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These days, there’s no shortage of people spouting financial advice. The problem is, not all of it is good. Following unsound financial advice, without doing your due diligence, can lead to poor decisions and serious financial mistakes.

When it comes to money guidance, it’s important to realize most people aren’t experts and learn to decipher the difference between solid and terrible advice. By doing so, you can prevent a future financial fiasco.

Money Advice That May Be Bad (for Your Situation)

Financial advice isn’t one-size-fits-all. Some people may think they know what’s best for you, but chances are, their pointers don’t pertain to your personal circumstances.

When they offer advice, what they suggest may have worked great for them but won’t for you. Staying savvy whenever you get unsolicited counsel is key to protecting your financial health.

Here’s 11 examples of money tips you should take with a grain of salt at and quite possibly avoid at all costs.

1. Renting is A Waste of Time

While it may be the American dream to own a home for many people, not everyone can or even wants to take on the expense and burden that comes with it. When you own a home, you’re in charge of paying for property taxes, homeowners insurance, maintenance costs, and more. All of these expenses can add up to cost more than monthly rent.

Owning also means if anything breaks or gets damaged, paying for home repairs will come out of your pocket. When something goes wrong with a rental, it’s your landlord’s responsibility. Renters also typically have lower utility bill payments because things like heat, water, and electricity are often included in your rent. Depending on where you live, you may also have access to amenities such as a gym, pool, or parking garage.

Renting could, in fact, help you have more money in your bank account and use that to, say, pay down student loans or credit card debt.

2. Follow Your Passions

Although it sounds nice, following your passions professionally rarely pays the bills. And it can also put you into a very competitive and crowded field, if your passion is one of the common ones; say, acting, singing, cooking, or creating art.

Passion might fuel you for a while, but unless you’re lucky enough to turn it into a profitable full-time career, you’re probably juggling a day job, various side hustles, or living with roommates. There’s nothing wrong with having a passion, but if it’s not your main source of income, it might be more sensible to switch to a plan B. Then you can focus on your strengths, build on your skills, and maximize your potential. Doing so raises the likelihood, you’ll be better able to financially support yourself.

3. Your Credit Score Does Not Matter

This bit of advice should sound the alarm bells. A subpar credit score can hold you back from achieving important goals and even gaining employment. Having positive credit helps lenders to recognize your creditworthiness and overall trustworthiness.

Your three-digit score impacts whether you’ll get approved for credit cards, mortgages, and other types of loans. A high credit score also can help you snag the best terms and interest rate for a loan once you are approved. Landlords, insurance companies, and employers may also do a credit check when you’re applying for an apartment, car insurance, and even a job.

4. You Cannot Be Financially Successful with a 9-5 Job

There’s a lot of advice out there to say avoid being “chained to a desk” and pursue more entrepreneurial ways to be successful. People can certainly achieve financial success without a 9-to-5, but the majority of individuals need a steady paycheck, medical coverage, and paid sick days.

Working 9-to-5 also offers you the chance to build a nest egg if your job offers a 401(k) plan. If there’s a company match offered by your employer, that’s akin to free money and well worth nabbing, too.

5. Never Use a Credit Card

Be wary of someone who tells you to avoid getting or using a credit card. Their bad advice may stem from their own experience as an irresponsible card holder. Despite the warnings and horror stories you hear, credit cards don’t always lead to trouble or financial ruin.

Rather, credit cards can offer you one of the best ways to establish credit and show you’re fiscally responsible, especially if you pay your balance in full every month. Having credit cards help in times of an emergency and when your cash reserves are low. Other benefits include valuable perks that card companies offer such as points, cash-back rewards, and airline miles.

6. You Don’t Have to Worry About Retirement Until Later

When you’re in your 20s or 30s, retirement may seem too far off to make it a priority. Friends, family, and acquaintances may tell you to enjoy your youth and not to worry about your old age until later.

However, the sooner you start to save, the more money you’ll have later on thanks to compounding interest, which builds earnings on your investment and on that investment’s interest. Putting off saving until midlife can put you behind the eightball, causing you stress and anxiety as you try to make up for lost time. Start early by taking advantage of your employer-sponsored 401(k) or contributing to a Roth IRA. Imagine how much better off you’ll be if you’re 65 with 40 years of savings versus only 15 or 20 years.

Recommended: 10 Personal Finance Basics

7. The Best Way to Save Is Through a Savings Account

Back in the day, putting money in a savings account was often considered the gold standard for safely socking away your money. Talk to an older relative and you’ll hear about how 40 years ago or so, they managed to live off their savings account interest, when rates around 10% weren’t uncommon.

Today, on the other hand, you might get 3.00% APY or more back on your savings, if you get the top interest rate (typically found at online banks vs. traditional banks). While a savings account is a solid place to put your money for near-term goals (like an emergency fund), it can be wise to look further afield as well. You might want to meet with a financial advisor to discuss your long-term goals and hear what options might help you achieve them. You might consider, say, how investing might help you build wealth or ways to pump up a child’s college fund more quickly.

If you’re not sure where to start, talk to a certified financial planner or financial advisor who can help set you up with an investment portfolio. Financial advisors and planners do charge for their services, so shop around. If you’re concerned about the cost of a financial advisor, you might want to try getting investment recommendations from a less costly automated robo advisor.

