspicious activity. Reviewing your bills, bank activity, credit score, and credit report regularly are all helpful ways to detect fraud.

Can someone open a credit card with my Social Security number?

It is possible for a person to use your Social Security number to open a credit card in your name. Thus, keeping your Social Security number private and secure is important for protecting your identity.

Photo credit: iStock/Prostock-Studio
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 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.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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Building good credit (or any credit at all) doesn’t happen overnight. Instead, if you’re starting from scratch, you may need to have an open credit account for around three to six months before you first get a credit score.

From there, a good credit profile and good credit score can take a while to build. In reality, it can be much faster and easier to lower your credit score, which is why it’s vital to aim to make solid financial choices, like consistently paying your bills on time. Building and maintaining good credit isn’t always easy, but by following a few simple steps, you can improve your standing.

How Long It Can Take to Build Credit From Scratch?

The exact length of time it takes to build credit from scratch varies. That being said, it’s usually around three to six months from the time you first open a credit account.

Even though establishing and building credit can take time, it’s worth it as a way to improve your overall financial situation. Having good credit can make it easier to get approved for loans and secure lower interest rates.

Recommended: How to Avoid Interest on a Credit Card

4 Ways to Build Credit

If you’re hoping to begin building credit, here are some tactics you might consider.

Become An Authorized User

One way to help build your credit is by becoming an authorized user on an account of someone who already has good credit. This might be a trusted friend or family member. As they manage the account responsibly, that can have a positive impact on your credit score as well. Just know that if they miss or make late payments, that can also negatively impact your credit.

Recommended: When Are Credit Card Payments Due?

Apply For a Credit Card

If you’re getting a credit card for the first time, know that it is possible to apply for and get approved for a credit card with no existing credit history. However, you do need to be selective about which card you apply for.

You’re unlikely to get approved for, say, a rewards credit card if you don’t already have excellent credit. Still, there are credit cards that are marketed toward those who have no credit or a limited credit history. You might also consider a secured credit card, where you put down a refundable deposit that then serves as your credit limit.

If you can get approved for a credit card, and then use your credit card responsibly, such as by making on-time payments, can help you build up your credit.

Recommended: What to Know About Purchase Interest Charges on Credit Cards

Get a Cosigner

If you aren’t able to get approved for a loan on your own, you might consider applying for credit with a cosigner. Using a cosigner with good credit can help improve your chances of getting approved for a loan.

Then, your loan payments will be reported to the major credit bureaus and hopefully help you start building your credit score. Of course, that depends on your making those payments on time.

Maintain Good Credit Habits

Once you have opened a credit account like a loan or credit card, it’s important to practice good credit habits. This includes paying your statement off in full, each and every month. Demonstrating a pattern of reliably paying your bills over time shows potential lenders that you’re likely to repay your debts.

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

Factors That Affect Credit Score Calculations

There are five major factors that affect your credit score:

•   Credit utilization: Your credit utilization is the amount of the credit you’ve used compared to your total available credit. It’s recommended to keep this ratio to 30% or less.

•   Payment history: This indicates how reliably you make payments on your existing accounts.

•   Types of credit accounts: Having a good mix of different types of credit accounts has a positive impact on your credit score, as it indicates to lenders that manage multiple types of accounts.

•   Your average age of accounts: Having a lengthy credit history is a positive sign. This shows you have experience in responsibly managing accounts.

•   New credit: Opening a number of accounts or making a number of hard inquiries in quick succession can suggest to lenders that you’ve overextended yourself and are in need of funding to bail you out.

Recommended: Starting Credit Score for 18-Year-Olds

Things to Keep in Mind Before Building Credit

If you’re looking to build good credit, here are some tips on establishing credit to keep in mind.

Have a Solid Financial Plan

The first thing you’ll want to do is make a budget. Getting a new credit card should not be viewed as a way to fix your budget or dig yourself out of a financial hole. Instead, the best way to use a credit card is as a tool of convenience for money that you already have. Make sure that you have the financial ability and discipline to pay your bills in full, each and every month.

