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Spending money on purchases is a part of daily life (groceries, for instance) and can be a pleasure (those cool new boots you’ve been eying for weeks). But for some people, shopping gets out of hand and becomes impulsive or compulsive shopping. They literally “can’t resist” buying and find themselves purchasing often and when they don’t really need anything.

Both compulsive and impulsive shopping can negatively impact your finances and personal life, though they are not the same thing. If you feel as if you can’t control your spending and your money management is suffering from it (such as debt is piling up), know that you can take steps to regain control.

Here, you’ll learn:

•   What compulsive shopping is

•   Causes of compulsive shopping

•   What impulsive shopping is

•   Causes of impulsive shopping

•   How to take control of compulsive or impulsive shopping

What Is Compulsive Shopping?

Compulsive shopping is defined as an uncontrollable desire to shop, resulting in a person investing large amounts of time and money in the activity. People who shop compulsively tend to make purchases regardless of whether they need or want an item — or can actually afford it.

Compulsive shopping, or compulsive buying behavior (CBB), is considered a mental health condition that can have negative consequences financially and personally. It can become a preoccupation and involve the loss of self-control. Compulsive shoppers may use excessive spending as a coping method to mask feelings of low self-esteem, stress, and anxiety. They may feel a high when buying something but often experience disappointment and guilt afterwards.

Characteristics of compulsive shopping include:

•   Obsessive research over coveted items

•   Making unnecessary purchases

•   Potentially dire financial issues as a result, such as bankruptcy, credit card debt, and foreclosure

Causes of Compulsive Shopping

Approximately 6% of adults experience compulsive shopping, which can express a variety of emotional needs and wants, such as:

•   Perfectionism. The shopper may be focused on finding the perfect item, which brings them feelings of satisfaction once discovered.

•   Desire to be in control. Purchasing items can make them feel as if they have achieved something when other aspects of their life are not well managed.

•   Childhood trauma, neglect, or abuse. If a person has endured this kind of pain, buying items may feel like a reward that offsets this negativity.

•   Feelings of loneliness and depression. Buying items can be an exciting mood-lifter; a kind of high.

•   Mood, anxiety, or personality disorders. Compulsive shopping can be a self-soothing behavior.

What Is Impulsive Shopping?

Impulsive shopping is somewhat different from compulsive shopping, though some mental-health professionals consider them to be aspects of the same issue. Impulsive shopping tends to happen when a person gets caught up in the moment and spontaneously buys something. It’s a purchase without any forethought, planning, and it’s often not within a person’s budget.

People who impulse-shop are usually influenced by external triggers, such as seeing an item on sale or positively responding to a store’s atmosphere. Everyone indulges in some impulse-fueled retail therapy now and then. However, when these immediate gratification purchases become habitual, the behavior can morph into something uncontrollable and financially damaging. When it has this kind of negative impact, it nudges into the realm of a disorder.

Causes of Impulsive Shopping

Impulsive shopping can have a variety of causes, including:

•   Wanting to ease negative feelings or improve one’s mood with a “pick-me-up”

•   A need for fun or entertainment

•   Lower levels of self-control

•   Fear of missing out (FOMO) on items or experiences other people have

•   Materialism; placing value on owning possessions

Compulsive vs Impulsive Shopping: What’s the Difference?

While these two behaviors’ names may sound similar, they are actually distinct. Here are the key differences when one compares impulsive vs. compulsive shopping:

Compulsive	Impulsive
Resembles addictive behavior	Can develop into addictive-like behavior if left unchecked
Buying things regularly	Buying is more occasional and situational
Shopping is planned and premeditated	Shopping is unplanned and spontaneous
More internally motivated by uncomfortable emotions	More externally motivated and influenced by shopping environments and marketing

Tips for Combating Compulsive or Impulsive Shopping

Impulsive and compulsive shopping can tip into the danger zone and ruin your budget and financial fitness. They can also take up too much mental space. If you have entered that realm and perhaps are carrying a hefty amount of debt, taking control of the situation can feel overwhelming. But there is help. Consider these suggestions on how to get started if you think you’re a shopaholic:

Seeking Some Professional Help

Individual counseling with a mental health professional can help you get to the emotional root of your buying issues. Psychotherapy, such as cognitive behavioral therapy (CBT), can effectively treat these shopping behaviors. Medication may also help manage unwanted or intrusive thoughts about shopping. Group therapy can also be beneficial.

