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Whether to borrow from a 401(k) or take out a personal loan is a decision that will depend on your unique financial situation and goals. There are several variables to consider. For instance, a loan from a 401(k) can offer a limited amount of cash and reduce your retirement savings, while a personal loan can offer more cash but can impact your credit score.

Here, learn more about these options for accessing cash so you can make the right decision for your needs.

Understanding 401(k) Loans

Retirement plans such as your 401(k) are designed to tuck away money toward expenses during what are known as your “golden years.” And while you didn’t initially open and contribute to a retirement account to take money out prematurely, if you’re in need of some funds, you might consider a 401(k) loan.

Yes, it’s entirely possible to borrow against your 401(k). While it depends on the specifics of your employer’s plan, you might be able to access up to half of what’s vested in your account, or $50,000, whichever is less. So if you have less than $10,000 vested in your 401(k), you can only take out up to $10,000.

Usually, you’ll have up to five years to pay back your loan amount, along with interest. The interest rate and terms of the repayments depend on your employer’s plan. When you repay the 401(k) loan, the principal and interest go back into your account.

How 401(k) Loans Work

Taking out a loan from your 401(k), or the retirement vehicle known as a 403(b), doesn’t require a credit check, nor does it show up on your credit report as debt. As mentioned, you’re essentially taking out funds from yourself. There’s no third-party lender involved, so there are fewer steps in the application process. Plus, your loan payments go straight into your retirement plan.

The restrictions and requirements can vary according to your employer’s plan, so it’s probably a good idea to talk to a benefits administrator or rep from the retirement account for specifics.

Pros and Cons of Borrowing from Your 401(k)

Looking at the advantages and downsides of borrowing against your 401(k) can help you decide whether a 401(k) loan is the right financing choice for you,

Pros
First, consider the upsides of borrowing from your 401(k) account:

•   Doesn’t require a credit check. Because you’re taking out a loan against yourself and there’s no outside lender involved, a 401(k) loan doesn’t require a hard credit inquiry, so it won’t negatively impact your credit score.

•   Easier to obtain. These loans can be easier to get, and you don’t have to jump through as many hoops (including the credit check mentioned above) as other forms of financing.

•   Lower interest rate. While this hinges on your credit, borrowing against your 401(k) often comes with a lower interest rate than other financing options, such as taking out what’s known as a personal loan or using your credit card. This means it can cost you less in interest.

Usually, the interest rate is the prime rate, plus 1% to 2%. As of August 2024, the prime rate is 8.50%, so you’re looking at a 9.50% to 10.50% interest rate.

•   Won’t show up on your credit report. Another plus of a 401(k) loan is that it doesn’t show up on your report as a form of debt, so you won’t have to worry about your payment history impacting your credit in any form.

•   No penalties or taxes. As long as you don’t default on the loan, you won’t have to pay taxes and early withdrawal penalties that come with making early 401(k) distributions. (This is a benefit vs. taking a 401(k) distribution, which will trigger taxes and possibly penalty fees if you are under age 59½.)

•   Interest goes back to you. While you have to pay interest on your 401(k) loan, that money goes into your retirement account.

Cons
Now, review the potential downsides of taking out a 401(k) loan:

•   Not all 401(k) plans allow loans. Many plans do offer the ability to take out a 401(k) loan, but not all of them. Check with your plan administrator to learn whether this is even a possibility for you before planning on getting funds via this method.

•   You might have to pay back the loan right away. Should you lose your job or change workplaces, you might be required to pay the remaining balance on your loan quickly. That can be a tall order, especially after a major financial blow such as a job loss.

•   Smaller retirement fund. When you take money out of your retirement plan, that means losing out on the money in an account designated for your nest egg. Because the clock will be set back, it will take you longer to hit your retirement savings goals.

•   Missing out on potential earnings. Plus, you’re losing out on any potential growth on that money if it were sitting in your 401(k) account instead. While you are paying yourself interest on the loan, the earnings on your returns could be more than the interest.

•   Possibility of taxes and penalties. If you don’t pay back your debt in a timely manner, you could owe taxes and penalty fees on it. That’s because it becomes a 401(k) distribution vs. a loan if you don’t keep up with your payments.

•   Lower loan amounts. How much you can borrow from a 401(k) account has limits. Currently, those are $50,000 or 50% of your vested account balance, whichever amount is less. That may or may not suit your needs.

•   Longer funding times. The funding time can take up to two weeks or longer in some cases.

Overview of Personal Loans

Personal loans are a type of installment loan where you’re approved for a certain loan amount and receive the entire amount upfront. Personal loan amounts vary from $1,000 to $100,000 (some large personal loan amounts go even higher), but the exact amount depends on your approval.