Watch Out For Scams

Usually building credit is something that you do over a period of several months or years. If someone tells you that they can build or repair your credit quickly, it could be a sign of a credit card scam. There aren’t many shortcuts to the simple rules noted above, like regularly paying your bills on time.

Don’t Open Too Many Accounts At Once

You might think that since opening a credit account can help build credit, opening many accounts will help build credit even faster. However, that is usually not the case. Many lenders view a high number of credit inquiries in a short period of time as a negative indicator. They may see it as a potential red flag that someone is in a bad financial situation.

The Takeaway

If you’re just starting out and have no credit history at all, you generally start without an actual credit score. It can take a few months after you open a credit account to start establishing a score. As you continue to show that you’re responsible for the credit you have, your score will likely increase. Building credit can take time, and you should be skeptical of any people or programs that say they can build your credit fast.

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

FAQ

What credit score do you start with?

There isn’t a starting credit score for those without any credit history. While you might think that you start with the lowest possible credit score (like 300) and have to build your way up, you actually don’t start with any credit score at all. As you open credit cards or other accounts, you’ll start to establish a credit history and score.

How long does it take to build a good credit score?

It usually takes anywhere from three to six months to start building a credit score after you’ve opened your first credit account. You’ll then continue to build and improve your credit by continually making on-time payments. You can always check your credit score periodically to see where you’re at on your credit journey.

How long does it take to recover from a hard inquiry on your credit?

Usually when you apply for a new credit card or other loan, your potential lender will pull your credit file. This is known as a hard inquiry. Since the number of recent hard inquiries is one factor in determining your credit score, applying for credit cards can lower your credit score. However, these inquiries typically only lower your score by a few points and drop off your report after a few months.

How fast can you build your credit in 3 months?

How fast you can build your credit depends on a number of factors. Generally, it takes a few months after you’ve opened a credit account to even establish any credit. Your credit score will improve as you continue to use your credit responsibly. It’s best to think about building credit as more of a marathon than a sprint.

Photo credit: iStock/YakobchukOlena

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.

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

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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A black credit card is a financial product extending a line of credit to wealthy, high-spending consumers. Colloquial references to a black credit card typically refer to the American Express Centurion Card that launched in 1999. It quickly developed a reputation for being more than a credit card — rather, it became a status symbol of ultra wealth and almost limitless spending power.

Here’s a look at what a black credit card is in detail, how to get one, and the card’s benefits and drawbacks.

What Is a Black Credit Card?

A black credit card is an ultra-luxury private banking credit card product that’s designed to support the credit needs of the world’s wealthiest individuals, which can include A-list celebrities, professional athletes, and multi-millionaires. These are individuals who likely spend six figures a year using their credit card.

Although the black credit card meaning was originally derived from the AmEx Centurion Card, it now includes other luxury cards that have since come to the market. The list of exclusive card products include the Dubai First Royale Mastercard and the J.P. Mortgage Reserve Card.

Although the Mastercard Black Card might have the phrase “black card” in its name, it’s more accessible and arguably not in the same caliber as the aforementioned cards. That’s because consumers can submit an application online for this card without first being invited, which is more in line with typical credit card rules.

How Black Credit Cards Work

Unlike other consumer credit cards, the most exclusive black credit cards aren’t available for online applications. Card issuers publish very limited details — if any at all — about how to apply for the card or what it takes to receive an invitation. All of the elusiveness can enhance the allure of black cards.

Aside from their exclusiveness, black cards are generally known for having no credit limit, allowing members to spend freely. However, credit card issuers have already determined who they feel is financially capable of wielding the black card’s limitless buying power.

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

Requirements for Getting a Black Credit Card

Specific black credit card requirements and thresholds vary between black card products. However, they generally include the following factors:

•   Minimum annual spending

•   Income and/or net worth

•   Creditworthiness

If you believe that you meet the criteria for a black credit card, you can reach out to the card issuer directly to see if you’re eligible. American Express, for instance, may offer existing members an online form for its Centurion Card for those who want to request consideration.

