SoFi

Contrary to logic, a person’s starting credit score doesn’t begin at zero. In fact, no one’s credit score is zero. The lowest credit score is 300, but that doesn’t necessarily mean that’s a person’s starting score. If a person is just starting and has no credit history, they’re more likely to have no score.

So, for a person just beginning their credit journey, what is the starting credit score? Read on to learn the factors that impact this score from the beginning, and the habits to establish to ensure a better credit score.

How Your Credit Score Is Calculated

There’s no standardized starting credit score. That may be partly due to the factors that influence how a score is calculated. What a person’s done in their young credit history will impact their starting score.

The FICO® Score is widely used in the U.S. to help determine a person’s credit score. This FICO company uses the following to calculate its score:

Payment History

Payment history is the most important factor for any credit score, including a starting credit score. Paying on time and avoiding missed payments account for 35% of a person’s credit score. That’s why it’s important to pay everything from credit card bills to rent on time — even a single late payment can harm a starting credit score.

Credit Utilization

The second most important factor in a credit score is credit utilization, which makes up 30% of a person’s score. Credit utilization is the percentage of their available credit a person actually uses. The ideal credit utilization ratio is 30% or under.

Length of Credit History

How long someone’s accounts have been open makes up 15% of their credit score. The longer an account has been open, the higher the credit score.

While it’s out of their hands, consumers who are just beginning to establish credit will likely be negatively impacted by this factor, lowering their starting credit score.

Recommended: How to Get a Personal Loan With No Credit History

Credit Mix

Making up 10% of a person’s credit score, credit mix refers to the different types of credit a person has. Generally, the two types of credit are:

•   Installment loans: Think car loans, student loans, and mortgages.

•   Revolving credit: Includes credit cards and home equity lines of credit (HELOCS).

If an individual can manage different types of credit without late or missed payments, it reflects well on their score.

Recommended: Does Net Worth Include Home Equity

New Credit

Opening multiple new accounts at a time? This factor accounts for 10% of a credit score. New credit includes “hard inquiries” as well as opening new accounts.

For a person with a starting credit score, they may have all, none, or some of these factors on their credit history. The mix varies from person to person, making it hard to predict one starting credit score for everyone.

Recommended: Should I Sell My House Now or Wait?

What Is a Good First Credit Score?

Unfortunately, a starting credit score won’t be the perfect 850. More likely it’s in the good (670-739) or fair credit score (580-669) range.

That’s mostly because of their limited payment history. If a person just opened a credit card or started paying back student loans, the credit bureaus don’t see an established history of timely repayment. Even if the consumer has never missed a payment, payment history is limited.

Similarly, the length of credit history is short, perhaps only a few months, which doesn’t give lenders enough data to judge a consumer as low- or high-risk.

Recommended: What Credit Score is Needed to Buy a Car

Ways to Establish Good Credit

While it can be discouraging that a starting credit score is penalized just for being new, it doesn’t take long to build credit with a few simple habits:

•   Paying bills on time will continue to be important, as payment history is a major factor in a credit score.

•   Keeping accounts open and in good standing, even if they’re no longer used, can help lengthen a person’s history.

•   Adding to the credit mix with a personal loan, credit-builder loan, or other types of credit can boost the credit mix.

•   Paying bills in full can help keep the credit utilization ratio balanced at 30% or below.

•   Not applying for too much at once will avoid the pitfall of too many hard inquiries and new accounts, which can have a negative impact.

While an individual can proactively try to build their score, a good portion of a credit score comes from paying bills consistently over time.

Establishing good habits, and continuing them, will likely lead to a higher credit score.

Recommended: When Do Credit Card Companies Report to Credit Bureaus?

Why Your Credit Score Is Important

It may be just a three-digit number, but a good credit score is a gateway to better financial opportunities. With a very good (740-799) or exceptional (800-850) credit score, borrowers have better odds of being approved for loans and may even have better repayment terms or more favorable interest rates.

