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Paying rent can be a path to build credit. That is, as long as your rent payments are being reported to the major credit bureaus — Equifax®, Experian®, and TransUnion®. Or there are some methods of paying with a credit card which can potentially build your score. You will also need to make sure you’re regularly making on-time payments, as late or missed payments can have a negative effect on your credit.

While it may not feel as automatic as other methods, with some effort, you can use your rent payments to build your credit. Here’s a closer look at how to do so.

How Paying Rent Affects Your Credit

Paying rent has the potential to affect your credit in two major ways: through your traditional credit history or through alternative data.

•  If you use your credit card to make rental payments, then your account activity will get included in your credit report. If you’re making timely payments in full, then this can positively impact your credit score. Late or missed payments, on the other hand, can lead to negative effects on your credit score.

•  Alternative data refers to sources that are not typically used to calculate credit scores. However, some lenders may consider them to determine creditworthiness. Rental payments are one example of alternative data — though for this information to count, you’ll usually have to enroll in a rent reporting service. And again, in order to build your credit through rental payments, it’s necessary to make those payments on time.

Can Your Rent Payments Appear on Your Credit Report?

Rent payments can appear on your credit report if your payment activity is reported to the major credit bureaus. To find out if your rent gets reported, ask your landlord or the property management company.

Your method of payment also affects whether your rental payments will show up on your credit report. For example, if you’re able to pay rent with a credit card, your payment should show up on your credit report. However, if you pay with a check or bank transfer, your payment most likely will not appear on your credit report.

Can You Manually Report Rent Payments to Credit Bureaus?

Unfortunately, you can’t report your rent payments to the credit bureaus on your own. Your landlord usually won’t be able to either, unless your building is managed by a property management company that does.

The good news is that there is a workaround to getting your rent payments reported, but it involves using a rent reporting service.

Tips for Getting Credit for the Rent You Pay

There are two main ways to get your payment activity added to your credit report: enrolling in a rent reporting service or using a method of payment that’s guaranteed to show up on your credit report.

Sign Up for a Rent Reporting Service

You can sign up for a rent reporting service yourself, or you can ask your landlord to do so if you’re hoping to use your rent payments to establish credit. If you sign up yourself, you may have to go through some verification procedures, such as having your landlord verify your rent payments.

In most cases, you’ll pay a fee for using the service. You may pay a set-up fee only, or you could owe a monthly fee. If your landlord signs up, they could incur a fee that they may then pass onto you. Still, it could be worth it if you want your rent payments reported to the credit bureaus.

Use Your Credit Card

If your landlord or property management company accepts this method of payment, then using your credit card could get your rent payment put on your credit report. Keep in mind that like rent reporting services, you may be charged a processing or convenience fee for using your card to pay for rent.

Also know that, while there are different types of credit cards, many charge high interest. Make sure you can pay off your bill for your rent promptly; otherwise you could wind up with high-interest credit card debt.

Recommended: What Is a Charge Card?

Does Missing Rent Hurt Your Credit Score?

Missing even one payment could affect your credit score negatively if your rent payments are reported to the credit bureaus. Considering that payment activity is one of the major factors used in calculating your credit score — your payment history makes up 35% of your FICO® score — it’s best to try and make on-time payments each month.

However, if you don’t use your credit card to make rental payments, you aren’t signed up for a rent reporting service, and your landlord doesn’t report your payment activity, then your credit score will most likely not be affected by missing rent. Still, missing rent payments can have other serious implications down the road, from making it harder to negotiate rent in the future to possible eviction.

Other Ways to Build Credit

While paying rent can build credit, there are other ways to go about doing so. If you’re hoping to establish your credit, here are some alternatives to consider.

Take Out a Personal Loan

Here are two options:

•  There are many loans that are specifically geared toward those looking to build their credit. Sometimes marketed as credit-builder loans, these loans approve you for a specific amount that you then make payments on in monthly installments until the amount is paid off in full.

  Unlike a traditional personal loan, the money borrowed is held in a savings or escrow account — think of it as forced savings — and your payment activity is reported to the credit bureaus. Once you pay off the loan, you’ll receive the funds, minus any applicable fees.

•  You can also choose to take out a traditional personal loan, where you’ll receive a lump sum upfront. The amount you qualify for and the terms of the loan will depend on your creditworthiness. In fact, if you’re in a bind and have strong credit, you can even use personal loans for rent.

With either of these options, make sure to shop around for lenders and compare offers. Also take the time to read the fine print carefully, so you understand exactly what you’re getting into.

