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If you are just starting out in life or your credit is less than you’d like, you may have trouble being approved for an unsecured credit card on your own. Fortunately, there are a few options that you can consider to still have access to credit. Two of those options are applying for a credit card with a cosigner and becoming an authorized user on someone else’s account.

While these two options are similar in some ways, they also come with some key differences. It’s important to understand these important differences if you’re considering either choice. That way, you can choose the option that is best for your specific financial situation.

Read on to learn:

•   What is a credit card cosigner vs. authorized user?

•   What are the pros and cons of being a credit card cosigner?

•   What are the pros and cons of being a credit card authorized user?

•   Is being a cosigner or an authorized user right for you?

What Is a Credit Card Cosigner?

If you are unable to be approved for a credit card on your own, you may be able to apply for a credit card with a cosigner. Similar to a cosigner on a mortgage or a personal loan, a cosigner guarantees they will pay any balance on the card if the primary applicant does not. However, unlike with a joint credit card, a cosigner may not receive a physical card or be able to access the account information.

Also, it is worth noting that recently many credit cards have changed policies and no longer allow you to apply with a cosigner. In other words, it may be hard to find a card that will let you pursue this path.

Pros and Cons of a Cosigner

Here are the pros of a cosigner:

•   A cosigner can be a good option if you’re unable to be approved for a card on your own. Having a cosigner with good credit may allow you to be approved and start to build credit under your own name with the big three credit bureaus.

However, as noted above, there’s a big con to this arrangement:

•   Most major banks do not allow credit card cosigners. Instead, it may be a better option to apply for a secured credit card or become an authorized user.

What Is a Credit Card Authorized User?

An authorized user on a credit card is someone who has the ability to make purchases on the account, without any obligation to make payments. This might be a spouse, child, or other trusted friend or family member. You can add an authorized user to your account, but just keep in mind that you as the primary account holder will be responsible for any purchases that they make.

Pros and Cons of Authorized User

Here’s the upside of an authorized user:

•   Adding an authorized user to your account can be a good way to earn additional credit card rewards. The reason why? You as the primary account holder will earn rewards for purchases made by any authorized users on your account.

•   It may be a way to help a trusted friend or family member improve their credit, as long as you both use the card responsibly.

Now, for the downside:

•   The biggest con to adding an authorized user to your credit card account is that you are legally responsible for any charges that they make. So if they spend way more than you were expecting, it could put you in an awkward personal and financial situation and possibly damage the relationship.

•   There is also usually a minimum age to be an authorized user, which is something else to keep in mind. If you’re trying to add a child or teen, you may have issues, depending on the card issuer’s policies.

Recommended: How to Get a Credit Card for the First Time

What Is the Difference Between a Cosigner and an Authorized User of a Credit Card?

Here’s a quick look at some of the differences between a credit card cosigner and a credit card authorized user.

Do Cosigners and Authorized Users Have Anything in Common?

There are some important differences between being an authorized user and getting a cosigner to apply for a credit card, as mentioned above. However, there is one major thing they have in common. Both of these are strategies for people whose credit may not allow them to be approved for a credit card on their own.

A joint credit card or a secured credit card are two other similar strategies.

Is a Cosigner or Authorized User Right for You?

Because very few major banks allow credit card cosigners, it’s likely that is not going to be an option for most people. Instead, becoming an authorized user may be a better strategy if you’re looking to improve your credit. If you become an authorized user on the account of someone who already has good credit and continues to use the card responsibly, it may help build your credit.

Recommended: Guide to Choosing a Credit Card

The Takeaway

Becoming an authorized user on someone else’s credit card account and getting a credit card cosigner are both strategies intended to help improve your credit. Because very few major banks currently allow credit card cosigners, becoming an authorized user may be a better strategy. When you become an authorized user on the account of someone who is using their card responsibly, it may help build and improve your credit score as well.

If you’re in the market for a new credit card, you might look at a rewards credit card like the SoFi Credit Card. With the SoFi Credit Card, you can earn cash back rewards, which you can then use for travel or to invest, save, or pay down eligible SoFi debt. You can also add an authorized user to your SoFi credit card as a possible way to earn additional rewards.