Recommended: Robo Advisor vs. Financial Advisor: Which Should You Choose?

8. YOLO (You Only Live Once)

YOLO, or “you only live once,” can be the rallying cry to spend freely; say, to lease a pricey convertible or take that trip to Cancun. While it’s true you only have one life to live, engaging in irresponsible, unmoderated spending can lead to consequences down the road.

Going overboard with the YOLO mantra now can catch up with you when you’re older, leaving you without any financial cash cushion or safety net or perhaps saddled with high-interest debt. It’s not a pretty picture.

Bottom line: Your YOLO-inspired shortsightedness and poor money management habits could leave you wishing you’d reined in spending and had focused on managing your money better.

Recommended: Tips for Creating a Financial Plan

9. College Is a Waste of Time

Gaining knowledge and education is currency, literally. Research has found having a college degree significantly increases a person’s job prospects and earning potential. For instance, a landmark Georgetown University study found that bachelor’s degree holders earn a median of $2.8 million during their career, 75% more than if they had only a high school diploma. Workers with more education may also benefit from greater economic stability throughout their careers.

College not only gives you the knowledge you need for a chosen profession, but it can also help develop important soft skills (character traits and interpersonal attributes) as well. For example, communication, teamwork, problem solving, and decision making are all soft skills that college students develop and employers pay close attention to when hiring.

10. You Only Have to Pay the Minimum Every Month

Some of the worst financial advice you can get is to only make minimum credit card payments. It’s better to pay your balance off in full when the statement comes. Why? Otherwise, you’ll end up paying interest that will keep your bill increasing and making it all the harder to whittle down your debt.

Credit card interest rates are notoriously high (currently, typically over 20%), and paying only the minimum can keep you in debt for years. There are helpful credit card payoff calculators online that can help you find the best schedule to get rid of your debt.

11. File for Bankruptcy

It may be tempting to follow the “Why not just file for bankruptcy?” suggestion if your financial problems seem insurmountable. Some people will tell you bankruptcy is the best way to get out of financial difficulty and make a fresh start.

Although the starting over idea may have some appeal, declaring bankruptcy involves many drawbacks. For example, filing for bankruptcy results in long-term damage to your credit, which will stay on your report for seven to 10 years, becomes part of the public domain, and makes it much harder to qualify for a mortgage, among other loans. Bankruptcy also doesn’t cover certain debts, such as student loans, child support, or government-owed taxes. So declaring bankruptcy may relieve some but not all financial hardship.

Before seriously contemplating bankruptcy, try seeking other alternatives including consulting a credit counseling agency, consolidating your debt, and negotiating with creditors. These steps can help address the issues you’re having without taking that more drastic step that should be considered a last resort.

Recommended: Understanding Bankruptcy: Is it Ever the Right Option?

How Bad Advice Leads to Bad Decision-Making

Taking someone’s money advice as gospel without careful thought and research is one reason why people may make poor financial decisions. Emotions are another. Debt can bring on feelings of helplessness, low self-esteem, and loss of hope. It’s also linked to depression and anxiety. When these emotions overwhelm you, you might feel desperate enough to follow bad financial advice, just to know you are doing something.

Tips for Avoiding Bad Advice

There are ways you can protect yourself from the traps of bad financial advice. Consider these suggestions:

•   Carefully assess whether the advice someone gives you makes sense for your lifestyle and money goals. If you have any doubts about what they’re touting, trust your gut and don’t follow it.

•   Educate yourself on the basics of personal finance by listening to podcasts or reading books written by credible money experts. You can also find accurate information and finance articles online on sites such as consumerfinance.gov .

•   Avoid taking money advice from random people on social media. Many of the social influencers who tell you how to get rich aren’t always legitimate and often make claims that are too good to be true.

•   When in doubt, seek out a qualified professional. Make sure you’re seeing a certified financial advisor or certified financial planner. Although they’re not licensed to give you the same type of financial advice that a planner or advisor does, a financial coach can help you understand the fundamentals of finance, attain goals, and develop better money management skills.

The Takeaway

There’s no shortage of bad financial advice out there, and some of it might even sound good. It can encourage reckless financial behavior, whether that means overspending on YOLO moments or not worrying about saving for retirement until it’s too late. It’s wise to remember that solid money advice will come from trusted sources and be tailored to your specific situation, needs, and goals. Do due diligence before letting someone else’s advice sway your money management plans. You could dodge some serious financial risks.

One bit of financial advice that most experts will agree on is that earning high interest on your money and paying low fees is a win-win combination.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible 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

How do I know if my financial advisor is bad?

A good financial advisor takes into account your individual circumstances and doesn’t offer non-personalized, cookie-cutter advice. First and foremost, a good advisor should spend time getting to know you, your needs, and your goals. Signs of a bad financial advisor include pressuring you to make decisions; not letting you know how they’re paid; not being able to explain things in a way you can understand; encouraging you to put all your money into one investment, and not returning your calls or emails.

Who should I listen to for financial advice?

As mentioned above, a certified financial professional can be a good bet, but there are other places to go for financial information. Bank or credit union officers, your employer’s human resources department, and credit counseling agencies may be able to answer questions or make referrals. There are also government websites.

Can I sue my financial advisor if they give bad advice?

