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A persistent myth is that carrying a credit card balance will improve your credit score. If you’re wondering: do you have to carry a balance to build credit? The answer is no.

That being said, keeping a balance on a card can impact your credit — sometimes in negative ways. For instance, having a large balance can drive up your credit utilization rate, which impacts your credit score. And if you rack up too high of a balance on your credit card, you run the risk of starting to fall behind on payments.

What to Know About Carrying a Balance on Your Credit Card

When you carry a credit card balance, that means you did not pay off your last statement balance in full. Technically, you only have to make the minimum monthly payment by the due date to avoid a late fee. However, when you carry a balance, you’ll start to accrue interest on the unpaid amount.

Interest can add up quickly. For instance, let’s say you have a credit card balance of $5,000 and your credit card’s annual percentage rate (APR) is 24%. If you were to make monthly payments of $200, it would take you about 36 months to pay off the full amount, and you’d pay a grand sum of $2,000 in interest.

What Happens to Your Credit Score When You Carry a Balance?

Carrying a balance will cause your credit utilization to go up. Credit utilization compares your balance against your total credit limit across all of your cards, and it’s expressed as a percentage. For example, let’s say you have a balance of $1,000, and your total credit limit is $10,000. Your credit utilization would be 10%.

This matters because credit utilization is a major factor considered among popular consumer credit scoring models, such as the VantageScore and FICO, where it makes up 30% of your score. Generally, it’s advised to keep your credit utilization below 30% to avoid adverse effects to your score, though the lower, the better.

Situations in Which Carrying a Balance Isn’t Worth It

Sometimes, carrying a balance can give you a bit of breathing room to pay off a large purchase. But often, it’s not worth the potential effects on your credit score.

Your Credit Utilization Is Too High

If your credit utilization is too high because you’re carrying a large balance, it can hurt your score. Aim to pay off your credit card bill as soon as possible, rather than adding to your existing balance. That way, you’ll give your credit card a chance to bounce back.

Your Interest Rate Is High

If your balance is on a credit card with a high APR, you’ll want to think twice before carrying it. In general, credit cards tend to have higher interest rates than other types of debt, which is why credit card debt is hard to pay off. Plus, credit card interest accrues on a daily basis, so it’s easy for a balance to balloon.

You Can’t Keep Up With Payments

If you’re carrying a high balance, it’s probably best to keep your credit card balance to a minimum rather than adding to it and risking falling behind. The consequences of credit card late payment can include paying late fees, having your account sent to collections, and suffering potential impacts to your credit score.

When Will You Be Charged Interest on Your Credit Card Balance?

The majority of credit cards offer a grace period. During this time, you won’t be charged any interest. This grace period usually extends from the date your billing statement is issued to the credit card payment due date, and it’s typically at least 21 days long.

Once the grace period ends, you’ll be charged interest on your balance. Most credit card interest is compounded daily. In other words, each day interest will get charged to your account based on that day’s balance.

Advantages of Paying Off Your Credit Card on Time

Unsure of whether to pay off your credit card or keep a balance? Here’s the case for paying off your credit card on time and in full:

•   Avoid late fees and other consequences: Should you miss making your credit card minimum payment by the due date, you’ll get charged a late fee. Late fees typically range from $25 to $35. Plus, late payments of more than 30 days can get reported to the credit bureaus, affecting your credit score. You could also see an increase in your credit card APR.

•   Skip paying interest: Perhaps one of the biggest advantages of paying off your credit card balance in full is that you’ll avoid paying any interest. Thanks to the grace period, credit card interest only starts to accrue if you carry a remaining balance after the statement due date. Some credit cards even reward you for paying on-time. If you apply for a credit card with SoFi and get approved, for instance, you’ll get a lower APR after making 12 on-time monthly payments of at least the minimum due.

•   Dodge credit card debt: Paying off your statement balance in full will get you into the habit of only charging your credit card how much you can afford to pay. Plus, you’ll avoid the possibility of debt starting to pile up if you stay on top of your payments.

•   Lower your credit utilization: Another perk of paying off your credit card on time and in full is that it will lower your credit utilization rate. A lower credit utilization rate can positively affect your credit score — a rule of thumb to keep in mind if you’re working on building credit.

What Is the Best Way to Pay Off a Credit Card Balance?

The “best” way to pay off a credit card balance is whichever method works best for you and your unique financial situation. Some common ways to go about paying off a credit card balance, or making it easier to pay, include:

•   Paying promptly in full: If possible, pay your credit card balance in full each month. This will prevent you from paying interest, as well as getting hit with potential late fees if you fall behind.

