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Thanks to rapidly rising home prices, VA loan limits got a substantial boost in 2023.

For most U.S. counties, the baseline limit for VA loans is now $726,200, compared to $647,200 in 2022. And loan limits for single-family homes in counties with higher home costs also increased — from a maximum (or “ceiling”) of $970,800 in 2022 to $1,089,300 in 2023.

What could higher loan limits mean for you? If you’re a veteran considering a VA-backed home loan, read on for a breakdown of what you can expect if you purchase a home this year.

What Is the VA Loan Limit?

To be clear: The VA doesn’t limit how much an eligible veteran, service member, or survivor using a VA loan benefit can borrow to finance a home. There are only limits on how much of the loan amount the VA will guarantee if the borrower is unable to repay the mortgage. And that limit can vary based on the status of the borrower’s VA entitlement.

Most borrowers who apply for a VA loan have something called “full entitlement.” This means that if the borrower defaults, the VA will guarantee — or repay the lender — up to 25% of whatever loan amount the lender approved based on its own criteria. If you’re a first-time homebuyer, or if you’ve paid off a past VA loan, you can expect to have a full entitlement.

But if a borrower has what the VA refers to as a “remaining entitlement” (they have a VA loan they’re still paying back), the VA will limit its guarantee based on the Federal Housing Finance Agency (FHFA) loan limit in the county where the home is being purchased.

Instead of paying the lender up to 25% of the full loan amount if the borrower defaults, the VA will limit its guarantee to up to 25% of the applicable FHFA loan limit minus the amount of the entitlement the borrower already used. Borrowers can still get a VA loan using their remaining entitlement, but they may have to make a down payment to get that loan if the loan amount is more than $144,000.

To check your VA entitlement status, you can request a certificate of eligibility (COE) through your lender, online, or by mail.


💡 Quick Tip: Buying a home shouldn’t be aggravating. SoFi’s online mortgage application is quick and simple, with dedicated Mortgage Loan Officers to guide you from start to finish.

When Do VA Loan Limits Apply?

You may wonder when VA loan limits apply and, more specifically, how annual changes to loan limits are calculated. The VA bases its loan guarantee limits on the same conforming loan limits (CLL) the FHFA sets for conventional home mortgage loans that are eligible for purchase by Fannie Mae and Freddie Mac.

By law, the FHFA must adjust these limits annually to reflect changes to home prices in the U.S. Between the third quarters of 2021 and 2022, home prices increased, on average, by 12.21%, based on the FHFA House Price Index. So the 2023 baseline CLL increased by that percentage.

But your county’s loan limit could be considerably higher, depending on average home prices in your area.

These differences are, in part, due to the variability of cost of living by state.

2023 VA Loan Limit Calculator Table

Higher home prices across the U.S. brought the FHFA’s baseline limit (and, therefore, the VA’s baseline limit for 2023) to $726,200 for a single-family home in most counties.

But in counties where 115% of the median home value is higher than the baseline CLL, the limit has been increased by a percentage that reflects those higher prices. There is a ceiling, or cap, however, of 150%.

Here’s what that looks like for a single-family home in 2023 vs. 2022.

VA Loan Limits in 2023 and 2022

Year	National Baseline	115% to 149%	National Ceiling (150%)
VA Loan Limits 2023	$726,200	$835,130 to $1,082,038	$1,089,300
VA Loan Limits 2022	$647,200	$744,280 to $964,328	$970,800

If you’re buying in Alaska, Hawaii, Guam, or the U.S. Virgin Islands, special statutory provisions dictate the loan limit, which in 2023 is $1,089,300 for a single-family home.

VA Loan Limit Example

Here’s a hypothetical example of how a borrower could be affected by the county loan limit on a VA loan.

Let’s say Joe, a Navy veteran, wants to buy a home in San Diego County, even though he knows the cost of living in California is higher than average. Joe manages to find a $600,000 single-family home and he wants to buy with a VA loan, but he still owes $100,000 on another VA loan.

The 2023 limit in San Diego County is $977,500. Since the VA will guarantee up to a quarter of that amount, Joe has a maximum entitlement of $244,375.