Become an Authorized User

Another option to build credit is to ask someone you trust — such as your spouse or a relative — who has good credit to make you an authorized user on their credit card. Doing so means that this account gets added to your credit history.

This can allow the primary cardholder’s credit activity to help you build your credit, as long as they continue to be responsible with their credit card. In turn, this could help you to secure the necessary credit score to rent an apartment or qualify for loans.

Use a Credit Card

Another way to build credit is through responsible credit card usage. Depending on your credit history, you can choose from a secured or unsecured credit card. A secured credit card may be easier to qualify for, since many are geared toward those with limited or no credit history. You’ll need to put down collateral (usually a refundable deposit), which will serve as your credit limit.

Or, you can try to apply for an unsecured credit card if you believe your approval changes are high.

Whichever route you go, make sure to stay on top of making your payments on time, and avoid using too much of your available credit limit. You could even consider paying your bills with a credit card to build up your payment history.

Recommended: Does Applying for a Credit Card Hurt Your Credit Score?

The Takeaway

You can build credit with your rent payments if you make them using your credit card or if your payments get reported to the credit bureaus. Ask your landlord or rental company if payments already get reported to the bureaus. If they don’t you can sign up for a rent reporting service, though you’ll most likely pay a fee to do so. From there, rent can affect your credit score positively or negatively, depending on whether your payments are made on time.

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

How soon will my rent payments appear on my credit report?

Typically, credit reports are updated monthly. That said, how soon your rent payments will appear on your credit report depends on several factors, including when you made your payment, how you paid, and whether you did so through a credit reporting service.

Can I build my credit by paying rent?

You may be able to build your credit by paying rent if you use a method of payment that gets reported to the credit bureaus or if you sign up for a rent reporting service. Otherwise, if your landlord or property management company doesn’t report your payment activity, it won’t affect your credit.

How long does unpaid rent stay on credit?

If you missed a rent payment and your rent payments do get reported to the credit bureaus, the negative remark may stay on your credit report for up to seven years.

Photo credit: iStock/miniseries

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

SOCC-Q424-006

In most cases, paying for car insurance does not help build credit. This is mostly because car insurance is not an installment loan, so it isn’t reported to the major credit bureaus.

However, if your insurance account goes delinquent and is sent to collections, that could have a negative impact on your credit score. In this way, car insurance does have the potential to affect your credit score. Learn more about this important facet of your financial life.

How Does Paying Car Insurance Work?

Like most types of insurance, how car insurance works is by making monthly (or annual) premium payments to the insurance company. Then, if you are in an accident that is covered by your policy, the insurance company may pay to repair or replace your vehicle, subject to the deductible listed on your policy. The medical costs related to injuries may be covered as well.

Every car insurance policy is different, so work with your agent to make sure you understand how your particular policy works.

Recommended: Does Applying for a Credit Card Hurt Your Credit Score?

Paying Car Insurance With a Credit Card

Many insurance companies do allow you to pay for your car insurance with a credit card. However, it’s possible that your company may only allow payment by cash, check, or bank transfer.

If you do pay for your car insurance with a credit card, make sure that you are including that amount in your monthly budget. That way, you can make sure to have enough money in your bank account to pay your credit card statement in full.

How Your Credit Score Can Be Affected by Paying Car Insurance

While your regular and on-time car insurance payments likely will not have an effect on your credit score, that doesn’t mean your score can’t be impacted by paying car insurance. Specifically, your credit score can be affected by not paying your car insurance premiums. If your insurance agency sends your account to a debt collection agency, that could result in negative impacts to your credit score.

Does Paying Car Insurance Help Build Credit?

As we’ve mentioned before, paying your car insurance does not usually help with building credit. So if you’re hoping to do so, you’ll need to look at other avenues, like making regular on-time payments to your creditors. Additionally, paying off a debt affects your credit score by lowering your debt-to-income ratio and your overall credit utilization, so that could be another avenue to consider.

Factors to Consider When Paying Car Insurance With a Credit Card

The biggest factor to consider if you want to pay your car insurance with a credit card is whether or not your insurance company accepts credit card payments. While many insurance agencies do, some do not. If your agency does not take credit card payments, you’ll have to find an alternative way to pay your bill.

Additionally, you’ll want to make sure that you have the money budgeted to pay off your credit card balance in full when it comes due. That way, you’ll avoid accruing interest on your car insurance payment if you used your credit card to cover it.

