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A minor drop in your credit score — like the less-than-five-point drop you’ll temporarily encounter after a hard inquiry when applying for credit — is nothing to sweat in the long term. But a 40-point drop is more worrisome.

Are you asking yourself, “Why did my credit score drop 40 points after paying off debt,” following a credit dispute or for no reason at all? We’ll break down what might be happening to your score below.

Why Did Your Credit Score Drop 40 Points?

Your credit score is a number based on several factors that appear on your credit reports from various credit bureaus. And in fact, you have more than one credit score, though the most common one people refer to is your FICO Score. Because it’s complex — and there’s more than one — there are many reasons your credit score may have dropped 40 points.

Reasons Your Credit Score Went Down

There are several reasons your credit score could have gone down. Here are the main culprits:

•   You made a late payment (or several late payments), which were reported to the credit bureaus. A spending app can help you track upcoming bills so you don’t miss a due date.

•   You paid off a loan or credit card, which decreased your average age of credit and your credit mix and also affected your credit utilization.

•   You applied for a new loan, which resulted in a hard inquiry.

•   You’ve increased your credit utilization, perhaps by maxing out your credit cards.

Often, a sudden 40-point decrease in your credit score is the result of two or more of these actions happening all at once or close together. A hard inquiry, for instance, results in only a five-point decrease in your credit score. But if that hard inquiry was for a credit card that you immediately maxed out and then missed a payment on, you’re much more likely to see a larger decrease in your credit score.

There’s one other important reason your credit score may have dropped 40 points: You could be the victim of identity theft, meaning someone is using your personal information to open new lines of credit in your name and then maxing them out to purchase things for them.

Recommended: How Do I Check My Credit Score Without Paying?

Should You Be Worried About Your Credit Score Dropping?

A minimal drop in your credit score is no cause for concern, but a larger drop, such as 40 points, should be alarming.

If your credit score dropped because of your own actions — overspending on credit cards, missing payments, etc. — do your best to get your financial habits back on track. Tools like a money tracker can help you monitor your spending and credit score. 

However, if your credit score dropped by 40 points for no reason, you could be the victim of identity theft. Check your credit reports for signs of suspicious activity. If you notice any, you need to freeze your credit reports and begin the remediation process. Here’s how to report identity theft.

What Can You Do If Your Credit Score Dropped by 40 Points?

If your credit score has dropped by 40 points, here are some things you can do:

•   Make on-time payments. Ensure all your bills are paid on time and in full, every month.

•   Reduce your credit utilization. Stop swiping your credit card unless you can immediately pay it off. Pay off as much of your card as you can, but resist the temptation to spend more with it. Lowering your credit utilization is crucial to repairing your credit score.

•   Keep old accounts open. Average age of credit is one of the major factors that affect your credit score. Keeping an old account open, even if you don’t use it, will help keep your score from falling further.

•   Review your credit report for errors. Simple reporting errors could be hurting your score. It’s a good idea to familiarize yourself with common credit report errors and how to dispute them.

•   Report identity theft. If someone has opened a credit card in your name, follow the proper steps to report the identity theft to the lender, the credit bureaus, and the authorities.

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

How to Build Credit

While establishing and improving credit takes time, there are several steps you can take now to help repair your score after a 40-point drop. Here are some basic actions you can take:

•   Make on-time payments. Turn on autopay for all your bills, and make sure there’s always enough money in your checking account to cover the costs.

•   Stop spending on credit. Having a credit card with a high credit limit makes it easy to spend more than you should. But you should only use a credit card if you have the money to pay it off immediately (or for emergencies).

•   Keep old cards open. Don’t forget — old cards that you don’t use help keep your credit utilization down and help keep your average age of credit higher.

•   Monitor your credit. Regularly monitor your credit report and dispute any errors.

•   Don’t apply for credit often. Apply for credit only if you absolutely need it, like to buy a car or a house.

What Factors Impact Credit Scores?

Several factors impact your two main credit scores (FICO Score and VantageScore). The two scoring companies use different algorithms to calculate your score; we’ll focus on FICO because it’s more common.

Here are the five major factors that affect your credit score — and how much weight each one has on your score:

•   Payment history: This accounts for 35% of your score. Lenders want to see that you make on-time payments for all your debts. Mortgage and rent payments, utility bills, and other loan repayments (such as credit cards or personal loans) will show up on your credit report.