Businesses and lenders may pull your credit history to confirm your qualifications for any of the following:

•   Credit cards

•   Mortgages

•   Rental apartments

•   Job applications

•   Car loans

•   Personal loans

•   Student loans

With a low credit score or no credit score, getting favorable terms or qualifying for anything above could be challenging.

How to Check Your Credit Score

Checking a credit score isn’t just a good way to track progress; it can also highlight any incorrect or fraudulent activity tied to a person’s name.

Monitoring a credit score is free and easy. Anyone can get their free FICO Score annually from Experian using AnnualCreditReport.com. The site allows visitors three free reports annually, one from each credit bureau.

In addition, credit card companies and lenders often offer free credit score reporting on their portals.

Recommended: What is The Difference Between Transunion and Equifax

The Takeaway

Having a starting credit score doesn’t mean starting from zero – or with a perfect 850. Consumers may start at a fair to good level. Working to establish healthy credit habits, such as paying bills on time and in full, will build their credit score. A solid credit score is important because the higher your credit score, the more financial opportunities you will have.

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

FAQ

What are the FICO credit score ranges?

FICO® credit scores range from 300 to 850.

Can you have a credit score without a credit card?

Yes. Credit scores aren’t based solely on credit cards. The score takes into account student loans, rent, utility payments, and more.

What are the differences between FICO, Experian, and Equifax?

Experian and Equifax are credit bureaus that create credit scores and compile credit histories. FICO® creates its own credit score. All three companies provide slightly different credit scoring models.

Photo credit: iStock/blackCAT

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.

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.

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 .

SORL-Q224-1944500-V1

In our digital world we like things to happen immediately. Unfortunately, it can take days, if not weeks, for a credit card refund to appear on a cardholder’s account.

How long does it take for a refund to appear on a credit card? Keep reading for insight into how credit card refunds work, types of refunds, and tips for getting your refund faster.

What Is a Credit Card Refund?

Before we can properly explain what a credit card refund is, it’s helpful to understand how credit card purchases work and who the main players are.

For every credit card transaction, there are two companies that help facilitate the purchase: credit card issuers and credit card networks. The credit card issuer is the company that creates and manages the credit card. The company essentially lends money to the cardholder to make a purchase. The credit card network is the business that processes the transaction electronically. It does this by transferring the money from the credit card issuer to the merchant.

Whenever someone makes a purchase with a credit card, the credit card issuer is the one to pay the merchant. Later, the cardholder pays the credit card issuer back.

With credit card refunds, this entire process works the same way but in reverse. When a merchant refunds a purchase, the money goes to the credit card issuer. Then the credit card issuer returns that amount to the cardholder’s account.

Recommended: What Credit Score is Needed to Buy a Car

How Does a Credit Card Refund Work?

As briefly noted above, when a consumer requests a credit card refund through a merchant, the merchant issues the refund directly to the credit card issuer, and then the issuer pays the account holder back. This is why merchants don’t typically refund credit card purchases in cash.

If the cardholder pays off their balance in full before a refund hits their account, they may end up with a negative balance. In this case, a negative is a good thing: It just means you have a credit on your account instead of the usual charges. You don’t need to do anything about a negative balance.

Types of Credit Card Refunds

There is only one type of credit card refund that consumers are involved in. The merchant and the credit card issuer (with the use of a credit card network) will work together to complete the refund and to get the money to the consumer.

Potential Delays for Credit Card Refunds to Appear

Exactly how long does it take for a refund to appear on a credit card? The timeline can vary based on a few variables. It can take time to process a refund, and all the consumer can do is wait.

In general, the retailer’s return policy dictates how long a consumer will wait to get their refund. Most retailers have a policy of refunding a purchase within three to five business days. The return policy can usually be found on the retailer’s website.

Online returns can be particularly lengthy and usually take longer to process than in-store returns because shipping is involved. It can take over a week just for the returned package to arrive and be processed before the refund process is initiated. Then the cardholder has to wait for the refund to appear on their monthly statement.

Here’s a few examples of common issues that cause refund delays.

