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In a rising interest rate climate, especially after historic lows, you may be more aware of purchase interest charges on your credit card statement. These charges are a wordy way of saying interest, which you owe when you don’t pay your credit card statement balance in full.

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

What Is Credit Card Interest?

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

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

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

Recommended: Average Credit Card Interest Rates

How Does Credit Card Interest Work?

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

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

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

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

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

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

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

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

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

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

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

Recommended: APR vs. Interest Rate

What is a Purchase Interest Charge?

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

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

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

How Do You Get Rid of a Purchase Interest Charge?

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

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

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

Recommended: 11 Types of Personal Loans & Their Differences

Different Types of Credit Card Interest

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Takeaway

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

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

3 Personal Loan Tips

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

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

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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

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

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Buying a house with bad credit can be challenging, but it’s doable with planning and preparation. Subprime borrowers — homebuyers with lower credit scores — may be eligible for both federally backed loans and conventional mortgages.

If your credit score is less than stellar but you’re ready to buy a home, it’s important to pause and take stock of your finances. This guide will review strategies and steps to secure a mortgage and buy a house with bad credit.

How to Buy a House With Bad Credit

Lenders will consider a number of factors — not just your credit score — when determining if you’ll be approved for a mortgage. Your debt-to-income ratio and proof of income represent a couple of things you need to buy a house.

Figuring out how to buy a house with a so-called bad credit score can vary on a case-by-case basis. These eight tips will help you assess your financial situation and plan accordingly to buy a house with bad credit.

Recommended: Understanding Mortgage Basics

1. Get Your Credit Reports

As the saying goes, knowledge is power. Assessing your credit is a valuable first step to understand where you stand in qualifying for a mortgage.

A credit report can provide a detailed overview of your creditworthiness, including your total debt, payment history, and age of your credit accounts. You can request free credit reports from this site or once a year directly from each of the three major credit reporting companies: Equifax, Experian, and TransUnion.

Upon receipt of your credit reports, it’s important to review any derogatory marks (e.g., late payments) and check for errors. Addressing mistakes could give a quick boost to your credit score.

Many lenders use the FICO® score model to calculate credit scores, from 300 to 850, and categorize them like this.

Exceptional	800-850
Very Good	740-799
Good	670-739
Fair	580-669
Poor	300-579

It’s not uncommon for your FICO score to differ slightly among the three credit reporting companies, so mortgage lenders take the average or use the middle score.

According to the June 2021 Origination Insight Report by Ellie Mae, the average FICO score ranged from 743 to 753 for mortgages that closed in the first half of 2021. Borrowers with credit scores in this range or higher generally receive the most competitive mortgage rates.

Meanwhile, borrowers with credit scores below 650 represented only 6.2% of mortgages in June 2021.

An estimated 30% of U.S. consumers had credit scores in the subprime range, or less than 670, in Q1 of 2021, Experian found. (There is no universal definition of “subprime.” And Experian sometimes uses the term “nonprime,” for the category of borrowers with scores between 601 and 660.)

2. Plan to Pay a Higher Mortgage Interest Rate

Lenders may consider borrowers with poor credit more likely to default on a mortgage loan. To account for this risk, borrowers with lower credit scores usually face higher interest rates.

A modest increase in the mortgage interest rate can bump up your monthly payment and translate to much more interest paid over the life of the loan. For example, a borrower with a 30-year fixed-rate loan of $250,000 at 5% interest would pay $53,468 more in interest than a borrower with a 4% interest rate.

Paying a higher interest rate may be an unavoidable part of buying a house with bad credit. An option is to refinance your mortgage later to secure a lower rate and save on interest, especially if you make timely payments and improve your credit over time.

3. Pay Your Other Debts

How much debt you have and your ability to pay it is another factor lenders weigh when approving mortgage loans. This is captured through your debt-to-income ratio. Your DTI ratio is your monthly debt obligations divided by your gross monthly income and multiplied by 100.

Higher DTI ratios suggest that borrowers have less ability to make monthly payments. A 43% DTI ratio is usually the highest a borrower can have to obtain a qualified mortgage.

Paying off other debts, like credit cards and student loans, can improve your DTI ratio and signal to lenders that you can afford mortgage payments. Reducing your debt can boost your credit score too by lowering your credit utilization ratio, which is a measure of the amount of available revolving credit you use.