Worth noting: The Centurion Card is currently said to have a one-time $10,000 initiation fee and an annual fee of $5,000 thereafter.

Recommended: The History of Credit Cards

What Kinds of Perks Do Black Credit Cards Offer?

Whether you’re still learning how credit cards work or are experienced with credit, you likely know that different cards offer varying benefits, including rewards, travel and shopping credits, and more. The perks of a black credit card also differ depending on the type of black card.

For example, the AmEx Centurion Card, offers the following black card benefits:

•   VIP airport lounges. Access to AmEx’s Global Lounge Collection, including the coveted The Centurion Lounge.

•   Travel accommodation enhancements. Upgraded bookings and credits through AmEx’s Fine Hotels and Resorts program, with 900 hand-selected, iconic properties, and elite status with additional hotel programs.

•   Airline loyalty status. Complimentary top-tier status through airline partner loyalty programs.

•   Unique experiences. Access to one-of-a-kind travel experiences around the world.

•   Travel inconvenience credit. Up to a $2,000 credit per traveler for carrier-related inconveniences, like delays, and up to $10,000 for canceled trips.

•   Travel insurance. Up to $100,000 in travel medical assistance, and up to $1 million in travel accident insurance.

•   Rental car insurance. Up to $75,000 in car rental loss and damage insurance.

•   Saks Fifth Avenue credit. Quarterly $250 shopping credit, up to $1,000 per year.

•   Equinox fitness club membership. Access to clubs in multiple countries.

•   Additional buying protection. Purchase protection, return protection, and extended warranty for goods purchased on the card.

•   Personalized support. Access to personal shoppers and 24/7 personal concierge service.

As noted above, fees, benefits, fees, and spending requirements will vary among different types of credit cards, including those that fall into the ultra-luxury category.

Recommended: What Is a Charge Card?

Pros and Cons of Using a Black Card

As a card that’s not intended for the masses, the card’s pros and cons highly depend on which side of the eligibility spectrum you fall under. Here’s a closer look at black credit card benefits and drawbacks:

Is a Black Credit Card Worth It?

With a reputation of having excessively high annual fees and high minimum spending criteria, a black card can carry a high price tag. It’s important to consider that you can afford this kind of credit card — that is, assuming you’ve received an invitation in the first place.

Weigh the black card benefits, and consider if you’d actually be using a credit cardin such a way that it would be worth it for your needs.

Recommended: When Are Credit Card Payments Due?

The Takeaway

Black cards are typically reserved for wealthy customers who have demonstrated the ability to spend hundreds of thousands on a credit card and repay that amount with ease. If you’re an everyday consumer or it’s your first time getting a credit card, a pricey black card probably isn’t a practical credit card solution.

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

FAQ

What does it mean to have a black credit card?

Being invited as a black card member means that you’ve met the card issuer’s underwriting criteria in terms of having a high income, high net worth, high spending activity, and more. It’s perceived as being a card that’s only accessible to ultra-wealthy individuals.

How much does a black credit card cost?

Black credit card fees vary between card products but often cost hundreds to thousands of dollars in annual fees each month. The AmEx Centurion Card, for example, has a $10,000 initiation fee and a $5,000 annual membership fee thereafter.

Are black credit cards actually black?

Generally, black credit cards are designed with a black color scheme. However, some of these cards that fall into the exclusive black card category aren’t black. For example, the J.P. Morgan Reserve card is made of brass and palladium and has a silver metal finish.

What is the difference between a black card and a platinum card?

The AmEx Platinum Card is more accessible to consumers than the AmEx Centurion Card, also dubbed the black credit card. Members who want to apply for a Platinum Card can do so on their own online, while the black card is offered by invitation only. The requirements and annual membership fees of both cards also vastly differ, with the black category charging higher fees and having higher spending requirements as well as more robust perks.

Photo credit: iStock/Lemon_tm

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 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.

SOCC-Q424-019

Financing a car can help you build credit, as long as you manage the loan responsibly and the loan’s activity is reported to one of the major credit bureaus.