Yes. If you’ve lost money because your advisor misled you, gave you bad counsel, mismanaged your investments, or took other unlawful or unethical actions, you can sue for damages. Keep in mind though that it’s not a slam dunk. The merits of your case need to be strong and your claims provable. An experienced investment fraud attorney can help to recoup your losses.

Photo credit: iStock/MicroStockHub

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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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 the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, 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 the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit 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, Wise, 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 Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

This article is not intended to be legal advice. Please consult an attorney for advice.

SOBNK-Q324-048

Not counting the reams of time you probably will spend looking for a house, both virtually and IRL, it takes and average of 30 to 60 days to get from an accepted offer on a house to the closing if you’re financing the purchase.

Here’s the scoop on how long it takes to buy a house and get the keys in your hand.

How Long Does It Take to Buy a House In 2024?

Once you’ve homed in on a home you love, the mortgage process — from application to closing — takes an average of 30 to 60 days.

So yes, a life-changing event can happen within a month or two.

But closing times vary. A cash buyer might be able to close on a house within days. An applicant with an iffy credit history and unpredictable income may need 90 days or longer.

Before You Start Looking for Your Next Home

It’s a good idea to get your head in the game before the hunt begins.

Organize Your Finances

If you’re asking yourself “How much of a mortgage can I afford?” you can get an estimate easily.

A home affordability calculator will give you a feel for a home price limit and monthly payments. Getting prequalified will also give you a quick ballpark estimate.

Pulling a down payment together to buy a house in many parts of the country isn’t as hard as many people think. The average down payment on a house is less than 20% (though putting less than 20% down on a conventional loan usually triggers mortgage insurance).

Conventional loans may call for just 3% down for first-time homebuyers; FHA loans, as little as 3.5% down; and VA and USDA loans, nothing down. (With government loans, mortgage insurance or fees come along for the ride.)

Low- and moderate-income borrowers can sometimes get down payment assistance through a state or local agency.

Figure Out Where You Want to Live

You might know exactly what neighborhood, school zone, and vibe you want. Then your search can zero in on that area.

But looking at the cost of living by state can be eye-opening.

And narrowing things down, you might want to check out market trends by city and neighborhood.

Determine Your Must-Haves

Do you want to buy a house that has been completely updated, or will a dowdy abode or fixer-upper do? The cost of any renovations or repairs must be factored in, of course, and may be funded with a home improvement loan.

If only new construction will do, that can mean a tract home, spec home, or custom home.

What size range can you live with? Maybe you need more space, or maybe you’re financially downsizing.

Is a low-maintenance condo or townhouse more your style, or do you need a single-family home with room for a swimming pool or garden?

Five Steps to Buy a House

Ready? This timeline assumes you’re about to start seriously shopping for a house.

Step 1: Get Mortgage Preapproval (Minutes to Days)

Unlike prequalification, mortgage preapproval means one or more lenders have vetted your finances, usually with a hard credit inquiry. Once your offer on a home is accepted, if your chosen lender is one of these, it has a big head start on your final approval.

An online application might take about 20 minutes to complete if you have all of the documentation in hand, including two years of W-2s and/or 1099s, two years of tax returns, recent pay stubs, a list of fixed debts, and two months’ worth of account statements.

Lenders will look at your credit scores and credit history.

They will look at income, debts (including student loans), assets, proof of employment, rental history, divorce, bankruptcy, and gift funds for a down payment.

Depending on the lender, preapproval could be nearly instantaneous or it could take days.

If you’re shopping for a mortgage, know that multiple credit inquiries by lenders are counted as a single inquiry for 14 days and sometimes more, so try to put in your preapproval requests with various lenders within the same week.

What Is a Pre-approval Letter?

A preapproval letter from a lender states that you’ve been tentatively approved to borrow up to a specific amount. It lets sellers know that you are likely to be able to get financing. The letter will have an expiration date of 30 to 90 days.

What Is a Verified Approval Letter?

This is the term used by some lenders for a preapproval letter, to make clear the difference between prequalification and preapproval. A hard credit inquiry will have been performed, and an underwriter will have examined your preapproval application and additional documents.

Step 2: Make an Offer on a House (a Day to a Few Days)

Once you find a house you want to call your own, it might take up to five days to make an offer and come to an agreement with the seller on price and contingencies in the purchase contract. A closing date will be in the purchase agreement.

Usually when you make an offer, you will provide an earnest money deposit to the escrow company, ​​typically 1% to 2% of the purchase price.

Step 3: Secure the Mortgage (30 to 60 Days on Average)

Now you can make a full mortgage application with as many lenders as you wish, and not just lenders that preapproved you.

It’s smart to look at more than rates — one of the different types of mortgage loans might be a better fit than the others.

You’ll need to choose a mortgage term as well. Thirty years is the most common.

Once you apply, you will receive official loan estimates, allowing you to compare mortgage APRs (annual percentage rates) and more. Choose a lender. Check at the top of Page 1 of the loan estimate to see whether your rate is locked, and until when.

Step 4: Prepare for Closing

Appraisal and Title Search

Your lender will order an appraisal of the home. A property valuation that comes back lower than the purchase price could hinder loan approval.

The appraisal may be performed from 14 to 45 days before closing.

A title search of the property also will be ordered, resulting in a preliminary title report.

Underwriting

This is mostly a waiting period for the buyer. Credit reports are ordered, and the application information is verified.