4. Draw Up a Budget

Buying a home is exciting, and it’s easy to lose sight of the true cost of homeownership when shopping for your dream home. But this puts you at risk of becoming “house poor,” meaning you have to spend a disproportionately high share of your monthly income on housing.

Although buying a home is a way to build wealth, having little left over from your paycheck makes it hard to save for retirement and realize other financial goals.

The dreaded B-word, budgeting, is a useful way to ensure that you can afford a home before you walk away with the keys.

An effective budget accounts for both the upfront costs of buying a home (down payment and closing costs) and the long-term expenditures. Besides the loan principal and interest, it’s important to consider property taxes, homeowners insurance, and maintenance, as well as private mortgage insurance (PMI) if you plan to put less than 20% down on a conventional loan, or mortgage insurance premiums (MIP) for an FHA loan, no matter the down payment. They add up, but PMI and MIP allow many people to buy homes who otherwise wouldn’t be able to.

You can get a sense of how much your monthly mortgage payment might be with SoFi’s mortgage calculator tool.

Recommended: Homeownership Resources

5. Save Up a Down Payment

If you’re a buyer with subpar credit, putting more money down on a home can be advantageous. A larger down payment means borrowing less money, making the loan less risky to lenders and improving the chances of qualifying with bad credit. A smaller loan amount also accrues less interest.

But of course, saving up for a down payment can be challenging. If you meet first-time homebuyer qualifications, you may be eligible to receive down payment assistance.

Recommended: First-Time Home Buying Guide

6. Opt for an FHA Loan

Buyers with lower credit scores or less money tucked away for a down payment could benefit from an FHA loan. FHA loans are issued by private lenders but are insured and regulated by the Federal Housing Administration.

Borrowers with credit scores of at least 580 may put just 3.5% down. If your credit score is 500 to 579, you might still qualify, but need to make a 10% down payment. Borrowers who have declared bankruptcy in the past may still qualify for an FHA loan.

Keep in mind that borrowers with higher credit scores who qualify for a conventional (nongovernment) mortgage may put just 3% down.

7. See if You Are Eligible for a VA or USDA Loan

The federal government backs other loan types that can help buyers with fair credit.

Active-duty service members, veterans, or certain surviving spouses may use a VA loan to purchase a primary residence. VA loans usually don’t require a down payment, and the U.S. Department of Veterans Affairs does not set a minimum credit score for eligibility. Lenders have their own requirements, though, so it’s important to compare options.

The U.S. Department of Agriculture guarantees mortgages issued to low- and moderate-income homebuyers in eligible rural areas. No down payment is needed, and the USDA does not specify a credit score requirement. But lenders will still evaluate a borrower’s credit history and ability to pay back the loan.

VA loans typically come with a one-time funding fee that varies; USDA loans, an upfront and annual guarantee fee.

8. Build Up Your Credit Scores

Raising your credit scores can increase your chances of qualifying and securing better loan terms, but it takes time. Negative marks usually stay on your credit reports for seven years.

Paying bills on time, every time, can gradually build up your credit scores. And if possible, it’s a good idea to stay below your credit limits and avoid applying for several credit cards within a short amount of time.

Soft credit inquiries do not affect credit scores, no matter how often they take place. Multiple hard inquiries if you’re rate shopping for an auto loan, mortgage, or private student loan within a short period of time are typically treated as a single inquiry.

But outside of rate shopping, many hard pulls for new credit can lower your credit scores and indicate distress in a lender’s eyes.

The Takeaway

Can you buy a house with bad credit? Yes, but you may have to put more money down or accept a higher interest rate to qualify. If taking steps to improve your credit aren’t enough, you might consider using a cosigner or exploring federal loan programs.

Knowing how to buy a house with bad credit is a good first step to making it happen. You can check out this home loan help center to continue your homebuyer education.

If your financial foundation is feeling pretty firm, consider a home loan with SoFi. Qualifying first-time buyers can put as little as 3% down.

View your rate with just a few clicks.

FAQ

Is a 500 credit score enough to buy a house?

Yes, but the options are limited. Borrowers with a credit score of 500 might be able to qualify for an FHA loan.

How can I buy a house with bad credit and income?

Lenders look at your full financial picture, not just credit and income, in a mortgage application. Certain loan types don’t have strict credit or income requirements either.

What is a good down payment for a house with bad credit?

A 20% down payment is ideal, but most borrowers aren’t able to put that much down. Any increase in your down payment could improve your loan terms.