Recommended: How to Avoid Interest On a Credit Card

Consequences of Missing a Car Insurance Payment

If you’re significantly late with a car insurance payment and your account is sent to collections, that can negatively impact your credit score. However, the biggest consequence of missing a car insurance payment is that you may not be covered if you get into an accident. Generally, car insurance covers you only if your premium payments are up-to-date.

Additionally, if you live in a state where car insurance is required and your insurance has lapsed, you may face civil or criminal charges.

Recommended: What Is a Charge Card?

Do Car Insurance Payments Appear on Your Credit Report?

Generally, car insurance payments do not appear on your credit report. This is in contrast to other types of recurring payments like mortgages or loans. However, if you make significantly late payments, your insurance company may report those late payments to the credit bureaus. This in turn could negatively impact your credit score.

Recommended: When Are Credit Card Payments Due?

Does Your Credit Score Impact Car Insurance Rates?

While paying your car insurance does not usually impact your credit score, the reverse is not true. Your credit score can (and often does) impact the rates that you are charged for car insurance.

A lower credit score can mean that your insurance premiums are higher. That is yet another reason to work on improving your credit score by following solid financial practices.

Factors That Determine Your Car Insurance Rate

Here are some of the major factors that can determine your car insurance rate:

•   Age

•   Gender

•   Make and model of your car

•   Location (ZIP code) where you typically park your car

•   Your driving habits, including how much you drive and your driving record

•   The type of coverage you choose, as well as the limits and deductibles

•   Your credit score

If you’re looking to lower your car insurance costs, making changes in some of the above areas can help. This could include improving your credit or driving record or reviewing your coverage needs.

Recommended: What is the Average Credit Card Limit?

Other Ways to Build Credit

Although paying your car insurance on time does not usually impact your credit, there are a few other ways you can build your credit.

Paying Your Bills On Time

One of the best ways to build your credit is by paying your bills on time, each and every month. Set up a budget and make sure that your monthly expenses are less than your monthly income. Work toward having an emergency fund to help cover you when you have unexpected expenses. Organize your bills and make sure that you pay them by their due dates.

Recommended: How Paying Off a Car Loan Affects Your Credit Score

Responsibly Using a Credit Card

Another way of establishing credit is by responsibly using a credit card. Most credit card payments and balances are reported to the major credit bureaus. Responsibly using a credit card and paying it off in full each month can help you build credit.

Additionally, some credit cards offer rewards, such as cash back rewards, with each purchase. Those rewards can serve as a bit of extra money each month to help you meet your financial goals.

Taking Out a Personal Loan

When potential creditors look at your credit report, many of them are looking for evidence that you can be trusted to pay your debts. If you don’t have many items on your credit report, lenders may not be sure if you’ll be responsible with additional debt. Taking out a personal loan (and then responsibly paying it back in full) can be one way to build your credit.

The Takeaway

While having and paying for car insurance is important if you drive a vehicle, it usually won’t have much of an impact on your credit score. However, if you don’t pay your insurance premiums when they’re due, your account might be sent to collections, which can negatively impact your credit score. If you’re looking for ways to build your credit, you might consider getting a personal loan or opening and responsibly using a credit card.

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 unpaid car insurance affect my credit score?

Yes, unpaid car insurance can negatively affect your credit score. If you make significantly late payments, your insurance company might report the late payments to the credit bureaus. If your account becomes too delinquent, it may be sent to collections, further negatively impacting your credit score.

How does my credit score impact my car insurance rate?

Many insurance companies do consider your credit score and credit history when determining the rates you pay for car insurance. As with many financial products, having a good credit score can help you to pay lower monthly premiums for car insurance.

Can I get car insurance with low credit?

Yes, it is possible to get car insurance with low credit, though your monthly premiums may be higher than those of a similar applicant with better credit. If you’re looking at lowering your car insurance, one option is to build your credit score. You could accomplish this through paying down debt, examining your credit report for inaccuracies, or being more regular about making on-time payments to your creditors.

Photo credit: iStock/Believe_In_Me

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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 Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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Almost 43 million Americans have student loan debt, and borrowers owe an average of $37,853, according to the Education Data Initiative. If you’re grappling with student loan payments and feeling overwhelmed, you may be wondering, “Should I sell my house to pay off debt?”

While the idea may be tempting, it has disadvantages and might negatively affect your financial situation. Read on to learn the benefits and drawbacks of selling your house to pay off student loans, and discover alternative options for repaying your debt.

