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Building a strong credit score takes time, and there is no time like the present to start working on improving your credit score. Even teenagers can help themselves get a leg up in the financial world by playing the credit game responsibly. What is the average credit score for a 19-year-old? According to FICO, the average Gen Zer (ages 18 to 27) has an average credit score of 680.

Keep reading for more insight into the average credit score of a 19-year-old, what factors affect credit scores, and how to build an impressive score.

Average Credit Score for a 19-Year-Old

All young adults can benefit from taking an interest in their credit score. And no matter your age, it helps to understand what credit score range you should be working toward. What’s the average credit score for a 19-year-old? As we mentioned, the average credit score for Gen Zers is 680.

A 680 credit score is considered good, but ideally teenagers and older consumers want to work toward a “very good” or “excellent” score. A very good credit score falls in the 740 to 779 range, and excellent is a score of 780 or higher.

Recommended: How Often Does Your Credit Score Update?

What Is a Credit Score?

A credit score is a three-digit numerical representation of an individual’s creditworthiness that credit scoring models calculate based on the consumer’s credit history. This calculation takes into account factors like payment history, debt levels, and the length of their credit activity.

Lenders use credit scores to assess the risk of lending money or extending credit. In general, the higher a credit score is, the less risk the borrower poses to the lender, as a high score indicates you are a responsible borrower.

Credit scores and credit reports are not the same thing. A credit report is a detailed record of an individual’s credit history, including information on loans, credit cards, payment history, and any bankruptcies or defaults. A credit score, on the other hand, is a numerical value derived from the information in the credit report.

So when it comes to credit, your goal is to keep your credit report healthy so your credit score reflects that good behavior. You can check your credit score from time to time to ensure you’re making progress.

What Is the Average Credit Score?

There is no one standard credit score a 19-year-old should expect to maintain, but understanding what the average credit score is can help teens know what benchmark to work toward. As of October 2024, the average credit score for U.S. consumers was 717, according to FICO. This is categorized as a good credit score.

Average Credit Score by Age

It takes time to build a strong credit score, so young adults shouldn’t be too worried if their starting credit score is on the lower side. You can see from this table how the average credit score improves over time.

What’s a Good Credit Score for Your Age?

Younger borrowers often face a disadvantage in building a high credit score since factors like having a long credit history, diverse credit mix, and consistent payment history require time to develop. However, borrowers typically aim for at least a “good” score and, ideally, over time can make their way into the “very good” or “exceptional” tiers.

How Are Credit Scores Used?

Because the primary use of credit scores is during the credit application process, it’s easy to overlook the fact that credit scores can impact different areas of your life. Yes, primarily lenders use credit scores to help determine if they want to lend money to a borrower and at what terms. But potential employers and landlords can also use credit scores to get an idea of how responsibly you handle money.

Factors Influencing the Average Credit Score

Building and maintaining a good credit score is an ongoing task. Consumers who want to keep their credit score nice and high for many years to come can benefit from learning what factors influence their credit score.

One of the best ways to keep your credit score in good standing is to understand how your credit behavior impacts your score. What affects your credit score? Your FICO Score, the most widely used credit scoring model, is influenced by five key factors. These factors include: payment history, amounts owed, length of credit history, types of credit used, and recent credit inquiries.

The impact of each factor on your overall score varies, with payment history and amounts owed typically playing the largest roles. Other models like VantageScore work in a similar way but may weigh these factors differently.

How to Strengthen Your Credit Score

You don’t have to have perfect credit habits to improve your credit score, but trying to master as many of these factors as you can will help boost your FICO Score over time.

•   Payment history: Missing a payment can negatively affect your score, so always make payments on time. This is the most important factor to stay on top of. If you struggle to stick to a budget, use a spending app to monitor your spending so you can afford to pay off your balances in full at the end of the month.

•   Amounts owed: Keep credit utilization low to show lenders you can manage debt.

•   Length of credit history: A longer history reflects reliability.

•   New credit: Avoid making frequent credit applications in a short amount of time, as doing so can temporarily lower your credit score.

•   Credit mix: Having a diverse mix of credit types suggests strong financial management.

Use a free credit score monitoring tool to track your improvement efforts.

How Does My Age Affect My Credit Score?

How long does it take to build credit? Being older may work in your favor when it comes to credit scores, but unfortunately you can’t speed up the clock.

As you age, you can expect some areas of your credit report to improve. For example, a 40-year-old has had much more time than a college student to build a long credit history, responsibly manage a mix of credit types, and make consistent, on-time payments.

What Factors Affect My Credit Score?

As we discussed, there are a number of factors that go into your credit score. Your payment history, credit utilization ratio, length of credit history, credit mix, and recently opened credit accounts all impact how high or low your credit score is.

At What Age Does Credit Score Improve the Most?

Because so many credit scoring factors rely on the benefit of time to improve naturally, it’s not surprising that we see that older consumers make a lot of credit score progress. Baby Boomers, in particular, may see a dramatic increase in their score compared to younger generations. As of 2023, consumers aged 59-77 have an average FICO Score of 745. Meanwhile, Generation X consumers (ages 43-58) have an average score of 709.