•   Amounts owed: This is your credit utilization, and it accounts for 30% of your score. Creditors love to see that you have a high credit limit available to you, but that you use very little of it. This shows you’re a responsible borrower.

•   Length of credit history: This accounts for 15% and is why keeping old cards and accounts open is important. It demonstrates to lenders that you’ve been borrowing responsibly for a long time.

•   Credit mix: This makes up 10% of your FICO Score. Lenders like seeing that you can manage a healthy mix of credit accounts (credit cards, installment loans, home loans, etc.).

•   New credit: If you open too much new credit all at once, that sends a sign to creditors that you may be a high risk. This makes up 10% of your score.

Allow Some Time Before Checking Your Score

After a major drop, it’s tempting to want to monitor your credit score every day for signs of an upswing. But be patient — it can take time before you see an improvement. 

While credit score updates happen fairly often, they don’t happen on a set date. That’s because a lender or creditor can send information to the main credit bureaus at different times, which will impact when a score changes. That said, you can plan on an update occurring at least every 45 days.

Closing a Credit Card Account Can Hurt Your Score

Considering closing a credit card account? You may want to think twice, as doing so could negatively impact your credit score. 

When you close a credit card, the amount of your available credit decreases. This, in turn, may lead to a higher credit utilization, which as we mentioned above counts for 30% of your score. Closing a card also decreases the length of your credit history, which makes up 15% of your score.

However, there might be times when closing a credit card makes the most sense for you, such as a separation or divorce or a card with a high annual fee. The good news is, there are ways to cancel a credit card without affecting your credit score. 

How to Monitor Your Credit Score

You can monitor your credit score in a number of ways. Your bank or credit card issuer may offer credit score insights in your mobile banking app, and you can check your FICO Score for free with Experian. Several money management apps offer free credit score monitoring, including access to your FICO Score or VantageScore.

Pros and Cons of Credit Monitoring

Credit monitoring services offer several advantages, but there may be drawbacks to consider.

The Takeaway

A sudden, unexpected drop in your credit score can be scary. This is especially true if you’re trying to build credit and have been responsibly paying your bills on time and keeping your credit utilization in check. It’s wise to use credit monitoring services so you’re always updated when something changes on your credit report, as it can help you spot errors or even stop identity theft before it gets out of hand.

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.

See exactly how your money comes and goes at a glance.

FAQ

Why is my credit score going down if I pay everything on time?

Even if you make on-time payments, your credit score can drop if you open too many new accounts at once or use up all your available credit every month. A major drop in your credit score could also indicate errors on your credit report or, even worse, identity theft.

Why has my credit score gone down when nothing has changed?

If nothing has truly changed in your finances, your credit score would likely only drop because of an error on your credit report or identity theft. It’s always important to monitor your credit to stay aware of these things. If it’s not a case of error or identity theft, consider your recent credit actions: Did you max out a card or close an old account? These can lead to drops in your credit score.

Why did my credit score drop 40 points when nothing changed?

If your credit score dropped 40 points and nothing changed on your end, check your credit reports with all three major credit bureaus immediately. It’s possible there is an error or that you are the victim of identity theft, meaning someone is using your name to open new credit accounts.

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Photo credit: iStock/Miljan Živković

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.

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If you just closed on a home and have yet to see paperwork from your lender about your first mortgage payment, you might be wondering when is the first payment on a mortgage due?

Most mortgage payments are set up from the beginning to be due on the first of the month. For new mortgages, you make the first month’s payment at closing, and you won’t make your first “real” mortgage payment until the end of the next month.

So that you’re prepared, let’s walk through when your first mortgage payment is due, how to make it, and what happens if you miss a mortgage payment. By the end, you’ll know how to make your first mortgage payment and have a solid plan for keeping your mortgage in good standing.

Determining Your First Mortgage Payment Due Date

After you close on your loan, the next part of the mortgage process is receiving a “welcome package” from your new mortgage servicer. It will include instructions from your servicer on paying your first mortgage payment. It will have your loan number, how to contact the servicer, the servicer’s website information, your payment amount, due date, list of fees, payment methods accepted, information on paying off your mortgage, and some other legal disclosures they’re required to send.

As far as the exact due date, when is the first payment on a mortgage due after closing? Lenders require your first mortgage payment within 60 days of closing your loan. Since they’ve already collected prorated interest for the first month at closing, you’ll be making your first payment at the end of the first full month you’re in the home.