•   Making early or multiple payments: Another option is to make an early payment. Paying off all or part of your balance before the due date lowers your credit utilization, which in turn can positively affect your credit score.

•   Adjusting your payment date: Reach out to your credit card issuer to see if you can move your credit card payment due date so that it’s easier for you to to stay on time with your payments. For instance, you might set your due date for right after you usually get paid.

•   Considering the debt snowball or debt avalanche payoff method: If you’re staring down a mountain of debt, consider one of two popular debt payoff strategies. With the debt snowball method, you pay off the card with the lowest balance first. Once that’s knocked out, you move to paying down the card with the next-highest balance. The debt avalanche method, on the other hand, is where you start with paying down the card with the highest interest rate. Once you get that card paid off, you focus on the card with the next highest interest rate and so on, until all of your debt is paid down.

Recommended: How Credit Card Payments Work

What to Do if You Need to Carry a Balance

Sometimes it’s just not feasible to pay down your credit card balance in a single month. If that’s your situation, here’s what to do to make sure you stay on top of your debt and can pay it off sooner rather than later:

•   Make at least the minimum payment: Falling behind on your payments isn’t good for your credit score, so make sure you’re at least making the minimum payment on time. This will also allow you to avoid getting hit with any late fees, not to mention the potential danger of your credit card issuer increasing your APR or worse, your account getting sent to collections.

•   Consider credit card debt consolidation: If you’re carrying a balance across a handful of high-interest credit cards, you might consider debt consolidation. With this approach, you’d effectively lump together your debts into a new loan. The potential advantages of doing this include paying it off quicker and saving in interest, depending on the terms of your loan.

•   Look into a debt management plan: Another option is to work with a third-party organization to create a debt management plan. You’d then make a single monthly payment to the organization. The organization might be able to negotiate on your behalf with credit card companies for lower monthly payments or a lower interest rate. A potential downside of a debt management plan is that it might require you to close your accounts until your balances are paid off, which could affect your credit score.

•   Research the option of a balance transfer: When you use a balance transfer credit card to move over your outstanding balances, you might be able to take advantage of a promotional APR that’s sometimes as low as 0%. If you can pay off your credit card before the promotional period ends, it could save you in interest fees. Note that you generally need good credit to qualify though (in other words, if you’re still establishing credit, this might not be the right option for you).

The Takeaway

Carrying a balance isn’t necessary to help build your credit score, and in some cases, it can hurt your score. If you need to carry a balance, make it a priority to at least make your minimum monthly payments, and aim to pay down your balance in full as soon as you can.

Not only can making your minimum payments on time help you avoid late fees, in some cases, it can reap you rewards. With the SoFi credit card, for instance, cardholders can secure a lower APR after making 12 on-time payments of at least the minimum amount due. And on top of that, cardholders can earn rewards on all eligible purchases with the SoFi credit card.

FAQ

Should I carry a balance or pay off credit cards?

Ideally, you should aim to pay off your balance in full each month. That way, you won’t pay any interest. Plus, you’ll lower your credit utilization and improve your history of on-time payments, both of which are factors that determine your credit score.

How much of a balance is ideal for me to keep on my credit card?

The lower the balance, the better. Contrary to popular belief, carrying a balance will not help your credit, so there is no benefit in doing so. You should pay off your credit cards in full as quickly as possible. And if you do need to carry a balance, consider a balance transfer, credit card consolidation, or debt management plan.

Is it advisable to keep a zero balance on a credit card?

Yes, keeping your balance at zero will help you to build your credit or maintain a strong score. Plus, it will keep your credit usage low, and you won’t pay any interest.

What amount is too much of a balance on a credit card?

There’s no specific, one-size-fits-all amount. Rather, a credit card balance becomes too high if it brings up your credit utilization to over 30%, or if you have trouble keeping up with payments.

Photo credit: iStock/Delmaine Donson

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 .

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

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

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

Bad or Poor Credit Score Ranges

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

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

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

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

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

Recommended: How to Get Approved for a Personal Loan

What Determines Credit Scores?

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

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

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

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

Recommended: Secured vs Unsecured Personal Loans

Why Your Credit Score May Be Bad

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

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

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

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

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

How Bad Credit Can Affect You

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

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

•   Credit cards

•   Car loans

•   Home loans

•   Personal loans

•   Private student loans

•   Federal PLUS loans

•   Car insurance premiums (in some states)

•   Homeowners insurance

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

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

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

Building Your Credit Responsibly

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

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

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

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

Pay Bills on Time

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

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

Pay Attention to Revolving Debt

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

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

Check Credit Reports and Scores

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

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

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

•   Buy your FICO Score from myfico.com.