How to Build Credit

It can be challenging to obtain credit unless you already proved you can responsibly handle a loan or credit card. You can use a credit card to start your credit journey. While borrowers with high credit scores qualify for better cards with more favorable rates, you can find credit cards to qualify for with any credit score (even if you need to use a secured credit card to build credit).

Making timely payments is key here — a money tracker app can help you manage bill paying. Also, pay off your balance in full each month to keep your credit score happy and to avoid pesky interest charges.

Credit Score Tips

To maintain a healthy credit score, practice good habits like paying bills on time, keeping account balances under 30% of your credit limit, and avoiding frequent credit applications.

It’s also important to keep older accounts open to build credit history, maintain a diverse mix of credit types, and regularly check your credit report for errors. If you spot discrepancies, be sure to dispute them. These actions can help strengthen your creditworthiness and protect your score over time.

Recommended: Why Did My Credit Score Drop After a Dispute?

The Takeaway

Taking good care of your credit score makes it easier to obtain favorable borrowing rates and terms. Consistency is key here. If you can master good credit habits at age 19, it gets easier and easier to keep your credit score nice and healthy.

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

FAQ

How to raise your credit score 200 points in 30 days?

Raising your credit score by 200 points in 30 days is challenging but may be possible in some situations. To start, pay off any outstanding balances, particularly high-interest ones, and reduce credit card utilization below 30%. Lowering this ratio is one of the fastest ways to see credit score movement. You can also consider disputing any inaccuracies in your credit report for a quick fix (if an error occurred that is harming your credit score).

Is a 650 credit score good at 18?

Having a credit score of 650 at the age of 18 is very impressive. While this is only a “fair” credit score by FICO standards, it’s a strong step in the right direction, and most teenagers don’t have an immediate need for a super high credit score.

How to get 800 credit score in 45 days?

Achieving an 800 score in 45 days is difficult unless you already have a very high credit score. To make swift progress, focus on paying off existing debt, reducing credit utilization, and ensuring all payments are made on time.

How to get a 600 credit score at 18?

The only way to have a credit score of 600 at 18 is to hit the ground running. Your parents can help you build your credit score before turning 18 by making you an authorized user on their credit card, or you can open a secured credit card when you turn 18. And be sure to make consistent, on-time payments to the card.

Can you get a 700 credit score in 6 months?

Achieving a 700 credit score in six months is possible, but how realistic this goal is depends on your current credit score and how committed you are to improving it. Focus on paying down high-interest debt, keeping credit utilization low, making all payments on time, and ensuring your credit report is accurate.

What is the starting credit score for an 18-year-old?

The starting credit score for an 18-year-old is 300 (unless their parents helped them build a credit history before they turned 18). To make it easier to build their credit score at a young age, 18-year-olds can open a credit account, such as a secured credit card. That way, they can start building their score by making responsible payments.

Photo credit: iStock/Prostock-Studio

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

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

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

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

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

SORL-Q424-034

Personal loans used to be considered a last resort to resolve cash flow issues. Today, according to VantageScore, personal loans are the fastest-growing lending vehicle in the nation.

Personal loans are appealing partly because of their flexibility. They can be used for almost any purpose, whether to fix up a home or consolidate credit card debt. Borrowers can receive anywhere from $1,000 to $100,000, choose a fixed or variable interest rate, and even select the length of the loan.

Read on to find out more about how personal loans work, how to qualify, their advantages and disadvantages, and whether a $15,000 personal loan is right for you.

Understanding $15,000 Personal Loans

A $15,000 personal loan is a sizable amount that can serve many purposes. Common personal loan uses include making large purchases, covering living expenses for a defined period, consolidating debt, and paying off a credit card with a higher interest rate.

Here are some factors to consider before applying for a $15,000 loan:

•   Interest rate. Interest rates can be fixed or variable. The interest rate that a lender charges will depend on your credit rating and the length of the loan, but rates are typically lower than for other forms of debt. Generally, the better your credit score, the lower your interest rates will be.

•   Repayment term. This is how long you have to pay off a loan for $15,000. You may pay less in interest over the life of the loan if you choose a loan with a shorter repayment term.

•   Monthly payments. Most personal loans have fixed monthly payments based on the amount borrowed, the interest rate, and the term. This makes budgeting easier because the borrower knows how much they must pay each month.

•   Fees. Charges vary by lender but may include late penalties, an origination fee, returned check fee, and prepayment penalties if you pay off your loan early.

•   Collateral. Personal loans are typically unsecured, which means no collateral is required. If you don’t qualify only for an unsecured loan, you may select a loan cosigner with a stronger credit rating to help you get approved.

Recommended: Guarantor vs Cosigner

Qualification Requirements for a $15,000 Personal Loan

You will likely need a credit score of at least 660 for a $15,000 personal loan. However, many lenders don’t state a minimum required credit score because they will vary the terms for each borrower depending on their credit history. As we mentioned, the higher your score, the more money you could qualify for and the better the interest rate.

But your credit score is only one factor that lenders consider. They may also want to see that you are employed and have sufficient income to repay the loan. You may be asked to show proof of income and employment, often with pay stubs, W2s and/or a signed letter from your employer. Self-employed? You could be required to share copies of your latest tax returns or bank deposit information.