Paying Close Attention to Spending Habits

Figuring out your particular shopping triggers can help you avoid or eliminate them. For instance, when buying, do you use credit cards instead of paying with cash or a debit card? Make shopping a priority over paying bills? Grocery shop without making a list? Being honest about how and why you may engage in certain overspending behaviors is vital to understanding the issue. Changing spending habits can then help you manage your finances better.

Recommended: Are You Bad with Money? Here’s How to Get Better

Having an Accountability Mentor

Get some support: A financial counselor, advisor, partner, family member, or friend can assist you on your journey to curb compulsive or impulsive spending. Try taking a trusted, non-judgmental confidant with you when you go shopping. Ask them to help rein you in if you start overbuying. You can also consider having them hold onto your credit cards to eliminate access, chat regularly with you to keep tabs on your progress, and be a sympathetic listener when you need to talk through your feelings.

National 12-step program support groups such as Debtors Anonymous (especially if you’ve racked up credit card debt) and Spenders Anonymous are also an option. They can connect you with others who are dealing with similar issues.

Setting a Budget

Creating and sticking to a budget allows you to gain control over your spending. A well-thought out budget will help with personal accountability and achieving financial discipline. Since life needs to be about balance and we all need to spend money on something fun here and there, try to set yourself up with the flexibility to splurge sometimes. This will help keep you from feeling completely deprived.

One suggestion is to consider incorporating the 50/30/20 budget rule. This guideline recommends spending up to 50% of your after-tax income on must-haves (say, housing, car payments, utilities, healthcare, and groceries). Then, take 30% of your money and reserve it for wants such as dinners out, vacations, concert tickets, electronics, and clothing. The remaining 20% should be allocated for investments, an emergency fund, debt repayment, or savings.

Recommended: 10 Personal Finance Basics

Minimizing Temptation

Many stores are carefully designed to get you to shop and spend, perhaps to an extreme. If a store’s atmosphere — the design, the scents, the music — tends to get you buying, avoid it. Don’t walk down the streets filled with your favorite shops; try to escape the triggers that make you shop too much. If you often spend free time at the mall or online shopping, sign yourself up for a class, take up a new sport, volunteer, or find other ways to fill the hours.

Online promotional discounts, coupon codes, and the ease of electronic transactions can make compulsive or impulsive shopping easier and more appealing. Go ahead and unsubscribe from retailer emails.

Curbing social media exposure can help, too. Research suggests ads and posts from social media influencers and seeing purchases from people in your social networks may encourage a “keeping up with the Joneses” mentality, often leading to impulsive and compulsive buying.

Starting a No-Spend or 30-Day Savings Rule

A quick way to stop spending money is to freeze any non-essential spending for an entire month. Commit to a 30-day shopping ban on things such as clothing, make-up, tech gadgets, or take-out, and see how much extra money you have at the end of the month. The difference may be eye-opening and help you break the cycle.

Successfully controlling your spending can provide a feeling of accomplishment and a confidence boost. Participating in a no-spend challenge can even become a fun game; you can involve other budget-conscious friends and know you’re all in it together.

Recommended: Using a Personal Loan to Pay Off Credit Card Debt

The Takeaway

Although there are differences between compulsive and impulsive shopping, both can seriously affect your financial and personal life. Facing your impulsive or compulsive shopping habits can be daunting, but taking positive, concrete steps is likely to help conquer the problem. Getting past this spending issue, whether by shifting your behaviors or seeking professional help, can be a positive step, both for you personally and for your finances.

Want to get a better handle on your spending? Get started today by signing up for a SoFi Checking and Savings account. You can easily track your weekly spending on our dashboard. What’s more, when you open a SoFi online bank account with direct deposit, you’ll earn a competitive APY and pay no fees, so your money could grow that much faster.

Discover the benefits of banking with SoFi today.

FAQ

Is breaking a budget a sign of compulsive shopping?

Breaking your budget is not necessarily a sign of compulsive shopping. However, if you regularly deviate from your budget, spend money allocated for needs on wants, and find yourself saddled with credit card debt, you may need to rein in your compulsive spending. Analyze your shopping habits and budget to understand your behavior better.

Is making an impulse purchase a bad thing?

The reality is, most of us make occasional impulse buys, and they are not always such a bad thing. However, if this kind of shopping becomes habitual and leaves you with debt, pay attention and take steps to improve the situation.

How do I limit impulse purchases?

One way to limit impulse purchases is to avoid stores or websites where you know you tend to overspend. Also, ask yourself, “Do I need this or do I just want it?” when tempted to make a purchase. If the answer is the latter, wait 24 hours, and see if you still really want it. Your desire may dwindle during that cooling-off period.