•   Get your FICO Score for free from Experian.

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

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

Closing and Opening Credit Cards Carefully

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

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

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

The Takeaway

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

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

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

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

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

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

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Personal loans used to be considered a last resort to resolve cash flow issues. Today, according to the U.S. Chamber of Commerce, 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, 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 personal loan is right for you.

What Is the Required Credit Score for a $15,000 Personal Loan?

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

Benefits of a $15,000 Personal Loan

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 other benefits:

Interest Rates and Flexible Terms

There are many types of personal loans, and interest rates can be fixed or variable. The interest rate that a lender charges will depend on the borrower’s credit rating and the length of the loan, but rates are typically lower than for other forms of debt. Loan lengths can vary from a few months to a few years.

No Collateral Required

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

Fixed 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.

Recommended: Try Our Personal Loan Calculator

Cons of a $15,000 Personal Loan

One disadvantage of a $15,000 personal loan is that it can be expensive, especially if you have bad credit or need to spread the payments out over many years. The longer the term, the more you will pay in interest. Here are some other issues to consider:

Taking on Debt

If you already have trouble paying your monthly bills, taking on more debt may not be a good idea. Some borrowers use a personal loan to consolidate other debt that charges higher interest, such as credit cards. For people who have a tendency to overspend, freeing up their credit may just encourage them to spend more again.

Higher Payments Than Credit Cards

Credit cards do not have a deadline to pay off the entire debt. For that reason, the monthly minimum payment is typically less than the payment on a personal loan. If a personal loan is used to consolidate credit card debt, some borrowers may find it difficult to make the higher payments of a personal loan.

Origination Fees and Prepayment Penalties

Some lenders will charge an origination fee to cover the cost of setting up the loan. Additionally, if the borrower wants to pay off the loan before the payoff date, the lender may charge a penalty. Borrowers should find out about any fees and penalties before deciding on a lender.

Interest Rates May Be Higher Than Other Options

For borrowers with poor credit, the interest rate on a personal loan can be high. In this case, a credit card might be a better option.

Where Can I Get a $15,000 Personal Loan?

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

Traditional banks or 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.

How to Get a $15,000 Personal Loan

The steps to get 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 Pre-qualified

Getting pre-qualified 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 pre-qualify you, which may ding your credit score. Focus on lenders who will perform a “soft inquiry” for pre-qualification, 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 pre-qualified, review the pre-approval 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.

Applying for Other Small Loan Amounts

Loan amounts can range from $1,000 up to 100,000. The terms for a small $3,000 personal loan will vary with those for a larger loan. Here are some examples of loan interest rates, terms, and monthly payments.

$5,000 Personal Loans

Here’s a typical scenario for a borrower with average credit (700–759 credit score): The monthly payments on a $5,000 personal loan, paid back over five years at an APR of 15.75% to 18.25%, would be around $121–$128.

$10,000 Personal Loans

For a $10,000 personal loan paid back over five years at an APR of 12.75% to 15.25%, a borrower with average credit would pay $226 to $239 per month.

$20,000 Personal Loans

For a $20,000 loan paid back over five years at an APR of 12.75% to 15.25%, a borrower with average credit would pay $452 to $478 per month.

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.

SoFi offers competitive personal loans. There are no origination, prepayment, or late fees as there are with some other lenders, and our competitive interest rates are fixed, making budgeting easier.

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.

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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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Credit cards and personal information can (and do) get hacked or stolen. Because of this unfortunate reality, it’s important to know how to freeze your credit. A credit freeze can help prevent identity theft or obstruct bad actors from taking out new loans or accounts in a borrower’s name.

Freezing credit isn’t as scary as it might sound. In fact, once you know how to freeze (and unfreeze) your credit, it can be quite useful in the right situations.

What Is a Credit Freeze?

A credit freeze, also known as a security freeze, allows individuals to limit access to their individual credit report. By freezing their credit, the person makes it more difficult for an identity thief to open a new credit account or loan in their name. This is due to the fact that creditors generally review credit reports before okaying new lines of credit, known as a hard credit inquiry.

However, freezing one’s credit does not prevent a person from viewing their free annual credit report. Moreover, it won’t restrict a person from opening a new account in their own name. They’ll simply need to unfreeze their credit to do so (more on unfreezing later).

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

What Does Freezing Credit Actually Do?

A credit freeze does not actually freeze all outstanding accounts, such as credit cards and loans. Instead, it simply limits others from viewing a person’s credit reports. Under a credit freeze, only a limited number of entities will still be able to view a person’s file, including creditors for accounts that individual already holds and certain government entities.