Another important personal loan qualification is debt-to-income ratio (DTI), which compares your gross monthly income to the monthly payments you make on your debts. In general, the lower your DTI, the more desirable you are as a borrower for a lender. A good rule of thumb is to maintain a DTI ratio of 36% or less.

Exploring Lenders for $15,000 Personal Loans

Online lenders, traditional banks, and credit unions all provide $15,000 personal loans. Some online lenders prequalify borrowers so they can see the terms, and many will deposit funds into a bank account within one to two days.

Traditional banks and credit unions may offer better terms to their members because there is a pre-existing relationship. But they may also want to meet with a borrower in person to negotiate the loan.

Loan amounts can range from $1,000 up to $100,000. The average interest rate on a personal loan is currently 12.33%. But the rate you receive will depend in part on your credit score, loan amount, and length of the loan.

A personal loan calculator can help you determine borrowing costs. In the example below, notice how different loan terms and interest rates impact the total cost of a $15,000 loan.

Tips for a Successful $15,000 Personal Loan Application

The steps to getting approved for a personal loan are typically the same regardless of the lender. The first step, before you even apply, is to review your credit history. You can pull a report for free from each of the three major credit bureaus — Equifax, Experian, and TransUnion — from the website AnnualCreditReport.com. Then you can file a dispute online to have any inaccuracies removed. This can boost your credit rating and ensure you get the best terms from a lender.

Here are the basic application steps you’ll need to be prepared for:

1. Check Your Eligibility

Shop around for the best loan terms and find out if you qualify. Check both online lenders and traditional lenders, paying special attention to origination fees and prepayment penalties.

2. Get Prequalified

Getting prequalified will show you what terms the lender is offering based on your credit history. Fill out the online form, including how much you want to borrow and your desired payoff time frame.

Lenders will pull your credit report to prequalify you, which may ding your credit score. Focus on lenders who will perform a “soft inquiry” for prequalification, which will not affect your credit rating.

Recommended: What’s the Difference Between a Hard and Soft Credit Check?

3. Check the Terms

Once you are prequalified, review the preapproval letter and check the loan amount. Check whether it is an unsecured or secured loan, the annual percentage rate (APR), and whether the interest rate is fixed or variable. Pay attention to the monthly payment and the payback term. Also look for fees, penalties, and other potential charges.

4. Apply for the Loan

Gather the documents that you will need to apply for the loan. Borrowers typically need to upload a pay stub, mortgage or rent agreement, debt documentation, proof of identity, and their social security number.

Managing and Repaying Your $15,000 Personal Loan

It’s understandable if your focus is mostly on how to get approved for a personal loan. But just as important is figuring out how you’ll pay it back.

A good starting point is to get yourself on a budget. Review your income and expenses over the past three to six months, and categorize where your money is going. That will help you spot areas where you can cut back, if needed. It’s also a smart idea to reread your loan terms and conditions so you can avoid unexpected costs and issues over the life of your loan.

If you want to pay down your loan faster, there are some strategies to explore. One is to make extra payments, which will reduce the total amount you owe. Note that some lenders charge an early repayment penalty that could outweigh the amount you’d save by paying off your loan early.

Another option is to refinance your loan. When you refinance, you replace your current loan with a new one that ideally has a lower interest rate. This could be a good strategy if your credit score has improved since you first took out the loan, and you can now qualify for a better rate.

Improving Credit Score for Future Loan Opportunities

One effective way to position yourself for better loan rates and terms is to work on boosting your credit score. As we mentioned, lenders usually prefer to see a credit score of at least 660 to qualify for a $15,000 personal loan, though credit requirements vary.

If your credit isn’t where you want it to be, there are several ways to build (or rebuild) it. Here are some steps you can take:

•   Pay your bills on time, every time. Lenders like to see a history of on-time payments, plus it can boost your credit profile.

•   Pay down debts. Besides showing lenders that you can manage your credit responsibly, paying off debts can lower your credit utilization ratio, which is 30% of your FICO® Score. Aim for a ratio of 30% or under.

•   Don’t close older accounts. Doing so can bring down the length of your credit history, which makes up 15% of your credit score.

•   Diversify your credit mix. Having a mix of credit products can positively impact your credit (credit mix accounts for 10% of your score). Examples run the gamut from credit cards to personal loans to student loan refinancing.

The Takeaway

Personal loan interest rates are determined by a borrower’s credit rating and financial history. The higher the credit rating, the lower the interest rate. For consumers with good credit, a $15,000 personal loan can be a more affordable form of debt than credit cards. For consumers with bad credit, the higher interest rate may make a $15,000 personal loan less attractive.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

FAQ

What credit score is needed for a personal loan for $15,000?

A credit score of at least 660 is typically required for a $15,000 personal loan. Some lenders that cater to people with poor credit will charge higher interest rates and fees to cover their elevated risk.

How long can I get a $15,000 personal loan for?

Personal loans are typically for three, five, or seven years. The shorter the repayment period, the less interest you will pay over the life of the loan.

What would payments be on a $15,000 personal loan?

The monthly payments on a $15,000 loan depend on the interest rate and repayment terms. If you know how much you want to borrow, over what period, and at what interest rate, an online loan calculator can tell you what your payments will be.

