Feb
15
2023
Introduction to Options Volume and Open Interest

Introduction to Options Volume and Open Interest

By | Growing Wealth, invest, Investing, Terminology | Comments Off on Introduction to Options Volume and Open Interest

In the world of options trading, the investor is given constant information about what is happening in the options market. Two of those pieces of information are Options Volume and Open Interest.

Options Volume represents all of the transactions made during a trading session updated in real-time.

Open Interest represents the number of open contracts at the start of each trading session and is updated once per day prior to the market opening.

How Is Option Volume Calculated?

Option Volume is different from stock volume in some fundamental ways. When you’re investing in stocks, volume represents shares trading hands. Typically trading volumes in stocks are far smaller in scale than the total shares available in a stock.

Options volume, on the other hand, can very often exceed the total contracts outstanding represented by Open Interest.

Options Volume is calculated in real-time after every transaction. This information is typically reported within the options chain and will be updated as frequently as your particular brokerage and account provides.

Every transaction is counted.

If you buy to open 10 calls, volume increases by 10 during the trading session.

If you then sell these calls to a second investor, volume increases by 10.

If this second investor closes these 10 calls, volume increases by 10.

Recommended: Popular Options Trading Terminology

How Is Open Interest Calculated?

Open Interest is calculated the same way for options trading as it is for futures trading. This information is also reported within the options chain, however it is updated once daily prior to the market opening and will not change over the course of a trading session.

Open interest represents all contracts that remain open and nets out trades from the previous session that offset.

Therefore using the same trades from above:

If you buy to open 10 calls, open interest does not change during the trading session.

If you then sell these calls to a second investor, open interest does not change.

If this second investor then closes these 10 calls, open interest does not change.

However, at the end of the session the Options Clearing Corporation (OCC) nets out any offsetting trades and reports simply the remaining open contracts.

In this example, since the options were opened and closed on the same day, and despite having changed hands, the net effect on Open Interest is zero.

What Do Option Volume and Open Interest Indicate About Options?

As far as assessing what these two data points indicate, it depends on whether you consider yourself a “fundamental” trader or a “technical” trader.

•   Traders who use fundamental analysis believe in analyzing company and market data to determine what is happening in the markets. They look at corporate metrics such as profits, operating margins, debt ratios, etc, as well as some limited market data.

•   Technical traders primarily focus on market data and use it to predict market sentiment and price movements.

Fundamental Analysis

Fundamental traders look at the Open Interest as an indicator of liquidity in the market. And if you dig into the typical options chain, you’ll see that higher Open Interest corresponds to lower bid-ask spreads.

These two factors taken together, result in more rapid order filling and increase the likelihood of better, i.e., more competitive, pricing.

The fundamental trader looks at Options Volume as a first indication of cash flows in and out of the option. However, these cash flows won’t be confirmed until the end of the day when a comparison between Open Interest changes from the previous day will confirm this analysis.

Increasing Open Interest shows cash moving into that option.

Recommended: What Are Calls vs Puts?

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the OCC Options Disclosure Document.

Technical Analysis

Technical traders also look at Open Interest and Options Volume as indicators of liquidity and cash flows, but their analysis doesn’t stop there.

Technical traders look at these increased cash flows and liquidity improvements and believe that the strength in the Options Volume and Open Interest indicate confirmation of the trends occurring in the price of the underlying asset.

For example, if the underlying asset is seeing price increases and call volumes and Open Interest are also increasing, then the technical trader sees confirmation of the trend and these factors reinforce the likelihood of the trend continuing.

Conversely, if the Options Volume and Open Interest are changing at a slower pace, this may indicate that the previously existing trends in the underlying market – whether up or down – may be coming to an end.

Technical Analysis, Other

Although the following phenomenon falls under technical trading, it should really be its own brand of trading.

Often, you’ll hear experienced options traders talking about spikes in Option Volume and Open Interest as an indication of what the “smart money” is doing, or that “somebody knows something” about a particular company or a particular trade.

Consider this a red flag. First, just because an investor has made a large investment, doesn’t make them “smart.”

Second, why have they made that investment? Is it a single position, or one of a few different types of investments, or a combination trade that you may not know about, and with different investment goals than what you are pursuing.