How do I know if I’m eligible for an FHA loan?

FHA loan requirements include proof of employment and the necessary down payment based on the borrower’s credit score (those with scores of 580 or above qualify for the 3.5% down payment advantage). The home must be a primary residence, get appraised by an FHA-approved appraiser, and meet minimum property standards.

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Photo credit: iStock/SDI Productions

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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 .

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

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

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On the popular credit score spectrum of 300 to 850, where does a score start breaking bad? Different sources cite 670 or 630 or 600. But each lender makes its own determination of which credit scores are considered risky.

You usually need a credit score of at least 620 to get a conventional mortgage (one not backed by a government agency), but someone with a credit score as low as 500 to 580 may be able to qualify for an FHA or VA loan.

We’ll sort through the different credit score requirements, and the factors that might cause your score to drop, so you can work on building better financial habits.

Bad or Poor Credit Score Ranges

The most commonly used credit scores are calculated by FICO® and VantageScore®, and the two companies rank scores a little differently.

FICO		VantageScore
Fair	580-669	Poor	500-600
Poor	300-579	Very Poor	300-499

As you can see, a Poor credit score from FICO is not the same as that from VantageScore. FICO defines Poor as 579 or below (no one has a score below 300), whereas VantageScore’s Poor range tops out at 600.

To complicate matters, lenders may choose from multiple scoring models and industry-specific scoring models. This makes it tricky to know which one you’re being evaluated on. And your credit scores vary — yes, you have multiple scores.

A score in the 600s is typically high enough to qualify for some loans and credit cards. And generally, the best rates go to borrowers with scores in the mid-700s and above.

What’s the nationwide average? “Good.” As of this writing, Americans had an average FICO Score of 716 and a VantageScore of 698.

Recommended: How to Get Approved for a Personal Loan

What Determines Credit Scores?

A credit score is a number that summarizes your financial history in order to help lenders gauge the risk of extending credit. The higher your credit score, the more confident they are that you’ll repay your debt, and on time.

Your credit score is based on factors like how often you pay your bills on time, how many loans and credit cards you have, your debt relative to your credit limits, and the average age of your accounts. It also considers negative financial events such as judgments, collections actions, and bankruptcies.

Not all financial transactions get reported to the credit bureaus. Payday loans, a type of unsecured personal loan, are considered risky for consumers but don’t affect your credit score for better or worse.

Three major credit reporting agencies — TransUnion, Equifax, and Experian — compile the information on your history of borrowing, and then a company like FICO or VantageScore translates that data into a number.

Recommended: Secured vs Unsecured Personal Loans

Why Your Credit Score May Be Bad

If you’re worried about your credit score, it can help to understand what actions, or inaction, count against you. First there are the obvious slip-ups: missed payments, late payments, and defaulting on accounts. Applying for a lot of credit in a short time is also a red flag for lenders.

Other factors may not hurt your credit score, but they won’t help you build a solid credit history either. If they surprise you, you’re not alone.

•   You’re a recent grad. Although age cannot be used against you, younger people generally haven’t been financially independent long enough to have built up a significant financial history. “Credit age” accounts for about 15% of your score.

•   You rarely use credit cards. Paying through money-transfer apps (also known as peer-to-peer, or P2P, apps) is convenient, but using them doesn’t contribute to your credit history. “Credit mix,” or the different types of credit you use, makes up 10% of your score.

•   Your credit limit is low, and you spend almost the limit every month. You may think you’re living within your means, but lenders consider this a risky situation. “Credit utilization” accounts for a whopping 30% of your score.

How Bad Credit Can Affect You

Your credit score is just one factor that lenders consider when evaluating your application for things like a loan, but it carries a lot of weight. Your credit score not only affects your odds of approval for loans and credit cards, it plays a big role in determining the interest rates and repayment terms you’re offered.

Here are some of the things that take your credit history into consideration:

•   Credit cards

•   Car loans

•   Home loans

•   Personal loans

•   Private student loans

•   Federal PLUS loans

•   Car insurance premiums (in some states)

•   Homeowners insurance

In addition, your credit history may be weighed during a job or rental application.

Nonprime borrowers — generally defined as those with credit scores from 601 to 660, and who have negative items on their credit report — typically don’t get the lowest rates or most ideal terms when procuring a home or car loan.