For example, if you close on a home April 15, you’ll have paid prorated interest for the month of April at closing. Your first payment will likely be due June 1 so you will make your payment at the end of May. This payment will include the interest you’re being charged for the month of May.

Recommended: How to Get a Home Loan

Preparing for Your First Mortgage Payment

Now that you know when you’ll likely make your first mortgage payment, you have a few things to do to get everything in order. Sometimes, preparing for your first mortgage payment means waiting for the letter from your new mortgage servicer — so keep an eye on your mail. When you do have the information about where your payments need to go, you’ll want to set up automatic payments as soon as you can.

Setting Up Automatic Payments

Most borrowers can set up automatic payments in one of two ways:

•   With your mortgage servicer

•   With your bank

Setting up an automatic payment from your bank can help you centralize your finances and make things easier for you to see and control. An automatic withdrawal pulled from your bank account by the mortgage servicer will do the same thing, but you’ll need to set it up with the mortgage servicer.

Budgeting for Additional Costs

Your home loan payment usually includes an amount for mortgage insurance, property taxes, and homeowners insurance, but you’ll want to make sure you are saving money for other costs that come your way, such as:

•   Homeowners association (HOA) fees

•   Home maintenance and upkeep

•   Utilities

•   Security system

•   Emergency repairs

Recommended: Mortgage Calculator

Consequences of Missing Mortgage Payments

Missing a mortgage payment can have some serious consequences, but before you get to that point, you’ll have a chance to rectify it. If you miss a mortgage payment, you’ll want to call your lender to work out a repayment plan and try to avoid some of the consequences, such as late fees and penalties, a lower credit score, and foreclosure.

Late Fees and Penalties

Mortgages generally have a grace period, usually around 15 days. After 15 days, you’ll be assessed a late fee. How much the late fee is will vary by lender and mortgage amount. You can find the late fee for your mortgage in your loan documents.

In general, you may see a late fee up to 5% of the principal and interest portion of your mortgage payment. For a $2,000 mortgage payment, that could be up to a $100 late fee.

Impact on Credit Score

Missing a mortgage payment will have a negative impact on your credit score when it is reported. Mortgage companies typically wait until the mortgage is 30 days past due to report it to the credit bureaus. The late payment could stay on your credit report for up to seven years.

Payment history accounts for 35% of your credit score. A missed mortgage payment can drop your credit score approximately 50 points, according to analysis of more than one million mortgage loans by Milliman, an actuarial and consulting firm. Four missed payments lowers a score around 100 points.

If you do miss a mortgage payment by accident, most credit scores are able to recover within two years.

Risk of Foreclosure

In 2023, there were 357,062 foreclosure filings made in the United States, which represents a quarter of a percent of all housing units in the U.S. If you know you’re going to have trouble making a payment, contact your lender as soon as possible to see if there are any relief programs available.

If a borrower misses payments, in most cases a lender may start foreclosure proceedings when they haven’t received a payment for 120 days. From there, the amount of time before the lender forecloses on your home depends on state law. States like Hawaii, Louisiana, and New York average more than 2,000 days (more than 5 years!) to complete the foreclosure process. States like Montana, Virginia, and Texas average 123, 152, and 163 days, respectively.

Tips for Staying on Track

If you’re worried about staying on track with your mortgage payment you can try these ideas:

•   Use a budgeting app. There are a whole host of budgeting tools that can help you keep track of your mortgage payment due date (as well as other important financial information).

•   Set automatic payments. As noted above, you can set up your mortgage payment to be paid automatically, from either your bank or the mortgage servicer. You’ll link account information and set a date for payment to be delivered.

•   Utilize calendar reminders. A calendar reminder, either in the analog or digital world, could help you remember to make your mortgage payment if you don’t have automatic payments set up.

•   Put emergency funds on autopilot. Some mortgage servicers may allow you to link more than one payment method. If there’s not enough money for the mortgage payment in one fund, you may be able to pay your mortgage from savings.

•   Be aware of market changes. If you’re struggling to make payments, you may be able to save money by pursuing a refinance with either a different type of mortgage, a lower interest rate, or a different mortgage term.

If you have the urge to pay off your mortgage early or make extra payments to reduce the principal owed (a process called mortgage curtailment), study your mortgage agreement carefully to understand if there are prepayment penalties.