Finally, the people who made the trades, and those who identify these spikes, typically have access to information and resources the typical investor does not have access to. That means while they might be going into a trade with eyes open, you may not have the same visibility.

Option Volume

 Open Interest
Total of all transactions during a trading session Total of all open contracts at the start of a trading session
Updated continuously after every transaction Updated once per day prior to the trading session
Opening a transaction increases the volume Opening a transaction will increase Open Interest
Closing a transaction increases the volume Closing a transaction will decrease Open Interest
Indication of liquidity Indication of liquidity
Indication of Cash Flows Confirmation of Cash Flows

The Takeaway

Options Volume and Open Interest can be useful data points for the options investor.

Depending on your particular investing approach, fundamental versus technical, you may use this information in varying ways to inform your investing decisions.

If you’re ready to try your hand at options trading, You can set up an Active Invest account and trade trade options online from the SoFi mobile app or through the web platform.

And if you have any questions, SoFi offers educational resources about options to learn more. SoFi doesn’t charge commission, and members have access to complimentary financial advice from a professional.

With SoFi, user-friendly options trading is finally here.

Photo credit: iStock/BartekSzewczyk

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
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Feb
15
2023
Leap Options: What Are They? Pros & Cons

Leap Options: What Are They? Pros & Cons

By | Growing Wealth, invest, Terminology | Comments Off on Leap Options: What Are They? Pros & Cons

The term “LEAPS” in LEAPS options is actually an acronym, which stands for “Long-term Equity Anticipation Securities.” LEAPS options are long-term options that have an expiration period between one and three years, versus less than a year for standard options.

LEAPS (sometimes called leap options) are derivatives contracts traded on exchanges, and allow investors to utilize less capital than if they were purchasing the underlying asset outright.

Other than the longer-than-normal expiration date, leap options are functionally much like other types of options — they’re contracts that grant the buyer the right to buy or sell an underlying asset at a specific price before its expiration date.

LEAPS Options Defined

Puts, calls, bulls, and bears. For the uninitiated, options terminology offers a steep learning curve. Even those who are familiar with options trading can occasionally find themselves in the weeds, as there are myriad option types and derivatives to keep track of.

LEAPS or leap options are a variation on the basic options contract, and these longer-term instruments may become part of your strategies for trading options.

LEAPS come in two basic flavors: call options and put options. And like shorter-term options, traders pay a premium when buying LEAPS options. Further, LEAPS can be tied to individual stocks or ETFs, as well as market indexes and other types of securities.

Recommended: Options Trading 101

How to Buy LEAPS Options?

Buying LEAPS options is pretty straightforward, assuming you’ve been investing for a bit. Typically, all that’s required is a brokerage account with access to options trading — and that’s something that many, if not most brokerages offer investors.

The process for actually executing a LEAPS option trade will depend on the specific brokerage you use, but it’ll generally involve choosing a put or call option, a strike price, and critically, a long-term expiration date.

Remember, LEAPS options expire more than a year from when they’re purchased, so opting for the longer-term expiration date will differentiate a LEAPS option from a standard option purchase. This may be helpful when considering long-term vs. short-term strategies.

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the OCC Options Disclosure Document.

What Are the Pros & Cons of LEAPS Options?

Like trading other types of options, there are some upsides and downsides to trading and investing with LEAPS options:

What Are the Pros of LEAPS Options?

A big upside to LEAPS is that they have a longer time frame compared to standard options. Thus, they experience less time decay, and theoretically, their values should move more closely with the price movements of the underlying asset.

A less recognized advantage of the longer time frame is that — unlike options that may expire in months, weeks, or even days — the need to constantly oversee the markets and to take advantage of short-term moves is lessened.

LEAPS also tend to cost less than their underlying asset, making them an attractive alternative for some investors.

But perhaps the biggest advantage to LEAPS is they can provide outsized returns, despite the attendant risks, which is what attracts some traders to them in the first place.

What Are the Cons of LEAPS Options?

On the other side of the coin, investors should know that LEAPS can have higher premiums than standard options due to the much higher time value of LEAPS while still remaining cheaper than the underlying asset.

Buying LEAPS, you’ll need to put more money upfront than if you were to purchase shorter term options, risking more of your capital.

LEAPS are also not available for every stock, industry, or index out there (index investing is a separate strategy, but some options are tied to indexes). So, you may not be able to find what you want.