For example, the interest rate on a subprime 30-year mortgage can be double or triple the average rate. A bigger down payment is usually required, and the repayment term may stretch to 40 or even 50 years, so the amount of interest paid over the life of the loan can be extraordinary.

Building Your Credit Responsibly

Millions of Americans have no credit score because they don’t have enough of a history to calculate one. If this is your situation, you have a couple of options. You may want to consider taking out a secured credit card that will allow you to access a modest line of credit by putting down a deposit.

You can also ask a friend or family member to add you as an authorized user to their credit card account. An authorized user can use the account but does not have any liability for the debt.

If you fall into the so-called bad credit score range, remember that it isn’t set in stone. There are steps you can take to help build your credit. It won’t happen overnight — any promise of a quick fix could be a scam.

But with a sustained effort, you may see a change in six months to a year, according to the Consumer Financial Protection Bureau (CFPB), a government agency. Here are some ideas to add to your Financial Adulting checklist.

Pay Bills on Time

An effective way to improve your creditworthiness in the eyes of lenders is to pay all your bills by the due date, every single time. If you have been late with any payments, consider getting caught up.

If you tend to forget bills, consider brushing up on how autopay works and set up payments through an app, an online bank account, or the entity billing you. Putting reminders on a paper or electronic calendar can help as well.

Pay Attention to Revolving Debt

Remember “credit utilization”? It’s generally a good idea to use no more than 30% of your total available credit. The CFPB says that paying off credit card balances in full each month helps to keep the ratio low and strengthen a credit score.

Credit utilization involves credit card and other revolving debts, not installment loans like mortgages or student loans.

Check Credit Reports and Scores

Between identity theft and plain human error, it’s worth reviewing your credit report for any unfamiliar charges or records, since the information in your credit report is used to generate your credit scores.

You can order a copy of your credit report from each of the three major reporting agencies for free at AnnualCreditReport.com. Look for mistakes in your contact details, accounts that don’t belong to you, incorrect reports of late payments, or accounts you closed being shown as open.

Credit reports do not show credit scores. How to get credit score updates then? A few options:

•   Buy your FICO Score from myfico.com.

•   Get your FICO Score for free from Experian.

•   Look for your scores on a loan or credit card statement.

•   Sign up for SoFi Relay, which provides weekly credit score updates and tracks all of your money in one place at no charge.

Closing and Opening Credit Cards Carefully

The average age of your accounts plays a role in your credit score, so you may want to keep some of your oldest cards open, even if you don’t use them often. Remember that closing cards also reduces your available credit, affecting your credit utilization ratio.

Opening cards affects your credit score as well. Every time you apply, the credit card company runs a hard inquiry on your credit, and your score takes a slight hit. Applying for a bunch of cards in quick succession can make it look like your financial situation has taken a turn for the worse.

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

The Takeaway

A bad credit score is defined differently by individual lenders and credit bureaus. But a score in the 500s will make it difficult to qualify for a conventional mortgage, and can cost you money through higher interest rates. But with time and dedication, the tide can be turned.

If you’re struggling to reduce high-interest credit card balances or other debt, an unsecured personal loan may come in handy. SoFi fixed-rate personal loans can be used for almost any purpose.

A SoFi Personal Loan can help you reduce credit card balances quicker or avoid racking up high-interest debt.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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 .

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.

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

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Marriage doesn’t directly affect your credit scores since you and your spouse will each still maintain separate credit histories. However, both of your credit histories can affect any shared accounts and future possibilities of taking out a loan together.

Or, if you live in a community property state and take out loans after getting married, both of you could be responsible for that debt. Let’s take a look at what happens to your credit when you get married.

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

What if Your Spouse Has a Bad Credit Score?

First off, your credit won’t directly be impacted once you get married, since your marital status doesn’t show up on your credit reports.

If either of you had loans before you got hitched, then they’ll simply remain on your respective credit reports. Same goes for any individual loans you take out after you’re married. One notable exception is if you were to apply for loans together, like a mortgage. In this case, the rates and terms you may qualify for could be less competitive because your spouse doesn’t have a good credit score.

Or, it could be that if you were to open a credit card with both your names on it (or an account where one person is the primary cardholder and the other is an authorized user on a credit card), both of your financial behaviors will affect your future credit score. Say your spouse has a history of late payments, which would have a major impact on their credit score. If they were to miss a payment on your joint account, then both your credit scores could be affected, since your name is also on the account.