Like with most other debt obligations, responsibly making on-time payments can help your credit score. However, making late or missed payments can hurt your credit score, as can the hard pull of your credit report that potential lenders conduct when you apply for an auto loan.

How Does Car Financing Work?

While it is possible to pay for a new car with cash, it’s common for many potential auto buyers to use car financing. You may get a car loan for the full purchase price, or make a down payment and get a loan for the rest of the amount.

The lengths of car loans vary but are commonly between 24 and 96 months, with six years (72 months) being the average. After making your payments for the balance of the loan, the loan is paid off and you take full ownership of the car.

Note that your car acts as collateral for an auto loan. This means that if you fail to repay the amount borrowed, the lender can take your car to recoup its losses.

Recommended: When Are Credit Card Payments Due?

How Financing a Car Can Affect Credit Positively

Most car loans are reported to the major credit bureaus, and your payment history and balance is usually included on your credit report. Making on-time payments on your car loan can have a positive impact on your credit. Potential lenders want to see a history of reliably paying your debts, and making payments on a car loan can help with establishing that.

Another factor that makes up your credit score is having a healthy mix of different types of credit. This can be another reason why having an active auto loan can help build credit, as it adds to the types of credit you have.

How Financing a Car Can Affect Credit Negatively

Just as making on-time payments on your car loan can have a positive impact on your credit score, missed or late payments can affect your credit negatively.

Additionally, when you initially apply for an auto loan, the lender will conduct a hard pull on your credit report to verify your creditworthiness. This can drop your credit score by a few points, though those drops usually only last a few months. If you’re working with multiple lenders, keep in mind that hard credit pulls by multiple lenders in a short period of time will usually get combined so it appears as a single inquiry.

And while paying down debt is often a good idea, paying off a car loan affects your credit in some additional ways. If you don’t have other debts or loans, it’s possible that paying off your loan can have a negative impact on your credit score. This is because your on-time payments no longer get reported, and you’ll have one fewer type of credit to your mix. Additionally, if you took out your car loan a while ago, paying it off can impact the average age of your open accounts, which also influences credit.

Factors That Influence Your Credit Score

The biggest factor that influences your credit score is your payment history. Potential lenders want to see that you reliably pay your debts, and making on-time payments is one way to show that. Other factors that influence your credit score are:

•   Your average age of accounts

•   Credit mix

•   How much you owe

•   How many recent inquiries appear on your credit report

Tips to Build Your Credit Score

Here are some tips to consider that can help build credit:

•   Make sure that you always pay your bills on time.

•   As you apply for new debt or credit, only apply for loans that you know you have the financial ability and discipline to pay.

•   Aim to keep your credit utilization — the amount of your total credit you’re using — at 30% or lower. Having a higher credit utilization rate can negatively affect credit.

•   Remember to check your credit report at least once a year. Not only can this help you to monitor your credit health and understand the impacts of various activities on your credit, it can help you spot any errors or fraudulent activity.

Recommended: Credit Score Needed to Buy a Car

Mistakes to Avoid When Financing a Car

One of the biggest mistakes that you can make when financing a car is applying for a higher loan amount than you can afford. When you take out a car loan, you’re making a multi-year commitment to make those monthly payments. If you take out a loan for more money than you can reasonably afford, you run the risk of destabilizing your overall financial situation and ending up in a situation where you make late payments or, even worse, miss payments.

Recommended: Average Payment for a Car

Is a Car Loan a Wise Option to Build Credit?

A car loan can be a good option to help build your credit. Remember, what potential lenders are looking for when they look at your credit report is a history of meeting your debt repayment obligations. A car loan that you regularly pay on time can be a great way of showing that you are reliable.

Also follow additional tips for getting a car loan to help give you a head start toward building your credit.

Other Ways to Build Credit

Aside from turning to car financing to build credit, here are a few other ways to build credit that you might consider.