FAQ

Does adding someone as an authorized user help their credit score?

It is possible that adding someone as an authorized user can help their credit score. Even though authorized users are not legally responsible for the purchases or debt on the account, the account is reported to the major credit bureaus and will appear on their credit report. So as long as the account is used responsibly, it can help both people’s credit score.

Is it better to be an authorized user on someone’s card or to have your own credit card?

If you’re just starting out or having trouble qualifying for a credit card in your own name, it can make sense to become an authorized user on someone else’s credit card account. When used responsibly, it can help improve your credit and possibly put you in a position where you can be approved for your own card. Once that happens, you may prefer to have your own credit card.

Do cosigned credit cards build credit?

When you apply for a credit card with a cosigner, you are responsible for making payments to the account as the primary cardholder. This means that generally your payment history and account balances will be reported to the major credit bureaus and used in determining your credit score. If you use your card responsibly, it can help build your credit.

Photo credit: iStock/PeopleImages

¹See Rewards Details at SoFi.com/card/rewards.


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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A jumbo loan is a mortgage that is larger than the loan-servicing limits set by the Federal Housing Finance Agency (FHFA). If you know you need a large loan to cover a higher home mortgage loan, you might be wondering how to qualify for a jumbo loan.

Jumbo loan qualifications are more stringent than conforming conventional loans. Because a jumbo loan is a nonconforming loan, banks take on more risk as they are not able to sell the loan to government-sponsored enterprises Fannie Mae and Freddie Mac. Since the loans are not guaranteed by the government, lenders are more cautious about the type of borrowers they do business with.

What this means for your money: You need conditions to be pretty optimal to qualify for a jumbo loan. But it can be done. Learn more here, including:

•   How to qualify for a jumbo loan

•   What factors lenders consider for jumbo loans

•   The jumbo loan qualification process

•   How to decide if a jumbo loan is right for you

Jumbo Mortgage Requirements

The current limits for jumbo loans are defined as exceeding $726,200 for single-family homes, except in Alaska, Hawaii, and some federally designated markets that are considered high-cost. In those areas, the limit that’s exceeded is $1,089,300 since these locations tend to have pricier housing markets.

Jumbo mortgage requirements are similar to conventional conforming loan requirements, but there are some key differences that make them harder to qualify for.

A High Credit Score

Experts recommend a credit score of 700 or above for jumbo loan borrowers. A higher credit score when buying a house is indicative of a borrower’s behavior with credit and how likely they are to repay the loan. A higher credit score is needed for the higher loan amounts of a jumbo loan. That lofty score can help the lender feel more secure that you’ll pay back the amount you borrow.

Cash Reserves

A cash reserve is how much liquid money you have at your disposal. What counts as liquid money can vary from lender to lender. For example, some will allow a percentage of vested 401(k) funds to count toward the reserve requirement. Others do not.

Because jumbo loans are so large, lenders look for cash reserves in your account to guard against default. For the best jumbo loan terms, lenders can require as much as 12 months of reserves.

A Low Debt-to-Income Ratio

A debt-to-income ratio is the amount of income you make relative to the amount of debt obligations you have. If you have what is considered too much debt, the lender will not offer a loan to you. With jumbo loans, a healthy DTI ratio is essential to qualify for the mortgage. A DTI ratio below 43% is recommended or possibly a lower figure.

What Does the Jumbo Qualification Process Include?

When you’re looking at jumbo loan requirements and the qualification process, there are some things you should keep in mind. Here, what’s needed to get a mortgage:

Documents Required for Jumbo Loan

When you apply for a jumbo loan, the lender will look to verify the information you provided. Some documents you may be required to provide include:

•   Two years of tax returns

•   Profit & Loss (P&L) statement if you’re a business owner

•   Pay stubs

•   Bank statements

•   Documentation for other income

Loan-to-Value Ratio Evaluation

In addition to your application, the jumbo loan will require an appraisal of your property to ensure they’re not lending too much on the home (that is, more than it’s worth). This appraisal will ensure the home’s price is not too high and determine that the loan-to-value ratio (LTV) is within its guidelines.