If possible, it’s best to discuss the pros and cons of joint accounts and other financial matters with your spouse. This includes coming up with a plan to help them build their score before you apply for joint loans.

Tips for Building Your Credit Score With Aid from Your Spouse

If either you or your spouse wants to build credit, here are some best practices for doing so:

•   Review your credit report: Checking your credit history reports from all three major credit bureaus (Experian, Equifax, and TransUnion) can give you some insight into what is affecting your score. That way, you can use those insights to change your financial behavior. Plus, if there are any errors that may affect your score, checking your credit report will help you spot and dispute them.

•   Continue to make on-time payments: Paying your credit card bills on time is a major factor that affects your score. Doing so consistently signals to lenders you’re being responsible with credit.

•   Hold off on opening new accounts: Each time you apply for a loan, a hard inquiry will occur, which could temporarily affect your score. Too many hard inquiries within a short period of time could signal to lenders that you’re stretched thin financially and need to rely on credit. As such, be mindful about when and how often you’re applying for new accounts.

•   Request a credit limit increase on your credit cards: Credit utilization is another major factor affecting credit scores. It looks at the overall credit limit of your revolving accounts (like credit cards) compared to your overall balance. If you can increase your credit limit, it could lower your credit utilization, which is favorable for your credit score. Another option is to apply for a new credit card, like the SoFi cash-back rewards credit card, though only if you’re certain your credit can afford the slight dip from a hard inquiry.

Will Changing Your Name Affect Your Credit?

Changing your name to your spouse’s after you’re married won’t affect your credit. However, it will result in an update to your credit report. The major credit bureaus should update your credit report automatically once lenders start reporting your credit activity using your new name. When this happens, your old name will remain on your credit history but as an alias.

To ensure your new name gets reported on your credit report, you’ll need to notify your lenders. It’s also a good idea to update your name with the Social Security Administration and any other relevant official entities.

Recommended: What is the Average Credit Card Limit?

How Cosigning a Credit Card With a Spouse Can Impact Your Score

Becoming a cosigner means you’re legally agreeing to be responsible for the other party’s debt. In other words, acting as a cosigner can affect your score positively or negatively, depending on your spouse’s financial behavior.

For example, if your spouse consistently makes on-time payments and keeps their credit utilization low, then your credit score could be positively affected. However, if they make late payments or worse, the account gets sent to collections, your score and theirs could take a hit. Still, you might decide it’s worth the risk if you’re hoping to help your spouse establish credit.

Recommended: When Are Credit Card Payments Due?

Do You Share Debt When You Get Married?

Any debt that you or your spouse had before you got married will remain each of your own responsibilities. Once you’re married, however, any joint debts are shared. Whether debt that’s only taken out in one person’s name is considered shared debt will depend on what state you reside in.

If you live in any of the following community property states, both you and your spouse will be responsible for all debts acquired during the time you’re married — even if they’re not joint ones:

•   Arizona

•   California

•   Idaho

•   Louisiana

•   Nevada

•   New Mexico

•   Texas

•   Washington

•   Wisconsin

•   Alaska (residents can opt into community property laws)

If you’re unsure of what you and your spouses’ responsibilities are, or if you have any concerns related to marriage and credit scores, it’s best to seek the advice of a legal expert.

Recommended: Tips for Using a Credit Card Responsibly

Should You Join Your Credit Accounts After Getting Married?

Merging your credit accounts is a decision that only you and your spouse can make, and it will require a discussion about your expectations and basic credit card rules. One of the main benefits of merging your accounts is the ability to simplify your finances. Doing so could make it easier to keep records and compile documentation for tax returns.

However, if you will both be responsible for debt, both of your credit scores could be affected if either one misses a payment, for example. You can consider keeping one credit account in each of your names in case of an emergency though, even if you do decide to merge your accounts. And whether you’re choosing a joint bank account or a joint credit card account, make sure to shop around and compare your options.

Recommended: Comparing Joint and Separate Bank Accounts in Marriage

Discussing Credit With Your Spouse Before Marriage

Communication is key in your relationship, even before you’re married. It’s crucial that you have a detailed conversation with your partner about both of your financial situations. This includes any debt incurred, as well as any behavior that could negatively affect your finances. After all, it’s ‘til death do us part (and here’s a look at what happens to credit card debt when you die).