You’re responsible for paying off the personal loan during the repayment term, which is usually anywhere between one and seven years. The time you have to pay off the loan depends on the lender and the specifics of your loan.

Personal loans also come with interest (typically but not always a fixed rate). Your rate depends on factors such as the lender, your credit score, debt-to-income ratio (or DTI), and other aspects of your finances. The national average for a 24-month personal loan as of May 2024 is 11.92%.

Types of Personal Loans

There are different types of personal loans to learn about so you can decide which one might be best for you:

•   Secured personal loans. Secured personal loans are loans that are backed up by an asset, such as a car, home, or other valuable property. Should you fall behind on your payments, the lender can seize your collateral to recoup the money. While you risk a valuable asset, secured loans usually have lower credit score requirements and other less stringent financial qualifications. Plus, you can get a higher amount than with unsecured personal loans.

•   Unsecured personal loans. Unsecured personal loans are loans that don’t require any collateral to secure. They usually have higher credit score requirements and more strict approval criteria than their secured loan counterparts. Unsecured vs. secured personal loans usually have lower amounts available.

•   Fixed-rate personal loan. A fixed-rate personal loan can be unsecured or secured. The interest is the same throughout your loan term, which makes for predictable monthly payments.

•   Variable-rate personal loan. A loan with a variable vs. fixed interest rate, however, can see the interest charges go up and down throughout your repayment term. This means the amount you’ll end up paying in interest on the loan is unknown. Plus, budgeting might be harder, as your monthly payments could change.

Personal loans offer a lot of flexibility. You can use them for various purposes, from funding a major home improvement project to making a big-ticket purchase to financing a wedding or vacation. In some cases, personal loans are geared toward specific purposes:

•   Home improvement loans. A home improvement loan is an unsecured personal loan that can be used for repairs on normal wear and tear, general maintenance, or toward a renovation project.

•   Debt consolidation loans. Debt consolidation loans are used to take multiple loans and lump them together into a new, single personal loan. The main benefits are that debt consolidation loans can potentially lower your interest rate or monthly payment, or both.

Advantages and Disadvantages of Personal Loans

Next, take a look at the pluses and minuses of personal loans:

Pros

•   Quicker access to funding. You might be able to tap into the funds of your personal loan as fast as within 24 hours of approval. So, if you need money in a flash, this could be a good option for you.

•   Flexible amounts and repayment terms. Unlike 401(k) loans, where there’s a borrowing limit of $50,000 and a repayment term of five years, there’s a wide range of borrowing amounts and repayment periods. You’ll likely have a better chance of finding a personal loan that’s a good fit for your time frame vs. with a personal loan.

•   It can accrue lower interest than other financing options. The interest rate of a personal loan can range from 8% to 36%, and the average rate stands at 12.38% as of August 2024. While it might not be lower than the 401(k) loan rate, personal loan rates can be lower than using a credit card or payday loan to make purchases.

Cons

•   Impacts your credit score. When you take out a personal loan, the lender needs to do a hard pull on your credit. This usually reduces your credit score by a few points and will impact your score for up to a year.

Also, since your payments are reported to the credit bureaus, if you fail to keep up with payments, your score could be dinged.

Taking on a loan also drives up your credit utilization, which also can negatively impact your score.

•   Fees and penalties. Some personal loans have origination fees, which can add to your loan amount and your debt. Plus, you might incur late fees. On the flip side, the lender could charge a prepayment penalty if you’re ahead of schedule on your payments. This is to recoup any losses they would’ve earned on the interest.

•   Additional debt. While a 401(k) loan is an additional financial responsibility, personal loan debt means making payments and owing interest that doesn’t go back to you. Instead, you’ll be on the hook for payments until the loan is paid off.

Recommended: Personal Loan Calculator

Key Comparison Factors

Here are key factors to compare when evaluating taking out a personal loan vs. a 401(k) loan:

•   Interest rate. The higher the interest rate, the more you’ll pay for the same amount of borrowed money.

•   Repayment term. The shorter the repayment term, the higher the payments. On the other hand, the longer the repayment term, the lower the payments (but you’re likely to pay more interest over the life of the loan).

•   Impact on retirement savings. You’ll want to weigh the different ways a loan can eat into your retirement goals. For example, a 401(k) loan will shrink your retirement fund. However, if you take out a personal loan, you may have less cash available to put toward retirement since you need to make your monthly payments.

•   Credit score implications. Understanding how taking out either loan can impact your credit score is important, especially if you are building your credit score. A 401(k) loan doesn’t require a hard credit pull nor will payments show up on your credit report. A personal loan, however, does require a hard credit inquiry, and late payments will end up on your credit file and can lower your score.