Billing Disputes

Getting a billing dispute taken care of can take longer than a standard refund. In that case, the customer must file a dispute with the credit card company to receive a credit. Some examples of issues that may require a dispute are:

•   Being billed for a product you didn’t receive

•   Getting charged twice for the same purchase

•   Failing to receive credit for a payment

Mistakes happen and billing disputes can take a while to resolve. In some cases, a credit card chargeback may be necessary.

Merchant Delays

All merchants have their own timeline for processing credit card returns. It can take a week or two depending on how slowly the merchant tends to process their refunds.

Cases of Identity Theft

If someone needs a refund for a purchase on their account that is a result of identity theft, it can take quite a while to fully resolve that issue.

How Does a Credit Card Refund Affect Your Credit?

If someone doesn’t pay off their credit card balance while waiting for a return to process, they will carry the balance on their credit card. In addition to expensive interest charges, carrying a balance affects the consumer’s credit utilization ratio, which can harm their credit score.

A credit utilization ratio compares how much available credit someone has to how much of it they’re using. Ideally, it’s best to keep the utilization ratio below 30%. Financial software like SoFi offer free credit monitoring, a debt payoff planner, and other handy tools to make sure you aren’t taken by surprise.

Recommended: What is The Difference Between Transunion and Equifax

Tips To Get a Faster Credit Card Refund

The best chance someone has at getting a quick refund is simply to make the return as soon as possible. If a consumer is in a rush to get their money back, they can request a store credit refund from the merchant, which will be issued immediately.

That means the customer will have to spend that money in-store, leaving the purchase amount on the credit card bill to be paid off. On the bright side, this method results in the cardholder getting to keep any cash back or rewards points that the purchase earned.

The Takeaway

It can take anywhere from a few days to a few weeks for a refund to appear on a credit card. The exact timeline varies based on the merchant and credit card issuer involved, as well as other factors that can cause delays (such as slow shipping times). Patience is key, but it helps to be aware of what the merchant’s and credit card issuer’s return policies and expected timelines are.

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

FAQ

How long do refunds take to show up on credit cards?

It can take as little as three days for a refund to show up on a credit card. That said, it can take longer depending on the merchant and credit card issuer involved. Returns that require shipping back merchandise can take the longest, because the consumer has to wait for the merchandise to arrive and be processed before a refund can be initiated.

Why is my refund not showing up on my credit card?

A refund can take days, if not weeks, to show up on a credit card. Don’t be afraid to check in with the credit card issuer on the status of a refund. Instead of waiting for a new statement to come in the mail at the end of the month, it can be more expedient to review an online account statement.

Why do card refunds take so long?

Credit card refunds can take a while for a few reasons. To start, all merchants and credit card issuers have different refund timelines. Other things like slow shipping times (for online purchases) or issues with identity theft can cause additional delays.

Photo credit: iStock/Passakorn Prothien

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.

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.

SORL-Q224-1945468-V1

When a refund goes to a canceled credit card, it may seem like that cash is lost for good. However, getting your money back just requires a few calls to the credit card company and the merchant, and a little patience.

There are ways to avoid a refund going to a canceled credit card and methods to recover the cash if it’s stuck in limbo between the retailer and the credit card company. Keep reading to learn how to avoid this situation, and what your options are.

Can You Stop a Refund From Going to a Canceled Credit Card?

To avoid a refund going to a canceled credit card, the easiest approach is to reach out to the merchant before starting the refund process.

Ask the business if it’s willing to refund the purchase in a different way. That’ll likely mean store credit or a gift card. In some instances, it could mean receiving cash back or refunding the purchase to a different credit card.

Going to the business first may involve calling customer service or visiting a bricks-and-mortar location. If the business is willing to refund the purchase differently, you’ll avoid the long process of getting back a refund that went to a canceled credit card.

Recommended: Common Credit Report Errors and How to Dispute Them

Steps for Getting a Refund on a Canceled Credit Card

When a refund is going to a canceled credit card, you have a few options to ensure the credit doesn’t go to waste. It can help to know a little about how credit cards work, but it’s not essential.