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Photo credit: iStock/jacoblund

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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

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.

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Overdraft fees are never fun, but there’s a bright spot: In some circumstances, these charges can be tax deductible.

As you are probably well aware, both overdraft fees and taxes are an unavoidable part of life that can involve reducing your hard-earned cash. Which is why it can be really satisfying to use overdraft fees to save on taxes. This payback time, however, is typically not available for the average person who works a nine-to-five job.

So who can deduct these charges? Read on to learn:

•   What are overdraft fees?

•   Can I deduct overdraft fees on my taxes?

•   What other bank fees can be deducted?

•   What are tips for claiming bank-fee tax deductions?

What Are Overdraft Fees?

Before answering the question, “Are overdraft fees tax deductible?” it helps to understand how these charges work. An overdraft fee is assessed when someone authorizes a payment (such as when making a purchase with a debit card or by writing a check), but there isn’t enough money in their bank account to completely cover the cost of the transaction.

A bank may choose not to decline the payment and instead may charge the account holder an overdraft fee. If someone overdrafts multiple times in a day, they might be charged a fee for each overdraft. Or there may be a limit on how many times their bank or credit union might charge them a fee.

How Much Are Overdraft Fees?

Typically, each overdraft is assessed a charge of $35 or so. If you were to, say, make a bunch of payments like rent, utilities, and car payment on the first of the month and all of these triggered overdraft fees, you can imagine how quickly the amount can add up.

What Happens When You Overdraft Your Account?

Once someone realizes they overdrafted, they need to add more money to their bank account — at least enough to cover the amount they overdrafted and the cost of any overdraft fees they were charged. If someone doesn’t add enough money to their account, then the next time they make a deposit, the bank is likely to automatically withdraw that amount from their account.

What’s more, if the account holder doesn’t add more funds, then eventually the bank may choose to close their account. The debt would likely fall into the hands of a collections agency, which isn’t very fun for the consumer.

One way account holders can protect themselves from overdrafting is to set up an automatic transfer from a linked account (like a savings account) that steps in to save the day. There are pros and cons to overdraft protection. It may be offered for free; sometimes this service costs a fee, but even then, it’s usually less than an overdraft fee.

Who Can Deduct Overdraft Fees on Their Taxes?

Avoiding overdraft fees is a common goal, but despite your best efforts, these charges may still crop up and you may hope to write them off on your tax return. Whether or not you can do so depends on who is hoping to get a deduction. Sorry to say, but individuals who earn income from an employer can’t write off overdraft fees on their taxes. Only those who qualify in the following ways can write off their overdraft fees when tax season rolls around:

•   Self-employed individuals

•   Those who receive an IRS 1099-MISC form

•   Anyone who operates an unincorporated limited liability company (LLC)

•   People who practice a profession as a sole proprietorship

•   Landlords who receive income from rental properties

And there’s a catch: These people can only write off overdraft fees that occur during the normal course of business operations. They may not write off their personal overdraft fees.

What Bank Fees Are Considered Business Expenses?

Aside from overdraft fees, other bank charges can be considered business expenses. Take note of the following:

•   Account service charges

•   Credit card fees

•   ATM charges

•   Incoming and outgoing wire fees

•   Printing and depositing check fees

Other Bank Fees That Can Be Deducted

Overdraft fees aren’t the only charges that can potentially be deducted at tax time. As noted briefly earlier, business-related banking charges like credit card fees, ATM charges, and account service charges can be written off on taxes. However, you must own a business, be a sole proprietorship, or otherwise earn business income and incur these fees while running your business.

The cost of printing and depositing checks, incoming and outgoing wire fees, and other charges related to running a business are totally deductible on taxes as well.

Bank Fee Write Off Example

Let’s look at an example of how a business owner may be able to write off bank fees. Imagine that Paul owns a bakery. He has a business bank account and uses a debit card to make last-minute purchases, plus a business credit card to make larger ongoing purchases. On Monday, he realizes he is out of flour. He places a bulk order for flour using his business credit card, but runs to the store to buy flour for the next few days using his debit card attached to his business bank account.

The problem is, Paul forgot to check his business bank account and is short on funds. As a result he overdrafts at the store. In all this rush, he forgot his credit card bill was due that very day and ended up paying it late, missing out on one of the benefits of automatic bill payments. What a Monday, and an expensive one at that!

What bank fees paid this month could Paul write off on his taxes?

•   Bank account management fee

•   Overdraft fee

•   1/12 of his credit card’s annual fee (assuming he saves up for it and pays it annually)

•   Credit card late fee

All of these fees are a major headache and poor Paul has to pay them, but at least he can write them off on his taxes.