Photo credit: iStock/fizkes

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.

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.

SOPL-Q424-049

While revolving credit provides borrowers with flexibility, too much revolving debt can be crippling. Even with falling interest rates, the most vulnerable credit card holders can use some help.

Let’s look at ways of dealing with mounting revolving debt. But first, here’s a primer on what revolving debt is and how it differs from installment debt.

A Closer Look at Revolving Debt

There are two main categories of debt: revolving and installment. Revolving credit lets you borrow money up to an approved limit, pay it back, and borrow again as needed. The two most common revolving accounts are credit cards and a home equity line of credit (HELOC).

HELOCs are offered to qualified homeowners who have sufficient equity in their homes. Most have a draw period of 10 years, followed by a repayment period. A less common type of revolving credit is a personal line of credit, usually obtained by an existing customer of a lending institution.

Then there are credit cards, which became part of the American fabric in the 1950s, starting with the cardboard Diners Club card. You can choose to make credit card minimum payments, pay off the entire balance each month, or pay some amount in between. If you don’t pay off the full balance when it’s due, your balance will accrue interest.

That’s one of the quiet dangers of revolving debt: If you haven’t reached your limit, you can continue to borrow while you owe money, which adds to your debt and to the amount of interest accruing on it.

Recommended: Credit Card Rules to Live By

Revolving Debt vs. Installment Debt

Now let’s take a look at installment debt. It differs from revolving debt in a few key ways — namely, how you borrow money, how you pay it back, and how interest is calculated.

Installment credit comes in the form of a loan that you pay back in installments every month until the loan is paid off. Think mortgages, auto loans, personal loans, and student loans.

Installment loans can be secured with collateral, or they can be unsecured. Some loans could have fees, and the interest rate may fluctuate, depending on whether you have a fixed or variable rate loan. The loan amount is determined when you’re approved.

There are benefits and drawbacks to both types of debt. Let’s take a look.

Revolving Debt Pros and Cons

Pros:

•   Borrow only what you need

•   Can access credit quickly

•   May qualify for high borrowing limit

Cons:

•   Will have a credit limit

•   Can have high interest rates

•   Can be easy to run up a big balance

Installment Debt Pros and Cons

Pros:

•   Can cover large or small expenses

•   Payments are predicable

•   Can refinance to a lower rate

Cons:

•   Interest applies to the entire loan amount

•   Can’t add to the loan amount once it’s finalized

•   Long repayment terms are possible

Secured and Unsecured Debt

Now is a good time to touch on secured vs. unsecured debt (and why credit card debt is especially pernicious). Mortgages, HELOCs, home equity loans, and auto loans are secured by collateral: the home or car. If you stop making payments, the lender can take the asset.

An unsecured loan does not require the borrower to pledge any collateral. Most personal loans are unsecured. The vast majority of credit cards are unsecured. Student loans are unsecured, and personal lines of credit are usually unsecured.

That means lenders have no asset to seize if the borrower stops paying on unsecured debt. Because of the higher risk to lenders, unsecured credit typically has a higher interest rate than secured credit.

Which leads us to the common credit card trap: The average annual percentage rate (APR) for credit cards accruing interest was 22.63% in early 2024 … and rising. The APR on a credit card includes interest and fees.

Perhaps you can see how “revolvers” — borrowers who carry a balance month to month — can easily get caught in a trap. The average household of credit card revolvers owes $6,380 according to recent data from TransUnion. Some owe much more.

Recommended: Personal Loan vs Personal Line of Credit

Types of Revolving Credit

As we discussed earlier, common types of revolving credit accounts include HELOCs, credit cards, and personal lines of credit. Each type has features and benefits that are worth knowing.

A credit card, for instance, is convenient to use — especially for everyday purchases — and may come with extra benefits like rewards programs, airline miles, or cashback offers. Depending on the card, you might also have access to purchase protection, which reimburses you for damaged or stolen items.

With a HELOC, you leverage your home’s equity to get the funds you need, up to an approved limit, during a typical 10-year draw period. A HELOC can be a good option if you’re looking to pay for home improvements or ongoing expenses or to cover a financial emergency.

Have a less-than-predictable income or facing a major ongoing expense, like a home renovation? If you have good credit, a personal line of credit may be the right choice. It’s flexible, so you can withdraw money as you need it, though your lender may set a minimum draw amount.

How Revolving Debt Can Affect Your Credit Score

Both installment and revolving debt influence your score on the credit rating scale, which typically ranges from 300 to 850.

Your credit utilization ratio is a big factor. It’s the amount of revolving credit you’re using divided by the total amount of revolving credit you have available, expressed as a percentage.

Most lenders like to see a credit utilization rate of 30% or lower, which indicates that you live within your means and use credit cards responsibly.

The most important element of a FICO® Score is payment history. It accounts for 35% of your credit score, so even one late payment — a payment overdue by at least 30 days — will damage a credit score.

And unfortunately, late payments stay on a credit report for seven years.

Tips for Managing Revolving Debt

Ideally, we’d all avoid interest on credit cards by paying off the balance each month. But if you do carry a balance, you have plenty of company. Forty-six percent of Americans carry a balance on active credit card accounts, recent data from the American Bankers Association shows.