$977,500 x .25 = $244,375

But Joe has to subtract the amount of his entitlement he’s already used, which leaves him with $144,375.

$244.375 – $100,000 = $144,375

So, the VA would guarantee up to $144,375 of Joe’s loan.

Since most lenders want at least 25% of a borrower’s loan amount to be covered by the VA entitlement and/or a down payment, Joe might have to make a $5,625 down payment to get a VA loan for this home.

$600,000 x .25 = $150,000

$150,000 – $144,375 = $5,625


💡 Quick Tip: Apply for a VA loan and borrow up to $1.5 million with a fixed- or adjustable-rate mortgage. The flexibility extends to the down payment, too — qualified VA homebuyers don’t even need one!^{†^}

How Does My County Loan Limit Affect Me?

Just like Joe in the example above, if you’re using a remaining entitlement and your loan amount is over $144,000, your county loan limit could determine whether you’ll have to make a down payment to buy the home you want.

It doesn’t mean you can’t get the loan. If you have enough to make the down payment required by your lender, you may even qualify for a VA-backed loan that’s more than your county loan limit.

It’s important to note that though the example provided here is for a home purchase, the same entitlement limits apply if you’re considering refinancing your VA loan. In that case, your county limit could affect how much you’ll be asked to pay in closing costs.

How to Apply for a VA Home Loan

Most VA loans are “VA-backed” loans, which means they’re issued by approved private lenders. The VA’s guarantee that it will help repay the lender if a borrower defaults is an incentive for lenders to offer these loans with attractive terms.

Still, it can be a good idea to shop around for the loan that best meets your family needs, and compare interest rates, fees, customer service, and any additional benefits various lenders might be offering.

You also may want to compare the terms of your top VA loan offer to what you can get with different types of mortgage loans, including a conventional loan.

Of course, no matter which type of loan you ultimately choose, you’ll still have to qualify for a mortgage with a lender.

There isn’t a requisite minimum credit score for VA loans. Instead, the VA asks lenders to review the borrower’s “entire loan profile,” which could include your credit history, DTI ratio, employment history, and assets. Individual lenders also may have their own approval criteria you should be aware of when you’re ready to apply for a VA loan.

Pros and Cons of VA Loan Limits

The VA loan limit is just one of several factors you may want to consider if you’re thinking about using a VA loan for a home purchase or a mortgage refinance. Like any other mortgage option, VA loans have their pros and cons. Here are a few to keep in mind:

VA Loan Pros

The upsides of VA loans can include:

•   Interest rates may be lower with a VA loan than with a conventional loan.

•   You may not need to make a down payment or pay mortgage insurance.

•   Though non-VA jumbo loans may require a higher down payment, this isn’t necessarily true with a VA jumbo loan.

•   If you decide to sell your home, you can allow the buyer to assume (or take over) your existing mortgage.

VA Loan Cons

Now, for the downsides:

•   VA purchase loans are only for primary homes; you can’t use the loan to buy a vacation home or to invest in a home that isn’t your main residence.

•   The VA charges a one-time “funding fee” that’s designed to cover foreclosure costs when homebuyers default on a loan. Currently, the fee ranges from 1.25% to 3.3% of the loan.

•   The home you hope to buy must be evaluated by a VA-approved appraiser to ensure it meets the VA’s minimum property standards. If the home you want is too rundown, it may not pass this appraisal.

Recommended: 2023 Home Loan Help Center

The Takeaway

VA loan limits are based on home prices in the U.S., and they’re adjusted annually to reflect price increases.

If you’re a first-homebuyer or you’ve paid off a past VA loan, you shouldn’t have to worry about VA loan limits. But if you want to buy a home and you already have a VA loan, the loan limit for your county could determine whether you’ll have to make a down payment to qualify for the amount you hope to borrow.

SoFi offers VA loans with competitive interest rates, no private mortgage insurance, and down payments as low as 0%. Eligible service members, veterans, and survivors may use the benefit multiple times.

Our Mortgage Loan Officers are ready to guide you through the process step by step.