The Takeaway

Your first mortgage payment is typically due at the end of the first full month after you close on your loan. There’s some leg work involved with setting up and making the first mortgage payment, but if you’re able to create a system, you’ll have a good chance of successfully paying your mortgage on time each month.

If you get into trouble or need help with your mortgage payment, contact your mortgage servicer as soon as possible. They may have a plan to help get you back on track with your mortgage payment and keep you in your house.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Can I make my first mortgage payment before the due date?

Yes, lenders accept mortgage payments (including your first mortgage payment) before the due date. It might be helpful to wait until the mortgage servicer’s instructions come in the mail to know exactly where you need to send your mortgage payment.

What happens if I miss my first mortgage payment?

Mortgage payments have built-in grace periods, so if you miss your first mortgage payment by a few days, you’ll likely be fine, but you should make your payment promptly to keep your mortgage current and your credit in good shape. If you can’t find a letter from your mortgage servicer, give the servicer a call and ask if they’ll take payment over the phone.

How long is the grace period for mortgage payments?

The grace period for mortgage payments is typically 15 days.

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Photo credit: iStock/PIKSEL

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.

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

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

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

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

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A passbook loan is a loan that allows you to borrow against the money you have in your savings account. In other words, your savings serve as collateral for the loan.

While you will likely have to pay interest when borrowing money in this way (which you wouldn’t have to do if you used your savings directly), a passbook loan can help you build credit if your financial institution reports the activity to the credit bureaus and you manage the loan well. Passbook loans may also be a valuable financial tool if you’re having trouble securing a personal loan or find their interest rates to be higher than you can afford.

Keep reading for all the details about how passbook loans work, plus their pros and cons.

Understanding Passbook Loans

Here, learn more about the definition and history of passbook loans as well as how they usually work.

Definition and Historical Background

Passbook loans (often called share-secured or savings-secured loans) are a way to borrow funds, typically at a lower interest rate, by using your savings as collateral.

Passbooks are physical books that record a bank account holder’s transactions. These passport-sized books originated in the 18th century; bank tellers and postmasters could record account transactions in them. For example, a bank teller could write the date of a transaction, the amount deposited or withdrawn, and the amount of money available to the customer. In the late 20th century, bank statements began to make their appearance and replaced passbooks to a large degree. (For those who want them, however, passbook accounts are still available from some financial institutions and can provide a customer with a classic booklet to track transactions.)

A passbook loan borrows from the name of these old-fashioned books. With passbook loans, you use your savings account, held at the same institution, as collateral for a loan, and you may pay a relatively low interest rate. Putting the money in your account up for collateral, however, means your lender can seize that cash if you default on your loan payments.

How Passbook Loans Work

Here’s how a passbook loan works:

•   First, you’ll have to find a bank or lending institution that offers passbook loans. Most banks don’t offer them, so you might consider checking at a credit union.

•   Once you find a potential lender and establish a savings account or a certificate of deposit (CD) there, the financial institution will usually let you borrow up to 90% to 100% of the money in your savings account. For example, if you have $20,000 in your savings account, you may be able to borrow $18,000 to $20,000. Check with the lender to learn the exact amount.

•   Once you receive the loan from your financial institution, it’s important to note that you can’t access your savings. The financial institution might put a hold on your account, or you might have to hand over your savings passbook until the loan is repaid.

•   As you repay your loan with interest, your lender will usually release the amount you repay from your withheld savings.

•   Your payments may be reported to the national credit bureaus, but check with your lender to be sure. Timely payments can help build your credit score, while making late payments on your passbook loan can damage your score.

Obtaining a Passbook Loan

Next, take a closer look at the usual eligibility and requirements, interest rates, and repayment terms for passbook loans.

Eligibility and Requirements

You’ll need a funded savings account or certificate of deposit to be eligible for a passbook loan, and it’ll typically have to be held at the institution you plan to borrow from. These types of loans are usually easier to get and less risky to the lender because they use collateral to back them (unlike unsecured loans, which don’t require collateral).

Interest Rates and Repayment Terms

It’s important to understand passbook loan interest rates (the amount you repay in addition to the principal), particularly because you’re basically paying interest on your own money.

These loans can offer some of the lowest interest rates of any type of loan, likely because, since they are secured, they pose less risk to your financial institution. For instance, BankFive charges passbook loan rates of 3.00% to 3.50% APR (annual percentage rate) over the interest rate of the savings account used as collateral.

