May
03
2023
What Is a FICO Score? FICO Score vs Credit Score

What Is a FICO Score? FICO Score vs Credit Score

By | Credit, credit card | Comments Off on What Is a FICO Score? FICO Score vs Credit Score

When applying for a form of credit such as a personal loan or credit card, applicants likely have their credit score top of mind. As they review their different credit scores, they may wonder: What’s the difference between a FICO score and a credit score?

Put simply, a FICO score is simply a type of credit score that uses the FICO credit scoring model. A credit score is essentially a generic term, whereas a FICO score is a credit score created by a specific brand.

What Is a FICO Score?

A FICO Score is a type of credit score that’s created by the Fair Isaac Corporation (FICO). It’s a very popular form of credit score, and many companies rely on it when determining the creditworthiness of applicants.

Not all lenders use FICO score models though, as some use their own credit scoring models or rely on a score made by one of FICO’s competitors.

Is a FICO Score the Same as a Credit Score?

The main difference between FICO scores and credit scores is that FICO credit scores are only offered by the brand FICO, as this particular score relies on FICO’s specific credit scoring model. A credit score, on the other hand, is a generic term referring to scores created by any model, as all credit scores are backed by a credit scoring model.

Essentially, what many credit scores do is predict how likely someone is to make their debt payments on time. FICO scores specifically predict how likely it is that someone will fall 90 days behind on a payment within the next 24 months. This credit limit is determined based on a complex algorithm that uses information from credit reports made for each consumer by the three major credit bureaus (Equifax, Experian, and TransUnion). FICO occasionally updates how it determines its scores and releases new versions of the FICO Score.

The higher someone’s credit score is — no matter where the credit score comes from — the higher credit limit and the less likely they are to miss a debt payment. The more reliable a borrower appears to be based on their credit score, the better terms a lender is likely to offer them. A lower interest rate, for instance, can lead to savings, as demonstrated by this personal loan calculator.

FICO Score vs Credit Score: Which Is Better?

A FICO score is not inherently better or worse than a credit score. The term credit score applies to the general concept of the score that comes from a credit scoring model. The FICO Score is simply a brand-name version of a credit score.

All lenders get to decide if they want to use their own internal credit scoring models or one from a brand like VantageScore or a FICO credit score. However, none of the different types of credit scores is necessarily better than the other.

FICO vs VantageScore

As briefly noted before, there are other brands that offer other credit scores to lenders. VantageScore is one of FICO’s main competitors. Like a FICO credit score, VantageScore relies on information from the three major credit bureaus’ credit reports to determine scores.

Both FICO Score and VantageScore give higher credit scores to more creditworthy individuals and their credit rating scales range from 300 to 850. Where these two scoring models differ is in how they determine their scores.

With different FICO scores, there are five categories of information that make up the overall credit score, and each category is given a different weight:

•   Payment history: 35%

•   Credit utilization rate: 30%

•   Length of credit history: 15%

•   Mix of your credit accounts: 10%

•   New credit accounts: 10%

VantageScore, on the other hand, uses six different categories, but doesn’t assign specific weights using a percentage. Instead, VantageScore places a different level of influence on each category:

•   Payment history: Extremely influential

•   Credit utilization: Highly influential

•   Length of credit history and mix of credit accounts: Highly influential

•   Amounts owed: Moderately influential

•   Recent credit behavior: Less influential

•   Available credit: Less influential

Why Is a FICO Score Important and What Is It Used for?

FICO credit scores play an important role when it comes to borrowing money. This is because an applicant’s FICO score indicates how likely they are to make their debt payments on time. The more likely someone is to repay their loan, the less of a risk they pose to lenders.

Because of this, a high credit score is helpful if you want to get approved for a personal loan or a credit card, among other types of loans. Lenders use FICO scores and other types of credit scores to determine how much money to lend someone, how long they have to pay their loan back, and how high their interest rate should be.

What Affects Your FICO Score?