FAQ

Will VA home loan limits increase in 2023?

Yes, VA home loan limits increased significantly in 2023. The baseline limit for VA loans is now $726,200, compared to $647,200 in 2022.

What is the conforming limit for 2023?

The national baseline conforming loan limit for 2023 is $726,200 in 2023. But the VA loan limit may be higher in U.S. counties where home prices are especially high.

What is the DTI limit for a VA loan in 2023?

The Department of Veterans Affairs hasn’t set a hard-and-fast limit on the debt-to-income ratio it requires for its loans. But generally, lenders allow a 41% maximum for a VA loan.

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Photo credit: iStock/Thai Liang Lim
^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
^{^}SoFi VA ARM: At the end of 60 months (5y/1y ARM), the interest rate and monthly payment adjust. At adjustment, the new mortgage rate will be based on the one-year Constant Maturity Treasury (CMT) rate, plus a margin of 2.00% subject to annual and lifetime adjustment caps.
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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

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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.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Most Americans swipe and tap their way through the day, using credit cards for a variety of purchases. Plastic is quick and convenient, and it can help a person make purchases they otherwise wouldn’t be able to afford in a single transaction.

But with credit cards come high interest rates…and fees. Often, many different kinds of fees are levied on a single transaction.These charges may be part of the reason why there’s so much credit card debt right now. The average American carries an approximate credit card balance of $7,951.

If you’re trying to control your costs, read on to learn more about these fees, plus smart tips on how to dodge them. It can be a good path to taking control of your credit and your cash.

Breaking Down the 6 Main Credit Card Fees

The best way to sidestep credit card fees is to know what they are. Sounds obvious, but it can be your primary defense in the battle against fees. Here’s a summary of some of the most common credit card fees and advice on how to avoid them.

1. Annual Fees

An annual fee is the yearly price you pay to use a credit card. Not all credit cards have annual fees, but many reward-heavy and premium cards do. It’s not inherently bad to pay an annual fee on a credit card, but it does require busting out a calculator and doing some math. To justify paying an annual credit card fee, you should earn enough in rewards to cover the fee and then some.

How to avoid this fee: Lots of cards have no annual fee or will waive an annual fee in the first year. When choosing a credit card, you’ll want to do some comparison shopping and annual fees should be something you pay close attention to. Ultimately, if you’re going to pay a fee for using a rewards card, you should make sure you’ll be cashing in on rewards you’ll actually use.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.

2. Late Payment Fees

Late payment fees are pretty self-explanatory. Basically, some banks will ding you if you miss a payment. Currently, late payment fees can run up to $41, but there’s a movement afoot to cap these. The Consumer Financial Protection Bureau, for instance, has proposed a limit of $8. But for the time being, these fees are still quite steep.

There are other consequences of late payments worth noting. Your interest rate could go up, for instance.

How to avoid this fee: Consider automating your finances. Specifically, you could set up an automatic payment for at least the minimum monthly payment. That way, you are in a good position to avoid late fees.

If you do miss a payment, call your credit card company and ask them to waive the fee. (If you’re a first-time offender, they might be amenable to it.)

3. Cash Advance Fees

When you use a credit card to withdraw cash from a bank or ATM, you will almost always be charged a cash advance fee. Credit card cash advance fees generally cost 5% of the amount you withdraw or $10, whichever is higher. Also be aware the interest rate on a cash advance is likely to be higher than on “normal” credit card purchases, and interest accrues immediately.

How to avoid this fee: Don’t use your credit card like a debit card. If you’re going to take out cash, it should be with a debit card. If you do have to take out a cash advance on your credit card, try to pay it back as soon as possible. And to avoid needing to take out a cash advance in the future, establish a cash emergency fund that’s easily accessible.

Recommended: Credit Card Interest Rate Calculator

4. Balance Transfer Fees

When you transfer a credit card balance to a new card with a lower interest rate (often 0% interest for a promotional period of, say, 18 months), the new credit card issuer may charge you a fee. The fee is usually 3% to 5% of the balance being transferred. Balance transfer cards usually offer 0% interest rates to new customers who want to transfer their credit card debt — so charging a fee allows them to make some money on the initial transaction.