If your revolving credit card debt has become unwieldy, there are ways to try to get it under control.

Budget Strategies

The fastest ways to pay off debt call for creating a budget to plan how much you will spend and save each month.

With the avalanche method, for example, you pay off your accounts in the order of highest interest rate to lowest. The 50/30/20 budget works for some people: Those are the percentages of net pay allotted toward needs, wants, and savings.

Debt Consolidation

Do you have high-interest credit card balances? You may be able to transfer that debt to a credit card consolidation loan.

Consolidating high-interest credit card balances into a lower-rate personal loan will typically save you money. Most personal loans come with a fixed rate, which results in predictable payments, and just one a month.

Installment loans do not count toward credit utilization. So using a personal loan to pay off higher-interest revolving debt will lower your credit utilization ratio (a good thing) as long as you keep those credit card accounts open. (Yes, closing a credit card can hurt your credit score.)

Homeowners using a home equity loan or HELOC to consolidate high-interest credit card debt can substantially lower their monthly payments. However, their home will be on the line, and closing costs may come into play.

Another method, cash-out refinancing, is a good move only when a homeowner can get a better mortgage rate and plans to stay in the home beyond the break-even point on closing costs.

Balance Transfer

A balance transfer card is another way to deal with high-interest debt. Most balance transfer credit cards temporarily offer a lower or 0% interest rate. But they may charge a balance transfer fee of 3% to 5%, and they require vigilance.

Make one late payment on the new card, and you’ll usually forfeit the promotional APR and have to pay a sky-high penalty APR. You’ll need to keep track of the day when the promotional rate expires so any balance is not subject to the high rate.

Debt Settlement

A debt settlement company may be able to reduce a pile of unsecured debt. There are many drawbacks to this route, though.

You will usually stop paying creditors, so mounting interest and late fees will cause your balances to balloon. Instead, you’ll make payments to an escrow account held by the debt settlement company. Funding it could take up to four years.

What’s more, your credit scores will be damaged, there is no guarantee of a successful outcome, it can be very expensive, and if a portion of your debt is forgiven, it probably will be considered taxable income.

This and bankruptcy options are considered last resorts. If you do go with a debt settlement company, know that those affiliated with the American Fair Credit Council agree to abide by a code of conduct.

Credit Counseling

A credit counseling service might be able to help. The Federal Trade Commission advises looking for a nonprofit program, but it adds that “nonprofit” does not guarantee that services are free, affordable, or even legitimate.

Look into credit counseling organizations affiliated with the National Foundation for Credit Counseling, National Association of Certified Credit Counselors, or Financial Counseling Association of America.

The Department of Justice keeps a list of approved credit counseling agencies. Also check with state and local consumer agencies.

A credit card hardship program addresses temporary setbacks. However, not all card companies have one.

The Takeaway

Revolving credit offers flexibility, but if left unchecked can devolve into runaway revolving debt. Credit card debt is especially pernicious, thanks to high interest rates charged to revolving balances. Debt consolidation, one approach to tame mounting revolving debt and the stress that comes with it, aims to lower your monthly payments.

Another option to consider is a lower-interest loan. It will result in a smaller monthly payment amount and just one payment to keep track of each month. The personal loan tends to be funded fast, has a fixed rate, and usually comes with no fees required.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

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 .

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

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

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

SOPL-Q424-019

If you’re looking for a tool you can use to borrow money when you need it, you may be wondering which is the better choice: a personal line of credit or a home equity line of credit (HELOC).

In this guide we’ll compare these two types of credit lines — both of which function similarly to a credit card but typically have a lower interest rate and a higher credit limit. We’ll also cover some of the pros and cons of using a personal line of credit vs. a HELOC.

What Is a Personal Line of Credit?

A personal line of credit, sometimes shortened to PLOC, is a revolving credit account that allows you to borrow money as you need it, up to a preset limit.

Instead of borrowing a lump sum and making fixed monthly payments on that amount, as you would with a traditional installment loan, a personal line of credit allows you to draw funds as needed during a predetermined draw period. You’re required to make payments based only on your outstanding balance during the draw period.

In that way, a PLOC works like a credit card. Generally, you can pay as much as you want each month toward your balance, as long as you make at least the minimum payment due. The money you repay is added back to your credit limit, so it’s available for you to use again.

You can use a personal line of credit for just about anything you like as long you stay within your limit, which could range from $1,000 to $100,000, and possibly more.

A PLOC is usually unsecured debt, which means you don’t have to use collateral to qualify. The lender will base decisions about the amount you can borrow and the interest rate you’ll pay on your personal creditworthiness.

Can a Personal Line of Credit Be Used to Buy a House?

If you could qualify for a high enough credit limit — or if the property you want to buy is being sold at an extremely low price — you might be able to purchase a house with a personal line of credit. But it may not be the best tool available.

A traditional mortgage, secured by the home that’s being purchased, may have lower overall costs than a personal line of credit. There are several different types of mortgage loans to choose from.

A variable rate, which is typical of personal lines of credit, might not be the best option for a large purchase that could take a long time to pay off. Your payments could go lower, but they also could go higher. If interest rates increase, your loan could become unaffordable. With a traditional mortgage, you would have the option of a fixed rate or a variable one.