Plus, if you decide to purchase LEAPS options, you could also magnify your losses (just as you can increase your gains), which is something that’s critical to keep in mind. In other words, there are additional risks when investing with LEAPS.

LEAPS Options: Pros and Cons
Pros

 Cons
Potentially magnify investing gains Potentially increase investing losses
Costs less than the underlying asset Higher premiums vs. standard options
Value mirrors underlying asset more closely LEAPS may not be available for all assets

Explaining LEAPS Options Trading

How does LEAPS options trading actually work?

Let’s run through an example, and note that trading LEAPS is the same as trading options, but with longer expiration periods:

If you were of the belief that a certain stock, we’ll call it Stock XYZ, was going to experience a decline in value at some point in the next few years, you could use LEAPS options to position yourself accordingly. Specifically, you’d look at buying a LEAPS put option on XYZ with a long-term expiration date.

XYZ is trading at around $55, but again, you think that it will fall. As such, you pay $7.50 for a $45 put that matures more than a year from now.

If XYZ drops in price, you can expect the put to increase in value and you may sell for a profit as you see fit.

OR

You can wait for the XYZ to drop below $37.50 (your break even point = $45 – $7.50 = $37.50) and exercise your option or sell the option. Based on time to expiration and multiple other factors, you can decide which choice is more profitable.

Recommended: Long-term Investing Strategies

What Are Some Helpful LEAPS Options Strategies?

There are many different strategies for trading options, and many can be applied to trading LEAPS. And since options strategies can quickly get complicated, it may be best to keep it simple.

As such, one basic LEAPS options trading strategy is to buy calls, and try to benefit from a potential increase in value of the underlying asset over the course of a year or two.

LEAPS can almost stand in for the underlying asset itself, and offer a couple of key advantages: They can increase returns by allowing you control over more shares for less capital, and minimizing your potential losses to the cost of the option’s premium.

Active investors can use LEAPS to benefit from short and long-term market activity. If, for instance, you thought that XYZ was going to experience a stock value decline over the next year, but suspect that it may bounce back and increase in value over two or three years’ time.

You could buy a three-year put LEAPS call option, in that case, along with a standard put option. That would allow you to potentially benefit in the short and long-term in regards to Stock X.

Invest in LEAPS Options with SoFi

The chief difference between LEAPS options and other types of options is that they have longer-than-normal expiration periods of one to three years versus less than a year for traditional options.

Other than that, LEAPS are similar to other types of options in that they’re derivative contracts that grant the buyer the right to buy (call options) or sell (put options) an underlying asset at a specific price before its expiration date.

Trading options is complicated, and can be quite risky, there’s no way around it. For some investors, it may be best to stick to the basics — invest for the long term, and build a portfolio with stocks and ETFs. But once your bases are covered, options can be a next step in your investing evolution.

If you’re ready to try your hand at online options trading, SoFi can help. You can trade options from the SoFi mobile app or through the web platform. And if you have any questions, SoFi offers educational resources about options to learn more.

With SoFi, user-friendly options trading is finally here.

Photo credit: iStock/dusanpetkovic

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
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Feb
15
2023
11 Things to Buy With a Credit Card to Build Credit

11 Things to Buy With a Credit Card to Build Credit

By | Credit, credit card, Financial Independence | Comments Off on 11 Things to Buy With a Credit Card to Build Credit

There are many ways that you can build and establish credit. Your credit score is made up of a number of factors, two of which are how much you currently owe and your overall payment history. As such, applying for and responsibly using a credit card can help build your credit, as can paying off your credit card statement on time and in full.

When deciding how much to use your credit card to build credit, it’s a bit of a balancing act. If you simply have a credit card but don’t use it, it may not improve your credit score very much. But if you spend too much on your credit card, you may damage your score. Building your credit comes down to finding the sweet spot between not using your card at all and using it too much.

Recommended: Tips for Using a Credit Card Responsibly

How Making Purchases With Your Credit Card Could Possibly Help Your Credit Score

The amount of credit that you use and your overall payment history are two of the most important factors that determine your credit score. As you start to establish credit, you’ll want to responsibly use your credit card, making sure to keep your spending low in comparison to your overall credit limit. You’ll also want to make at least the minimum payment by the statement due date or, even better, pay off your statement balance in full each month.