This means that credit bureaus can’t give out personal information about a borrower with a frozen account to new lenders, landlords, hiring managers, or credit card companies. Typically, this halts the lending, renting, and hiring process — as well as anyone attempting to steal a person’s identity and open a new account in their name.

Freezing Credit: What’s the Process?

If a person wants to freeze their credit, they need to reach out to at least the three major credit bureaus:

•   Equifax : 1-800-349-9960

•   TransUnion : 1-888-909-8872

•   Experian : 1-888-397-3742

People can take it one step further by reaching out to two lesser-known credit bureaus, Innovis (800-540-2505) and the National Consumer Telecom & Utilities Exchange (866-343-2821).

Typically, the agencies will ask for a Social Security number, birth date, and other information confirming a person’s identity prior to freezing their account. The bureaus will then give the person a password, which they may use to unfreeze their account. Make sure to store this information in a safe place.

Does Freezing Credit Cost Anything?

It costs nothing to freeze and unfreeze one’s credit. This is thanks to the Economic Growth, Regulatory Relief, and Consumer Protection Act, which mandates that credit bureaus must offer the service free of charge to everyone.

The credit bureaus must fulfill the request within one business day when a consumer requests a freeze through any method aside from mail. When consumers request to lift the freeze by phone or online, however, the credit bureaus must do so within one hour. This frees up the consumer to quickly do what they may need to do, whether that’s applying for a new apartment or one of the various types of personal loans.

Differences Between a Credit Lock and a Credit Freeze

A credit lock works in much the same way as a credit freeze, allowing consumers to protect their credit reports against bad actors. But, a credit lock can come with a bit more convenience, as borrowers can opt to open and close their locked credit via an app (rather than needing to reach out to each credit bureau with their password to unfreeze it).

While a credit freeze is complimentary thanks to the federal mandate, a credit lock may require paying a small fee. For example, Equifax offers credit locks for free, while TransUnion offers a free lock with its TrueIdentity product or as an add-on to other subscription services. Experian, meanwhile, only offers credit lock as part of a paid subscription.

Just as you’d crunch the savings numbers with a personal loan calculator, make sure to weigh the costs and benefits between these two options as well.

When to Consider a Credit Freeze

It’s really up to individual consumers and their own risk tolerance to decide when it’s time to freeze their credit report. That being said, if a person isn’t actively shopping for a personal loan or a new credit card, for instance, it may be a good idea to freeze their credit preemptively. This way, a consumer can feel a bit more confident that their credit information is in safe hands.

Another time to consider a credit freeze is when a borrower believes their data may have been breached, or if their Social Security number was recently disclosed, made public, or stolen.

How to Unfreeze Your Credit

Unfreezing credit is simple. All a consumer has to do is reach out to the credit bureaus by phone or online and plug in the password or PIN provided to them when they first froze their credit. Generally, it takes a few minutes for the account to become unfrozen.

A person can choose to unfreeze their report at one or all of the credit bureaus, but they will have to contact each individual credit bureau separately. They also need to go through the entire process again if they ever want to re-freeze their credit down the road.

Individuals can ask to unfreeze their credit for a specific amount of time, such as if they are applying for and hoping to get approved for a personal loan or need someone else to access their account temporarily. Then, the freeze should return automatically when that period ends.

Alternatives to Freezing Credit

While not overly complex, freezing and unfreezing one’s credit can be time-consuming. Additional options are available to consumers.

Setting Up Credit Monitoring

Those who aren’t interested in freezing their accounts might instead consider signing up for a credit monitoring service. While these services charge a fee, they’ll alert users to any and all activity on their credit report. So, any time someone requests information, the person would find out and could then confirm or deny the authenticity of the request.

This could help stop any potential identity theft in its tracks. Still, it should be noted that this service cannot fully prevent theft, and the consumer may not know their identity was stolen until after the fact.

Requesting a Credit Report

For those interested in monitoring their credit for free, it’s possible to request a no-cost copy of one’s credit report each year from all of the major credit bureaus. The consumer might then review the report, in detail, to ensure they recognize all of the activity and accounts described.

If the consumer spots anything out of line, they can then take steps to flag and fix it.

Consolidating Credit Card Debt

Another way that some consumers choose to keep track of their credit is by consolidating credit card debt with a personal loan from a private lender. Taking out an unsecured personal loan with SoFi, for instance, could help substantially lower the amount a person pays each month to different credit card companies.

By consolidating credit card debt into a single personal loan — one of the common uses for personal loans — a borrower may be able to take advantage of a single fixed-rate debt rather than juggling several high-interest rate cards. Additionally, having a single loan to repay each month can make it easier to monitor payment activity.

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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