Understanding the Benefits of Selling Your House to Pay Off Student Loans

A mortgage is the biggest debt most Americans have, and student loans are one of the next biggest. It’s understandable then that some borrowers might consider selling one to help pay off the other. Potential benefits of selling a home include:

•   Getting a lump sum. When you sell your home, you may end up with a decent chunk of money. Of course, you’ll have to pay off your mortgage first, but as long as you have more value in your house than what you owe on your mortgage, you can take the remaining proceeds of the sale and apply it to your student loans. Depending on how much you get from the sale of the property and how much you owe on your loans, you may be able to pay off your student loan debt completely. And if you can’t pay off your loans completely, you may be able to pay off some of them and consider student loan refinancing to help manage the rest.

•   Eliminating monthly payments. By selling your house and paying off your student loans, you get rid of two substantial monthly payments that may have fairly high interest rates. With student loans, some of that interest may have accrued over time. For instance, if you have federal Direct Unsubsidized loans, the interest begins to accrue immediately after the loan is disbursed, and can add up to a sizable amount over time.

•   A financial fresh start. Selling a house can also be a new beginning financially. It could help you get out from under a costly mortgage. You can look for a less expensive place to live, and create a new budget accordingly. Repaying student loans will further dial down the debt you owe. You may also be able to direct more money to your child’s college fund or save more for retirement.

Recommended: Guide to Student Loan Refinancing

Factors to Consider When Selling Your House to Pay Off Student Loans

Along with the potential upsides, however, there are a number of disadvantages to selling your house. It’s important to understand the drawbacks before making such a big decision.

How much you can get for your house is one of the most important factors when determining whether it makes sense to sell. The price you can ask for your home depends on market conditions, supply and demand, and mortgage rates, among other things. Do some research to figure out the current market value of your home. Look at what comparable homes in your area are selling for. Think about whether you could make enough from the sale of your house to pay off what you owe on your mortgage and repay your student loans.

Next, since you’ll need to find a new place to live, explore the different housing options available. You might need to downsize to a more affordable home, move to a less expensive area, or rent instead of buying.

Finally, think about how selling your home could affect your lifestyle. You might end up in a smaller space with less living space, which means you may have to sell some of your furniture. If you have to relocate to a different area, your commute to work might get longer. Think through the various scenarios and make sure you’re comfortable with them.

Navigating the Process of Selling Your House to Pay Off Student Loans

If you decide to move ahead with selling your house, finding the right real estate agent can be critical. Hiring a professional who knows the market can help you price your home for a sale and take some of the stress out of what can be a complex process. Just be aware that there will be costs involved, including a commission to the agent.

You’ll also need to prepare your house for a sale. Clean and declutter your home to make it look bigger and more appealing. Outdoors, mow the lawn, trim the bushes, and generally tidy up so that your house has curb appeal.

Familiarize yourself with the legal and financial aspects of a home sale. For instance, once you have an offer on the house, a potential buyer might ask you to make repairs before they purchase the home. There are also closing costs to consider, as well as the real estate agent’s commission. And if you sell your house for more than you paid for it, you may have to pay capital gains tax (see more on that below). Make sure you understand what’s involved in selling your home and what you are responsible for legally and financially.

Mitigating Challenges and Risks When Selling Your House to Pay Off Student Loans

Talking about selling your home to pay off student loans is one thing. Actually doing it is another. You may feel sentimental about your house, especially if you’ve lived there for a while. As much as you can, try to emotionally detach yourself from your home. Focus instead on the positive, such as getting out of debt and the fresh start ahead of you.

On a more practical level, there may be a capital gains tax on the profit you make from the sale of your home if you sell it for more than you paid for it. Capital gains tax generally depends on your taxable income, your filing status, and how long you owned the home before you sold it. There is an IRS exemption rule, often referred to as a primary residence exclusion, that may help you avoid paying some or all of the capital gains tax. Do some research and check with a financial professional to see if you might qualify for the exclusion.

Exploring Alternatives to Selling Your House to Pay Off Student Loans

Rather than selling your house to pay off student loans, there are some other ways to help manage, and potentially even reduce, your student loan payments. Here are some options to consider.

Student Loan Refinancing

If you have private student loans, or a combination of federal and private loans, student loan refinancing lets you combine them into one private loan with a new interest rate and loan terms. Ideally, you might be able to secure a new loan with a lower rate and more favorable terms. If you’re looking for smaller monthly payments, you may be able to get a longer loan term. However, a longer term means you will likely pay more in interest overall since you are extending the life of the loan.