•   Tax considerations. If and when you’ll be taxed is also something to consider. As for whether a personal loan is taxable, the answer is usually no. But a 401(k) loan could be taxable if you fail to meet certain loan requirements, such as sticking to your repayment schedule.

Scenarios: When to Choose Each Option

If you are contemplating the choice between taking a 401(k) loan or a personal loan, reviewing these scenarios could help you make your decision.

401(k) loan: Going with a 401(k) loan might make more financial sense in these scenarios:

•   You’re far off from retirement. You likely have time to pay back the loan and replenish your account, which can help you hit your target amounts within your desired time frame.

•   Time frame and loan amount are also important considerations: You’ll want to ensure you can repay your loan within five years. If you fall behind, the amount you owe can be treated as a distribution – and you’ll be hit with early withdrawal penalties and taxes.

•   A 401(k) loan can also be a wise move if your credit score doesn’t qualify you for a personal loan with favorable terms. A hard credit inquiry isn’t part of tapping funds from this kind of retirement savings.

Personal loan: A personal loan might be the stronger choice in these situations:

•   If you want quicker access to the funds, a personal loan could be a good bet as you may be able to apply, be approved, and access funds within just a few days. A 401(k) loan can take a few weeks to move funds into your bank account. You will, of course, need to meet the lender’s criteria, such as minimum credit score and debt-to-income requirements.

•   A 401(k) loan also might be a better route if you can stomach another form of debt (since you are, in a sense, borrowing from yourself and not a lender) and feel confident you can stay on top of your payments.

•   A personal loan can also be a good move if you are hoping to borrow more than the $50,000 cap on 401(k) loans. A personal loan may allow you to access twice that amount.

•   If you feel you might be changing jobs soon or that your job is in jeopardy, a personal loan could be a better option than a 401(k) loan. If you leave or lose your job, a 401(k) loan could be due in less than the five-year term.

With either option, you want to make sure you have a steady income to repay the loan. It’s important to prioritize paying off the loan. Otherwise, you’ll get hit with potential fees and/or damage to your credit score.

Long-Term Financial Impact

Borrowing from a 401k vs a personal loan can have a different long-term impact on your money situation. In deciding between the two, you’ll want to take a close look at the following:

Effect on retirement savings. Taking out a 401(k) means a smaller retirement fund, potentially a loss in growth in your investments, and also potentially a setback on your retirement goals.
While a personal loan doesn’t have the same impact on your retirement savings, having less money freed up each month can mean you’ll have less to contribute to a tax-advantaged retirement account.

Potential opportunity costs. Taking on more debt, whether against your retirement account or a loan through a lender, means your money will be tied up in debt repayments. In turn, you might miss out on opportunities to boost your finances, whether that’s putting money toward education, a business venture, your savings, or an investment account.

Debt management considerations. With a 401(k) loan, you’ll want to feel comfortable that you can shore up your retirement funds by paying off the amount within five years. You’ll be required to make payments at least once a quarter. With a personal loan, the monthly payment and repayment term can vary, but you’ll want to make sure both are a good fit for your budget and goals.

The Takeaway

In deciding whether to borrow a 401(k) loan or a personal loan, you’ll want to understand the basics of how each works, their respective advantages and disadvantages, and what factors to consider before landing on the best choice for you. A 401(k) loan can avoid the potential negative credit impact of a personal loan, for instance, but there is a limit to how much you can borrow, which could sway your decision.

If you’re curious about personal loans, see what SoFi offers.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

What happens to my 401(k) loan if I leave my job?

If you leave or experience a job loss, you might be required to pay back the remaining balance on your 401(k) quickly.

Can I take out multiple 401(k) loans?

Most plans only allow you to have one 401(k) at a time, and you must pay it back before you can take out another one. However, it’s worthwhile to check with your plan administrator, as you might be allowed to take more than one, as long as the total between the two doesn’t go over the plan’s limit, which is typically $50,000.

How does each option affect my credit score?

A 401(k) loan doesn’t require a hard pull of your credit, nor do your payments show up on your credit report. It therefore doesn’t affect your credit score. A personal loan does trigger a hard credit inquiry, and late or missed payments on your personal loan can negatively impact your score. Plus, taking on a personal loan increases your credit utilization ratio, which can also lower your score.

Photo credit: iStock/JulPo

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SOPL-Q324-014

All college students are required to declare a major, but what about a minor? This is a question many students find themselves asking halfway through their college curriculum.

Knowing about what a minor is, what it entails, and if it’s something that can bolster your career can help determine if it’s really right for you.

Keep reading to learn more about what a college minor is, how it differs from a major, and the pros and cons that come with it.