Become an Authorized User

Another way that you can build credit is by becoming an authorized user on someone else’s credit card account. When you are an authorized user on a credit card account, you’re not financially responsible for paying the statement, but it still shows up on your credit report. Keep in mind that how the primary account holder manages their account can affect your credit score, either positively or negatively.

Recommended: Breaking Down the Different Types of Credit Cards

Consider a Personal Loan

Another option to build credit is by taking out a personal loan. Unlike a car loan, which is considered a secured loan since the car itself acts as collateral for the lender, a personal loan is an unsecured loan. That means that there is no collateral for the lender to seize if you stop making payments.

In certain situations, this can make a personal loan a great option for building credit. In fact, if an auto loan isn’t the right option, you can consider getting a personal loan for a car.

Apply for a Credit Card

Responsibly using a credit card and paying it off in full each month is another way that you can establish credit. Your credit card balance and payment history are typically reported to the major credit bureaus.

Additionally, some credit cards offer rewards, such as cash-back rewards, with each purchase. Those rewards can be a boost to your monthly budget.

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

The Takeaway

If you take out an auto loan to buy a new or used car, it will typically get reported to the major credit bureaus. That means making on-time payments on your auto loan can help you build credit. Similarly, late or missed payments can have a negative impact on your credit score.

Applying for a credit card and making regular payments can be another way to build your credit.

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

Does paying off a car loan help build credit?

While making regular payments on your car loan helps you build credit, paying off your car loan doesn’t always have the same impact. When you pay off your car loan, you no longer have the monthly payment history showing up on your credit report. Still, paying off a car loan can be a good financial move since it helps lower the total amount of your debt.

How can I keep my payment within my budget when financing a car?

The monthly payment amount of your car loan will depend on a variety of factors — the total purchase price of the car, your down payment, the length of the car loan and your interest rate. If you want to keep your monthly payment below the average payment for a car, you can get a cheaper car, make a higher down payment, or take out a longer loan. You can also work on building your credit score to hopefully qualify for a lower interest rate.

How fast can a car loan raise my credit score?

While taking out a car loan can possibly build your credit, you shouldn’t count on an immediate positive impact. In the short-term, it’s possible that your credit score may decrease from the new credit inquiries and the additional debt that shows up on your credit report. However, over time, making regular and on-time payments on your auto loan could build your credit score.

Does leasing a car build credit?

Most lease payments are reported to the major credit bureaus. That means that regular, on-time payments can help you build your credit in a similar manner to buying a car with a car loan. However, if you make late payments or miss payments on your lease, it can have a negative impact on your credit score.

Photo credit: iStock/Zorica Nastasic

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

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

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 Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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If you’re in the market for a new car and are comparing financing options, it may be helpful to know that leasing a car can help you build credit. The big “if” is that this typically only applies if you manage the lease responsibly, paying your debt on time.

In most cases, you’ll need to have good credit to qualify for a lease on a car. If you have poor or no credit, you may have better luck getting an auto loan, although your interest rate may be high. Whether you opt to lease a car or buy one with an auto loan, your payment history is usually reported to the major credit bureaus. As such, making on-time and regular payments can help build your credit.

Leasing vs Buying a Car

When you buy a car, you agree on a purchase price with the seller. You then can either pay for the full amount of the car at the time of purchase or use an auto loan for some or all of the purchase amount.

With a lease, you may put some money down, and then you will pay a fixed amount each month for the duration of the lease. Your monthly lease amount will be based on how much the car is worth at the end of the lease period.

At the end of your lease, you can either return your vehicle to the lessor or buy your leased car.

It’s also important to keep in mind that leasing a car often comes with some restrictions on how you use your car, which is not the case with buying a car. If you lease, you might have limits on the number of miles you can drive during the lease term, for instance.

Both buying and leasing a car can impact your credit score, since your monthly debt obligation and your payment history (positive or negative) are usually reported to the big three credit bureaus and show up on your credit report. A car lease is typically reported as it’s considered an installment loan.