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

Minor Purchases to Build Credit

As you work toward building your credit, you’ll likely want to put some of your everyday purchases on your credit card. Just make sure that you set aside enough money to pay off your statement balance when it comes.

Recommended: What is the Average Credit Card Limit?

Groceries

Groceries are one of the biggest monthly expenses for many families and households, so it can make sense to put your grocery purchases on your credit card. Most grocery stores accept credit card payments for no additional charge. Then you can plan to pay off your statement balance by the due date to help build your credit.

Gas

Gas is another large expense for many people. Most gas stations accept credit cards with no additional charges. Plus, paying for gas with a credit card is also usually more convenient. Keep in mind that some gas stations may offer a discount for paying for gas with cash, which can be a good way to save money on gas.

Utilities

Admittedly, utilities can be challenging to pay with a credit card. Some utilities may offer online payments with a credit card without a fee, though others may only allow fee-free payments by cash, check, or ACH. Unless you can find a way to dodge fees, it doesn’t make financial sense to pay a convenience fee just to pay bills with your credit card.

Coffee

If a daily coffee run is part of your regular routine, consider paying for it with your credit card. That way, you can earn credit card rewards and possibly build your credit, too, from a purchase you’d be making anyways. Also check if your coffee shop offers its own rewards program — you’ll want to make sure to sign up for that as well to take advantage of perks and offers.

Streaming Subscriptions

If you have recurring monthly subscriptions to places like Netflix, Hulu, or Disney+, that can be another cost to move over to your credit card. Setting up those recurring streaming subscriptions for autopay can help ensure your service is not interrupted and possibly build up your credit history.

Gym Membership

A gym membership is another potential cost to pay with a credit card in order to build up your credit. You’ll want to make sure that you are getting value from your gym membership, however. If you find that you rarely go to the gym, you might get better value from canceling your membership and saving or investing that money.

Entertainment

If going out to eat or other forms of entertainment are frequent monthly expenses for you, consider covering those with a credit card. Having a variety of expenses on your credit card statement can help you stay organized and more easily track your spending — plus, you could build your credit in the process.

Major Purchases to Build Credit

Besides everyday smaller purchases, it can make sense to use a credit card for major purchases as well. Many credit cards offer price protection or an extended warranty, which can provide additional benefits.

Car

Whether or not you’ll be able to use a credit card to pay for a car purchase will depend on the policies of the place where you’re buying the car. Some dealerships will allow you to cover the full cost of the car with a credit card, while others only allow credit cards for partial payment, such as the down payment.

Just make sure to negotiate a final price before you offer to pay with a card — otherwise, the dealer may try to charge a higher price to make up for credit card processing fees.

Recommended: What is a Charge Card?

Jewelry

Jewelry is another big-ticket item that you might cover with a credit card. Talk with the store where you’re making your purchase to see what options are available. Some jewelry stores might offer a discount for paying with cash, which might sway you in the choice between cash or credit card.

Home Appliances

There are several reasons it can make sense to buy large home appliances with a credit card. Not only could you earn rewards and build your credit, but the credit card you use may also offer credit card protection. This can potentially save you hundreds of dollars or more if you end up having a problem with your appliance down the road.

Taxes

It is possible to pay your taxes with a credit card, though there are very few ways to do it for free. Depending on where you live and the type of taxes you’re trying to pay, you’ll likely pay a convenience fee of 2% to 3%. Still, depending on what kind of rewards your card earns and your overall financial situation, it can make sense to pay taxes with a credit card.

The Takeaway

Just having a credit card may help build credit some, since your total amount of available credit plays a factor in determining your credit score. But if you’re really looking to build credit, you’ll want to use your credit card, and use it responsibly. Put some of your regular purchases and big-ticket items on your credit card, and make sure to have a plan to pay your statement off in full, each and every month.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

What is a credit score?

Your credit score is a number that lenders can use to help determine how likely you are to repay your debts and obligations. The higher the credit score, the better, with the maximum credit score being 850.

What items help you build credit?

There are a variety of factors that make up your credit score, including the age and type of credit accounts you have, how much of your available credit you’re using, and your payment history. Responsibly using your credit card and paying off your balance in full and on time, for example, can help to build credit.

Recommended: When Are Credit Card Payments Due?

What is the fastest way to build up your credit?