On the other hand, if your goal is to refinance student loans to save money, you might be able to get a shorter term and pay off the loan faster, helping to save on interest payments. Just be aware that if you refinance federal loans, they will no longer be eligible for federal benefits like federal forgiveness programs.

A student loan refinancing calculator can help you determine if refinancing makes sense for you.

Student Loan Consolidation

If you have federal student loans, a federal Direct Consolidation loan allows you to combine all your loans into one new loan, which can lower your monthly payments by lengthening your loan term. The interest rate on the loan will not be lower — it will be a weighted average of the combined interest rates of all of your consolidated loans. Consolidation can streamline your loan payments, and your loans will still have access to federal benefits and protections. However, a longer loan term means you’ll pay more in interest over the life of the loan.

Income-driven Repayment Plans

With an income-driven repayment (IDR) plan, your monthly student loan payments are based on your income and family size. Your monthly payments are a percentage of your discretionary income, which usually means they’ll be lower. At the end of the 20- or 25-year repayment period, depending on the IDR plan, your remaining loan balance will be forgiven.

Loan Forgiveness Programs

You might be able to qualify for student loan forgiveness through a state or federal program. For instance, with Public Service Loan Forgiveness (PSLF) program, borrowers with federal student loans who work for a qualifying employer such as a not-for-profit organization or the government may have the remaining balance on their eligible Direct loans forgiven after 120 qualifying payments under an IDR plan or the standard 10 year repayment plan.

Also, be sure to check with your state to find out what loan forgiveness programs they might offer.

The Takeaway

Student loan debt can be a major financial burden for borrowers, and selling your home to get out from under that obligation may sound appealing. But selling your house is a major decision. You may be eliminating a mortgage, but you’ll have to find a new affordable place to live. Plus, there are costs involved with the sale of a home and there may be tax implications to deal with as well. Weigh all the pros and cons carefully before selling your home to pay off student loans.

And remember, there are other ways to manage student loan debt, including loan forgiveness, income-driven repayment, and student loan refinancing. Explore all the different options to decide what works best for you. You may be able to reduce your loan payments and keep your home.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

Photo credit: iStock/Quils

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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From unemployment benefits to hardship programs, there are a number of options out there when it comes to managing money during difficult times. One option that people may consider during unemployment is a personal loan. But one important question is: Can you get a loan while unemployed?

While there are personal loans for the unemployed available, it’s important to carefully assess the downsides and the benefits before moving forward. You’ll need to ensure you’ll be able to pay back the loan even if money gets tighter, and you should also be prepared for a more challenging approval process.

Personal Loan Basics

At its most simple, a personal loan is when a lending institution pays out a lump sum of money to a borrower, who then pays back the amount owed plus interest over a predetermined period of time.

Unlike a mortgage or student loan, personal loans aren’t tied to a specific expense. In other words, someone might take out a personal loan to cover the cost of paying for a dream wedding, to remodel a kitchen, or to cover living expenses during a time with low cash flow.

Personal loan amounts can range from $1,000 to $100,000, depending on the lender’s guidelines, the amount a borrower requests, and the borrower’s creditworthiness. While the lender pays out the amount of the loan in one lump sum to the borrower (minus any origination fee), the borrower pays back the loan over time in installments, often over a period of 12 to 60 months.

Personal loans are generally unsecured loans, which means they do not use collateral to secure the loan. Instead, lenders may look at borrowers’ creditworthiness to determine the risk in lending to them and their personal loan interest rate.

Interest rates vary for different borrowers depending on a borrower’s creditworthiness. Average personal loan interest rates can range anywhere from around 5% to over 35%. Interest is paid back alongside the principal amount in monthly payments that are made over the life of the loan.

Recommended: Personal Loan Guide for Beginners

When Should You Consider Taking Out a Personal Loan While Unemployed?

Ideally, you’d avoid taking on debt while you’re unemployed and don’t have regular income coming in from a job. You might first explore any other options available to you to free up funds, whether that’s taking on a side hustle, getting a roommate, or reassessing your budget. However, there are some circumstances when taking out a personal loan while unemployed may be doable, and it can be a better option than resorting to a high-interest payday loan or expensive credit card debt.

If you’re considering a personal loan while unemployed, you should first assess whether you’ll realistically be able to make on-time payments on your loan each month. Not doing so can lead to late fees and impacts to your credit score. You may even consider crunching the numbers using a personal loan calculator to determine if a personal loan would net you any savings over another borrowing option.