Another consideration: If you use all or most of your PLOC to make a major purchase like a home, it could have a negative impact on your credit score and future borrowing ability. The amount of revolving credit you’re using vs. how much you have available — your credit utilization ratio — is an important factor that affects your credit score. Lenders typically prefer this number to be less than 30%.

What Is a HELOC?

A HELOC is a revolving line of credit that is secured by the borrower’s home. It, too, usually has a variable interest rate.

Lenders typically will allow you to use a HELOC to borrow a large percentage of your home’s current value minus the amount you owe. That’s your home equity.

A lender also may review your credit score, credit history, employment history, and debt-to-income ratio (monthly debts / gross monthly income = DTI) when determining your borrowing limit and interest rate.

Recommended: Learn More About How HELOCs Work

Personal Line of Credit vs HELOC Compared

If you’re comparing a personal line of credit with a HELOC, you’ll find many similarities. But there are important differences to keep in mind as well.

Similarities

Here are some ways in which a personal line of credit and a HELOC are alike:

•   Both are revolving credit accounts. Money can be borrowed, repaid, and borrowed again, up to the credit limit.

•   Both have a draw period and a repayment period. The draw period is typically 10 years, with monthly minimum payments required. The repayment period may be up to 20 years after the draw period ends.

•   Access to funds is convenient. Withdrawals can be made by check or debit card, depending on how the lender sets up the loan.

•   Lenders may charge monthly fees, transaction fees, or late or prepayment fees on either. It’s important to understand potential fees before closing.

•   Both typically have variable interest rates, which can affect the overall cost of the line of credit over time. (Each occasionally comes with a fixed rate. The starting rate of a fixed-rate HELOC is usually higher. The draw period of a fixed-rate personal line of credit could be relatively short.)

•   For both, you’ll usually need a FICO® score of 680. Your credit score also affects the interest rate you’re offered and credit limit.

Differences

The biggest difference between a HELOC and a personal line of credit is that a HELOC is secured. That can affect the borrower in a few ways, including:

•   In exchange for the risk that HELOC borrowers take (they could lose their home if they were to default on payments), they generally qualify for lower interest rates. HELOC borrowers also may qualify for a higher credit limit.

•   With a HELOC, the lender may require a home appraisal, which might slow down the approval process and be an added expense. HELOCs also typically come with other closing costs, but some lenders will reduce or waive them if you keep the loan open for a certain period — usually three years.

•   A borrower assumes the risk of losing their home if they default on a HELOC. A personal line of credit does not come with a risk of that significance.

Recommended: Credit Cards vs. Personal Loans

Pros and Cons of HELOCs

A HELOC and personal line of credit share many of the same pros and cons. An advantage of borrowing with a HELOC, however, is that because it’s secured, the interest rate may be more favorable than that of a personal line of credit.

A HELOC may offer a tax benefit if you itemize and take the mortgage interest deduction. But there are potential downsides, too.

Pros and Cons of Personal Lines of Credit

Because you draw just the amount of money you need at any one time, a personal line of credit can be a good way to pay for home renovations, ongoing medical or dental treatments, or other expenses that might be spread out over time.

You pay interest only on the funds you’ve drawn, not the entire line of credit that’s available, which can keep monthly costs down. As you make payments, the line of credit is replenished, so you can borrow repeatedly during the draw period. And you don’t have to come up with collateral.

But there are other factors to be wary of. Here’s a summary.

Alternatives to Lines of Credit

As you consider the pros and cons of a HELOC vs. a personal LOC, you also may wish to evaluate some alternative borrowing strategies, including:

Personal Loan

As you’re thinking about a personal loan vs. a personal line of credit, the big difference is that, with a personal loan, a borrower receives a lump sum and makes fixed monthly payments, with interest, until the loan is repaid.

Most personal loans are unsecured, and most come with a fixed interest rate. The rate and other terms are determined by the borrower’s credit score, income, debt level, and other factors.

You’ll owe interest from day one on the full amount that you borrow. But if you’re using the loan to make a large purchase, consolidate debt, or pay off one big bill, it may make sense to borrow a specific amount and budget around the predictable monthly payments.

Personal loan rates and fees can vary significantly by lender and borrower. You can use a loan comparison site to check multiple lenders’ rates and terms, or you can go to individual websites to find a match for your goals.

Auto Loan

If you’re thinking about buying a car with a personal loan, you may want to consider an auto loan, an installment loan that’s secured by the car being purchased. Qualification may be easier than for an unsecured personal loan or personal line of credit.

Most auto loans have a fixed interest rate that’s based on the applicant’s creditworthiness, the loan amount, and the type of vehicle that’s being purchased.

Down the road, if you think you can get a better interest rate, you can look into car refinancing.

Beware no credit check loans. Car title loans have very short repayment periods and sky-high interest rates.

Mortgage

A mortgage is an installment loan that is secured by the real estate you’re purchasing or refinancing. You’ll likely need a down payment, and borrowers typically pay closing costs of 2% to 5% of the loan amount.

A mortgage may have a fixed or adjustable interest rate. An adjustable-rate mortgage typically starts with a lower interest rate than its fixed-rate counterpart. The most common repayment period, or mortgage term, is 30 years.