How to avoid this fee: If a balance transfer card would stress you out with its tight timeline before its interest rates change, you could instead consider taking out a personal loan to pay off your credit card debt. A personal loan will usually charge a lower interest rate than your credit card, but it can allow you to pay off your debt on a timeline that’s right for you.


💡 Quick Tip: Swap high-interest debt for a lower-interest loan, and save money on your monthly payments. Find out why credit card consolidation loans are so popular.

5. Foreign Transaction Fees

If you use a credit card while traveling outside of the country, you may be charged a foreign transaction fee of around 1% to 3%. Once very common, these fees are declining in popularity thanks to the rise of cards with no foreign transaction fees.

Also know that banks may charge currency conversion fees in addition to foreign transaction fees.

How to avoid this fee: Choose a card that doesn’t charge foreign transaction fees. There are lots of options out there, it’s just a matter of shopping around. Airline cards often don’t have foreign transaction fees, but plenty of other cards have dropped these fees as well.

You may also be able to use a debit card in a foreign country.

6. Interest

Interest is how credit card issuers stay in business, to a large extent. They are extending you credit to make a purchase, and interest is what you pay for that privilege. Credit card issuers assess interest on any balance that remains on your card after the due date. You will also see this interest rate called the purchase APR.

How to avoid this fee: Pay off your credit card balance in full each month. If you’re unable to do that, pay as much as you can — every dollar counts.

Recommended: Taking Out a Personal Loan to Pay Off Credit Card Debt

The Takeaway

Credit cards can be a convenient way to purchase, and most Americans use them. However, these cards can also charge fees that can add to any debt you carry. It’s worthwhile to acquaint yourself with these fees and work to avoid them so your balance doesn’t grow.

If you’re currently chipping away at a balance, you may want to consider taking out a personal loan to pay off your credit card. This can lower your rate of interest and make your debt less of a burden.

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.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

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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.

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

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

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

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If you own a home, you probably always have a list of improvements you’re considering. Maybe you desperately want to replace those dated kitchen appliances that scream year 2000, or you want to focus on ways to lower your energy bills, whether that means some strategic air sealing or adding solar panels.

Chances are, you also want any upgrades you pay for to increase the value of your home. You want to know that if and when it comes time to sell your place, you’ll recoup a good percentage of what you invested.

So, whether you have the cash saved up for home investment or you are looking to borrow for your next home project, consider these wise investments.

1. Improve Your Attic Insulation

We get it: You’re not going to invite friends over to see your new attic insulation.But it’s one of the best ways to increase your home’s energy efficiency.

You’ll not only profit when it’s time to sell, but you’ll also see immediate savings from the ongoing energy efficiency this upgrade provides. A properly insulated attic, combined with sealing air leaks throughout your home, cuts an average of 15% off your heating and cooling costs, allowing you to pocket the savings month after month. And who doesn’t want a lower energy bill?

Cost: $600 to $1,200 for blown-in insulation for a 1,000-square-foot attic. You may also need to rent the machine that blows in the fiberglass if you’re a DIY type. If you hire a pro, labor will run about $40 to $70 an hour.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.

2. Treat Yourself to New Windows

New windows can do double duty. Not only do they update a room’s tired appearance, they can also have energy-efficiency benefits. Depending on how many windows you replace, this can be a very big-ticket item. The average cost for a vinyl window replacement is $850, and a whole-home job can ring in at $20,091, according to Remodeling magazine. (Wood windows are pricier still.)

But here’s some good news: Replacing those windows adds value to your home. Typically, to the tune of 69% of the cost of the window-replacement project.

Cost: Anywhere from $850 per vinyl window to $20,000+ for the whole house. Again, if you go for wood vs. vinyl windows or need custom size ones (or several French doors), the price can ratchet up significantly. In that case, you might want to look at home improvement loan options.

3. Build a Deck

You and likely anyone who might buy your home in the future will love what a deck can do, lifestyle-wise. Weather permitting, you can have your AM coffee there, type away on your laptop during the day, and host friends, read, or just listen to the birdsong during off-hours. Here’s another nice thing about adding a deck: Your ROI is typically around 68% of the money you pay.