You repay the loan in regular, monthly installments over a specified period, such as three years.

Application Process

You’ll have to fill out an application for a passbook loan. Each bank or credit union has its own application. Simply request the application from your financial institution. Depending on the lender’s requirements, you may be able to complete the application online, in person, over the phone, or via mail.

You may find the paperwork simpler and shorter than what is required for other kinds of loans. That can reflect the fact that you are already a customer of the financial institution and that you are borrowing against your own money.

Advantages and Disadvantages of Passbook Loans

It’s important to consider the pros and cons of passbook loans before you pursue one.

Benefits of Passbook Loans

First, the upsides of passbook loans:

•   Lower interest rates: Passbook loans typically carry a lower interest rate than other types of loans, which means the amount you pay back (principal plus interest) could total less than what you’d pay for other types of loans.

•   Credit building: Passbook loans may help you build credit, provided your lender reports the loan activity to the credit bureaus and you make your payments on time.

•   Few approval requirements: You usually don’t have to meet as many approval requirements to get a passbook loan as you would with other types of loans. That’s because your savings account, typically at the same financial institution, serves as collateral.

Potential Drawbacks and Risks

Now, the downsides of passbook loans:

•   Credit may not improve: Though unlikely, your lender may not report your passbook loan payments to the credit bureaus. In that case, a passbook loan might not help you build your credit, even if you are meticulous about paying it back on time. It’s wise to check this point in advance. (Also, you must manage the debt responsibly to build credit if the lender does report your activity.)

•   Uses your account as collateral: If you fail to make your payments on your passbook loan, your financial institution can take the money from your savings account.

•   Cannot access your money while you borrow: You cannot access your savings account when you borrow money using a passbook loan. This can put you in a tricky situation if you need money immediately.

•   Paying the bank for your own funds: At a basic level, a passbook loan means you’re paying the bank to borrow your own money.

•   Restricted amount: In a best-case scenario, you can only borrow the amount you have in the bank. So if you have $3,000 in your savings account but are hoping to borrow $10,000 via a passbook loan to buy a car, you won’t be able to do so.

Alternatives to Consider

Passbook loans may not be the right fit for your situation, so you might consider these options instead.

•   Personal loans: Personal loans, which generally range between $1,000 to $50,000, are unsecured loans that come from a wide variety of financial institutions, including banks and credit unions. You can use them for any purpose, including home improvements, debt consolidation, and more. Personal loans may cost you more in interest compared to passbook loans, and repayment terms usually range from two to seven years.

However, you typically don’t need collateral for a personal loan, unless it’s a secured personal loan.

Use a personal loan calculator to learn more about how much a personal loan might cost you.

•   Credit-builder loans: If you have little to no credit, a credit-builder loan may help you improve your credit score. These loans, which usually range between $300 and $1,000, involve depositing money into a certificate of deposit (CD) or savings account, which the lender holds as collateral. You don’t receive a lump-sum disbursement upfront, as you do with many loans. Instead, you make fixed monthly payments toward the loan (principal plus interest). Your lender may release some of the borrowed funds when you make a monthly payment, or they might hold the full amount till you make the final payment. Interest and fees are usually deducted from the amount you receive. This activity is reported to credit bureaus and contribute to an uptick in your score.

•   Secured credit cards: You may want to consider a secured credit credit card instead of a passbook loan. A secured credit card is a credit card that requires a security deposit, which becomes your line of credit. If you don’t make your payments on time or default on your loan, your lender can take your deposit. However, using the credit card responsibly can help you build credit because your lender typically reports your payments to the three major credit-reporting agencies — Experian®, Equifax®, and TransUnion®.

Recommended: What Is the Average Interest Rate on a Personal Loan?

Using Passbook Loans for Different Purposes

There are many uses for funds borrowed via a passbook loan, such as:

•   Purchases, such as a new laptop

•   Expenses, like homeowners insurance or summer camp for the kids

•   Debt consolidation, such as paying off your credit card bill

•   Buying a car

•   Home improvement projects

•   Wedding costs

•   Medical or educational expenses

•   Vacations

Ultimately, you can use a passbook loan for whatever you want.

Future of Passbook Loans

Will passbook loans be part of the future financial landscape? Given all the other financial products currently available (such as the personal loans described above), consumers may not want to pay interest to borrow against their own savings.