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

Pros and Cons of Leasing a Car

Beyond knowing whether leasing a car builds credit, it’s important to be aware of the pros and cons of leasing a car. By understanding the upsides as well as the drawbacks, you’ll be better able to choose between leasing or buying a car.

Here’s an overview of the major pros and cons of leasing a car to consider:

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Ways Leasing a Car Builds Credit

In most cases, your lessor will report the payments you make on a leased car to the major credit bureaus. This means that a car lease will show up as what’s on your credit report as an installment loan, and your payment history will be recorded. This can help your credit if you make on-time payments, but it may have a negative impact if you miss a payment or the lease becomes delinquent.

Recommended: When Are Credit Card Payments Due?

Can You Lease a Car With Bad Credit?

The exact credit score needed to lease a car will depend on the lender or lessor that you use, but you generally will need to have good or excellent credit (meaning 670+) to qualify for a lease. If you don’t have a good credit history or are still working on improving your credit, leasing a car may not be the right fit for you.

When credit is extended to those with a lower score, it can be associated with a higher rate of car repossessions, meaning the lessee defaulted on the loan.

Alternatives to Leasing a Car

If you’re not able to or don’t want to lease a car, you do have some other alternatives.

Buying a Car With an Auto Loan

You might qualify more easily for a car loan rather than a lease if your credit isn’t great. While your monthly payment may be higher with a purchase as compared to a lease (since you’re buying the car rather than just leasing it for a short period of time), that may still end up being the right option for you.

You will want to keep in mind that auto loan interest rates often vary depending on your credit score. That means that someone with fair credit will likely have a higher interest rate than someone with good or excellent credit.

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Using a Cosigner

Another possibility if you can’t qualify for a lease is to use a cosigner. If you have a trusted friend or family member with good or excellent credit who is willing to cosign on your auto lease, you may stand a better chance of getting approved.

When you use a cosigner, the potential lessor can use the credit score and profile of both the primary applicant and the cosigner in determining whether to approve the lease.

Making a Large Down Payment

If you’re able to, you might consider making a large down payment as part of your auto lease. While you still may not be approved, providing a large down payment shows the potential lessor that you are serious and committed. Making a large down payment also will lower your required monthly lease payment, which may help you get approved as well.

Tips for Building Your Credit for the Next Lease

If you want to build your credit to prepare for your next car lease, there are a couple of things you can do:

•   Improve your overall financial situation. For one, you can work on solidifying your finances overall, including setting up a budget and paying down debt. Remember that owning a car means you have to pay not only for your monthly car payment but also auto-related expenses like repairs, gas, and car insurance.

•   Use credit cards responsibly. Responsibly using credit cards is another way to improve your credit profile. Make sure you’re paying off your monthly statement in full each and every month.

The Takeaway

Leasing a car can build credit in much the same way as taking out an auto loan. When you lease a car, it is reported as an installment loan on your credit report. Your payments (either on-time or late) are also reported to the major credit bureaus and can have a positive or negative impact on your credit score, depending on how you manage your debt.

If you’re looking to build your credit profile, another path to consider might be a credit card.

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

FAQ

Does leasing affect your credit score?

Yes, leasing can affect your credit score, since activity is usually reported to the major credit bureaus in a very similar way to an auto loan. A lease will be reported as an installment loan, and your payment history will be included on your credit report. That means that regular and on-time payments can help build your credit score, while late payments or delinquencies can hurt your credit score.

Can I lease a car with a low credit score?

Generally, potential lessors are looking for lessees with good or excellent credit. There are a variety of reasons for this, including a higher rate of delinquencies or car repossessions associated with less favorable credit. If you have a low credit score, you may not be able to qualify for a lease and may need to consider alternatives.

What is the minimum credit score I can lease a car with?

The exact minimum credit score that you’ll need to lease a car will depend on a variety of factors. These include the specific lessor you’re working with, the car you’re considering leasing, and your overall financial situation. Many lessors are looking for people with good or excellent credit, meaning 670 or higher. If your credit is below that, you may not be able to qualify for a lease.

Photo credit: iStock/EmirMemedovski

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.

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

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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