There generally are not any magic bullets to build up your credit from scratch fast. That said, one of the best ways to build up your credit is to show a history of reliably paying your bills on-time, each and every month. The longer your track record of using your existing credit responsibly, the better it is for your credit score.

Photo credit: iStock/Tingting Ji

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 .

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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Feb
15
2023
Do Secured Credit Cards Help Build Credit?

Do Secured Credit Cards Help Build Credit?

By | Credit, credit card | Comments Off on Do Secured Credit Cards Help Build Credit?

In many cases, a secured credit card can be a good way to establish and build credit. However, if you’re planning to get a secured credit card to build credit, what’s critical to determine is whether the issuer reports usage to the major credit bureaus.

Many issuers do, but some may not. If your issuer does not report information to the credit bureaus, then a secured credit card won’t help build your credit. But if the issuer does, then that secured credit card could be a good starting point for your credit-building journey.

What Is a Secured Credit Card and How Does It Work?

There are two different kinds of credit cards: secured credit cards and unsecured credit cards. An unsecured credit card is what most people think of when they think of a traditional credit card. In many ways, a secured credit card operates in much the same way, with the bank extending a specific amount of credit that you can use throughout the month and that you won’t have to pay until your statement closes at the end of the month.

However, there is one major difference between a secured credit card and an unsecured credit card. With a secured credit card, you have to put down a security deposit. The amount of this deposit is usually what then serves as your credit limit.

This money that you put down also acts as collateral. If you fail to pay the amount borrowed, the lender can take that deposit to help cover its losses. This added protection for the lender is why a secured credit card is generally easier to qualify for if you have a thin credit history.

If you use your credit card responsibly, you’ll get your deposit back in full when you close your account or get upgraded to an unsecured credit card.

Recommended: What a Credit Card Is

Can You Build Credit with a Secured Credit Card?

It is possible to build credit with a secured credit card — as long as your issuer reports usage and payment activity to the major credit bureaus.

If that information is reported, then you could build credit with a secured credit card, assuming you use your account responsibly. For instance, if you routinely make on-time payments, that could make a positive impact on your score, since payment history is one of the key factors that determines your credit score.

Recommended: Tips for Using a Credit Card Responsibly

Tips for Building Credit with a Secured Credit Card

Here are a few tips for establishing credit by using a secured credit card:

Make Sure Your Issuer Reports to the Credit Bureaus

If the issuer of your secured credit card does not report to the major credit bureaus, it is not likely to have an impact on your credit history or score. When looking at and applying for a secured credit card, make sure that it will report usage and payment history to the credit bureaus.

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

Pay Your Statement Balance On Time and In Full

Your overall payment history is an important factor in determining your credit score. Make sure to pay your secured credit card bill on time, each and every month. You should also not spend more money on your card than you have, so that you can pay your statement balance off in full when it comes due.

Avoid Maxing Out Your Card

Another factor that makes up your credit score is your credit utilization ratio, which is defined as your total balance divided by your total available credit limit. It’s generally recommended to keep this ratio at 30% or lower, if possible. In order to avoid negative effects to your credit score, you’ll want to steer clear of maxing out your card, even if that money is technically available to you.

Recommended: What is the Average Credit Card Limit?

Other Ways You Can Use Credit Cards to Build Credit

Besides using a secured credit card, here are a few other tips for building credit with a credit card:

•   Increase your credit limit when possible. Again, this can lower your credit utilization rate, which is a major factor in determining your score.

•   Set up automatic payments. This way, you never make a late payment. Payment history has the biggest impact on your credit score.

•   Use your credit card regularly. While it might seem safest to keep your credit card tucked away unused, it’s necessary to use it to demonstrate to lenders that you can responsibly repay your debts. Just make sure not to spend more than you can afford to pay off in full.

•   Limit new credit applications. While it might feel tempting to try to get better cards as your credit starts to get established, keep new credit applications to a minimum. Each application results in a hard inquiry, which temporarily lowers your score. Too many applications within a short window of time can also raise a red flag for lenders.

•   Monitor your credit report. Even if everything seems like it’s smooth sailing with your credit, it’s smart to check in regularly. Review your credit report for any errors or any potential signs of fraud.