Mortgage underwriting focuses on the three C’s:

•   Capacity (will your income and debt load allow you to make the mortgage payments each month?)

•   Credit

•   Collateral (did the appraisal show that the home price and value are aligned?)

Your mortgage loan officer may come back to you with questions. Once you receive final loan approval, a mortgage contingency can be lifted.

Home Inspection

A home inspection is optional but widely recommended.

Closing Disclosure and Cash to Close

Your lender is required to send you a closing disclosure at least three business days before the closing. It should match your loan estimate or come close.

You’ll need to send a wire transfer for cash to close one to two business days before closing. The closing disclosure will tell you how much money you need to wire. If you don’t wire the money, you’ll need to prepare to take a certified check or cashier’s check to the closing table.

Cash to close is closing costs (unless you chose a no-closing-cost mortgage) plus your down payment minus your earnest money deposit and any seller credits.

An option: Prepare to take a certified check or cashier’s check to the closing table.

Final Walk-Through

Your real estate agent will schedule a final walk-through within 24 hours of closing. This is a chance to be sure the home is in the condition you agreed to under the purchase terms.

Step 5: Close on Your Loan (an Hour or Two)

The lender will send your closing documents to the closing attorney or title company.

You’ll sign a river of documents in person or remotely.

The deed will be recorded with the appropriate county to transfer title to the new owner, you. Then you’ll receive the house keys.

The Takeaway

How long does it take to buy a house? An uncomplicated mortgage and closing process could take about 30 to 60 days from the time your offer is accepted. That’s a quick close on a new beginning.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How many months does it take to buy a house?

If you are financing your purchase with a home loan, and you have a steady income and good credit, you could get from an accepted offer to the closing table in one to two months. If you have a complex financial profile, or if negotiations with the seller become complicated, expect to add time to the process.

How long does it take to get preapproved for a mortgage?

The evaluation process for a mortgage preapproval can take around 10 days. If your financial picture is clearly documented and in good shape, it could take less time. You’ll need to fill out an application with your chosen lender and agree to a credit check, plus provide information about your income and assets.

How fast can you buy a house?

A cash buyer could purchase a home in a matter of days. If you require a home loan, expect the homebuying process to take one to two months from the point that you have an accepted offer.

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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.

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SOHL-Q324-033

If you’re new to credit or want to rebuild your credit, becoming an authorized user on another person’s credit card account can help. As an authorized user on a credit card, your credit score can be positively impacted when the account and its activity are managed well and reported to the credit bureaus. The card’s activity is still also reported under the primary account holder’s credit profile, in addition to yours.

Being an authorized user does have its share of responsibilities. You’ll want to make sure to maintain responsible credit card habits as an authorized user to help your credit, as well as to avoid adversely impacting the primary account holder’s credit.

What It Means to Be an Authorized User

When you’re an authorized user, you have a credit card that’s attached to another person’s account. This duplicate credit card, also known as a supplementary credit card, will have your name on it, and you’ll be able to use it to make purchases. Since you’re not the primary account holder, you won’t have the authority to make changes to the account.

As an authorized user, you’re not legally responsible for making a payment after each billing cycle. That responsibility remains solely with the original cardholder, which marks a major distinction between an authorized user relationship and a joint credit card account. Since you’re not liable for repaying the charges as an authorized user, you might not get a monthly statement.

In terms of getting started as an authorized user, be aware that some issuers impose an annual fee to add authorized users to a card account. Additionally, some credit cards have limits for the maximum number of authorized users permitted on an account.

Further, card issuers often have a minimum age requirement that you must meet as an authorized user. The age requirement depends on the issuer. For example, SoFi requires authorized users to be at least 15 years old, while the minimum authorized user age for an American Express Platinum Card is 13 years old.

Recommended: What Is the Average Credit Card Limit?

How Being an Authorized User Affects Your Credit Score

There are a couple of ways that being an authorized user on a credit card can affect your credit score.

If the Lender Reports Authorized Users to Credit Bureaus

If your main goal in becoming an authorized user is establishing credit or rebuilding your credit history, this can be a viable option to pursue. Card issuers don’t require a credit check to become an authorized user.

Your credit score can be positively affected if the issuer reports satisfactory payment activity and usage to the credit bureaus for all persons named on the account. Keep in mind that not all credit card companies send activity data to the bureaus for authorized users, though. So before going this route, ask the primary user to confirm whether the issuer does.

How You Use the Shared Account

If the bank reports the card’s positive activity to credit bureaus for all users, it will also report unsatisfactory activity. Being an authorized user can hurt your credit if a late or missed payment is reported and included on an authorized user’s credit profile, for example. On the flipside, on-time payments or a low credit utilization rate can help the credit of both the primary and authorized users.

Since the card data that’s included for an authorized user depends on the credit bureau, ask the credit issuer to specify which credit agency it reports to. That way, you’re aware of the factors that affect credit scores.

Risks Associated With Being an Authorized User

A major risk of becoming an authorized user on a credit card is that it can adversely affect your credit score. If the primary user fails to make at least the minimum monthly payment on time, for instance, that will also impact your score, assuming the bureau reports payment history for authorized users.

Additionally, the purchase behavior of all users on a card could put a strain on the account’s limit, pushing balances near or at the borrowing limit. This will affect the credit utilization on the account, which also can impact the credit score of all users on the account.