Recommended: Beneficial Banking Account Alerts

Can You Deduct Bank Fees Even if You Do Not Own a Business?

You may be wondering, but what if I don’t own a business; can I deduct bank fees from taxes? It’s only possible to claim overdraft and other bank fees on your taxes if you own a business or work for yourself. Even then, they can only deduct business banking fees that occur during the course of business, not personal banking fees. So if you overdraft on your personal account, that can’t be taken as a deduction at tax time.

Tips for Claiming Bank Fee Tax Deductions

Let’s look at some ways to claim bank fees as tax deductions. Every penny counts, after all.

•   It’s required that business owners file an IRS Schedule C (Form 1040) , Profit or Loss from Business form, in order to deduct business expenses.

•   Any bank charges can be deducted as “other expenses.”

•   If someone can claim deductions because they earn rental property income, they’ll file the Schedule E (Form 1040), Supplemental Income and Loss form.

•   It’s only possible to declare bank charges that occurred in the year for the return being filed.

•   If someone realizes they have unclaimed charges from past years, they need to amend their previous returns and refile them.

•   The IRS wants to see bank accounts that relate to business expense deductions only being used for business purposes; no mixing in personal transactions.

Banking With SoFi

When tax time rolls around, only people who earn business income can potentially deduct overdraft fees related to their work. But even if you don’t have a business account, there are still ways to minimize the impact of overdraft and other banking fees.

See how SoFi can help you bank better in this way. When you open SoFi Checking and Savings with direct deposit, you’ll pay no account fees; if that direct deposit is $1,000 or more monthly, SoFi overdraft coverage will take care of up to $50 for you. What’s more, we pay a competitive APY so your money can grow faster. No fees, higher interest? Yes, please.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

What bank charges are tax-deductible?

Those who earn business income can deduct bank fees from their taxes. These include overdraft fees, account service charges, and ATM fees that relate to their business.

How do I claim overdraft fees?

People who earn business income and accrue overdraft fees during the course of business can claim these charges by filing the IRS Schedule C (Form 1040), Profit or Loss from Business. If someone earns rental income as a landlord, they can file Schedule E (Form 1040), Supplemental Income and Loss.

Are there taxes on bank fees?

No, you don’t pay taxes on bank fees. Also, some people may be able to deduct bank charges from their taxes, provided they are business bank fees, not personal ones.

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Photo credit: iStock/monkeybusinessimages

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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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When you’re a self-employed, hourly, seasonal, or gig worker, your free-form schedule can give you a lot of freedom to choose where and when you work. However, it also often means your income is irregular, depending on how much work you do each month.

An inconsistent income makes it all the more important that you budget well to make sure that you can cover necessary expenses while still working toward your financial goals. To help you learn how to do just that, read on for advice on:

•   What an irregular income is?

•   Examples of fluctuating incomes.

•   Tips for budgeting with an irregular income.

What Is an Irregular Income?

Irregular income is money that you earn that does not follow a regular schedule. Some people are salary workers and know, down to the last penny, how much they will receive every week or every other week.

But others earn a fluctuating amount of money that can come from a variety of sources, including:

•   Freelance work

•   Contract work

•   Hourly work

•   Seasonal work

•   Commissions

•   Bonuses

•   Stock options, and other types or workplace compensation

Irregular income can fluctuate and at times be unpredictable, making budgeting more challenging. Perhaps you are a home stager who has a super busy season in the spring, full of projects, but things are fairly quiet at other times of year. Or maybe you are a registered nurse who some months takes on more shifts than others. These are examples of why your income can be up and down.

How to Budget With an Irregular Income

In many ways, how to make a budget when income varies is the same process you’d use if you had a regular paycheck. Start by figuring out your average income. Add up how much you made in the past 6 to 12 months and divide by the number of months. This should give you an idea of your typical monthly gross income.

If you work for yourself, taxes won’t be withheld from your paycheck. Be sure to account for these as you develop a budget. The amount you owe will depend on how much you make, but as a rule of thumb, you can subtract 25% to 30% — which should cover whatever taxes you likely owe — to arrive at your net income. Alternatively, you can make taxes a line item in your budget. You might pay these taxes quarterly or once a year, depending on your particular situation.

Next, determine what are considered your living expenses; the basics, such as rent, utilities, car payments, and groceries. Subtract this amount from your average net income. The money you have left represents your discretionary income, which you can spend on things like restaurants, travel, gifts, and entertainment. However, don’t overlook that this discretionary money can and should also be funneled into paying off debt and saving for the future, whether that means an emergency fund or a new car.