The Takeaway

If you’re not sure whether you’ll get approved for an unsecured credit card, you might consider a secured credit card instead. With a secured credit card, you put down a refundable security deposit upfront, which serves as your total available credit. Because of this deposit, lenders may be more likely to approve you. If you are approved, using a secured credit card can help you build credit — as long as your issuer reports usage to the major credit bureaus and you use your card responsibly.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

How much will a secured credit card help my credit score?

There isn’t a specific formula to determine how much a secured credit card can help your credit score. Instead, you should focus on making and strengthening good financial habits like living within your means and paying off your credit card in full, each and every month. A secured credit card can be one way to help your credit score in this manner.

What is the best secured credit card to build credit?

The best secured credit card will vary depending on your specific financial situation. You’ll want to look for a secured card that reports to the major credit bureaus, charges low or no fees, and has a low interest rate. There are secured credit cards that offer a limited rewards program as well, which can make for a nice perk in addition to building your credit.

Can you get a secured credit card with a bad credit score?

Yes, it is possible to get a secured credit card with a bad credit score. Because you are putting down the initial security deposit, lenders may consider you as less of a risk than someone applying for an unsecured credit card. Therefore, you may have greater odds of approval when applying for a secured credit card.

Photo credit: iStock/Delmaine Donson

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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Feb
15
2023
What Is an Apprenticeship? Do They Pay? Pros & Cons

What Is an Apprenticeship? Complete Guide to Apprenticeships

By | Building Your Career, Life & Career, personal_loan | Comments Off on What Is an Apprenticeship? Complete Guide to Apprenticeships

An apprenticeship program pairs paid on-the-job training with classroom instruction to produce skilled workers, who get a foot in the door of their preferred field without going to college for four or more years.

Nearly 600,000 apprentices were taking part in 27,300 registered apprenticeship programs in 2022, according to the U.S. Department of Labor’s Office of Apprenticeship.

Here are details about finding an apprenticeship, how much you might earn, the commitment required, and more.

Apprenticeship 101

An apprenticeship is a way to acquire hands-on training, work experience, classroom instruction, and mentorship in a particular trade. Not only is an apprenticeship paid, but it’s also a doorway to a stable and in-demand job.

Most apprentices are promoted or receive a raise during their apprenticeship. The average salary is $77,000, the Department of Labor says.

Apprentices receive a nationally recognized credential in their industry upon completion of the program, and may even earn academic credit toward a college degree. Ninety-three percent who cross the finish line retain employment, according to the Labor Department.

There are several places to look for an apprenticeship. You can use the federal agency’s Apprenticeship
Finder to search by keyword and location, contact your state’s apprenticeship agency, check out trade or labor unions in your area, or use traditional job search engines. If you need more guidance, find an American Job Center near you.

Recommended: Why College Isn’t for Everyone

How Does an Apprenticeship Work?

The majority of apprenticeships are registered either with the Department of Labor or a state apprenticeship agency. Upon entering a program, apprentices receive training under the guidance of an experienced mentor. Many are also required to take academic courses related to that career.

The eligible starting age is 16, but some occupations require apprentices to be at least 18. Some apprentices may also have the option to enter a pre-apprenticeship program, which aims to better prepare workers for the apprenticeship program.

Upon completion of the program, a nationally recognized credential, certificate, or degree is awarded.

How Long Does an Apprenticeship Last?

An apprenticeship program usually lasts four years. Some take as little as one year, and some, as many as six. Whatever the length, apprentices must complete at least 2,000 hours of on-the-job learning plus 144 hours of classroom work.

How Much Do Apprentices Make?

During training, apprentices earn about $17 to $21 per hour, but pay varies by location. Raises are given when new skills are learned.

Do You Have to Pay for an Apprenticeship?

Apprenticeship training is typically offered by the employer at no cost to the apprentice, but apprentices may need to cover certain expenses, such as tools or educational materials.

Employers may pay for the instruction but specify that if an apprentice leaves the program before completion, related costs must be paid back to the employer.

What Types of Careers Offer Apprenticeships?

If construction jobs come to mind when you think of apprenticeships, that’s logical. Many apprenticeships are in the construction trades, but not all are.

Here’s a sample of jobs and the number of active, registered apprentices in 2022.