With so many factors that need to be in balance, each user associated with the card must have a clear understanding of purchase and repayment expectations. If an individual drops the ball, it can put a strain on the relationship in addition to the users’ credit scores.

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

Who Should You Ask to Add You as an Authorized User?

Asking another person to add you as an authorized user on their credit card is significant. It requires the utmost mutual trust, which is why this individual is typically someone who’s very close to you. This might include your:

•   Spouse or partner

•   Parent

•   Grandparent

•   Adult child

•   Adult sibling

•   Aunt or uncle

It’s helpful to clarify expectations around payment before being added as an authorized user. For example, do they want to cap your spending power on the card? When do they want payment for your charges? What’s the expectation if, for any unforeseen reason, you can’t cover your part of the bill?

Even though the primary cardholder is liable for the payments, it’s helpful to come to an agreement about how you two will settle your purchases, one-on-one.

Using Your Credit Card Responsibly

Receiving authorized user status on a credit card is a convenient way to build your credit profile. It also can help you practice responsible borrowing habits. A few sensible practices when using a credit card as an authorized user include to:

•   Avoid overspending. Examine your budget before using your card to verify that you can afford the purchase.

•   Ensure payments are made on time. Communicate with the primary cardholder to confirm that at least the minimum payment is made by the credit card due date. If you’re covering your portion of the charges, make sure to get the money to the primary cardholder by the date you agreed upon.

•   Be mindful of the card’s limit. Avoid keeping an ongoing high balance close to the credit card limit, which can negatively affect credit. Authorized users might not have access to the account history or statements, so regular communication with the primary user is essential.

Recommended: Tips for Using a Credit Card Responsibly

The Takeaway

As an authorized user, your credit score could be built from the positive borrowing activity on the card, assuming the the issuer reports the account activity to the credit bureaus. Additionally, the card must be managed responsibly — otherwise, your credit could be negatively impacted. Getting added to a card that doesn’t charge an authorized user fee can be a good way to get started.

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

FAQ

Can authorized users affect your credit?

If an authorized user racks up charges, it might adversely affect your credit utilization ratio, which in turn can lower your credit score.

Additionally, you’re legally liable for all charges the authorized user makes on the card. If they’re unable to pay and you also can’t keep up with the payments, missed or late payments can negatively impact your credit.

Does an authorized user get a hard inquiry?

Typically, authorized users who are added onto an existing account don’t undergo a hard inquiry. Since the primary cardholder is the person who opened the account and is still 100% liable for all charges made to the card, credit issuers usually don’t need to verify the authorized user’s credit background or ability to repay the debt — even if they make charges.

What is the minimum age to be an authorized user?

The minimum age for authorized users on a credit card will vary with the card’s issuer. In some cases, the user must be aged 13, 15, or 18. In other situations, there may be no age restriction at all. Check with the issuer to know for sure.

Photo credit: iStock/tolgart

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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Lowering your debt to improve your credit score means that you are considered less of a risk to a lender. And with a higher credit score, you will qualify for better financing terms. However, in some cases, paying off a car loan or other type of financing can have the opposite effect and actually lower your credit score. 

Here’s a look at why your score could suffer if you pay off a loan. We also look at how you can avoid a drop in your credit score when your financial situation changes.

Why Did My Credit Score Fall After Paying Off My Car?

A credit score drop could be a direct result of paying off a car loan — or a completely unrelated reason. For example, if you apply for a loan or new credit card, the lender may do a “hard pull” to check your credit score. Too many credit checks within a short period could cause a temporary drop in your credit score, even if you don’t sign for the loan.

If you pay off a car loan, the loan will remain on your credit report for up to 10 years. As long as you always make your payments on time, the loan will continue to have a positive effect on your credit history. Newer accounts, however, have more of an impact on your credit score. So, if you close an old account that you dutifully paid off, your current credit standing could worsen because your regular payments to that old account are no longer taken into consideration.

In addition, when you pay off a car loan, your credit mix changes because you now have one less account in your name. This change can lead to a drop in your credit score.

Let’s take a closer look at factors that affect a credit score and how paying off a car loan can impact them.

Credit Score Contributing Factors

Auto loan lenders typically look at your FICO™ Score or your VantageScore. We’ll focus on the FICO Score because it’s probably the most popular. Four main factors make up your FICO credit score with varying weights. Here’s a look at each of them.

Payment History

Your payment history makes up 35% of your FICO Score, and it is a measure of how likely you are to pay back your debts. The score looks at whether you pay your credit card bills, your mortgage, and any installment loans on time. A few late payments on credit cards or a mortgage won’t ruin your score, but any bankruptcies or collections may. If you need help spotting upcoming bills and managing payments, tools like a money tracker app can help.

Credit Utilization

Your credit utilization rate makes up 30% of your FICO Score. This is the amount of revolving credit versus the total amount of credit available to you. The lower your utilization percentage, the better your credit score because it shows you are not maxing out your credit — so you’re better able to pay back a lender.

Your total available revolving credit includes the amount you can spend on credit cards and lines of credit like home equity lines of credit (HELOCs). Your credit utilization rate is based on the numbers on your credit report, and this data may lag behind your current limits and balances by a month or more. 

A car loan has no impact on your credit utilization rate. However, it can affect your total debt and your debt-to-income ratio.