A handful of different factors affect a consumer’s FICO score. The most important among those is payment history. Someone who consistently makes on-time payments will have a higher score, which is why prompt payment is critical to accessing top credit cards and leveraging common uses for personal loans down the road.

The next most important factor affecting a FICO score is how much of available credit someone is using. Using up a lot of one’s available credit indicates to top lenders that a borrower is overextended and may not be able to afford new loan payments.

Someone’s length of credit history also plays a role, and having a longer credit history can help give someone’s FICO score a boost. Having a good credit mix made up of different types of credit — like installment loans, retail accounts, auto loans, and mortgage loans — is also taken into consideration, as is how recently someone opened new credit.

How Do I Get a FICO Score?

Getting a FICO score is easy. Consumers typically can access their FICO score through lenders, credit card issuers, credit bureaus, and select financial institutions.

Because the FICO Score is such a popular credit report, some consumers may want to know what their FICO Score is before they apply for a new form of credit, such as a type of personal loan. That way, they can get an idea of whether they may qualify and under what terms.

The Takeaway

The FICO score is simply a type of credit score that utilizes a credit scoring model from the brand FICO. Many lenders choose to use the FICO score when deciding which applicants to lend money to and what terms to offer them — including how much interest to charge them. That being said, some lenders choose to use use industry specific scores, competitor models, or their own internal models to determine who they want to lend money to.

Before applying for a personal loan, it’s important to make sure you know where your credit score stands. For those who aren’t sure what type of interest rates they may qualify for, SoFi is here to help. With SoFi, you can find what interest rates you qualify for within 60 seconds, and with no commitment required. From there, you can complete your application and receive funds as soon as the same day.

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

Photo credit: iStock/Lyndon Stratford

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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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.

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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May
03
2023
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The Risks of Playing the Stock Market

By | Growing Wealth, invest, Investing | Comments Off on The Risks of Playing the Stock Market

Playing the stock market is a common but misleading phrase: The stock market is not a game and it does come with investment risks.

To some degree, those risks can be mitigated by using certain strategies, including using a more long-term, buy-and-hold strategy and embracing diversification, among other things.

And while investing is a serious business, playing the stock market can have an element of fun to it in the sense that investors who do their research — and tune into the news and business cycles — can take advantage of trends that might enable them to earn better returns on investment.

Playing the Stock Market: What Does It Mean?

Despite the phrase “playing” the stock market, it’s important to make the distinction between investing and gambling up front.

While both gambling and investing involve risk, investing actively attempts to manage various forms of risk, rather than relying on blind luck. Second, smart investing involves a strategy, something that a gambler pulling the lever on a slot machine can’t employ.

But because all investing involves an element of risk — there is no 100% safe investment — in a way each investment can feel like a gamble. However, it’s important to keep in mind that the market is not a casino, and just because there’s risk involved doesn’t mean that “playing the market” is the same as playing roulette.

Playing the Market: Risks and Rewards

Learning how to play the stock market — in other words, become a good investor — takes time and patience. It’s good to know the basics of the risks and rewards.

Potential Risks

In a broad sense, the most obvious risk of playing the market is that an investor will lose their investment. But on a more granular level, investors face a number of different types of risks, especially when it comes to stocks. These include market risk, liquidity risk, and business risks, which can manifest in a variety of ways in the real world.

A disappointing earnings report can tank a stock’s value, for instance. Or a national emergency, like a viral pandemic, can affect the market at large, causing an investor’s portfolio to deflate. Investors are also at the mercy of inflation — and stagflation, too.

For some investors, there’s also the risk of playing a bit too safe — that is, they’re not taking enough risk with their investing decisions, and as such, miss out on potential gains.

Potential Rewards

Risks reap rewards, as the old trope goes. And generally speaking, the more risk one assumes, the bigger the potential for rewards — though there is no guarantee because risk always entails the possibility of losses as well. Investors may earn returns in a couple of different ways:

•   By seeing the value of their investment increase. The value of individual stocks rise and fall depending on a multitude of factors, but the market overall tends to rise over time, and has fully recovered from every single downturn it’s ever experienced.