Cost: A new wood deck will cost on average $16,766. A composite one can cost more; on average, these are $22,426.

Read Next: How to Create a Renovation Plan to Match Your Budget

4. Refresh Your Bathroom

Who doesn’t love a beautiful new bathroom, whether your style is sleek and all white or if you prefer a warmer country cottage vibe? A bath remodel will cost, on average, between $6,627 and $17,494, according to Angi, the home renovation site. While an updated bath can definitely add to your home’s value, keep in mind that the sky’s the limit with the price tag. If you move the fixtures around and add one of those egg-shaped soaking tubs or a spa shower that has half-a-dozen mist settings, you may go well beyond the average range of costs.

Also, keep in mind that if you do something really singular (say, you pick tile in a super-bright shade), it may be harder to get your money out if and when you sell your property.

Cost: The average cost is $11,944, with cabinets and shelving accounting for 25% of the total, the shower and tub eating up 22% of costs, and your contractor’s fees usually being about 13% of your total expense. Of course, you can do a small bathroom remodel, perhaps repainting, adding some new artwork and a fresh shower curtain.


💡 Quick Tip: Home improvement loans typically offer lower interest rates than credit cards. Consider a loan to fund your next renovation.

5. Cook up a Cooler Kitchen

If you’re stuck with outdated appliances or hideous cabinets, a kitchen remodel is likely high on your list of improvements. It’s a great way to refresh your kitchen’s style and function.

But increasing home value with a new kitchen can fry your bank account: A remodel typically runs $14,612 and $41,392 according to Angi, but can cost much more if you move appliances’ position, opt for marble countertops, or fall in love with custom cabinetry. On average, you’ll recoup about 60% in ROI.

To update for less and wow your kitchen in a weekend, make some wallet-friendly upgrades: fresh paint, a new faucet, updated lighting (pendant lights are a good choice), and new cabinet pulls.

Cost: While you could just swap out cabinet pulls, which start at about $2 each, and repaint (plan on around $200), a larger kitchen remodel averages $26,849. Again, however, it’s worth noting you could spend multiples of that, depending on how large a project, how luxe the details, and where you live (cost of living can impact the price of goods and services in your area).

Recommended: Secured vs. Unsecured Personal Loans

The Easy Way to Finance HGTV-Worthy Upgrades

Even budget-friendly home improvements can set you back quite a bit. If you haven’t set aside the budget to bring more value to your home, you don’t necessarily have to dip into your retirement account or pay less on your student loans each month. You might want to consider a personal loan.

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

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

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

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

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

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

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

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Credit card debt is usually high-interest debt, meaning what you owe can snowball. You might charge some holiday gifts, then need new brakes, and then a friend asks if you can join on a low-cost getaway to Mexico. Next thing you know, you have a sizable balance due. And chipping away with minimum payments isn’t paying it down too well.

So how do you know if your credit card debt is actually too much? Take a closer look at the factors here, plus tips for what to do when your credit card debt veers into “too high” territory.

Managing Monthly Credit Card Payments

Many people believe that as long as they can afford the monthly payments, their level of credit card debt is fine. But faithfully making the minimum monthly payment on your credit card might not be a good indicator of whether you have too much credit card debt.

Generally speaking, it can be helpful to pay off your entire balance each month, but that is not a realistic option for many — and it can be easy to just pay the minimum amount required. This can be problematic: Thanks to compound interest, paying only the minimum amount can actually cause your debt to grow.

For example, let’s say you have $5,000 worth of debt with a 20% interest rate and are paying off $100 a month. At that rate, it would take you 109 months (9-plus years) to pay off the original $5,000 and would cost you an extra $5,840 in interest alone. And, yes, as you may have noticed, the interest amounts to more than the principal in this scenario.

Curious how your credit card payments stack up? Use a credit card interest calculator to see exactly how much you can expect to pay in interest. That can help you see how the numbers stack up and then get a better handle of how your debt could grow in the future.


💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.