Your ability to qualify for the mortgage you want may depend on your creditworthiness, down payment, and value of the home.

Credit Cards

A credit card is a revolving line of credit that may be used for day-to-day purchases like groceries, gas, or online shopping. You likely have more than one already. Gen X and baby boomers have an average of more than four credit cards per person, Experian has found, and even Gen Z, the youngest generation, averages two cards per person.

Convenience can be one of the best and worst things about using credit cards. You can use them almost anywhere to pay for almost anything. But it can be easy to accrue debt you can’t repay.

Because most credit cards are unsecured, interest rates can be higher than for other types of borrowing. Making late payments or using a high percentage of your credit limit can hurt your credit score. And making just the minimum payment can cost you in interest and credit score.

If you manage your cards wisely, however, credit card rewards can add up. And you may be able to qualify for a low- or no-interest introductory offer.

Credit card issuers typically base a consumer’s interest rate and credit limit on their credit score, income, and other financial factors.

Student Loans

Federal student loans typically offer lower interest rates and more borrower protections than private student loans or other lending options.

But if your federal financial aid package doesn’t cover all of your education costs, it could be worth comparing what private lenders offer.

The Takeaway

A HELOC or a personal line of credit can be useful for borrowers whose costs are spread out over time, especially those who don’t want to pay interest from day one on a lump-sum loan that may be more money than they need.

SoFi now offers flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively low rates. And the application process is quick and convenient.

FAQ

What is better, a home equity line of credit or a personal line of credit?

If you qualify for both, a HELOC will almost always come with a lower interest rate.

Can I use a HELOC for personal use?

Yes. HELOC withdrawals can be used for almost anything, but the line of credit is best suited for ongoing expenses like home renovations, medical bills, or college expenses. Some people secure a HELOC as a safety net during uncertain times.

How many years do you have to pay off a HELOC?

Most HELOCs have a “draw period” of 10 years, followed by a repayment period.

What happens if you don’t use your home equity line of credit?

Having a HELOC you don’t use could help your credit score by improving your credit utilization ratio.

How high of a credit score is needed for a line of credit?

Personal lines of credit are usually reserved for borrowers with a credit score of 680 or higher. A credit score of at least 680 is typically needed for HELOC approval, but requirements can vary among lenders. Some may be more lenient if an applicant has a good debt-to-income ratio or accepts a lower loan limit.

Does a HELOC increase your mortgage payments?

The HELOC is a separate loan from your mortgage. The two payments are not made together.

Photo credit: iStock/KTStock

SoFi Mortgages
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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.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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Taking out a personal loan can both help and hurt your credit. In the short term, applying for a new loan can have a small, negative impact on your scores, due to the hard inquiry by the lender. If managed well, however, having a personal loan can boost your credit profile over time by adding to your positive payment history and broadening your credit mix. This could make it easier to get approved for loans and credit cards with attractive rates and terms in the future.

Here’s a closer look at how personal loans affect your credit score, both positively and negatively, plus guidelines on when it makes sense to take one out.

How Is Your Credit Score Calculated?

Understanding how personal loans impact your credit starts with knowing how your credit score is calculated. The most common credit scoring model, FICO®, uses five components to calculate your score. Here’s a look at each factor and how much weight it’s given in FICO’s calculation.

•   Payment History (35%): Your record of making on-time payments to lenders is the most important component of your score. This helps creditors determine how much risk they are taking on by extending credit.

•   Amounts Owed (30%): This includes the total amount of debt you currently have and your credit utilization ratio, which measures the percentage of available credit you’re using. If you’re tapping a lot of your available credit on your credit cards, it suggests you may be overextended and, thus, at higher risk of defaulting on a loan.

•   Length of Credit History (15%): This factor takes into account the average age of your accounts, the age of your oldest account, and how long it has been since you used certain accounts. Generally, having a longer credit history can positively affect your score.

•   New Credit (10%): A small but still important part of your score is how much new credit you’ve recently taken out. Opening new accounts or having too many credit inquiries can temporarily lower your score.

•   Credit Mix (10%): Your credit mix looks at how many different types of credit you hold. Having a variety of credit types — like credit cards, retail accounts, and installment loans — can positively affect your score.

A personal loan can influence several of these factors, for better or worse, depending on how you manage it.

How Do Personal Loans Work?

A personal loan is a lump sum of money borrowed from a lender, such as a bank, credit union, or online lender. Personal loans are typically unsecured, meaning you don’t need to provide collateral (like your car or home), and can be used for various purposes like consolidating debt, covering medical bills, or funding a wedding.

When you take out a personal loan, you agree to repay it in fixed monthly installments over a predetermined period, usually ranging from two to seven years. The interest rate, determined by your creditworthiness, and any lender fees affect how much you’ll pay in total.

Recommended: Is There a Minimum Credit Score for Getting a Personal Loan?

Ways Personal Loans Can Hurt Your Credit

While personal loans can be beneficial, they also have the potential to harm your credit. Here’s how:

Requires a Hard Credit Inquiry

When you apply for a personal loan, the lender typically performs a hard credit inquiry to evaluate your creditworthiness, which can adversely impact your credit score. Hard inquiries remain on your credit report for two years. However, their negative effect on your score is minor (typically 5 points or less) and lasts only about a year.