It’s also important to understand what lenders will look for when determining whether to approve you for a loan while unemployed. You’ll generally need a strong credit history and credit score to qualify. Additionally, lenders will want to see some income in order to prove you’ll be able to make monthly payments. Without a regular paycheck coming in during unemployment, this could be Social Security benefit payments, disability income, money from investments, or even your spouse’s income, among other alternatives.

Pros and Cons of Unemployment Loans

Taking out a personal loan may seem appealing to someone who is temporarily out of work because it might be relatively quick to secure and can come with lower interest rates than credit cards. But as with all financial decisions, it’s important to understand the pros and cons of taking out a personal loan while unemployed before applying.

Pros of Personal Loans for Unemployed Individuals

•   Personal loans can be more flexible than other types of loans. The money from a personal loan can be used for almost anything.

•   It may be less costly than other borrowing options. A personal loan may come with lower rates than a credit card, which can be a major benefit when it comes to saving money. Additionally, the fixed rate of a personal loan can help borrowers budget for monthly payments.

•   You could consolidate existing debt. Sometimes called debt consolidation loans, this type of personal loan can help borrowers save money if they can secure a lower interest rate than they’re currently paying on their credit cards. Additionally, debt consolidation loans can streamline multiple payments into one monthly payment. Keep in mind, however, that continuing to use credit cards after obtaining a credit card consolidation loan can lead to debt continuing to pile up.

•   They can help you deal with unexpected expenses. Personal loans may be an option for borrowers facing unexpected expenses, like medical bills or moving costs.

Cons of Personal Loans for Unemployed Individuals

•   It will likely be harder to qualify for a loan while unemployed. Lenders look at a variety of factors when determining whether to offer a borrower a loan, like income, debt-to-income ratio, credit history, and credit score. If a borrower is unemployed, they won’t necessarily have income to show, and their debt-to-income ratio might be much lower than it would be with a stable income.

•   Lenders may charge higher interest rates. Some lenders may offer higher interest rates to unemployed personal loan borrowers. This is because of the additional perceived risks of lending to someone who is unemployed.

•   Borrowers are taking a risk. Consider your ability to pay a higher interest rate or make monthly payments while you’re unemployed. Borrowers could face late fees for missed payments and more fees if the loan is sent to collections, not to mention a hit to their credit score if they’re unable to make payments.

Does SoFi Offer Personal Loans for Unemployed People?

SoFi does offer personal loans for unemployed individuals, assuming applicants meet other conditions. If you are not currently employed, it’s necessary to meet one of the two following eligibility criteria:

•   Have sufficient income from other sources

•   Have an offer of employment to start within the next 90 days

Beyond these conditions regarding employment and income, SoFi also has a number of other requirements that borrowers must meet. Additionally, SoFi will consider an applicant’s financial history, credit score, and monthly income vs. expenses.

Improve Your Chances of Getting Approved for a Personal Loan While Unemployed

If you’re hoping to get a personal loan as an unemployed person, there are steps you can take to increase your odds of getting your loan approved.

For one, it helps to familiarize yourself with your own financial situation. Check your credit score to see if it falls within a lender’s requirements, assess your current sources of income now that you’re unemployed, and take a look at how your current monthly debt payments compare to your monthly income. These are all factors that lenders will take into account when determining whether to approve the loan application, so the better they look, the better your chances that the lender’s answer will be a yes.

If you’re not confident you can get approved for a personal loan with your financial situation as is, you might consider taking some of the following actions:

•   Minimize your debts: If your debt-to-income ratio is way out of whack, that could lower your odds of approval. Consider ways you could cut costs, whether that’s downsizing your home, moving in with a friend or family member in the meantime, or selling off a car that’s saddling you with monthly payments.

•   Consider adding a cosigner: Another option could be to ask a friend or family member with good credit and a steady income to serve as a cosigner. Adding them to your application may make it likelier that a lender will view you favorably. (Cosigning can also help build your credit.) Just remember that if you fail to make timely payments on your loan, you could damage your cosigner’s credit and stick them with the payments — not to mention the harm it could do to your relationship.

•   Consider adding a co-borrower: There are some similarities between a cosigner and a co-borrower. For instance, when you use a co-borrower, you leverage that person’s income, credit score, and financial history to help you qualify for a loan. But unlike a cosigner, a co-borrower is equally responsible for paying back the loan and will share ownership of any property the loan is used to purchase.