To help prepare for your financial future together, consider discussing plans you have that may involve the need to rely on your credit, such as buying a house. That way, if either of you doesn’t have an ideal credit score, you can come up with a plan to work on it together.

The Takeaway

One of the keys to a successful marriage is understanding how each other’s financial situation — including credit behavior — can affect the other person. Whether you open an individual or joint credit account, it keeps both of you in the loop so you’re working as a team.

If you’re looking for a new credit card to level up your financial situation, consider the SoFi credit card. With the SoFi credit card, you can earn cash-back rewards, apply them toward your balance, redeem points for stock in a SoFi Active Invest account, and more.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.¹

Take advantage of this offer by applying for a SoFi credit card today.

FAQ

Do lenders look at both spouses’ credit scores?

Lenders will look at both spouses’ credit scores if they’re applying for a loan jointly. Otherwise, if you only want one name on the account, the lender will only look at that person’s credit.

Can credit be denied based on marital status?

Credit issuers and lenders are not allowed to deny credit based on your marital status. This is due to protections offered by the Equal Credit Opportunity Act against discrimination when applying for credit.

What happens if I marry someone with low credit?

You won’t be directly affected, as your individual credit report is still yours. However, it could impact your score if you apply for credit jointly and your spouse doesn’t handle the shared account responsibly. It could also impact you in terms of what joint loans you may be able to qualify for, as well as what terms you receive.

Does my spouse’s debt merge with mine?

Any debt that you and your spouse have before marriage will remain separate. You’ll share debts if you have joint loans. In some community property states, both spouses are considered responsible for all debts acquired during the marriage, even if only one name is on them.

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Photo credit: iStock/LightFieldStudios

¹Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

¹See Rewards Details at SoFi.com/card/rewards.

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

Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details, please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, Member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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

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If you’re attempting to build credit from scratch, a gas credit card can help. That’s because, similar to other types of credit cards, gas credit cards report your payments to the three major credit reporting bureaus. Further, gas cards are good for building credit because they tend to be easier to get approved for than other types of cards.

On top of that, a gas credit card can allow you to save on gas by earning discounts and fuel credits when you fill up your tank and use your card to pay for transactions. Here’s all you need to know about gas credit cards, including how to get a gas card to build credit.

Recommended: How to Avoid Interest On a Credit Card

Understanding Gas Credit Cards and How They Work

A gas credit card works similarly as other types of credit cards in that it offers access to a revolving line of credit. In other words, you have a credit limit that’s set ahead of time. You can borrow up to that limit, and then repay the debt over time through monthly payments. If you carry a balance from month to month, you’ll pay interest.

There are two main types of gas credit cards:

•   Gas station co-branded credit cards: Also known as a single-purpose or closed-loop card, a gas station co-branded credit card is a card that you can only use to make purchases from a single company. In this case, you could only use the card when you pump gas from a particular gas or oil company, which the card will usually bear the logo of.

•   General-purpose gas credit cards: A traditional gas credit card can be used when you fill up at any gas station, rather than only with one particular brand — marking the difference between gas cards vs. gas station credit cards.

As mentioned, gas credit cards can be a good way to build credit when you’re starting from scratch. Keep in mind that the best rates, terms, and rewards offerings generally are reserved for consumers with strong credit. That being said, some gas cards are easier to get approved for, especially those from a particular oil company or brand.

Another benefit of gas credit cards is that they can offer discounts per gallon or an introductory promotional period where you can receive additional discounts at the pump. For instance, a co-branded gas credit card might offer 30 cents back on each gallon for the first two months after you open an account, and then 10 cents back per gallon after that.

Some general-purpose gas credit cards might also feature rewards, like cash back on everyday purchases up to a certain amount per year.

Tips for Building Credit with a Gas Credit Card

Are you wondering, does a gas card build credit? The answer is yes. Because gas credit cards report your activity and payment history to the three major consumer credit bureaus — Equifax, Experian, and TransUnion — using one can be a good way to help you establish credit when you’re starting out on your credit journey.

For a gas card to build credit, however, you’ll need to stick to the following credit best practices.

Choose a Card Carefully

If you decide to open a gas credit card, carefully review the terms, rates, and fees. Gas credit cards typically have high interest rates compared to other types of cards, so if you anticipate carrying a balance, you could end up paying a pretty penny on interest charges.

While many gas credit cards don’t carry an annual fee, you might get hit with late fees, balance transfer fees, and returned payment fees. Make sure you’re aware of what fees a gas credit card may charge so you can avoid them.