Your budget can then guide your spending. If, say, your housing or food costs go up, something else will have to come down. Or if you get hit with an unexpectedly high dental bill, you’ll need to figure out how to accommodate that as well.

Recommended: 7 Reasons Why Budgeting for Couples Is Important

Tips for Budgeting With an Irregular Income

Once you’ve got an idea of how much you make each month and how much you spend, you can budget with a fluctuating income. Following these tips can help you stick to your budget and tweak as necessary as your income changes month to month.

Using the Zero-Based Budgeting Method

A zero-based budget works well for many people with irregular incomes because it assigns every dollar you earn to a specific purpose. Allocate income to necessary expenses first and then to discretionary spending categories. If there’s any money left over, make sure to assign that a purpose as well. For example, you may want to allocate extra to savings that month.

For this method, you can start with your average monthly income and adjust in real time if you are having a month where your earnings are higher or lower than expected. More on that in a minute.

Also know that there are a variety of budgeting methods worth considering, including the 50/30/20 budget rule and the envelope system. It can be useful to give more than one a try to find the one that works best for your personal habits.

Not Getting Overly Comfortable When You Make More Than Usual

Remember that months that are more flush with cash may be a temporary situation. Be mindful not to take on more financial responsibilities than you’ll be able to maintain if your income drops. For example, think twice before taking on costly loans, such as one for a new car. If you can’t afford the payments in leaner months, consider cheaper alternatives, like buying a used car.

It can also be wise, in months when you are feeling rich, to funnel some of those funds into savings for leaner months and future goals. Tempting as it may be to plan an impromptu beach weekend when your bank account balance is high, it may be better to reward yourself with a day by the shore plus a nice lunch instead.

Preparing for Months With Low Income

About those leaner months we just mentioned: If you know your income will vary from month to month, consider keeping a buffer of cash that can help protect you from shortfalls as your income varies. You might consider a buffer equal to the difference between your income in your highest earning month and your lowest earning month. If you dip into this cash reserve, be sure to replenish it in months in which you make more money.

This money, sometimes called a cash cushion, can see you through lower-income months and also protect you from overdraft and credit-card debt scenarios.

Making Adjustments to Your Budget When You Get Paid

Having an irregular income means you’ll need to take a more hands-on approach to budgeting throughout the month. As income rolls in, you can make adjustments to your budget. If you have a zero-sum budget, be sure to put that money to work immediately. For example, you may find you have more money than you thought to allocate to savings or discretionary categories.

If you don’t receive income you expected during the month, look for ways to make cuts to your budget or put off big purchases until another time.

Tracking All Expenses

When you track expenses, as you spend money in a certain category, you subtract it from the line item in your budget. That way, you’ll always know how much you have left to spend.

Keeping track of your spending throughout the month is critical. It not only helps you stay on budget, but understanding where you spend can enable you to tweak your future budgets and identify trends in spending. For example, you may notice you tend to spend more on clothing at certain times of year. You can then plan ahead for that expense or find ways to curb it.

Many people shy away from expense tracking because it feels time-consuming and, let’s face it, boring. But there are plenty of methods available to make it easier and fun (or almost). Consider using a customizable spreadsheet you find online. There are also plenty of apps that make it simple to track your spending data in real time, automatically categorize transactions, and even set and monitor goals. Technology can really make your life easier on this front.

Continue to Build Your Emergency Fund

You never see it coming: that pricey car repair or dental bill that can send even the best budget reeling. That’s where an emergency fund comes in, giving you cash to get through a challenging moment. (It also delivers peace of mind, which is a form of financial self care.) Experts recommend that you save three to six months’ worth of average expenses in a dedicated savings account. Often, online banks have top rates in what are known as high-yield savings accounts.

Your emergency fund should be separate from the cash buffer you keep from month to month to help you cover shortfalls in income. You don’t want your emergency fund to dwindle away on everyday expenses. It’s best to keep it aside in case something occurs that is truly an instance of when to use your emergency fund.

Investing Your Money

Make investing for your future a part of your financial plan, even when you are budgeting with an inconsistent income. Compounding interest can really help your funds along, so do start saving early and keep at it.

You may even want to include investing in a retirement account as part of your necessary expenses. It can be helpful to automate those savings. You can have a set amount sent from your checking account to your retirement account each month, regardless of which type of retirement plan you have.