Length of Your Credit History

The length of your credit history accounts for 15% of your FICO Score. A longer credit history will have a positive effect on your FICO Score. Your credit history takes into account how long your credit accounts have been open, including the age of your oldest account, the age of your newest account, and the average age of all your accounts. So when you close an older credit card account, you may see a drop in your score — regardless of whether you’ve paid off your car loan.

Credit Mix

Your credit mix is the type of credit you have — for example, credit cards, mortgage, HELOCs, installment loans, student loans, and car loans. Your credit mix accounts for 10% of your FICO Score. If you are successfully managing a variety of financing types, it will be reflected in your FICO Score. After you pay off a car loan, your credit mix decreases, and your credit score may dip as a result.

New Credit Card Applications

When you apply for a new credit card, the provider will do a hard inquiry on your credit score that could cause it to dip slightly. A new account will reduce the average age of your accounts, which could also lower your score.

On the other hand, a new credit card account will increase the amount of credit available to you, which might lower your credit utilization rate. It might also diversify your credit mix, and if you make payments on time, it could build a stronger payments history.

Recommended: 8 Reasons Why Good Credit Is So Important

How to Pay Off Debt and Help Your Credit Score

Paying off debt should boost your credit score, but in some cases, it can damage it. For example, if you pay off debt and close credit card accounts, you may not be able to demonstrate to the credit bureaus that you make regular payments and practice responsible fiscal management.

Here are some ways to pay off debt that are unlikely to lower your credit score.

•   Pay due amounts on time. Your payment history is the most important component of your credit score. You can improve it by paying off your credit card balances in full each month and also paying your mortgage on time.

•   Pay off high-interest debt. High-interest credit cards can trap you in a spiral of debt if you don’t pay off the balance each month. Pay off these cards first so you reduce the likelihood that you will fall behind on payments and rack up interest charges. This will benefit your credit score because lenders will consider you less of a risk.

•   Pay off debt with cards with low credit limits. If you are maxing out the credit limit on a card with a low credit limit, your credit utilization rate may be high because you have more debt than you have accessible credit. That makes you a high risk to a lender and will reduce your credit score.

Try to keep your credit utilization rate below 30%, and ideally around 10%. By paying off credit card debt with a low credit limit, you reduce your debt load but maintain access to the credit, improving your credit utilization rate.

•   Pay off your student loans (maybe). Paying off your student loans may or may not be beneficial. It will reduce your debt-to-income ratio; however, regular student loan payments contribute to a healthy payment history. Also, student loans add diversity to your debt mix, so paying off this type of installment loan might negatively impact your credit score.

•   Pay any past-due bills. Paying off old debts that are late shows lenders that you pay what you owe. Pay the most recent bills first.

How Do I Keep My Credit Score From Dropping?

Practicing good fiscal management will help keep your credit score from dropping. Keep in mind that closing old credit card accounts and paying off some debts may backfire. Maintain a credit utilization rate that’s below 30%, and most importantly, pay your bills on time.

How Long Does It Take for Your Credit Score to Improve After Paying Off Debt?

Paying off debt may not necessarily improve your credit score, and your score may show a decrease initially. However, in most cases, your score should reflect a better credit utilization ratio in one or two months. 

Keep in mind that a car loan has no impact on your credit utilization score.

Recommended: How Often Does Your Credit Score Update?

Ways to Increase Your Credit Score After Paying Off a Loan

If your credit score dropped when you paid off a car loan or other loan, do some research to find out why. Then, there are various things you can do to remedy the situation and build back credit.

•   Avoid late payments. Setting up automatic payments and using a spending app can help you to avoid missed payments.

•   Check your credit utilization rate. Check that by paying off a debt and closing an account, you have not raised your credit utilization rate to over 30%. Aim to spend no more than 10% of your total available credit.

•   Avoid closing out older credit accounts. Keep older credit accounts open, even if you never use them. This will lengthen your credit history.

•   Limit new credit inquiries. Be careful when shopping for new credit cards or loans. Hard inquiries by lenders within a short period (around 14 days) will lower your credit score. Try to find lenders that will prequalify you for financing without a hard inquiry.

•   Improve your credit mix. Try to use both credit cards and installment loans responsibly by making regular, timely payments.

However, remember that a variety of loan types will only have a small impact on your credit score. It’s not advisable to take on extra debt just to fulfill the need for a diverse credit mix.

How to Monitor Your Credit Score

When it comes to credit score monitoring, you have plenty of options.

Federal law allows you to view a free copy of your credit report from each of the three national credit bureaus (Experian, TransUnion, and Equifax) at AnnualCreditReport.com.

You can also use a credit score service. Some sites provide a free credit score to users. Others may provide credit scores if you pay a monthly subscription fee.

Some credit card companies, banks, and lenders have started to provide credit scores for their customers. Check your statement, or you may be able to access it online after logging into your account.

If you find information you believe is inaccurate or incomplete on your credit reports, you can also file a dispute with the credit bureau that provided the report.

The Takeaway

Paying off a loan, such an auto loan, can have an unexpected negative effect on your credit score. This may be because of a decrease in your credit mix, a change in the length of your credit history, or another factor that contributes to your credit score.