Defining a College Minor

A college minor, sometimes referred to as a “mini major,” is a group of courses you take in a certain discipline. Minors in college can complement your chosen college major or be totally unrelated.

While most colleges don’t require a student to declare a minor, some do. Schools may have a definitive criteria about your choice of minor. For instance, you may not be able to pursue a minor in the same department as your major.

For the most part a college minor is voluntary, and a student may not feel it’s important enough to take on the additional coursework in addition to their main area of study. Instead, they may want to have complete freedom to use those class credits for electives that may not be as labor intensive.

Differences Between a Major and Minor

Your major is the main area of specialty that determines the type of bachelor’s degree you’ll earn. It’s the field of study you’ve chosen based on your professional aspirations. One way to think of it is that your major is your primary job and your minor is more of a side gig.

When you’re finally awarded your college diploma, it will be for your major, not your minor. That’s because a college minor is typically considered optional and not a requirement for your core curriculum. Even if your school is one that does require you to choose a minor, it won’t be reflected on your degree unless your school is one with an exception to that rule. However, it will most likely be included in your college transcript.

Another key distinction between a college major and a minor is the amount of coursework you have to complete and how much it counts toward your final credits. Depending on your school, a major will make up one-third to one-half of the school’s credits needed to graduate, which is typically 120 credits for a four-year program.

In general, a college major will require you to complete at least 10 courses compared to five to seven classes for a minor. A minor typically requires anywhere between 16 and 30 credits.

Recommended: Credit Hours: What Are They & Why They Matter

Benefits of Pursuing a College Minor

There are many upsides to tacking on a college minor. If you’re wondering whether or not it’s worth pursuing, consider these pros:

Explore Complementary Interests

A college minor related to your major allows you to expand your expertise in that related field. For instance, if you’re a biology major and decide to minor in chemistry, you’re already familiar with the basics of science and look at things from a scientific perspective. There are similar analytical skills you can apply.

But even if your minor is in a different area, there are still ways it can positively impact your major. An example is if you’re majoring in political science, you may want to minor in public speaking, which can be helpful if you have any ambitions to run for elected office.

You may even find your minor is more exciting and decide to change your major to that area of interest, or decide to combine the two disciplines and pursue a double major.

However, before making any big changes, it’s a good idea to talk to your academic advisor. Depending on when you decide to do a change-up, it could add extra time toward getting your degree. This can translate into additional costs and more student debt.

Develop Secondary Skill Sets

Regardless of whether your minor directly corresponds to your major, you’re acquiring and polishing both hard and soft skills. Those more technical hard skills can be directly applied to the type of work your career requires. Soft skills, on the other hand, are more of a social and interpersonal nature. Both are important to employers and offer skills they want their prospective employees to have under their belt.

Enhance Marketability and Job Prospects

Homing in on a subject offers you the opportunity to develop more of an in-depth knowledge and expertise. A minor shows your well-roundedness, flexibility, and the ability to wear other hats. For example, a marketing major who minored in communications can be an asset in the areas of advertising, journalism, and public relations.

A complementary minor can also give you a more solid base and deeper understanding of some issues you may deal with in your occupation. If a nursing major chooses to minor in psychology, it can help them better understand patient behavior.

Overall, a minor shows a level of seriousness and willingness to challenge oneself. These are qualities that can go a long way and put you at an advantage when applying for your first job out of school, graduate school, or even for a college internship.

Recommended: 6 Ways to Save Money for Grad School

Popular College Minor Options

There are certain college minors that attract more students than others. Here are some popular ones:

STEM Minors

STEM, which stands for science, technology, engineering, and math, consists of natural, physical, and life sciences; computers; electronics and other types of tech; all kinds of engineering; mathematics; and areas that rely on the principles of math. Examples of STEM minors include computer science, kinesiology or exercise science, civil engineering, and statistics.

Deciding on a STEM subject for your minor can give you a leg up in the job market. According to the U.S. Bureau of Labor Statistics, job opportunities in the STEM field are expected to grow 7% by 2032, compared to 2% for all occupations.

Business Minors

With a business minor, you can take classes in accounting, marketing, human resources, and e-commerce. Choosing business as a minor allows you to learn the fundamentals of business, which can be extremely valuable and practical out in the real world.

Knowing more about how business is conducted and becoming more savvy about finance benefits you both professionally and personally. Career-wise, it can come in handy if you’re applying for a job that may require a deeper understanding of certain business practices. In your own life, you may even get a better handle on your own financial situation when it comes to managing private student loans and staying on top of how to pay for college.