Recommended: What is a Charge Card?

Pay the Full Balance Each Month

Your payment history makes up the bulk of your FICO credit score — 35%, to be exact. As such, it’s important to make your payments on time, each and every month.

And if possible, you might also aim to pay off your balance in full each month, which will allow you to avoid paying interest on your gas credit card. To do this, set a limit for how much you want to spend on your gas credit card each month and stick to it.

Recommended: When Are Credit Card Payments Due?

Don’t Spend Up to the Credit Limit

Another factor that influences your credit score is your credit utilization, which is how much of your overall credit limit you’re currently using. It’s generally suggested to keep this ratio at no more than 30% to avoid adverse effects to your credit score. If you were to spend up to your credit limit, that would likely drive up your credit utilization well about that recommended threshold.

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

Keep Track of Your Credit Score

Monitoring your credit score can help you pinpoint behaviors that can move your credit score up or down, as well as notice any red flags. By keeping an eye on your credit, you can better make adjustments to your habits and spending to ensure you’re making progress on building your credit score.

You can keep track of your credit score in a handful of ways, including by signing up for a free credit monitoring service or possibly through your credit card issuer. For instance, the cash-back rewards credit card that SoFi offers provides free credit score monitoring to cardholders.

Advantages of Building Credit With Gas Cards

Gas cards absolutely can be good for building credit, and here are the benefits of using one to do so:

•   Savings on gas: A major perk — and the one that is most apparent — is that you can receive discounts at the pump by using a gas credit card.

•   Potentially easier approval: A gas credit card can have easier approval requirements than other types of cards, such as rewards credit cards. This can make it easier to get credit, and therefore start building your credit.

•   Rewards and sign-up bonuses: Gas credit cards might offer rewards, perhaps just on your spending at the pump or more generally across purchases, depending on the type of gas credit card. Some gas credit cards offer a sign-up bonus if you meet a minimum spending requirement within the first few months.

Drawbacks of Building Credit With Gas Cards

There are downsides to using gas cards to build credit as well, including:

•   Potentially restricted use: If you get approved for a credit card that you can only use when you fill up at a gas station from a single gas or oil company, it might take you a bit more work and planning to use your card. That being said, there are some more general use gas cards available.

•   Higher interest rates: If you’re building your credit from scratch and are approved for a card with less stringent financial or credit criteria, this can mean higher interest rates and less generous or attractive card perks.

•   Limits on earnings and rewards programs: While some gas cards do offer rewards, they’re usually not as robust as they would be with other types of credit cards. Plus, many gas cards have a cap on how much you can earn in rewards in a given year.

Recommended: What is the Average Credit Card Limit?

The Takeaway

A gas credit card could be a strong option if you are looking for a credit card with easier approval requirements to take a step toward building credit. Before deciding, consider the advantages and drawbacks of getting a gas card to build credit.

Another option might be a general rewards card, like the SoFi credit card. This way, you won’t be restricted on where you can use your credit card. Plus, the SoFi credit card offers unlimited cash-back rewards on all eligible purchases, among other perks.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.¹

Take advantage of this offer by applying for a SoFi credit card today.

FAQ

Are gas cards worth it?

Gas cards can be worth it if you are looking for a credit card with less stringent approval criteria and are trying to establish credit. Many don’t have annual fees, so if you’re able to pay the balance in full each month, it could be worth opening. Plus, you might be able to save at the pump.

Are gas cards good for building credit?

Gas cards can be good for building credit as they do report your activity and payment history to the credit bureaus. However, in order for them to help with your credit, you must maintain responsible credit habits, like making on-time payments and maintaining a reasonable credit utilization ratio.

Recommended: Tips for Using a Credit Card Responsibly

Is it better to use a fuel card or a credit card?

It depends on what you typically use your credit card for, as well as what cards you’re able to get approved for. If you would like a card that you can use only for gas and would like to rack up gas savings, then a fuel could be a good fit. Another type of credit card, such as a cash-back or travel rewards credit card, could offer you different perks. However, they might be harder to get approved for.

Do gas cards save you money?

Gas credit cards can shave a few dollars at the gas pump in the way of discounts and promotions. Some cards offer cash-back rewards, usually up to a certain amount per year.

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Photo credit: iStock/Talaj

¹Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

¹See Rewards Details at SoFi.com/card/rewards.

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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 .

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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