•   Increase your income: While this might seem like an impossibility if you’ve recently lost your job, there are other ways to approach adding sources of income while you’re on the job search. You could pick up a side hustle or get a roommate. Also take the time to review what counts as income for credit card applications — you might find you’ve forgotten to include something. (Remember, unemployment benefits count as income.)

Recommended: Guarantor vs. Cosigner: What Are the Differences?

The Takeaway

If you’re interested in personal loans for unemployment, you might want to consider all the pros and cons before taking one on. If a personal loan sounds like it might be the right solution, do a little bit of preparation beforehand. It’s never a bad idea to figure out exactly how much you want to borrow in advance. But remember — you should only borrow the amount you need.

Taking a look at the affordability of monthly payments may also help you determine how much to borrow. Additionally, you may wish to pull up your financial documents and take a peek at your current credit score and overall financial health before applying for a personal loan.

If you’re ready to apply for a personal loan, it’s important to look for one that meets your specific needs and to find a lender willing to work with unemployed borrowers, if that’s your current situation.

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

FAQ

Can you use a personal loan as an unemployment loan?

Yes, it is possible to use a personal loan as an unemployment loan. However, in order to qualify for a personal loan while you’re unemployed, you’ll still need to meet a lender’s eligibility requirements. This generally includes demonstrating some type of regular income.

What are the benefits of using an unemployment loan?

While risky, a loan for an unemployed person does offer a number of benefits, including flexibility in how the funds are used, potentially lower costs than other borrowing options, and the choice to consolidate existing debt. A personal loan could also come in handy if unexpected expenses arrive, such as a surprise medical bill or an unanticipated move.

Are there any fees associated with unemployment loans?

Personal loans for unemployed people can absolutely carry fees. Which fees apply will depend on the lender. Common fees you could face include origination fees, late fees, and prepayment penalties.

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

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

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

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A typical 18-year-old has an average credit score of 681, according to Experian data from June 2024. The score is considered good and can help borrowers qualify for some credit cards and loans, though they could pay higher interest rates.

Learn what a credit score is, how it can vary by age, and the steps you can take to improve yours.

What Is a Credit Score?

Your credit score is a three-digit number that reflects how likely you are to responsibly manage credit and pay it back on time. It’s based on information from your credit reports, which are created by the three major credit bureaus: Equifax, Experian, and TransUnion. With this information and other personal details you provide on your application, lenders can determine whether to approve you for a loan or credit card.

Most people have more than just one score, and each score can vary based on the source of the data being used, when that data was calculated, and the scoring model (for instance, FICO® vs. VantageScore).

Recommended: FICO Score vs Credit Score

Average Credit Score by Age 18

There’s no single starting credit score for people who are just beginning their credit journey. However, early scores tend to be in the good (670-739) or fair (580-669) range. The average credit score for 18-year-olds — 681 — falls well within the good range.

What Is the Average Credit Score?

If you’re an 18-year-old with a credit score of 681, it can be useful to see how your score compares to other borrowers in the country. According to Experian, the average adult in the U.S. has a credit score of 715.

Average Credit Score by Age

It makes sense that a younger consumer would have an average score that’s below the national average. After all, it takes time to build credit, and as the chart below shows, credit scores tend to rise with age.

What’s a Good Credit Score for Your Age?

It can be tempting to compare your credit score to your peers’ average score. But a more effective way to determine whether your three-digit number is good is by checking how credit scoring companies classify it. FICO defines a “good” credit score as one between 670 and 739, while VantageScore considers scores between 661 and 780 as “prime.”

Another approach: Ask yourself if your credit score is high enough to help you achieve your goals, like renting an apartment or buying a car. If so, then it’s reasonable to think your score is good.

How Are Credit Scores Used?

Your credit score helps lenders evaluate your potential credit risk, and it’s used for a variety of purposes. When you apply for a credit card or loan, for instance, a lender will look at your credit score to help decide whether to extend credit and what interest rate and credit limit to offer.

Scores may also be used by landlords to screen potential tenants and by utility companies to determine how much of a deposit you’re required to pay for services.

Factors Influencing the Average Credit Score

Understanding what affects your credit score is a key part of strategically improving your credit. FICO, which is used by 90% of lenders, considers the following factors when calculating your score:

•  Payment history. This includes whether you make payments on time or have a pattern of late payments. It also takes delinquencies, default, collections, and bankruptcies into account.

•  Amount owed. Your score is influenced by the amount you’ve borrowed on each account compared to your available credit as well as your total amount of outstanding debt.