Recommended: Tips for Creating a Financial Plan

The Takeaway

Whether self-employed or a seasonal or shift worker, many people have irregular income month to month. Though budgeting may not exactly be most people’s idea of fun, if you have a fluctuating income, it’s an important practice. By tracking your income, expenses, saving, and spending, you can likely avoid being caught short with regular budgeting. This, in turn, will help keep you out of debt and help your wealth grow.

Speaking of having your wealth grow, whatever your income may be month to month, SoFi can help. When you open a new bank account online with direct deposit, we won’t charge you any of the usual fees, plus you’ll earn a competitive APY. You’ll also enjoy easy tools that help you organize your financial life.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Will budgeting work if you have an irregular income?

You can build a budget with irregular income. However, you must be diligent about tracking both your income and your spending in real time to make sure you stay on top of your money. Online spreadsheets as well as budgeting apps can help you with this process.

What are examples of irregular income?

Irregular income can take many forms. Some examples include being a freelance worker (whether you are a web designer or a personal trainer), contractor worker, hourly or seasonal employee, or a person who works on commission.

What is the difference between regular income and irregular income?

Regular income is a set amount of money received at regular intervals, such as from a salaried job or a passive source like rental income. Irregular income, on the other hand, can arrive unpredictably and can fluctuate from month to month. It’s also important to note that those who earn irregular income may need to set aside money for taxes, unlike many workers who receive a regular paycheck.

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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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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Technically, there is no limit to how many personal loans you can have at once. Lenders may approve a second or third loan if the borrower has paid off part of the first loan and has a history of on-time repayment.

In fact, it’s fairly common for one loan to fall short of covering all of a borrower’s needs. Let’s say you’re remodeling your primary bathroom. You take out a $5,000 personal loan to cover the costs. But then you discover major plumbing issues that will cost thousands more to fix, making your $5,000 budget woefully inadequate.

What is someone in this situation supposed to do? Even if you can have more than one personal loan, should you? We’ll investigate when it makes sense to take out additional loans, and what the potential risks are.

Can You Have Multiple Personal Loans at Once?

There is no law against having multiple personal loans, either from the same bank or different lenders. However, some lenders limit the number of concurrent loans they’ll extend to an individual. Other lenders have no such limit, but do cap the total amount one person can borrow.

Personal loan interest rates tend to be low compared to the alternatives. So carrying multiple loans at once can be a smart way to avoid the trap of revolving credit.

However, many lenders allow individuals to take out additional loans only if they have paid off part of the initial balance of the first loan — three to six payments, for instance.

Does It Ever Make Sense to Have Multiple Loans?

It’s never a good idea to take on debt unnecessarily, but there are a few situations where taking out an additional personal loan might be your best option.

Let’s say you take out a personal loan to consolidate credit card debt — one of the more common reasons for applying for a personal loan. After a year of making payments, you and your spouse decide to start a family. But you need fertility treatments, which aren’t covered by your insurance. The doctor requires payment upfront and doesn’t offer payment plans. A personal loan may be preferable to running up credit card debt.

Similarly, say you need money for emergency home repairs, veterinary bills, or automotive repairs. If ignoring an expense will cause more financial challenges and emotional stress than taking on more debt, a new loan is a viable option.

Ways Multiple Personal Loans Can Affect Your Credit

Any time you open a new loan, the repercussions ripple out to your credit report in a few different ways. First, opening a loan produces a hard inquiry on your credit report, and remains on it for two years.

Too many hard inquiries will affect your credit score, because the credit scoring models most commonly used will verify how recently and how often you’ve applied for credit. An uptick in both can, in turn, affect the interest rate available to you for a new loan.

Recommended: Can Personal Loans Hurt Your Credit?

Juggling multiple payments is another issue. An additional loan means another bill to pay every month. If you miss any payments — whether on your student loans, mortgage, credit cards, or personal loans — it can have consequences for your credit score. Payment history counts for a whopping 35% of your total FICO® Score. Beware of overborrowing when considering multiple loans.

Other Potential Complications

If you have multiple personal loans and are applying for a mortgage or other type of loan, your application could be denied because of your debt-to-income ratio (DTI). This ratio is calculated by adding up your monthly debt payments and dividing them by your monthly gross income.

Every lender will have different DTI requirements when considering someone for a loan, so check with your lender for specifics.

Getting Multiple Loans From the Same Lender

If you’re considering applying for a second loan from the same lender, you’ll first want to consider the following:

•   Ensure your current loan is in good standing. If you have missed or late payments, your lender can either decline your second loan application or charge you a higher interest rate.

•   Check whether your lender limits the number of outstanding personal loans, or caps the amount you can borrow.