Credit Card Utilization

One helpful way to determine if you’re being smart with your credit cards is to look at your rate of credit card utilization. Credit card utilization is the amount of debt you have compared to the total amount of credit that is available to you.

It can come as a shock to people that using their full line of credit can negatively impact their credit score, but in general, it is commonly recommended to use only 30% of the credit available. Credit reporting agencies use your credit card utilization percentage as an important part of determining your credit score.

What does that look like in practice? If you have a credit card with a $10,000 limit, and you spend $1,000 on a new couch, $900 on new brakes, and $500 on a plane ticket, you’re using $2,400 — or 24% of your available credit. That’s relatively close to that 30% threshold, so you’ll want to consider treading carefully.

If, on the other hand, you made the exact same purchases but you only have access to a $5,000 line of credit, you would be using 48% of your available credit. A credit card utilization rate of 48% has the potential to negatively impact your credit score.

If you’re concerned about your credit score, you may want to keep your credit card usage to below 30% of the total credit line available to you.

Debt-to-Income Ratio

Another important consideration when looking at your credit card debt is your debt-to-income ratio. Your debt-to-income ratio is essentially a measure of how much of your pretax income goes to paying monthly debt, like car payments, student loans, and credit cards.

If your debt-to-income ratio is very high, meaning that a large portion of your monthly income goes to paying off debt, some lenders might be reluctant to lend to you.

This means that you could be charged a higher interest rate on new loans or a mortgage because the lender is worried that you won’t be able to make your monthly payments — if you’re able to get a loan at all.

In general, industry professionals suggest that a debt-to-income ratio at or below 36% is considered good, but of course, that will vary by your specific circumstances.

If your debt-to-income ratio is higher than you hope, that may be one sign that you’re carrying too much credit card debt.


💡 Quick Tip: With low interest rates compared to credit cards, a personal loan for credit card consolidation can substantially lower your payments.

Keeping Credit Card Debt in Check

If you’re worried about the amount of debt you’re carrying on your credit card, there are several ways to take control.

•   First, consider making more than the minimum payment. Many people simply stick with minimum payments because they think that is what they should pay. But increasing your monthly payment could help you pay down credit card debt faster.

•   If you’re worried about your credit card utilization rate (and are not carrying a credit card debt balance), you may simply be due for an increase in your line of credit. For example, if you’re still using the same credit card with a $5,000 limit that you got right after college, but now you have a better job and more monthly expenses, you might want to ask your lender for an increase in your credit line in order to improve your credit card utilization rate.
Your debt-to-income ratio can also be helped by either increasing your income or decreasing your debt.

•   Since one of the downsides of credit cards is their notoriously high interest rates, you might consider using a personal loan to pay off your credit cards and save you some money on your monthly payments.

•   The benefit of paying off your credit cards with a personal loan is that you may be able to trade a high interest rate for a lower interest rate and secure a more favorable repayment plan. A personal loan allows you to make a static payment every month for a set amount of time instead of paying the minimum amount due on your credit card, which can make you feel like you’ll never get out from under credit card debt.

Bear in mind that once you’ve paid off your credit card balances, it’s important to keep them low. Running those balances back up has the potential of making your credit profile less attractive to lenders due to the increased total debt.

And in the future, keep an eye on your credit limit when you’re making big purchases — it can pay off in the long run.

Recommended: How to Lower Credit Card Debt Without Ruining Your Credit

The Takeaway

How much credit card debt is too much will depend upon your specific financial situation. Such factors as your debt-to-income ratio and your credit utilization can help determine if your credit card balances are getting too high.

If you have incurred a considerable amount of high-interest debt, you might consider ways to pay that off, including getting a personal loan at a lower interest rate.

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

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

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

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

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

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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It’s hard to believe that Americans ever got by without plastic, but the credit card is less than 75 years old. There’s a good chance your grandparents could tell you about life in the days of nothing but cash or checks.

Today, about 84% of Americans have at least one credit card, which allows them to quickly and conveniently tap or swipe their way towards purchases. Unfortunately, those rectangles of plastic may make spending a little too easy: The average household has almost $8,000 in this kind of debt.