Recommended: 4 Student Loan Repayment Options and How to Choose the Right One for You

Liberal Arts Minors

Liberal arts is a field with a broad range of disciplines, including creative arts, social sciences, humanities, and more. People who decide to minor in liberal arts may choose sub-studies in English, psychology, sociology, anthropology, philosophy, or communication.

For someone with a very demanding major, a liberal arts minor can offer a less taxing curriculum. Instead of being geared toward technical skills, liberal arts classes give students an opportunity to focus on critical thinking, collaboration, creativity, and verbal and written communication skills.

Language and Cultural Minors

Minors specializing in different aspects of cultural heritage and language can expose a student to different world views, beliefs, and practices.

A foreign language minor allows you the ability to become bilingual or multilingual, which is a huge asset in the workforce where there’s an increasing demand for people who speak other languages. You may want to expand on your high school language classes or minor in a completely new one.

A language minor may also be one in linguistics, which is the study of language structure, including phonetics, syntax, semantics, and the history of how language has changed over time. Students may also find there’s an option at their college to minor in American Sign Language.

Cultural studies minors are designed to study all types of cultures, their histories, and perspectives. These can include groups based on class, gender, ethnicity, race, religion, and geographical location. Classes in popular culture, women’s studies, world religions, and African-American or Asian studies are some examples of cultural studies minors.

Choosing a Complementary College Minor

Picking a minor in general adds extra knowledge and allows you to build more expertise in another subject. Minoring in a complementary course of study, however, shows you’re serious about exploring an area that closely aligns with your major.

Regardless of whether your minor directly corresponds to your major, you’ve decided to use a portion of your credits toward another group of required classes, and that indicates a commendable level of focus and commitment.

Potential Drawbacks of a College Minor

There are some cons that can come with declaring a minor. For one, a minor can take up a lot of time, so you’ll want to make sure it’s an area you’re genuinely curious about and have a real interest in. Consider the amount of work you’ll have to do, such as writing papers, studying, and taking exams. These additional classes could end up adding unnecessary stress to your major’s workload.

A minor could also end up costing you more money, especially if you declare a minor late in the game. You may not be able to get all the necessary classes before graduation, which means you may have to extend your education by a semester or more.

The Takeaway

A minor is, in most cases, an optional supplementary course of study that can broaden your knowledge, expand your skill set, and open up more career options after graduation. Having a college minor can also make your undergrad studies a lot more fun, especially if it’s a topic where you have a strong personal interest.

Ways to finance your minor include cash savings, scholarships, grants, and both federal and private student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

What’s the difference between a minor and concentration?

A minor can be a secondary course of study in any area, while a concentration is a sub-group of structured classes that directly relate to your major. For example, if you’re an English major, your concentration may be in creative writing, made up of poetry, fiction, nonfiction prose, and dramatic writing classes.

Do minors appear on your diploma or transcript?

Minors will appear on your transcript, but the mass majority of colleges and universities don’t include it on your diploma. The standard practice is to list only the student’s major on their bachelor’s degree.

How late in your college career can you add a minor?

Most colleges ask students to choose their major by the end of sophomore year or beginning of their junior year, which can also be an ideal time to choose a minor. You could declare it before you start your senior year, but it’s important to consider the fact you’ll have to cram all of that minor’s classes into one year’s time. This could impact your graduation date if you need to carry your studies over to another semester in order to fulfill your minor’s requirements.

Do minors impact financial aid eligibility?

It depends. Federal financial aid rules mandate only courses required for your major and degree program are eligible. However, classes required for a minor may be eligible for financial aid if they also satisfy major, core, or elective requirements for your degree. Otherwise, financial aid will be reconfigured or removed to reflect eligibility based on qualifying courses.

Photo credit: iStock/Drazen Zigic

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SOISL-Q324-034

You might think that if you close a loan or credit card account it will no longer affect your credit report, but they can actually stay on your credit report for up to 10 years. During this time period, these accounts can help or hurt your credit score, depending on a number of factors.

Here’s what you should know about closing loan and credit card accounts from your credit report.

How Closed Accounts Affect Your Credit

Closed credit accounts and loans can have varying effects on your credit, some positive and some negative, due to the factors that make up your credit rating. Here’s a closer look at three of those that are significant in this situation: your credit history, your credit utilization rate, and your credit mix.

Your Credit History

A closed account on which you made on-time payments will help your credit score by building your credit history. The effect will be less than if it were an open account, but it would be a positive factor nonetheless, since it shows that you can manage credit responsibly.
However, if you made late payments on an account that is now closed, the negative impact may linger in your credit history for seven years and up to 10 years if you file for bankruptcy.