1. Check if Your Canceled Card Account Is Still Open

In the event that a credit card was canceled due to theft or loss, don’t worry. If the account is still open under a new card number, the refund from the merchant will be credited back to the new card.

Recommended: How to Report Identity Theft

2. See if the Refund Was Accepted by the Card Issuer

When there’s no longer a credit card associated with the account, things get trickier. What happens next will vary based on how long ago the cardholder closed the account.

If the customer can still log in to their account, they may see the refund reflected online. But if the account is long closed and can’t be accessed online, first the customer should reach out to the merchant and ask for the Acquirer Reference Number. Armed with this information, they can then talk to the credit card company.

3. Request the Refund

If the merchant says the refund was posted to the old account, call the credit card company and request a refund via check. This is when the Acquirer Reference Number can come in handy. In some cases, the credit card company or bank may ask for a written request.

4. Be Patient

A standard refund usually takes a week, but getting a refund from a canceled credit card can take longer, depending on merchant policy, credit card company policy, and even the returned item or service.

Generally, expect a refund between seven and 14 business days after your request. If 30 business days elapse with no refund, it’s time to follow up with the merchant.

5. Return Directly to the Merchant for the Refund

If 30 days pass without a refund, it may be time to return to the store to track down the refund.

In some cases, the card issuer may reject a refund to a closed account and send it back to the store. Reach out to the store’s customer service and ask if it received a bounce back from the credit card issuer. If the store did, customers might be able to request a refund in the form of store credit or cash.

This process can be complicated or tedious, depending on the retailer’s size and bookkeeping system. An independent retailer is unlikely to have a customer service department, so going to the store with receipts and reference numbers could help speed up the process.

How To Avoid a Refund Going to a Canceled Card

Asking for an alternative refund method is one way to avoid a refund going to a canceled card, but here are a few other ways to steer clear of the lengthy process.

•   Conduct an audit of transactions before canceling a credit card. Are there any purchases you plan to return? Keeping the card open until the refund is processed could make sense.

•   Keep an eye on finances. A money tracking app can help you keep tabs on your spending, avoiding the confusion of which refund goes on what card. Some services also offer free credit monitoring and a debt payoff planner.

•   Think long and hard before canceling a credit card. Canceling a credit card can harm your credit score, and canceling one out of the blue may lead to more issues than benefits. Closing a card without thinking it through could lead to refunds on a canceled card.

Recommended: What is The Difference Between Transunion and Equifax

The Takeaway

The simplest way to avoid a refund going to a canceled card is by going straight to the merchant and asking them to refund the amount through an alternative means. That could mean getting store credit, but it’ll sidestep the credit card company and get your money back faster. If a refund does go to a canceled card, it’s not lost for good. It’ll just take a few steps to get the refund.

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

FAQ

Can I get a refund that was sent to a closed credit card?

Yes, but getting the refund will depend on if the account is still open, how long the card has been closed, and the credit card company’s policies.

Photo credit: iStock/MBezvodinskikh

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.

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.

SORL-Q224-1945522-V1

It’s natural to be curious about what credit score you start with at 18. You might assume you start with the lowest possible score of 300, but that’s not how it works. Instead, your credit score doesn’t exist until you begin generating financial data.

Good credit is vital to financial independence. Establishing credit early on can help you qualify for favorable rates and terms when you need to borrow money for a car or home. Here’s what you need to know about beginning credit scores and how you can build yours.

What Is Your Starting Credit Score?

Essentially, your credit score doesn’t exist until you begin building credit. Before that, if a financial institution requests your credit history, they will find nothing. Only when you use a credit card or pay utility bills will there be something to put on your credit report.

This doesn’t mean you will start with the lowest score possible, though. Neither will you start with a high credit score, since that requires a strong credit history and proof of solid financial habits. But if you get off on the wrong foot by not paying your credit card bill on time, you may start with a lower credit score.