•   Calculate your overall DTI, including any auto loans, mortgage, credit cards, and student loans. If the sum of all your monthly loan payments comes close to 50% of your income, another personal loan may not be in the cards. Many lenders recommend a DTI of no more than 36%.

If you believe you’ll meet the lender’s requirements for a second personal loan — and you feel comfortable making the additional monthly payment — getting an additional loan from the same lender could be the right strategy.

Recommended: Fixed vs. Variable Rate Loans

Qualifying for Another Personal Loan

Getting approved for a personal loan from another lender isn’t much different. While you won’t have to worry about a cap on the number of loans you have or the combined amount you can borrow, you will have to show that your DTI falls within recommended parameters.

The second lender will likely do a hard inquiry (or hard pull) on your credit report. They will see the payment history for your other personal loan, as well as other debt going back seven years. You can prepare by following the guidelines above in the first and third bullets.

Alternatives to Personal Loans

When you need to cover unexpected expenses, personal loans are a great resource — but not your only option. What’s right for you will depend on how much you want to borrow, and how long you’ll need to pay the money back. Here are some alternatives to personal loans you might consider.

•   Credit card. If your credit score is high, you can apply for a 0% APR credit card. The introductory rate is for a limited time — generally 12 to 18 months. If you can pay off the purchase by then, you’ll save a lot on interest.

•   Buy now, pay later (BNPL). Also known as a point-of-sale loan, BNPL gives you more time to pay off a large purchase — from several weeks to several years, sometimes at 0% interest. But terms and fees vary wildly, so make sure you understand what you’re signing up for.

•   401(k) loan. If you have funds in a 401(k) plan, you can borrow against them without any penalties — and the interest you’re charged goes back into your investment plan. This might make sense for short-term loans of 1 year or less.

•   Home equity loan. A home equity loan is a type of secured loan, meaning you offer your home as collateral in the event of default. These loans offer low fixed interest rates for those who qualify, as well as longer terms.

•   Payday loan. Also known as cash-advance loans, these are short-term, high-interest unsecured personal loans provided by small local merchants. Borrowers must show proof of income via a recent paycheck, but no credit check or collateral is required. The risks of payday loans are so great that many states have outlawed them.

The Takeaway

There is no law against having multiple personal loans. However, some lenders limit the number of concurrent loans they’ll extend to an individual, or cap the total amount one person can borrow. If you have two or more personal loans, having a solid repayment strategy helps prevent late payments and other potential problems. One of the simplest methods to avoid late payments is to set up automatic bill pay.

You may consider leveraging technology, such as SoFi Relay, to help keep track of your budget while you pay off these loans. If you’re looking to apply for a personal loan, consider seeing what options are available at SoFi. SoFi’s Personal Loans have absolutely no fees — no origination fees required, no prepayment fees, and no late fees.

Learn more about personal loans at SoFi.

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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.

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The main difference between a soft vs. hard credit check is that each hard check knocks a few points off your credit score, whereas soft checks don’t affect your score. Both hard and soft checks pull the same financial data but for different purposes. Hard checks are typically done when you apply for a loan or credit card; soft checks are conducted for most other purposes, such as pre-screening for credit card offers.

It’s important for consumers to understand this difference because too many hard checks — also known as hard pulls and hard inquiries — can significantly lower your credit score. This in turn can hurt your chances of getting the best offers on credit cards and loans. Keep reading to learn more about credit checks and how to prevent unnecessary hard checks of your credit file.

What Is a Soft Credit Inquiry?

As noted above, a soft credit check pulls most of your financial data:

•   The number and type of all your credit accounts

•   Credit card balances

•   Loan balances

•   Payment history for revolving credit (credit cards and home equity lines of credit)

•   Payment history for installment loans (auto loans, mortgages, student loans, and personal loans)

•   Accounts gone to collections

•   Tax liens and other public records

Soft inquiries are not used during loan or credit card applications. Instead, they’re used for most other purposes that require a background check, and do not require the consumer’s permission or involvement. Reasons for a soft check can include:

•   Employment pre-screening

•   Rental applications

•   Insurance evaluations

•   Pre-screening for financial offers by mail

•   Loan prequalification

•   Checking your own credit file

•   When you’re shopping personal loan interest rates or credit cards

Soft credit checks do not affect your credit score, no matter how often they take place. Some soft checks appear on your credit report, but not all — you may never find out they took place.

When they are listed, you might see language like “inquiries that do not affect your credit rating,” along with the name of the requester and the date of the inquiry. Only the consumer can see soft inquiries on their report; creditors cannot.