It’s important to monitor your credit report and your credit score and understand why any changes occur. That way, if your credit score drops, you can take steps to remedy the situation, such as paying off the balance on credit cards, improving your credit mix, and watching that your credit utilization rate stays below 30%.

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.

See exactly how your money comes and goes at a glance.

FAQ

Why did my credit score go down after paying off my car?

If you pay off a car loan, the loan will remain on your credit report for up to 10 years, and as long as you always make your payments on time, the loan will continue to have a positive effect on your credit history. If you remove that loan, your current credit standing could worsen because you have less of a credit history. 

 How long does it take for your credit score to go up after paying off my car?

In most cases, your score should go up in one or two months if other factors do not come into play, such as a limited payment history or closing an unrelated credit account.

Why is my credit score going down even though I pay on time?

A change in your credit history could cause your credit score to drop. For example, if you apply for new loans or credit cards within a short timeframe, the hard checks conducted by lenders may cause a temporary drop in your score even if you don’t sign for the loans. Also, if you close out old credit cards, you could be shortening your credit history, which will lower your credit score.

Photo credit: iStock/milan2099

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 .

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

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

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There are several explanations for why your credit score might fluctuate by a few points now and then. But if you’ve noticed that your score is down by as many as 20 points, and you can’t think of any reason for this dramatic drop, it’s a good idea to do some checking ASAP. This can help you determine what affected your score and what you should do about it.

Read on for some common reasons why your credit score could unexpectedly drop by 20 points, and how you can improve and protect your score going forward.

Why Did Your Credit Score Drop 20 Points?

The fact that you even noticed that your credit score took a dip is proof that you’re paying attention to your finances, so give yourself a high five for that. If there’s a problem — a credit reporting error, for example, or possibly identity theft — you’ve got a head start on getting it fixed. And if it’s something you did without knowing it could impact your score (at least not by this much) you can resolve to do better in the future.

Even if you’re doing everything right — including paying bills on time, keeping low credit card balances, and using credit score monitoring to track how you’re doing — you can’t always know from month to month what will happen to your credit score. That’s because credit scoring systems like FICO® Score and VantageScore® use information from a credit report to assess your creditworthiness and assign it a number from 300 (the lowest score) to 850 (the highest).

If the information in your credit reports is up to date and correct, your credit score will reflect that. But it’s up to each individual lender to decide when or even if it will report information to the three major credit reporting agencies: Equifax, Experian, and Transunion. And sometimes the reports can be incomplete or incorrect. If that’s happened to you, your score may drop, or it may not be as high as you think it should be.

What Factors Impact a Credit Score?

FICO® and VantageScore® use different formulas to calculate credit scores, but the same basic factors from your credit report can move your score up or down. And some things can have a bigger influence on your score than others.

Here’s how FICO® breaks down what affects your credit score:

•   Payment history (35%): Your record of paying your bills late or on time can have the biggest impact on your FICO® Score. A spending app can help you keep tabs on upcoming bills. 

•   Amounts owed (30%):  Even if you’re managing it well, carrying a lot of debt could affect your score. This category applies to the amount you owe overall, but it puts a priority on your credit utilization. Lenders generally like to see a credit utilization rate of 30% or lower.

•   Length of credit history (15%): This category looks at the age of your oldest account, the age of your newest account, and the average age of all your accounts together.

•   Credit mix (10%): Lenders also may want to see that you, as a borrower, can handle different types of financing, including credit cards, installment loans, retail accounts, and mortgage loans. So FICO® includes this in its credit scoring formula.

•   New credit (10%): When you apply for some type of financing, whether it’s a new credit card or a new car, the lender may make what’s known as a hard credit inquiry, which could cause a dip in your score. The drop is typically small and temporary, but you might notice a bigger change if you make several credit applications at around the same time.

Should You Be Worried About Your Credit Score Dropping?

It’s normal to feel frustrated and concerned if your credit score drops suddenly, especially if you don’t understand what happened. But the good news is, it can be pretty easy to find out what’s up. If your financial institution, credit card company, or your favorite money tracker app offers you a way to get your credit score regularly, you may have access to a brief summary that explains what caused that number to go up or down. This can be a good place to start looking for clues as to why your score dropped by 20 points.

It’s also useful to know how to read a credit report so you can get the information you need to catch errors or spot identity theft. This can help you get to the bottom of what’s affecting your score and take steps to get that number back in line with what you think it should be. You have the right to request a free copy of your credit report from each of the credit bureaus once a year by visiting AnnualCreditReport.com.

Reasons Your Credit Score Might Go Down

It could be that something you did (or didn’t do) caused your score to drop, and you might not even know it. Maybe you closed an old account that you didn’t use anymore, or maybe you applied for a loan or new credit card. It’s also possible that you have an old unpaid balance hanging out there that you thought was cleared up but isn’t.

Examples of Credit Score Dropping

A combination of several factors could explain why your credit score seems to have suddenly and randomly dropped by 20 points. Here are some examples of why a credit score can go down:

You’re Using a Large Percentage of Your Available Credit

Are you close to maxing out all the credit you have available to you? Did you recently make a large purchase with your credit card that pushed you close to your credit limit? Even if you’re paying your bills on time, if your credit utilization rate is higher than 30%, it could explain a reduction in your credit score.

You Closed an Old Credit Card Account

It may seem counterintuitive (and super frustrating) that canceling a credit card  can have a negative effect on your credit. But there are a couple of reasons why closing a credit card account can lower your credit score. 