Here, you’ll learn just how the credit card came into being, as well as smart ways to manage your credit card usage more effectively.

The Origins of Credit

Here’s how the story of the first credit card goes: Businessman Frank McNamara was having dinner at a New York City restaurant in 1949 when he realized he forgot his wallet. Rather than dine and dash, he came clean and asked if he could sign for the meal and pay later.

Though some say this legendary dinner never happened, everyone agrees McNamara founded Diners Club, the world’s first multipurpose charge card, in 1950. McNamara sold Diners Club memberships to friends and acquaintances willing to pay $3 for the “sign now, pay later” privilege at participating restaurants and hotels.

Until that point, only individual stores extended credit to customers. If you couldn’t pay for, say, a dress or a new suit at the general store — and the owner knew you were good for the money — you could run up a tab and pay cash later. But the Diners Club card provided the benefit of credit at multiple locations instead of just one establishment.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars.

Next Came the “Big Four” of Credit Cards

Of course, future entrepreneurs and banks wouldn’t let Diners Club monopolize the charge and credit market for long. Eventually, other cards came on the scene—most notably Visa, Mastercard, American Express, and Discover.

•   Visa: In 1958, Bank of America issued the BankAmericard — the first true credit card — to customers in California. While the original Diners Club card required payment in full at the end of each month, BankAmericard users could pay off purchases over time. In 1976, BankAmericard became Visa.

•   Mastercard: BankAmericard got a run for its money when a group of banks joined forces in 1966 to create the Interbank Card Association (ICA). In 1969, ICA created Master Charge: The Interbank Card, which became Mastercard in 1979.

•   American Express: The American Express Company has been around since 1850, but it didn’t issue its first charge card until 1958. Like Diners Club, the American Express card had to be paid in full each month. That changed in 1987 with the introduction of the Optima card, the first true credit card by American Express. (Fun fact: Elvis Presley was one of the earliest American Express card members.)

•   Discover: Discover is the newest major credit card network on the scene. Sears launched the Discover card in 1986, distinguishing it from the pack by charging no annual fees and offering higher credit limits than other cards at the time.

Discover was also the innovator of cash rewards on credit card purchases—back in 1986. At that time, Discover cardholders could earn rewards of up to 1% cash back on all purchases. Incidentally, Discover Financial Services purchased Diners Club International in 2008.

How Credit Cards Have Changed Over Time

A lot has changed since McNamara’s legendary dinner. Take a look at some of the biggest shifts in the credit industry:

The Ubiquity of Credit

In the early decades, credit was curbed by restrictive interstate banking laws. But credit’s big breakthrough came in 1978, when the Supreme Court ruled to allow nationally chartered banks to charge out-of-state customers the interest rate set in the bank’s home state.

Credit expanded as a result, and today, the average American credit card holder has nearly four cards.

The Evolution of Fees

When Diners Club began, it made money by charging stores a 7% fee on all transactions. Today, credit card companies charge interest on debt, too, so they make money when you don’t pay your bill in full. This is what’s typically known as high-interest debt. How high? At the end of 2023, the average credit card interest rate was reported as 24.59%.

Also, Diners Club used to charge nominal membership fees, but by the 1980s, many credit card companies eliminated annual fees to stay competitive.

The Advent of Rewards

The ’80s also brought tangible rewards for using credit cards instead of cash. Discover pioneered cash rewards, allowing cardholders to get a percentage back on purchases charged. And in 1987, Citibank made a deal with American Airlines to give consumers reward points to use for future flights.

Today, consumers continue to use credit card rewards programs to earn cash or points for future purchases, including travel. In fact, more than 87% of credit card users have rewards programs associated with their cards.

How to Control Your Credit

Credit can be convenient and a real asset when you want to buy something you don’t have enough cash to pay for outright. It’s a powerful tool, and one that must be managed wisely. In the summer of 2023, credit card balances in America hit a new milestone, topping a total of $1 trillion. That likely means many people are carrying a significant amount of debt. To avoid having your balances soar too high, consider these ways to take control of your credit.