Evaluating How Jumbo Down Payments Will Impact You

How much you put down on the home of your dreams will impact what loan you qualify for. If you’re able to put down enough, you may be able to forgo the jumbo loan requirements and get into a conforming conventional loan.

Is a Jumbo Mortgage Right for You? Questions To Ask

When it comes to making a decision on a jumbo loan, it’s helpful to ask yourself some questions that can help determine if a jumbo loan will work for you.

Do I Have Good Credit?

Ask yourself if your credit is strong enough to qualify for a jumbo loan. These mortgages do come with higher loan amounts and higher payments, and a good credit score range (over 700 typically) can help you get the best terms possible to qualify for a jumbo loan.

Do I Have a Low DTI and High Cash Reserves?

It’s important to have a low debt-to-income ratio and ample reserves to qualify for a jumbo mortgage, as discussed above. While some lenders may go up to as high as a 43% DTI, others will want to see a lower number.

Can I Prove I’m in Good Financial Health?

Qualifying for a jumbo mortgage goes beyond the numbers. Can you demonstrate to the lender that you’re able to continue making payments? Do you have a consistent job history? Are all the other financial factors in your life lined up so you can afford the mortgage?

Is the Property Value High Enough for a Jumbo Loan?

The jumbo loan value minimum (and conforming loan limits) is $726,200 for most areas in the U.S. If your mortgage is below this amount, you’ll want to look at financing with a conforming conventional loan instead. In high-cost areas, the home would have to hold a value of more than $1,089,300.

Do I Have Enough Money Saved?

A down payment on a property that merits a jumbo loan will often be a significant amount of cash. And while some closing costs are a flat fee that won’t go up, many are labor-intensive or percentage-based (3% to 6% of the loan amount), so your jumbo loan closing costs are larger than for a conventional, conforming loan.

Recommended: 18 Mortgage Questions for Your Lender

The Takeaway

If you are in the market for a high-value home, a jumbo mortgage can help you make it your own. However, you will need to meet the loan requirements, which may be somewhat more demanding than those for a conforming loan. By focusing on optimizing your credentials and financial profile, you can work to secure the mortgage that makes your home-ownership dreams come true.

When you’re ready to take the next step, consider what SoFi home loans have to offer. Jumbo loans are offered with competitive interest rates, with no PMI, and down payments as low as 10%.

FAQ

Is it harder to qualify for a jumbo loan?

Yes, jumbo loans are harder to qualify for. You will need a larger down payment than you would with a conforming loan, a higher credit score, a low debt-to-income ratio, more cash reserves, and a tighter loan-to-value ratio.

What credit score do you need for a jumbo loan?

For a jumbo loan, you may want to aim for a credit score above 700.

Do jumbo loans require a 20% down payment?

It is possible to obtain a jumbo loan with a down payment as low as 10% or possibly even lower.

Photo credit: iStock/lovenimo

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

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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.

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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A pension plan is a retirement plan offered by employers that guarantees income to workers after retirement. Pension plans are also known as defined-benefit plans because the monthly benefits the worker will receive during retirement is defined.

When defining those benefits, a pension may offer an exact dollar amount to be paid in retirement, such as $100 per month. But more often, the benefit involves calculating a number of factors, including how much the worker earned while working, how long they served the company, and how senior they were when they retired.

How to Get a Pension Plan

Unlike other different types of retirement plans, such as IRAs and Roth IRAs, an investor who wants to save for retirement can’t just go out and invest in a pension. Like 401(k)s, pensions need to be offered by an employer.

While pension plans were once a mainstay of how companies took care of their workers, they’ve become increasingly rare in recent decades. Only a small relative percentage of private sector employers offered some form of pension to their employees as of 2023.

The biggest reason why companies no longer offer pensions is that it’s cheaper for them to offer defined contribution plans, such as 401(k) or 403(b) plans. But if an American works for the federal, state or local government, there’s a good chance that they may qualify for a pension. Among state and local government workers who participate in a retirement savings plan, a majority are in a pension plan.

How Pension Plans Differ from Other Retirement Plans

The key difference between pension plans and other retirement plans comes down to the difference between a “defined benefit” plan like a pension, and a “defined contribution” plan.