Longevity is a factor on your credit report. Credit scoring systems reward borrowers with a longer history of managing debt and repayment. That means that if you close an account and seven years pass, you’ll lose any benefit of having had that account. It won’t make a significant change, but it is another factor to be aware of.

Your Credit Utilization Rate

Part of your credit rating is based on how much debt or credit you already have. Creditors look at your credit utilization ratio, which is how much credit you have available to you versus how much you actually use. The best case scenario is to not use more than 10% of your accessible credit; otherwise, no more than 30% is a good move.

Two examples:

•   Say you have a $10,000 credit limit on your credit card, you might want to limit your balance to $1,000. That’s 10%.

•   Otherwise, keeping your balance to no more than $3,000 would be 30%, the upper end of what’s considered a good credit utilization ratio.

If you close a loan or a credit card account, that might reduce the amount of credit available to you, which will increase your utilization rate. If you open a credit card or take out a loan, that will increase the amount of credit available to you, thereby decreasing your utilization rate.

Your Credit Mix

Credit scoring systems, such as the FICO® Score and VantageScore® look at the types of loans you have and how you manage them. These systems reward a mix of loan types, such as installment loans (auto loans and mortgages), and revolving accounts such as credit cards. Eliminating a credit card account or other type of loan (such as when it is closed and eventually drops off your report) could limit your credit mix, and that could negatively impact your credit score. Worth noting though: Credit mix counts for 10% of your score vs. 35% for your payment history (meaning, how successfully you make payments on time).

Why Do Closed Accounts Stay on Your Credit Report?

Both closed and open accounts can contribute to your credit rating as they stay on your credit report. That’s because the credit agencies can gain a fuller picture of your risk as a borrower the more information they have.

Monitoring and understanding your credit report (perhaps with a credit score monitoring app; your bank may offer this) is an important part of your financial wellness.

When to Remove a Closed Account from Your Credit Report

If possible, remove a closed account from your credit report if it has a poor payment history. Also, remove any accounts that are found to be fraudulent. If an account shows that you made regular, on-time payments, don’t remove it because it will be helping your score.

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How to Remove a Closed Account from Your Credit Report

A few factors affect your credit score; one of which is your credit history. As noted above, your credit history shows the loans and credit cards you have obtained in the past seven to 10 years, along with your repayment patterns. Even closed accounts are part of that narrative for the stated period of time.

That said, there may be a way to remove a closed account from your credit report, which you might want to do if it is having a negative effect. Here are some options.

1. File a Dispute if There Is an Error on Your Credit Report

It might be that you notice a fraudulent account when you check your credit report. If that is the case, you can remove the record by submitting a dispute in writing with each of the three credit bureaus (Equifax®, Experian®, and TransUnion®). You must include supporting documents. The bureaus will investigate your complaint and update your credit score if there is fraudulent data.

2. Contact the Creditor and Pursue a Goodwill Deletion

Another way to remove a closed account from your credit report is to directly contact the creditor that’s involved and ask them to remove the account from your credit report. (This is sometimes known as a goodwill letter or goodwill request.) The creditor will have to contact the credit bureau(s) directly to do so. You will be more successful if you have a positive credit history and relationship with the creditor.

3. Wait It Out

In time, a closed account will no longer be reflected on your credit report, but it might take seven to 10 years. The good news is that the accounts that stay the longest are usually ones that you closed in good standing, and these will positively influence your credit score.

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

What Does “Account Closed” Mean on a Credit Report?

“Account closed” on your credit report indicates an account that is no longer active. There can be several reasons for an account being closed.

•   Perhaps it was an installment loan that you paid off.

•   You might have opened a credit card account and then decided to close it (maybe you weren’t using it much).

•   The creditor closed it, which could be positive (you paid off a loan) or negative (you weren’t paying your bills in a timely manner).

These are typical scenarios that lead to seeing “account closed” on your credit report.

How Long Will a Paid-off Account Take to Show up on Your Report?

Lenders usually update the credit report agencies with closed account information at the end of a billing cycle. Thus, it could take one or two months before a paid-off account is reflected on your credit report.

How Long Does a Closed Account Stay on My Credit Report?

As noted above, how long closed accounts stay on your credit report can vary.

•  Accounts closed in good standing (paid on time and in full) can remain on your credit report for up to 10 years.

•  Accounts closed due to nonpayment (these include collection accounts, some bankruptcies, and debt settlement) remain on your credit reports for seven years from the first missed payment or from being turned over to collections. The exception is Chapter 7 bankruptcy, which usually stays on your credit report for 10 years.

Practice Good Credit Habits Going Forward

Here’s advice that can help you manage existing credit card and loan accounts well.