Note that prequalifying for a personal loan, which involves a soft inquiry, won’t have any impact on your score. This can give you an estimate of the interest rate and loan amount you can expect in a loan offer.

Can Increase Overall Debt

Taking out a personal loan can increase your overall debt, which can negatively affect the “amounts owed” component of your credit score. This may cause you to see a slight drop in your score. However, if you’re consolidating credit card debt, you will reduce that debt by paying it down with the personal loan, and your amounts owed won’t be impacted.

Can Negatively Impact Payment History If You Miss a Payment

Since payment history is the largest factor in credit scoring, missing just one payment on your personal loan can result in a substantial drop in your score. While being just a few days late may not affect your credit, lenders can report payments that are more than 30 days overdue to the credit bureaus. Late payments remain on your credit reports for seven years.

Setting up autopay or reminders can help ensure you make your payments on time and avoid this credit score setback.

Can Shorten Your Credit History

Taking on a new loan can shorten the average age of your credit accounts, which could have a small negative impact on your score. Generally, a longer credit history is considered better than a shorter one.

How Personal Loans Can Help Your Credit

Despite the risks, personal loans can also positively influence your credit when managed wisely. Here’s how:

Can Add to Your Credit Mix

Your credit mix accounts for 10% of your score. Adding a personal loan to your portfolio — especially if you primarily have revolving credit, like credit cards — can enhance your credit profile by showing that you can manage different types of credit responsibly.

Can Improve Your On-Time Payment History

Consistently making on-time payments on your personal loan demonstrates financial responsibility, which can strengthen your payment history — the most significant component of your score. It may take a few months for the benefits to show up but over time, this can positively impact your credit.

May Help Lower Your Credit Utilization Ratio

If you take out a personal loan to pay off high-interest credit card debt (also known as a credit card consolidation loan), you can lower your credit utilization ratio, which is the percentage of your available credit you’re using. A lower ratio — ideally under 30% — is generally beneficial for your credit. However, this strategy only works if you keep your credit card spending low after paying off your balances with the loan.

When to Consider Taking Out a Personal Loan

Even though applying for a personal loan may result in a small, temporary drop in your credit score, there are times when taking on this type of debt can be a smart financial move. Here are some scenarios where you might consider getting a personal loan.

•  You want to consolidate high-interest debt: Personal loans typically have lower interest rates than credit cards, making them an attractive choice for paying off expensive credit card debt. An online personal loan calculator can help you determine how much you could potentially save. If you’re juggling several credit cards, a debt consolidation loan can also simplify repayment.

•  You’re facing unexpected expenses: Medical bills, home and car repairs, or other emergencies can sometimes justify taking out a loan. Using a personal loan may be more cost effective than putting these expenses on your credit card.

•  You have good or excellent credit: The best personal loan interest rates are generally reserved for borrowers who have strong credit. While there are personal loans for bad credit, they typically come with higher interest rates and other less-than-ideal terms.

•  You earn a steady paycheck: Getting a personal loan generally only makes sense if you have a regular income and earn enough to comfortably cover the monthly payments for the term you select.

The Takeaway

Personal loans can have a positive or negative impact on your credit depending on how you manage them. Initially, applying for a personal loan can slightly downgrade your score. This is due to the hard inquiry, as well as the loan’s impact on the average age of your accounts and (potentially) your overall debt load. However, if you repay the loan responsibly, having a personal loan can ultimately help your credit by adding positive payment history, diversifying your credit mix, and — if you use it pay off credit card debt — reducing your credit utilization rate.

Before taking out a personal loan, you’ll want to assess your financial situation, shop around for the best rates and terms, and make sure the monthly payments work with your budget.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

FAQ

Is a personal loan bad for your credit?

A personal loan isn’t inherently bad for your credit, but its impact depends on how you manage it. Initially, applying for a loan may lower your score slightly due to the hard credit inquiry. In addition, taking on more debt can increase your amounts owed, which might affect your score. However, consistently making on-time payments can boost your payment history, a major factor in credit scores. And if you use a personal loan to consolidate credit card debt, you’ll lower your credit utilization ratio (how much of your credit limit you are using), which can positively impact your credit.

Will a personal loan affect my credit card application?

It can. If you applied for the loan recently, the hard credit inquiry may have slightly lowered your credit scores. Having a personal loan can also lower the average age of your accounts and, potentially, increase your debt load, which can negatively impact your credit. Over time, however, having a personal loan can improve your credit profile by adding to your positive payment history and, if you use it to consolidate credit card debt, lowering your credit utilization, making it easier to get approved for a credit card.

Will a personal loan affect my car loan application?

It can. When assessing your eligibility for a car loan, lenders typically consider your credit score, debt-to-income ratio, and overall financial profile. The hard credit inquiry for the personal loan might lower your credit score temporarily. In addition, the added debt from the loan could increase your debt-to-income ratio, making you appear higher risk to a lender. On the other hand, responsible repayment of the personal loan shows financial discipline, which can improve your credit profile over time. Ultimately, this could make it easier to get a car loan with attractive rates and terms.

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.

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

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

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

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

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