Usually, you need at least one or two revolving accounts that have been active for at least three to six months to begin building credit. Creditors and lenders use various credit scoring models to determine your creditworthiness. Therefore, your number may differ across different platforms. For example, your FICO® Score and VantageScore range between 300 and 850, while other models, such as your auto loan score, may go up to 900 or higher.

Recommended: What Is the Difference Between Transunion and Equifax

Breakdown of Credit Score Factors

A number of factors affect your credit score. Here are the ones you should know about.

Payment History

A key factor in determining your credit score is whether you pay your bills on time. In fact, when calculating your FICO score, 35% comes from your payment history. Because it plays a significant role in your overall score, paying your bills on time is crucial.

Credit Utilization

Your credit limit is the maximum dollar amount you can charge on a credit card. Credit bureaus determine your credit utilization by dividing your outstanding balance by your total revolving credit limits. This shows credit bureaus how much credit you are using against the total credit you have.

A good rule of thumb is to keep your credit utilization ratio under 30%, both for each credit card and overall. Maintaining a low credit card balance or paying it off monthly will help you maintain a lower credit utilization ratio. This factor accounts for 30% of your overall FICO score.

Length of Credit History

The longevity of your credit history also plays a part in calculating your credit score. Credit bureaus will look at the number of years your accounts have been open. The length of your credit history accounts for 15% of your FICO score.

Recommended: Does Net Worth Include Home Equity

Credit Mix

Credit is usually broken down into three categories: revolving credit, installment credit, and service credit. With revolving credit, creditors give you a specific credit limit to spend as you wish. You can make the minimum monthly payments or choose to pay off your credit card balance every month. If you make the minimum payment, the remaining balance will carry over to the next month until you pay off the entire balance.

Installment credit is used for auto, mortgage, and other loans. With this type of credit, the creditor establishes a fixed monthly payment you agree to pay back over a set amount of time. Demonstrating that you can handle multiple types of credit can increase your credit score.

Last, service credit is when companies like home utilities or a cell phone provider report your payment history to a credit bureau. On-time payments to these businesses can help build your credit. This accounts for 10% of your FICO score.

Recommended: Should I Sell My House Now or Wait?

New Credit Inquiries

When you apply for new credit, creditors conduct a hard inquiry. This means they assess your creditworthiness by looking at your overall credit history. New credit inquiries and new accounts account for 10% of your score. Triggering a large number of credit inquiries in a short amount of time is considered risky and will negatively impact your credit score.

What Is Insufficient Credit History?

If you don’t have any credit accounts or your credit accounts are not reported to the three major credit bureaus (Experian, TransUnion, and Equifax), you may have an insufficient credit history.

Even if you establish credit but go a long time without using it or cancel your credit cards, your credit information might be removed from your credit file. In this case, you may also have an insufficient credit history.

How to Establish Credit History

Building credit might seem daunting. However, there are a few strategies to begin establishing a credit history from scratch. Here’s how.

Apply for a Secured Credit Card

Secured credit cards require applicants to put down a deposit. This deposit will usually act as your credit limit. You will still have to make monthly payments since the deposit is used as protection or collateral if you default.

A secured card will help you establish credit as long as the creditor reports to one of the three major credit bureaus. A secured credit card can act as a stepping stone to unsecured credit cards and other forms of financing in the future.

Become an Authorized User

To become an authorized user, someone needs to add you to an existing account held in their name. You will receive your own credit card, and the account history will go on your credit report.

Keep in mind, however, that since you’re not solely responsible for payments and the management of the account, this account may have less of an impact on your credit score than if you were the sole owner of the account.

Make On-time Payments

As noted above, your payment history counts as 35% of your score. Missing a payment can hurt your credit score and stay on your credit report for up to seven years. You can establish autopay to ensure you never miss a payment. However, you’ll still want to check your account monthly to ensure you weren’t overcharged.

Keep Your Credit Balances Low

Once you get a credit card, resist the temptation to run up the balance. The amount of credit you’re using plays a role in your score. It’s best to keep your balances low and use under 30% of your total credit card limit.