First, when you cancel a card, you reduce your available credit, which can cause a jump in your credit utilization rate. Second, closing an older account can affect the length of your credit history, which is another factor that goes into determining your credit score. It may make sense to close the account anyway if the card has high fees or if it’s hard to resist overspending. But if you do cancel a card, especially one you’ve had for a while, you can expect to see a temporary drop in your credit score.

You Made a Late Payment

Maybe you simply forgot to pay a credit card bill. Or maybe you failed to make a payment in a month when money was tight and figured you’d play catch-up with a bigger payment the next time. Either way, if the credit card company reported your late payment to a credit reporting agency, it could be the reason your credit score dropped. Remember: Payment history is the biggest factor in calculating your credit score.

You Made the Final Payment on an Installment Loan

When it comes to determining your credit score, your “credit mix” isn’t as big of a factor as your payment history or the amount of available credit you have. But if you recently paid off a car loan, personal loan, or some other type of installment loan — and your credit mix is now limited to just credit card debt — it could have an affect on your score. 

That doesn’t mean you shouldn’t celebrate your accomplishment or that you should run out and apply for another loan. But it could help explain why your credit score is lower than you think it should be.

What Can You Do If Your Credit Score Dropped by 20 Points?

There are a few steps you may want to consider taking right away if you notice a big drop in your credit score.

Review Your Credit Reports

If you find an error on your credit report, such as a payment incorrectly reported as late, the Consumer Financial Protection Bureau (CFPB) recommends filing a formal dispute, in writing, with both the credit reporting company and the entity that provided the information (such as a credit card company). By law, the credit reporting company must investigate your dispute and notify you of its findings.

If you notice signs that you may be the victim of identity theft (such as unknown accounts or unfamiliar debt), you may choose to alert the credit bureaus. You can also report identity theft on the Federal Trade Commission’s site, IdentityTheft.gov.

Prioritize Timely Payments

The biggest factor in determining your credit score is your payment history, so keeping track of your bills is important. If payment deadlines tend to get away from you, you may want to set up online bill pay to reduce your bill-paying burden. Or you can put payment due dates on a physical or digital calendar, then set up alerts on your phone so you know it’s time to pay. 

When you pay a bill, be sure to note the details, such as the date, amount, and confirmation number if paid online.

If You Can, Delay Applying for New Credit

You may want to wait until your credit score comes back up a bit before applying for a new credit card or loan. If you want to get the best interest rate or you’re worried about getting approved, you’ll want your credit to be shipshape. It also can be a good idea to avoid authorizing several companies to do a hard credit pull if you’re shopping for a mortgage, car loan, or credit card.

How Can You Build or Repair Your Credit?

If you’ve been working to improve your creditworthiness, even a small dip in your credit score can be disappointing. But you don’t have to let a negative fluctuation deter you from your goal.

How can you continue to build your credit? Besides paying your bills on time, managing your credit utilization, and having a good credit mix, you also can help lenders see that you’re a good risk by paying down high-interest debt — and keeping it paid off.

How Can You Monitor Your Credit Score?

There are several ways you can check your credit score without paying. Many credit card companies and financial institutions offer free credit reporting and scoring as a benefit to cardholders. (You may have to opt-in to begin receiving this service). If your personal information was compromised in a data breach, you may be offered free credit monitoring for a specific period of time. You also can pay for a credit monitoring service to get regular updates.

Allow Some Time Before Checking Your Credit Score?

Though credit score updates can occur at any time, checking about once a month should provide a good gauge of how you’re doing. (You can check your own credit score any time you like without any negative impact.) 

If you get a free credit score from your bank or credit card, you’ll probably receive a new score monthly. With a credit monitoring service, on the other hand, you may receive an alert any time there’s a significant change in your score or some type of suspicious activity.

Pros and Cons of Tracking Your Credit Score

Tracking your credit score can help you protect your credit and may provide added incentive to keep working on your financial health. Here are some pros and cons to consider:

Recommended: Why Did My Credit Score Drop After Dispute?

The Takeaway

A 20-point drop in your credit score can be worrisome. But there are several steps you can take to determine what caused such a significant change and then try to fix it.

It also can be helpful to be proactive instead of reactive when it comes to your credit score. By paying attention to the factors that can have the biggest impact on your credit, such as your payment history and credit utilization, you can keep working to build and protect your credit.

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.

See exactly how your money comes and goes at a glance.

FAQ

Why did my credit score drop 20 points randomly?

It may seem as though your credit score dropped randomly, but there’s usually something behind a dip of 20 points or more — and it’s worth looking into. It could be a late payment, an error on your credit report, a sign of identity theft, or some other reason.

Why did my credit score drop and I don’t know why?

A change in your credit score reflects a change in a credit report. It may be that you made a late payment and you didn’t think your credit card company would report it. Or maybe you made a major purchase that changed your credit utilization rate. If you’re concerned, you may want to check your records against your most recent credit reports.

Is it normal for a credit score to drop 25 points?

A credit score can drop for many reasons. Though a 25-point dip is something you’ll probably want to check into (if you can’t figure out why it happened), there are steps you can take to dispute information in your credit report and repair your credit score.

Photo credit: iStock/milan2099

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 .

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

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

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