In a defined benefit plan, such as a pension, it’s clear how much workers will receive. In a defined contribution plan, it’s conversely clear to employees how much they put into it. Unlike a pension, a defined contribution plan doesn’t promise a given amount of benefits once the employee retires.

There are some plans, such as a 401(k) plan or 403(b) plans, in which an employer has the option to contribute. They are not, however, required to. In these plans, the employee and possibly the employer will invest in the employee’s tax-advantaged retirement account. At the time of the employee’s eventual retirement, the amount in the fund can depend heavily on how well the investments in the account performed.

There are still other retirement plans, like IRAs and Roth IRAs, which a worker can also fund. Like 401(k) plans, the ultimate payout often depends largely on the performance of the investments in the plan. But unlike 401(k)s, an employer isn’t involved or required to sponsor an IRA.

One big advantage that pensions have over defined contribution plans is that pensions are guaranteed by the federal government through the Pension Benefit Guaranty Corporation. It effectively guarantees the benefits of pension-plan participants. But the PBGC does not cover people with defined contribution plans.

Recommended: What Is a Money Purchase Pension Plan (MPPP)?

What to Do If You Have a Pension Plan

Workers with pension plans should talk to a representative in their human resources department and find out what the plan entitles them to. Every pension plan is unique. An employee may benefit from looking into the specifics, especially in terms of how much the plan might pay, whether it includes health and medical benefits, and what kind of benefits it will offer a spouse or family members if the worker dies first.

For someone just starting in their career, they may also want to ask when their pension benefits vest. In many plans, the benefits vest immediately, while others vest in stages, over the course of as many as seven years, which could affect their plans to move on to a new job or company.

One way to get a better handle on what a pension may pay over time is to inquire about the unit benefit formula. Utilizing that formula is how an employer tallies up its eventual contribution to a pension plan based on years of service.

Most often, the formula will use a percentage of the worker’s average annual earnings, and multiply it by their years of service to determine how much the employee will receive. But an employee can use it themselves to see how much they might expect to receive after 20 or 30 years of service.

Pros of a Pension Plan

Perhaps the biggest pro of a defined-benefit plan is the guarantee of predictable income from the day a worker retires until the day they die. That’s the core promise that the PBGC protects.

Many pension plans also include related medical and other benefits for the employee, as well as related benefits for surviving spouses. Those benefits vary widely from plan to plan and are worth investigating for workers with a pension. Employees who are considering a new role in an organization that offers a pension should also research such features.

A defined contribution plan can also motivate the worker to regularly calculate the amount they’ll have to live on after they retire, and when they can retire. That can open up questions about what they’ll do if they get sick or need at-home care. And by asking those questions, they can look into things like supplemental medical insurance or long-term care insurance, in order to better protect themselves down the road.

Cons of a Pension Plan

But the greatest strength of a pension plan — its reliability and its guarantee — can also be its biggest weakness from a planning standpoint. That’s because a pension can give would-be retirees a false sense of security.

A pension, with its well-insured promise of income, can lead people to ignore important questions and avoid strict budgeting for basic living expenses. That flat monthly income can also lead people to believe that their expenses will be the same each month.

And that can lead retirees to avoid planning for increased overall living expenses due to the effects of inflation or sudden, unexpected expenses that inevitably crop up. There’s also the likelihood that their expenses later in life could be significantly higher, as they’re able to accomplish fewer daily necessities themselves.

That’s why, regardless of how thorough a pension plan is, it can pay to save for retirement in other ways, including through a 401(k), IRA or Roth IRA. Just because a worker has a pension, that doesn’t mean that it’s the only retirement plan that’s right for them. And employees will benefit from preparing for retirement early.

The Takeaway

Pension plans are a type of savings plan that are offered by employers, potentially guaranteeing income to workers after they retire. Pension plans are defined-benefit plans, and differ in some key ways from IRAs or 401(k)s. Pensions have become less common in recent decades, and they have their pros and cons, like any other financial product or service.

Workers could get started investing today by opening an account with SoFi Invest®. SoFi Invest offers an active investing platform that allows users to choose their stocks and ETFs without paying commissions, but other fees apply.

SoFi Invest also offers an automated investing solution that invests users’ money based on their goals and risk tolerance without charging a advisory fee.

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