•  First, it’s always wise to take control of your budget. Whether you do that with the 50/30/20 budget rule or a financial tracking app, keeping on top of your income, your spending, and your saving can be a money-smart move.

•  Check your credit score regularly to make sure there is no fraudulent activity. You might aim for an annual review.

•  Extend your credit history as much as you can with accounts that are and have been in good standing. This means it’s probably in your best interest to occasionally use a credit card account and keep it in good shape vs. closing it because you don’t use it often. This can reduce your available credit and possibly lower your debt utilization ratio.

  One good idea can be to use a credit card for predictable expenses, such as streaming services, and set up automatic payments. That way, you will be paying a set amount each month and building a positive credit history.

These moves can help you keep your financial profile in good shape.

The Takeaway

Closed credit accounts will stay with you for a long time, seven to 10 years usually. Keep accounts that you have owned for a long time open and in good standing whenever possible. If you have fraudulent accounts on your credit history or ones that were not managed well, you might take steps to have them removed and possibly build your credit profile.
Keeping tabs on your credit score and your budget can be easy with the right tools, like those SoFi offers.

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

FAQ

Can I get closed accounts removed from my credit report?

You can remove a closed account from your credit report if you suspect it is fraudulent by filing a dispute with the three credit bureaus. You can also contact a creditor directly and ask them to remove a closed account. However, they are under no obligation to comply with this kind of request for a “goodwill” deletion. Alternatively, you can wait for seven to 10 years, after which closed accounts will fall off your credit history.

What is the 609 loophole?

The 609 loophole is a tactic that some people think will remove bad debt history from their credit reports. A section of the Fair Credit Reporting Act states that you can write a letter to gain documentation on what you may believe is an incorrect entry in your credit history. The 609 letter theory is that if a credit bureau cannot produce a piece of information, such as the original signed copy of your credit application, they have to remove the disputed item because it’s unverifiable. However, these steps are not the same as a dispute. Also, if you have legitimate debt, even without this documentation, the debt may remain. In other words, this process is unlikely to provide a shortcut to building your credit.

How long before a debt is uncollectible?

At which point a debt can no longer be collectible varies based on the type of debt and the state you live in. It is often between three and six years, but it could be as long as 20 years. After the statute of limitations that applies, a debt collector can no longer sue you for repayment, though some might still try to collect.

Photo Credit: iStock/dusanpetkovic
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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

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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SORL-Q324-024

In international banking, transactions can involve IBAN codes, which indicate a specific foreign bank account number, and SWIFT codes, which identify a particular financial institution. Depending on the countries and banks involved, sometimes only one of these codes is needed to make an international transfer, and sometimes both. Knowing the difference between these codes — and how and when each is used — can be valuable when transferring funds globally.

What Is an IBAN?

An IBAN is an International Bank Account Number. This number, up to 34 digits, pinpoints a person’s individual bank account in participating countries.

Because countries operate with different currencies, regulations, and financial institutions, IBANs help standardize cross-border transactions. IBANs can play an important role in getting funds transferred into the correct checking account or savings account.

Each unique alphanumeric IBAN code contains:

•   A two-letter country code

•   Two “check digits” for error detection

•   Up to 30 alphanumeric characters that signify an individual’s bank account (a bank identifier and a basic bank account number)

Roughly 80 countries currently use IBAN numbers when conducting money transfers. The largest collection of these countries is in Europe, but many North African, South American, Caribbean, and Middle Eastern countries participate as well.

IBANs are not used in America. Instead an ABA routing number and a bank account number identify checking and savings accounts. But if you’re wiring money internationally to a country that uses IBANs, you’ll need to know that number.

(Worth noting: Canada, Australia, and New Zealand also don’t use IBANs but instead use their own systems for identifying accounts.)

Recommended: What Is an Intermediary Bank?

Understanding SWIFT Codes

SWIFT stands for Society of Worldwide Interbank Financial Telecommunication, a messaging network through which financial institutions can communicate securely across borders. This is a popular payment network for international wire transfers, but it’s not the only network.

A SWIFT code is a globally accepted standard BIC (Bank Identifier Number) for SWIFT transfers. Essentially, a SWIFT code refers to a specific bank or financial institution during international transfers. In that way, SWIFT codes serve a similar purpose internationally as routing numbers do domestically in the United States.

SWIFT codes are much shorter than IBANs, with between eight and 11 characters. Each contains:

•   The first four digits are a bank code

•   The next two are a country code

•   The next two signify the bank’s main office location

•   If applicable, the final three digits refer to a specific branch code (these are used by large banks with multiple branches in various countries and regions)

Unlike the case with IBANs, U.S. bank customers do typically have SWIFT codes affiliated with their accounts. (Some smaller banks and credit unions may not use SWIFT codes, however.) Your bank’s code will play a role if you are sending money overseas or if you are receiving funds from abroad.