What Is a Hard Credit Inquiry?

A hard credit inquiry typically takes place when you apply for a credit card, mortgage, or car loan, and give permission for the lender or creditor to pull your credit file.

Each hard pull may lower your credit score — but only by less than five points, according to FICO® Score. All hard inquiries appear on your credit report. While they stay there for about two years, they stop affecting your credit score after 12 months.

Not all loans require a hard credit inquiry — but consider that a red flag. Some small local merchants offer short-term loans, high-interest unsecured personal loans. Borrowers must show proof of income via a recent paycheck, but no credit check is required. The risks of these “payday loans” are so great that many states have outlawed them.

Recommended: How to Get Approved for a Personal Loan

Avoiding Hard Credit Inquiries

Consumers should carefully consider if they really need new credit before applying for an account that requires a hard credit check.

For example, department stores and some chains like to entice you to apply for their store credit card by offering a generous discount on your purchase as you’re checking out. In that situation, ask yourself if it’s worth a credit score hit (albeit a small one).

Another way to minimize hard inquiries is to ask which type of credit check a company intends to run. If, for example, a cable company usually requires a hard credit inquiry to open an account, you might ask if a hard pull can be avoided. Other situations where there may be some flexibility include:

•   Rental applications

•   Leasing a car

•   New utility accounts

•   Requesting a higher credit limit on an existing account

•   Opening a money market account

Disputing Inaccurate Hard Inquiries

A good financial rule of thumb is to review your credit reports every year to check for common credit report errors and signs of identity theft. The Fair Credit Reporting Act guarantees consumers the right to access their credit reports each year for free. Go to AnnualCreditReport.com to order reports from Equifax, Experian, and TransUnion.

To check for inaccurate hard inquiries, look for a section on your credit report with any of these labels:

•   Credit inquiries

•   Hard inquiries

•   Regular inquiries

•   Requests viewed by others

You can dispute hard inquiries and remove them from your credit reports under certain circumstances: if you didn’t apply for a new credit account, you didn’t give permission for the inquiry, or the inquiry was added by mistake.

That said, under federal law, certain organizations with a “specific, legitimate purpose” can access your credit file without written permission. They include:

•   Government agencies, usually in the context of licensing or benefits applications

•   Collection agencies

•   Insurance companies, when certain restrictions are met

•   Entities that have a court order, as in child support hearings

Even so, if you didn’t give permission for a hard credit pull, it’s worth filing a dispute to request that the credit check be removed from your report.

Consumers may dispute hard inquiries online through AnnualCreditReport.com, or by writing to the individual credit reporting agencies.

Recommended: Fixed vs Variable Rate Interest Loans

Hard Credit Checks and Your Credit Scores

As mentioned earlier, hard inquiries appear on your credit report, and each hard pull may lower your credit score by five points or less. Here we’ll go into a bit more detail.

Why Hard Inquiries Matter

Multiple hard inquiries within a short time frame can do significant damage to your credit score. For instance, a 20-point hit from four or five hard inquiries could be enough to move you from the Good credit range down to the merely Fair. Someone in a Fair credit range can pay substantially more over a lifetime in interest and fees than someone with a Good score or higher.

How Many Points Will a Hard Inquiry Cost You?

As noted above, each hard pull will lower your credit score by less than five points. One or two hard inquiries per year may not matter, especially if you’re not planning on applying for a loan.

However, consumers should keep in mind that the impact on their credit score remains for 12 months. The real concern is when you’re shopping around for the best interest rate on a loan, and too many hard inquiries over a short period combine to pull down your score in a significant way.

How Long Do Inquiries Stay On Your Credit?

Hard inquiries stay on your credit report for two years. But their impact on your credit score lasts only 12 months.

Soft inquiries may remain on your credit report for one or two years, but only the consumer can see them.

The Takeaway

Soft credit inquiries do not affect a credit score, while hard credit inquiries usually cost you less than five points. In both cases, businesses pull information from your credit reports. Checking your own credit report counts as a soft pull, as do most other situations where the consumer hasn’t given written permission. Hard pulls are typically done only when you’re applying for a loan or new credit account.

If you’re thinking of opening a new credit card or raising your credit limit on an existing account, consider a personal loan instead. With a SoFi Personal Loan, you can borrow between $5,000 and $100,000 for home improvements, credit card consolidation, medical costs, and more. And you can check your rate in 60 seconds without affecting your credit score.

SoFi’s Personal Loan was named NerdWallet’s 2022 winner for Best Personal
Loan for Good and Excellent Credit and Best Online Personal Loan overall.

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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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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

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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