•   By earning dividend income. Dividends from stocks can also be reinvested, in order to further grow your investments.

•   By leaving their money in the market. It’s worth mentioning that the longer an investor keeps their money in the market, the bigger the potential rewards of investing are.

How to Play the Stock Market Wisely

Nobody wants to start investing only to lose money or see their portfolio’s value fall right off the bat. Here are a few tips regarding how to play the stock market, that can help reduce risk:

Invest for the Long-term

The market tends to go up with time, and has recovered from every previous dip and drop. For investors, that means keeping their money in the market for the long haul can be one strategy to mitigate the risks of short-term market drops.

As another common saying has it: “Time in the market beats timing the market.”

Consider: If an investor buys stocks today, and the market falls tomorrow, they risk losing a portion of their investment by selling it at the decreased price. But if the investor commits to a buy-and-hold strategy — they don’t sell the investment in the short-term, and instead wait for its value to recover — they effectively mitigate the risks of short-term market dips.

That said, you can’t rule out the risk of a downturn from which the markets never recover. It’s never happened, but no one has a crystal ball.

Do Your Research

It’s always smart for an investor to do their homework and evaluate a stock before they buy. While a gambler can’t use any data or analysis to predict what a slot machine is going to do on the next pull of the lever, investors can look at a company’s performance and reports to try and get a sense of how strong (or weak) a potential investment could be.

Understanding stock performance can be an intensive process. Some investors can find themselves elbow-deep in technical analysis, poring over charts and graphs to predict a stock’s next moves. But many investors are looking to merely do their due diligence by trying to make sure that a company is profitable, has a plan to remain profitable, and that its shares could increase in value over time.

Diversify

Another risk-mitigation strategy that investors can employ is diversification. Diversification basically means that an investor isn’t putting all of their eggs into one basket.

For example, they might not want their portfolio to comprise only two airline stocks, because if something were to happen that stalls air travel around the world, their portfolio would likely be heavily affected. But if they instead invested in five different stocks across a number of different industries, their portfolio might still take a hit if air travel plummets, but not nearly as severely as if its holdings were concentrated in the travel sector.

Use Dollar-cost Averaging

Dollar-cost averaging can also be a useful strategy. Essentially, it means making a series of small investments over time, rather than one lump-sum investment. Since an investor is now buying at a number of different price points (some may be high, some low), the average purchase price smooths out potential risks from price swings.

Conversely, an investor that buys at a single price-point will have their performance tied to that single price.

The Takeaway

While playing the market may be thrilling — and potentially lucrative — it is risky. But investors who have done their homework and who are entering the market with a sound strategy may be able mitigate those risks to a degree.

By researching stocks ahead of time, and employing risk-reducing strategies like dollar-cost averaging and diversification when building a portfolio, an investor is more likely to be effective at mitigating risk.

Ready to invest in your goals? It’s easy to get started when you open an Active Invest account with SoFi invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here). Members can access complimentary financial advice from a professional.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

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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.
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Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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May
02
2023
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How Often Should You Review Your Personal Finances?

By | Budgeting & Goals, Financial Independence, money | Comments Off on How Often Should You Review Your Personal Finances?

If the money in your bank account always seems to be low, you may need to review your personal finances on a more regular basis.

Keeping a close eye on your spending, saving, and investing can provide a more accurate picture of where your money is going. It could help you understand what you’re doing right and what you might want to change, and keep you on track with short- and long-term financial goals.

That doesn’t mean a full-on personal financial review every day. And some categories (spending vs. saving, for example) might require more attention than others. Here’s a breakdown of how often a review might make sense.

Ways to Review Your Personal Finances

1. Tracking Spending

When the money from your paycheck seems to slip away, it’s often because there’s no household budget in place. That means there’s no priorities set for where the money should go and no guidelines to follow.