It’s also important to know that there are several countries that are currently not permitted to participate in the SWIFT payment system, such as North Korea, Belarus, and Russia.

Recommended: All You Need to Know About Wire Transfer Fees

Key Differences Between IBAN and SWIFT

The major differences between IBAN vs. SWIFT codes come down to where each is used, what information each contains, and what kinds of transactions each is used in. Here are important points to know:

Geographic Coverage

IBANs are most popular for identifying bank account numbers in the European Union and nearby countries (such as Israel and Turkey), but other countries in South America and the Caribbean have adopted these codes as well. The United States, again, does not use IBANs; instead, bank account numbers and routing numbers are used domestically.

The SWIFT system has a greater global reach. It is the most popular network for identifying banks when managing international transfers in many countries in North America, the European Union, Africa, Central and South America, as well as China and India, and more. That said, not every nation uses SWIFT codes, either because they choose not to participate or are prohibited (as noted above) from doing so.

Information Contained

SWIFT vs. IBAN codes indicate two separate pieces of banking information, as mentioned above:

•   SWIFT codes, eight to 11 characters in length, can identify a specific bank or financial institution during international money transfers.

•   IBAN codes, up to 34 characters, can identify specific bank accounts during cross-border money transfers.

Usage in Transactions

Which codes you’ll need to make an international transfer will be determined by the code systems used by the countries and financial institutions sending and receiving the money. Sometimes, you’ll only need one of these codes, but often you’ll need a SWIFT and an IBAN code for an international bank wire. (They are separate identifiers, so it’s not a matter of, say, converting IBAN to SWIFT. Each conveys important financial information.)

That said, here are some scenarios you might encounter:

•   If you’re sending money to someone in a country that doesn’t use IBAN, you’ll have to use another way to identify the bank and their checking account.

•   If someone in a foreign country wants to transfer funds to you, they will not have an IBAN code associated with your account and will need to use your bank account and routing number and your bank’s SWIFT code, if available.

•   If you are trying to move money internationally to a country where you can’t use a SWIFT code, you’ll need to use another network to send money electronically. You might explore whether fintech options are available.

Recommended: How to Send Money to Someone Without a Bank Account

Combining IBAN and SWIFT

As mentioned, for many international transfers, you’ll need to know both the IBAN and SWIFT code involved. It really depends on which country you’re wiring money to. In some instances, you may only need one of the numbers. However, in this case, you may need to satisfy other requirements a country has established for transferring funds, as they might use other identifiers.

The Takeaway

SWIFT vs. IBAN codes are used to standardize international transfers and help ensure secure payments. SWIFT information identifies a particular bank in a country, such as in the U.S. or elsewhere, while IBAN characters point to a specific bank account in countries using the IBAN system. When sending funds from the U.S. to someone in a foreign country, you will likely need both of these codes to complete the transfer. U.S. banks typically have SWIFT codes that are used when they are receiving cross-border funds to be directed to a client’s account.

While SoFi doesn’t currently do international transfers, we do provide competitive interest rates and a host of tools to help you manage your money better.

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

FAQ

Can a bank have multiple SWIFT codes?

It’s possible for a bank to have multiple SWIFT codes. Bigger banks with multiple branches across the globe may use three extra digits at the end of their code to identify a specific branch.

Is IBAN used in the United States?

The United States does not use IBAN codes. Instead, the U.S. uses a bank account number and routing number to identify financial institutions and the specific accounts within them. However, if you live in the U.S. and are wiring money internationally, you may need to know the recipient’s IBAN code, depending on what country they live in.

How do I find my IBAN or SWIFT code?

If you have a bank account in the U.S., you will not have an IBAN code affiliated with it. If you have a bank account outside the U.S. in a country that uses IBANs, you can typically find an IBAN code on your bank statement or on the bank’s website. If you are wiring money to someone who lives in a country using the IBAN system, you can ask for their IBAN code when discussing the details of the wire transfer.

You should also be able to find a bank’s SWIFT code on its website or on a bank statement (if you are a client). If you’re unable to locate it, you might do a quick online search or call the bank’s customer service number.

What happens if I use the wrong code for a transfer?

If you use the wrong code for a wire transfer and it cannot be completed, the money may be returned to your account. In some cases, you may be charged a fee for this. However, there is the slight possibility that the transfer could be completed and the money sent to the wrong account. That is why, if you know you used the wrong code, it’s important to contact your financial ASAP and see if you can request a cancellation or reversal of the transfer.

Photo credit: iStock/Lyndon Stratford

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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


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


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