How to Monitor Your Credit Score

An important component of building credit is monitoring your progress. Monitoring your credit can motivate you to keep building your score. It can also help you spot problems quickly, such as missed payments. Finally, keeping tabs on your credit will let you see how specific actions impact your score so you can better understand how credit scoring works.

The Takeaway

The credit history you start with at 18 is a blank slate. Your credit score doesn’t exist until you start building credit. To begin your credit-building journey, consider opening a secured credit card or ask a family member to add you as an authorized user on their account.

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

FAQ

Is a credit score of 720 good?

Yes, a 720 credit score is considered good. However, increasing your score by 20 points will make it a very good score and help you receive more favorable interest rates and terms.

Does credit build before 18?

It’s possible to build credit before age 18 if you’re an authorized user on an adult’s account or you have a secured credit card. Many financial products, such as loans and credit cards, require you to be 18 or older to apply. Being an authorized user can be your first opportunity to establish credit history.

How can I quickly build my credit score?

Since your credit utilization ratio significantly impacts your credit score, paying off your credit card balances and increasing your limits can help you build your credit score promptly.

Photo credit: iStock/FG Trade

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.

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.

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 .

SORL-Q224-1945504-V1

A budget is an important tool to help you balance your income and your spending, keep your savings on track, and help you avoid debt. But like many good things, it sometimes goes off the rails. A person might start a budget with the best of intentions but then find it hard to stick to it. Or they might encounter an emergency expense and have a hard time getting back in the groove.

Learn what the common pitfalls are and how to avoid common budgeting mistakes to help your financial life thrive.

10 Budgeting Mistakes to Avoid

Here are 10 of the most common budget mistakes people make. Get familiar with them as a way to steer clear of them.

1. Not Having a Budget

Some people make the budget error of…not having a budget at all. Maybe it seems too hard, too time-consuming, or too boring; you’d rather be watching a hot new streaming series or playing with your dog.

Nevertheless, if you don’t create and follow a budget, you’re missing out on major benefits:

•   You may not save enough in your bank account for your future

•   You may feel stressed about reaching your long-term goals

•   You might spend beyond your means, which could land you in debt and strain on your financial resources.

Recommended: Common Financial Mistakes First-Time Parents Make

2. Not Tracking Spending

Tracking your spending can be one of the more tedious tasks required for budgeting, but it’s also an incredible, truth-revealing tool. How else would you know when you are above or below your limits? You risk blowing past your limit by overspending in some categories, meaning you’ll have less (or none) for other categories. For example, overspend on eating out, and you might have less to put toward your retirement savings. Fortunately, there are an array of expense-tracking apps (many are free) that can help simplify this process.

3. Not Having Emergency Savings

The general recommendation is to save three to six months’ worth of expenses in a dedicated emergency fund. This is money you can draw on in case of emergency medical expenses and car repairs, for instance. It also provides a cash cushion should you lose your job, giving you time to get back on your feet without going into debt.

Not having an emergency fund can torpedo your budget, requiring you to draw money from other categories to cover unexpected expenses, or requiring you to take on debt.

If you don’t have a rainy day fund yet, it may be wise to set up automatic deductions monthly. Even as little as $25 can begin building a buffer. Keep your emergency cash in a separate savings account so you aren’t tempted to touch it. And if you need to dip into the account, be sure to budget additional savings until you are able to replenish it.

4. Not Considering Cheaper Alternatives

Budgeting doesn’t necessarily mean giving things up. Sometimes it can mean looking for cheaper alternatives. For example, you could swap out a pricey gym membership for one at a more budget-friendly place instead. Instead of renewing the same car insurance you’ve always had, you could shop around online for a better deal. You might even call your credit card issuer to request a lower interest rate or try to negotiate a medical bill. All of these options can free up cash in your budget that can go toward meeting other goals.

5. Thinking That You Can’t Have Fun While on a Budget

One of the reasons people don’t budget is it can feel like a real slog and a buzzkill. They assume that in order to budget successfully, they have to give up doing things they like. However, that’s not necessarily true. While a budget ensures that your necessary expenses are taken care of first, it can also provide discretionary funds that can be used however you want, from going to see a movie to booking a weekend getaway.