Build Your Credit History Wisely

It might sound enticing to pay for everything in cash (and thus stay out of debt), but most of us don’t have the cash flow to pay for college, buy a car, and purchase a home outright. Besides, even if you do have the cash to buy everything you need right now, when the day comes to apply for a loan, you’ll need a solid credit history to qualify.

If you’ve never had a single credit card or loan, your credit history is minimal, which means you pose a higher risk to lenders. In that way it pays to borrow, as long as you do so responsibly. That means spending less than you earn and paying your bills on time, every time. Whenever possible, pay off your credit card in full every month.

Consider Prefinancing

Of course, credit cards aren’t the only way to pay for purchases and build a strong debt payment history. Prefinancing (getting access to a sum of money in advance of a purchase), such as taking out a personal loan, is another option. When you apply for a loan, you’re requesting a specific amount of money from a lender and agreeing to repay that loan over a predetermined period of time.

How credit cards work is a different process. When you pay on credit, the credit card network (e.g., Visa) pays the merchant (e.g., Home Depot) for your purchases, and you pay the network back for your purchases each month. If you don’t pay your balance in full, you’ll be charged interest on future payments.

Between the two options, prefinancing may offer the benefit of lower interest rates and shorter loan terms, helping you get out of debt quicker. After all, if you don’t have a system in place to pay off purchases in a reasonable time frame, credit card debt can haunt you for a long time.

Think about it: If you’ve racked up $15,000 in credit card debt at an interest rate of 20%, and make a payment of $300 each month, it will take you 109 months (9+ years) to pay off your debt, including $17,635.48 in interest, by the way. (You can use a credit card interest calculator to see how your own debt stacks up.)

Understand Your Credit Score

Whenever you borrow money via a personal loan or use your credit card, your lenders and creditors send details of those transactions to three major national credit bureaus (Equifax®, Experian®, and TransUnion®). That information is then used to assess your creditworthiness, which is expressed as a three-digit credit score that represents the risk you pose to lenders.

The higher your credit score, the less risky you are in their eyes. FICO® scores are the ones used most often in lending decisions in the United States, with scores typically ranging from 300 (poor) to 850 (exceptional).

Your credit score comprises five categories, and each one has an impact:

•   Payment history: Late or missed payments drag down your score.

•   Amounts owed: High balances can hurt you; maxing out your credit cards is even more damaging.

•   Length of credit history: A long history can increase your score.

•   Credit mix in use: A healthy mix of credit cards, student loans, a mortgage loan, etc., can boost your score.

•   New credit: Opening several credit accounts in a short period of time can damage your score.

💡 Quick Tip: Swap high-interest debt for a lower-interest loan, and save money on your monthly payments. Find out why SoFi credit card consolidation loans are so popular.

Build Your Credit Score

If your credit score isn’t where you want it to be, there’s good news: Scores aren’t set in stone. Try these tips to build yours:

Getting out of Credit Card Debt With a Personal Loan

Sometimes the problem is bigger than a low credit score. Unfortunately, some people get so deep into debt that it’s hard to find a way out on their own. One option: A personal loan to pay off credit card debt. This kind of loan usually allows you to consolidate high-interest credit card debt into one lower-interest loan with a fixed monthly payment.

Balance-transfer credit cards are another potential avenue to get out from under debt. Keep in mind, though, that these likely charge balance transfer fees, and your interest rate will be considerable after the promotional period. On the other hand, if you shop around, you may be able to find a personal loan that doesn’t charge origination or other fees.

You might also benefit from free or low-cost financial counseling from a nonprofit organization, such as the National Foundation for Credit Counseling (NFCC).

The Takeaway

Clearly, Americans have become accustomed to and perhaps even reliant on credit cards since they were developed almost 75 years ago. When managed effectively, credit cards are valuable tools to help you pay for the things you need and to sustain the lifestyle you want.

If, however, you feel weighed down by credit card debt, start taking steps to control your credit, rather than letting it control you. Consider your options, such as balance transfer credit cards or using a personal loan, to help you pay off your balance.

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.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

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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.

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

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

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

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 .

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