Decline in Popularity

Passbook loans are not very common, having seen their popularity ebb over the years. Their usefulness is often limited to those who want to build their credit in this particular way or are seeking an especially low interest rate. If you find yourself in that situation, you may want to check with various lenders, especially credit unions, to see what’s available.

On the other hand, market data indicates that personal loans are gaining popularity.

The Takeaway

Passbook loans are a way of borrowing money against your savings, which can be useful for some people looking to build their credit. Ultimately, however, you end up paying a financial institution to borrow your own money with a passbook loan.

If you’re looking to access funds for debt consolidation, home improvement projects, a wedding, or other needs, you might want to consider a personal loan instead.

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’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Are passbook loans still available today?

Yes, passbook loans are still available today. Not every lender offers them, so search online for options. You may find that credit unions are more likely to fund these loans.

Can I get a passbook loan without a savings account?

Typically, you need a savings account or a certificate of deposit (CD) account for a passbook loan, typically with the institution you intend to borrow from.

What happens if I default on a passbook loan?

If you default on a passbook loan, your lender could seize your savings (the loan’s collateral) to repay the delinquent balance. Defaulting on your loan can also hurt your credit score.

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Photo credit: iStock/Jinda Noipho

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 .

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-Q324-006

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Credit card companies don’t alway make it easy, but there are ways to pay your credit card bill with your debit card. To use your debit card to pay a credit card bill, you must do so via bank transfer payment. In other words, you have to use either a credit card provider’s payment portal or a third-party payment portal that includes not only your debit card information, but also your banking information.

Keep in mind, however, that credit card companies usually prefer to receive payment funds from the customer’s bank account over a physical debit card. Many credit card providers simply don’t accept monthly bill payments with physical debit cards, but they will allow debit card payments if you play by their rules. That may change the way you use a debit card to pay a credit card bill, but it doesn’t mean you can’t do it.

Can You Pay a Credit Card With a Debit Card?

You might be able to pay a credit card with a debit card. Whether you can do so really depends on the credit card provider’s policy on debit card payments — some credit card policies allow for them, and others don’t.

Consequently, you may have to go out of your way to get the job done. When you go to pay your credit card bill, there likely won’t be an option to enter a card number as a method of payment, whether that card is a credit card or a debit card. In most cases, however, you can pay your credit card bill with the bank account that the debit card is attached to by making an electronic transfer.

Recommended: Tips for Using a Credit Card Responsibly

How to Make a Credit Card Bill Payment (Indirectly) With a Debit Card

Even if you can’t use a debit card to directly pay a credit card bill, you can indirectly use a debit card — or rather the funds attached to that debit card — to pay your outstanding credit card debt. Here’s how:

1.    Review your checking account, and get the bank routing number and checking account number. Do so privately and securely, so as not to attract financial fraudsters.

2.    Go to your credit card account to set up automatic payment. A handy feature of how credit cards work, this will allow money to be withdrawn from your bank account ahead of the monthly payment due date. On that date, the credit card company will withdraw the specified cash amount from your bank account.

3.    Make sure you have enough cash in your bank account to cover the withdrawal. If you don’t, your credit card company will reject the payment. It’s up to you to reach out and make good on your monthly credit card payment that’s due. Any delay in doing so could result in a missed or late payment, which could have financial consequences.

Recommended: When Are Credit Card Payments Due?

Paying a Credit Card Bill With a Debit Card Online

If you’re using a debit card to pay a credit card bill online, you’ll probably need to make that payment through the credit card’s payment portal. The good news is that credit card companies may accommodate online debit card payments.

Once you’ve signed into your credit card account, you’ll be given several options to pay your bill. The most common methods include ACH bank payment, a third-party payment platform, over the phone, or with your debit card.

Simply click on the debit card payment option and fill in your card details (this should only be a one-time occurrence as your debit card information should be securely held by your credit card provider in its payment portal.)

Once your debit card information is accurately entered, review the payment and hit “send.” Your payment should be confirmed immediately by the card carrier, and the money will leave your debit card account within 24 hours or so.

Paying a Credit Card Bill With a Debit Card Offline

Credit card companies likely allow you to use your debit card to make a credit card payment by phone, in person, and sometimes through the sponsoring bank’s ATM.