You may also consider making budgeting more fun by rewarding yourself when you meet certain goals. For example, you may want to treat yourself when you pay off a credit card. Just be sure you’ve already earmarked funds to pay for your reward.

6. Saving for Too Many Things Simultaneously

Another budgeting mistake involves trying to save for too many things at once. In this situation, it’s easy to stretch yourself thin. You might start to feel like you’re spinning your wheels and are unable to follow your budget.

A solution can be to narrow your focus. To prioritize your savings, first consider wants versus needs. For example, you may want to drill down on a single need, like building an emergency savings fund, rather than upgrading your mobile phone (which is a want, after all). Once your need is taken care of, then you can consider allocating funds for a want. Delaying gratification a bit can be a valuable tool when successfully managing your money.

7. Not Adjusting Varying Expenses Every Month

Some expenses, like rent and utility bills, are relatively fixed. Others, like how much you spend on groceries can vary from month to month. If you don’t compensate for that fluctuation, you may be making a budget mistake.

If you notice you are suddenly spending more each month in a certain category, be sure to adjust your budget accordingly, or look for ways to cut back on spending in that category. To protect yourself in times of high inflation, it can be especially important to monitor this. Your food, gas, and heating expenses may well run high for a while.

8. Not Taking Into Account One-Time Expenses

One-time expenses can be real budget busters if you don’t plan for them ahead of time. Estimate the cost of the expense, and spread out your savings over a couple of months.

For example, if you plan to attend a wedding that will cost $800, you could start saving $200 a month four months in advance so you don’t end up footing the bill all at once. Or let’s say you know you’ll be needing a set of new tires soon; start stashing away cash in advance so you don’t get hit with a major bill that sends your budget spiraling. Another category many budgeters overlook is gifts; birthday and holiday presents can add up, so remember to set aside funds to afford them without a hiccup.

9. Having an Unrealistic Budget

It’s easy to be optimistic and have the best intentions when you create your budget, but make sure it’s something you can realistically stick to. Otherwise, you may have a budget mistake on your hands.

You may be overly optimistic, for instance, if you allocate 20% of your take-home pay toward one goal. If you oversave in one area, like for a downpayment on a home, for example, it may mean that you could incur credit card debt in order to buy necessities like groceries. Be honest with yourself about how much you spend and how much you can save.

10. Having the Wrong Budget Method for You

There is no one-size-fits all budgeting strategy. As we mentioned above, there are a number of different budgeting strategies you can use to help you build and stick to your budget. The best one is the one that works for you. Just because a budget strategy sounds good when you first learn about it or your best friend swears by it doesn’t mean it will work for you. It’s a budgeting error to cling to a system that isn’t working. If the technique you are using isn’t right for you, acknowledge that, and try something else.

The Takeaway

Now you know what is a common mistake made in budgeting; 10 of them, in fact. By avoiding these pitfalls, you give yourself a better chance of sticking to your budget, saving money in your bank account, and meeting your financial goals. What’s more, you’re far less likely to be derailed by debt, and interest payments that could eat into your ability to save and manage your money.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What are some pitfalls of budgeting?

Budgeting pitfalls that can derail your financial goals include failing to have a budget, not tracking your expenses, forgetting to account for varying monthly expenses, and not building up an emergency fund.

What is improper budgeting?

Improper budgeting can occur if your budget is incomplete, if it’s overly ambitious (not recognizing how much you actually spend, for instance), or if you don’t update it with new sources of income or expenses, you’re not budgeting correctly.

Why do people fail in budgeting?

A budget may fail for a variety of reasons, such as trying to achieve too ambitious a goal or too many goals at once; not tracking your expenses; and sticking with a budgeting strategy that doesn’t fit your needs. If the latter is the case, try multiple strategies to find the one that suits you best.

Photo credit: iStock/Prostock-Studio

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.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

4.00% APY
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SOBK-Q224-1945831-V1