Before putting together a budget, it can help to track what you spend money on. That includes everything from rent to groceries to prescriptions and subscriptions. To simplify the process you can use a budget and spending tracker.

Once you see how much you spend and on what, you can use that information to set up a budget. During this time you may want to keep checking your spending daily, or at least weekly, to see if your expectations were realistic and if you’re staying on target.

If you want quick feedback on your spending, you may choose to do frequent spot checks using a mobile app. If you make reconciling bank and credit card statements a monthly routine, you may have a better chance of catching any errors, possible fraud, or forgotten subscriptions.

You also may find that there are accounts you can consolidate — including credit cards and other debts — to manage your money better.

2. Reviewing the Budget

When you’re trying to get your finances under control, you might decide to check your budget every day to be sure you’re following through on the plan or if it needs adjusting. This can also help you avoid budgeting mistakes. But there may come a time when you feel as though you’ve got a solid, doable strategy, and you can cut back on how often you check your stats.

Some people do an annual budget review using information from the past year to adjust for the year ahead. They might also do a quarterly or annual review as part of a larger financial evaluation that includes checking their credit report.

Others are more comfortable with a monthly checkup so they can nimbly make changes as new expenses and life changes come up. Decide what time frame works best for you.

3. Monitoring Savings

It can be tough to stay motivated to reach a savings goal, whether it’s putting aside money for a vacation, building an emergency fund, investing for the future in an IRA, or all of the above.

Just as reviewing your spending regularly may help you stay on track, checking our savings monthly, or even weekly or daily, can reinforce the effort. It can be satisfying and rewarding to watch your bank balance increase. You might also want to look into opening a high-yield online bank account so that your savings can grow and earn even more for you.

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4. Following Investments

How often you check your investments depends on your personal preferences and what you’re comfortable with.

If your money is in an IRA or 401(k), it’s meant for the long haul — a retirement that could be decades away. A monthly, quarterly or twice-a-year check-in could be enough to spot any disturbing trends.

That regular check-in could be a good time to do some rebalancing, either by selling investments or redirecting future investments if necessary to stay on target for your goals.

5. Attending to Taxes

It’s easy to put off thinking about income taxes until it’s time to file, but this is another slice of financial planning that can benefit from a little more evaluation. And if you wait until you’re filling out tax forms, you may miss out on some savings.

Taxpayers usually have until the April 15 filing deadline to make tax-deductible contributions to a traditional IRA or 401(k) for the prior tax year.

But many tax strategies must be implemented by the end of the calendar year to have an impact on federal taxes, so November can be a good time to take a look at charitable contributions, converting money from a traditional IRA to a Roth account, making health savings account contributions, and using the money left in health savings and flexible savings accounts.

6. Evaluating Goals

When it comes to goal setting, it may help to think in terms of big goals and little goals.

Big goals might be things like sending your kids to college, buying a home, or retiring to a beach house. Smaller goals might include paying down credit card debt or taking a special vacation.

Both types of goals may require regular evaluations and financial checkups — to see if you’re on track and determine if it’s still something you want. After all, circumstances and personal priorities can change.

But the check-in schedule might be different for big goals (once or twice a year could be enough) and small goals (monthly, combined with your budget once-over, may be more appropriate).

Life events — a new job or job loss, a baby, a move — also may trigger the need to reevaluate some goals, big and small. And you might want to do a review of all your goals whenever you achieve something on your list. Rejoice and then refocus!

Wrapping It All Up

If you’re doing lots of small check-ins throughout the year, it might not seem necessary to do one big annual personal finance review.

But a yearly evaluation offers the opportunity to pull everything together — all those separate slices — to see what’s working and what isn’t. It also may be a good time to make any necessary updates to insurance policies and other documents and to gather up the paperwork you’ll need to file your taxes.

And if you do your review in November or December, you can make some financial resolutions to keep you motivated through the new year.