Make sure you have your debit card on you before paying at any bank or over the phone. If even one digit is wrong, the payment won’t go through, and you’ll have to revert to another form of payment to cover your credit card debt.

Are There Any Downsides to Paying Your Credit Card Bill With a Debit Card?

The fact is, while credit card companies will accept debit card bill payments, it’s not their preferred form of payment. It’s easier for credit card carriers to process bank ACH payments or third-party payments through platforms like PayPal, which handle the process for the card company. As such, you’ll have to jump through hoops or go an indirect route, similar to if you were to try to pay a credit card statement with another credit card.

Further, debit card payments may be prone to various outcomes that credit card companies don’t like. This includes scenarios such as the cardholder not having enough money in their account to cover the credit card payment or the fact that debit cards are common targets of financial fraudsters. In fact, a key difference between a credit card and debit card is their levels of payment protection.

The Takeaway

Just because you can use a debit card, even in limited fashion, to pay your credit card bill doesn’t mean you should. To keep payments flowing smoothly and to protect your debit card (and your bank account), it’s likely a better move to pay your credit card bills via bank ACH transactions or through secure third-party payment processors. That way, your payment still originates from your bank checking account — only without the potential payment and security headaches that may come with using a debit card to pay a credit card bill.

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

FAQ

Can I pay a credit card online with a debit card?

Technically, yes, you can pay your credit card bill with your debit card. However, it may take some extra steps to do so.

Can I pay my credit card at an ATM with a debit card?

Yes, you can typically use a debit card at an ATM to pay a credit card bill — but only an ATM from the bank that offers the credit card.

Are there extra charges for paying a credit card with a debit card?

You generally won’t face any extra charges for paying a credit card with a debit card. You may simply have to jump through some extra hoops to do so.

Can I pay my credit card bill with someone else’s debit card?

While this is technically doable, it’s not advisable. Using another party’s debit card to pay a credit card bill can get complicated, especially if you’re not certain the other person’s bank account has sufficient funds to cover your balance.

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Photo credit: iStock/insta_photos

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

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

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If you’ve been looking for a rental of any kind, you know how tough the hunt can be. Dozens of applicants for each vacancy, stricter credit, income, and referral requirements from landlords, bidding wars. These are, unfortunately, all part of navigating today’s tough rental market.

The culprit is a national housing shortage that has been brewing for more than a decade. After the housing crash of 2008, new construction of homes and rental units slowed dramatically. An uptick in building was later offset by supply chain and other pandemic-related delays. Meanwhile, rising mortgage rates made owning a home less affordable, prompting lots of would-be buyers to stay put in the rental market. The result? During the height of the rental crunch in early 2022, apartment occupancy hit an all-time high of 97.6% and rents jumped an average of 15.2% throughout the country.

Although the rental market has cooled somewhat since then, rents remain high and lower-cost rental units are in especially high demand. About half of people who rent are considered cost-burdened, meaning they spend more on rent than the recommended 30% of income.

If you’re competing in a tight rental market — or just competing for an affordable rental to call home — these four steps can help you anticipate what landlords are looking for and help you present yourself as the ideal tenant.

Tips to Get Approved for a Lease

Step 1: Know Your Number

Determine just how much you can afford for housing costs.

The advertised or asking rent is just the beginning. You’ll also need to take any fees, utilities, maintenance, parking, and renters insurance into account. If it’s been a while since you signed a new lease, you may need to adjust your estimates for these costs upward. Moving to a new area? Whether you’re renting or in the market for a house (and a home loan), check out a cost of living by state breakdown to get a feel for the numbers.

Take into account the possibility that you might find yourself in a bidding war. In the heat of the moment, you may outbid the others but also end up with an apartment you can’t comfortably afford. To avoid this scenario, determine your ideal monthly payment and stick to that number, no matter how tired you are of the apartment hunt.

Step 2: Prepare Your Rental Resume

Apply for a rental the same way you approach applying for a job. You want to make sure you fulfill all of the requirements, and then some.

The first step to getting approved for an apartment is usually filling out an application online. Be sure to do so accurately and thoroughly. When the time comes to see the place, you’ll help make your case if you bring the following:

Copies of Your Credit Reports

Landlords routinely do background and credit checks on applicants they are considering. Offering a copy of a credit report gives them on-the-spot information. If something on your report is confusing, you can attach your own letter of explanation.

Most landlords will look for a good FICO® score (670 to 739) or higher. Find your credit score on a loan or credit card statement or through an online credit score checker. Or get it for free from Experian.