Occupation

 Active apprentices in 2022

 Median annual wage*
Electrical power line installers and repairers 15,249 $78,310
Heavy truck and tractor-trailer truck drivers 9,944 $48,310
Heating, AC, and refrigeration mechanics and installers 8,535 $48,630
Nursing assistants 4,033 $30,310
Firefighters 2,306 $50,700
Registered nurses 2,281 $77,600
Food service managers 1,820 $59,440
Barbers and hairstylists 1,751 $29,680
Software developers 1,219 $120,730
*2021 Bureau of Labor Statistics wage data for the occupation as a whole

What About College or Trade School?

Alternatives to apprenticeships include attending a four-year college or a trade school. There, you’ll be provided with a broader set of knowledge along with the key skills required for your area of study.

Trade school costs less than college but still can cost thousands of dollars a semester. As an apprentice you can learn to do something you enjoy while getting paid. What’s the catch? Trade school degrees often take about two years to complete. Many apprenticeships last longer, and even getting one can be tough.

Then there’s the traditional college route. But is college worth it?

More than half of college students take out student loans, usually federal student loans but in some cases private student loans. The average borrower leaves school owing nearly $29,000.

Yet the return on investment may appear only after 10 or more years. The ROI for a bachelor’s degree is 38% after 20 years on average, according to the Education Data Initiative.

Major U.S. companies have vowed to change their hiring habits by offering career paths to people without four-year college degrees. Almost two-thirds of U.S. workers do not have a bachelor’s degree, and job screening by college degree hits minorities especially hard. But change has been slow in coming. A bachelor’s degree remains the standard in many cases.

Beyond the cost of college tuition, whether you choose an apprenticeship or a degree, you’ll need to evaluate salary and career potential using either path to find the one that’s right for you.

Student Loans, Grants, and Scholarships

Whether you choose trade school, college, or an apprenticeship with a community college component, you might need financial aid in the form of grants, or scholarships (try this scholarship search tool), federal student loans, federal work-study, or private student loans.

Private student loans can be helpful, but because they lack the benefits and borrower protections available with federal student loans, they are intended to fill in gaps after other funding sources have been spoken for.

Apprentices in a credit-bearing college program who qualify can receive federal Pell Grants.

And yes, it’s possible to take out student loans for community college.

Do hunt for scholarships. Every year sees $2 billion in unclaimed scholarships, meaning merit- and need-based aid was left on the table.

Recommended: Grants and Scholarships by State

Pros and Cons of an Apprenticeship

Here’s a snapshot of the upsides and potential downsides of apprenticeships.

Pros Cons
Apprentices can earn a salary while avoiding big student debt. An apprentice will typically start with a relatively low salary.
Apprentices build new skills through hands-on experience and classroom instruction, and may even earn credit toward a college degree. The competition to get an apprenticeship can be fierce, especially in high-paying fields.
It can open the door to a well-paid career. Many occupations still require at least a bachelor’s degree, particularly in the medical and science fields.

Apprenticeship vs Internship

Both apprenticeships and internships aim to help you gain expertise with hands-on training in a certain industry, but several differences should be noted. Here are some of the most common ones.

•   Duration: Internships typically last only one to three months, while an apprenticeship can last up to six years.

•   Pay: Apprentices receive at least the minimum wage specified by the Fair Labor Standards Act for hours on the job. Wage increases are earned as the apprentice gains and uses skills while working for the employer. Internships are usually unpaid, temporary positions.

•   Structure: Apprenticeships have a structured training plan and prepare an apprentice to fill an occupation within the organization. Internships aren’t always structured and only prepare interns through entry-level work.

•   Mentorship: Apprentices work with an experienced mentor. Internships don’t always include mentorship.

•   Credential: After completing an apprenticeship program, nationally accredited certification is awarded. Interns generally don’t receive any type of credential.

•   Job opportunities: Interns are usually in college and get an opportunity for career exploration and skill development. An apprenticeship provides in-depth training, and apprentices can potentially transition into the same role after completing the program and earn a higher salary.

The Takeaway

An apprenticeship can be an excellent way to gain access to a company or a field you wish to work in without going the traditional college route. They aren’t for everyone, though; nor are they available in every field.

If you decide to pursue a bachelor’s or graduate degree and find that you could use some extra help, a SoFi Private Student Loan could be a lifeline. The loans come with no fees and can cover up to 100% of school-certified costs.

Find the right student loan to get your career on track.

Photo credit: iStock/JohnnyGreig

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