•  Credit history length. Keep older accounts open. This adds to the length of your credit history, which can positively impact your score.

•  Credit variety. Having a diverse mix of credit types, like retail cards, credit cards, student loans, and personal loans, shows you can responsibly juggle revolving and installment credit payments.

•  New credit and inquiries. Too many new credit lines or inquiries in a short period can be a red flag that you’re financially overextended.

How to Build Your Credit Score

Working on the factors described above is a good way to build credit and maintain a strong credit score.

The biggest factors affecting your FICO Score are payment history (35%) and credit use (30%). VantageScore gives more weight to payment history and depth of credit, which includes length of credit history and credit mix. With that in mind, one impactful way to raise your score is to pay your bills on time, every time. Consider setting up payment reminders on your mobile device, or enroll in autopay so you don’t miss a due date.

Keeping your unpaid credit card balances as low as possible can also bolster your credit over time. And keep your credit use at less than 30% of your available credit limit. A good place to start is learning how to lower credit card utilization.

It’s also wise to go through your credit report at least once a year via AnnualCreditReport.com and fix any errors you see. You can also check your credit score for free through some banks, credit card issuers, and Experian.

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

How Does My Age Affect My Credit Score?

Your age has no direct impact on your credit score, but there tends to be a connection between age and the average credit score. Generally speaking, the older you are, the more likely you are to have a higher average credit score.

That’s because older individuals are more likely to have a longer credit history than younger consumers. And chances are, they have a more diverse credit mix, too. Both of those things can help bolster a borrower’s creditworthiness.

What Factors Affect My Credit Score?

As we mentioned, a number of factors go into determining your credit score. The five most impactful ones are:

•  Payment history

•  Amounts owed

•  Length of credit history

•  Credit mix

•  New credit

It’s worth noting that your credit score updates once a month. If you’re working to boost your numbers, it could take a little time before you see the results.

At What Age Does a Credit Score Improve the Most?

There’s a correlation between older age and a higher credit score. According to Experian data, Gen Z consumers (age 18-25) have the lowest credit score, at 680, while the Silent Generation (age 77+) has the highest credit score, at 760.

Tips for Building Your Credit Score

If you’re just starting your credit journey, consider these strategies to build your score incrementally and over time:

•  Start your credit use slowly. Opening a secured credit card at 18 years old can be an effective way to establish your credit, as it has some guard rails. Card issuers require a deposit which acts as your card’s credit limit. You can then use your secured credit card up to your limit, and the issuer reports your payment data to the credit bureaus. This builds your credit history without the risk of overspending.

•  Use an app to manage your finances. A spending app can help you see how you’re balancing your income and spending habits across multiple financial accounts, including credit accounts. It can also help you keep track of upcoming bills.

•  Check on your credit score regularly. Checking in on the health of your credit score doesn’t have to cost you. Financial tools, like a money tracker app, often show you your credit score as a complimentary feature.

The Takeaway

The average credit score by age 18 is 681. If you’ve achieved a score that’s at or near there by age 18, then you’re in a good place. If your score is below 681, there are steps you can take to give it a boost, including paying bills on time, limiting new credit applications, and paying off debts.

Remember that your credit score can fluctuate, depending on your repayment and borrowing patterns. It’s a good idea to get into the practice of keeping track of your credit score and disputing any inaccuracies you see.

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 credit score is needed to buy a $300K house?

For a conventional loan, you’ll typically need a minimum credit score of 620. Some mortgage loans, like an FHA loan, might accept a minimum credit score of 500 for home financing.

Is 650 a good credit score?

A 650 FICO credit score is considered a “fair” credit rating and is lower than the average credit score in the U.S. However, some lenders are willing to offer financing to consumers with this score.

Is a 900 credit score possible?

No. The two most commonly used U.S. consumer credit scoring models, FICO and VantageScore, set their maximum score at 850.

How rare is an 800 credit score?

Among U.S. consumers, only 21% of borrowers have a FICO score between 800 to 850, while 25% of consumers have scores between 740 and 799.

Is a 600 credit score at 18 good?

A 600 FICO score, which is considered “fair,” is below the average credit score of individuals ages 18 to 26. The average 18-year-old has a 681 score.

What is the average credit line for an 18-year-old?

The average credit card limit for an 18-year-old is $12,899, according to Q3 2023 Experian data. Among all generations, Generation Z has the lowest average credit card limit.

Photo credit: iStock/sorrapong

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.

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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.

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

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

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