Proof of Employment and Income

Landlords want to know that you can comfortably afford the rent. To prove you can, you could bring copies of your past three to six months of pay stubs, a copy of your most recent tax return, and contact information for your current employer. (This may be more than the landlord is asking for, but it helps build your case.)

Some, but not all, landlords also require employment history information. Having a list of former employers and their contact information on hand can help speed up this process. Even if it’s not required, the list helps paint a more complete picture of why you’re a trustworthy candidate.

References

Be ready to present credit references, which may include character references and asset documentation. Personal references from your boss, a co-worker, or another nonfamily adult who can vouch for you are a good idea. The landlord or agent may not call these people, but having them on your list is a sign of your professionalism and trustworthiness.

Landlords probably also will want the names, locations, and contact information of any previous landlords. A stellar rental history can help put you ahead of the crowd, so you want to make it easy for the agent or landlord to check on you.

If you’ve had trouble making rental payments, it’s best to be honest and offer an explanation.

Documentation for Service or Assistance Animals

According to the Fair Housing Act, a person with a disability may seek a “reasonable accommodation” from a housing provider so that they may have an equal opportunity as a nondisabled person to use a dwelling, even one that otherwise does not allow animals. The disability can be physical or mental.

Service animals, defined as dogs, are not considered pets, and housing providers cannot charge fees or deposits for them.

So-called emotional support animals have ruffled feathers throughout the country. First, applicants with assistance animals must make a request for reasonable accommodation, and not necessarily in writing. If the disability is not observable, they must provide reliable information — typically a letter from a medical provider or therapist — to the housing provider showing that the animal provides assistance.

Beyond that, the U.S. Department of Housing and Urban Development (HUD) does not allow housing providers to seek personal details of a person’s medical history. Importantly, HUD says that online certificates alone are not sufficient to reliably establish that a person has a nonobservable disability or disability-related need for an assistance animal.

So if you have assistance animals, it’s a good idea to bone up on the laws, which can be complicated, and have professional documentation.

Step 3: Show an Interest

It may sound trite, but landlords and rental agents are reassured when they know that someone really wants to live in the property. At a time when demand is high, this can be even more important as landlords become inundated with calls or online requests.

If you’ve visited the property before, have a friend in the same complex or nearby, love the neighborhood, or even appreciate the architecture or amenities, be sure to say so. Landlords want to know you’ll enjoy living there and, in turn, take good care of your new home.

Step 4: Prepare to Pay

Many leases have been lost when an early and promising applicant is ready to rent but doesn’t have the funds available.

Make sure you bring your checkbook or an electronic payment option so you can pay your security deposit, first month’s rent, and whatever else is required immediately. And, of course, make sure you have the funds available, while still leaving room in your budget to also cover moving expenses.

Move-in money can obviously be a challenge to come up with. If it’s several thousand dollars, a personal loan could help.

Did you snag the apartment or house? Once you move in and exhale, undertake a few renter-friendly updates to help you make the space your own.

Recommended: How Home Ownership Can Help Build Generational Wealth

The Takeaway

It’s a challenging time to look for a rental. But preparing thoroughly before you start your hunt and taking steps to show landlords your qualifications and genuine interest can help you stand out in the crowd. In this rental squeeze, however, some house hunters may find that it makes more sense to build equity in their own home than to pay rent.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How do I impress a potential landlord?

Make sure you fill out the rental application fully. When you tour the apartment, bring along a copy of your credit report, proof of employment and income, and contact information for some character references. Then express genuine interest in the property — comment on the building or neighborhood, for example — to show you’ll be invested in caring for your rental home.

What kind of background check do most landlords do?

A background check from a potential landlord might include a review of your credit history, employment and income history, and even a criminal background check. Some landlords also check for a history of eviction. They may also contact a former landlord or ask you for a character reference from a friend or colleague.

How much money should I have saved before renting an apartment?

You’ll want to have at least three months’ worth of rent saved before you start apartment hunting — the equivalent of your first and last months’ rent plus a security deposit. What’s more important, though, is that you have carefully considered the full cost of renting — including paying for utilities, renter’s insurance, and perhaps expenses such as parking. A good rule of thumb is that your housing expenses should not exceed 30% of your take-home pay.

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Photo credit: iStock/cnythzl

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

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

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

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