You also can examine if the way you’re managing your money suits your needs, or if it’s time to make some changes and perhaps update, consolidate, and automate some facets of your finances, or open new investment or banking accounts.

If you’re considering a high-yield savings account, check out SoFi Checking and Savings. You’ll earn a competitive APY and pay no account fees.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

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As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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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May
02
2023
Different Types of Bank Account Fraud to Look out for

Different Types of Bank Account Fraud to Look Out For

By | money | Comments Off on Different Types of Bank Account Fraud to Look Out For

According to the Federal Trade Commission (FTC), consumers reported losing close to $8.8 billion to fraud in 2022, a 30% jump over the previous year. Many of people’s losses were the result of various types of bank account fraud.

Crooks are getting ever more sophisticated in the ways they steal money from financial institutions or their account holders. There are few things as upsetting as seeing your bank account emptied or your credit card used for thousands of dollars in purchases by a scammer.

So if you have a financial life, you’ll want to be on alert and do what you can to protect yourself and your hard-earned money. Here, we’ll help you by sharing:

•   What bank fraud is

•   Types of bank fraud

•   How banks respond to fraud

•   Penalties for bank fraud

•   How to avoid bank fraud

What Is Bank Fraud?

Bank fraud is the use of deceptive, often illegal means to steal money, assets, or other property owned or held by a financial institution. It also entails stealing money from people just like you, who keep money on deposit or use other financial products at banks.

Bank fraud also includes being defrauded of money by criminals who pose as employees of a financial institution.

Bank fraud is different from bank robbery; with fraud, thieves use schemes or deception to snag funds illegally, versus perpetrating outright theft.

Types of Bank Fraud

Unfortunately, bank fraud comes in many varieties, all the better to fool financial institutions and consumers. The law provides a broad definition of bank fraud, and several of these actions can be considered for federal prosecution.

Let’s take a look at the six most common types of fraud in banks. Money scams are all too common today; knowledge can help protect you and your funds.

1. Forgery

Forgery includes all forms of using a false signature or other details on financial documents. This includes when a person changes the name, signature, or other information on a check, including the amount (think adding a zero — or two or three). Forgery is also the term used for filling out a blank check or printing fraudulent checks with another person’s account number or a number for a non-existent account.

2. Fraudulent Loans

It is a crime when someone uses a false identity to obtain a loan. This can happen when, say, identity thieves take out loans using victims’ personal and financial information. Another type of fraudulent loan: When a person takes out a loan with the intention of filing for bankruptcy soon thereafter. This can happen when a dishonest business person works with a complicit bank officer to get a loan. The borrower then declares bankruptcy, often leaving the bank on the hook for the money borrowed.

Fraudulent loans also occur when someone falsifies answers on a personal or business loan application, usually in an effort to improve their chances of qualifying for the loan. An individual may try to hide a blemished credit history, for example, or a business may use accounting fraud to paint a more positive financial picture. As you might guess, this is criminal activity and can leave the lending bank in a bad situation.

3. Bank Impersonation and Internet Bank Fraud

When a person or group of people set up a fake financial institution, that’s known as bank impersonation. When such thieves hack into your account and steal money, whether by impersonation or otherwise, that’s internet bank fraud. Typically, this kind of crime is usually committed by creating a website designed to lure people into depositing funds.

Fake websites like this can also trick you into downloading computer viruses that can steal your personal information. These details are then used to rob you of your hard-earned money

Many phishing schemes also come under the umbrella of bank impersonation or internet bank fraud. In these crimes, consumers receive forged emails impersonating an online bank; they then direct the unwitting recipient to a forged website that looks like a legitimate bank site. From there, the bogus site will ask the user to update personal information. That information can be used for identity theft and other crimes.

4. Stolen Checks

Stealing checks is a crime that plays out just as it sounds. Someone at, say, the post office, a company’s payroll department, or anybody else with access to checks may steal those checks. From there, they can open a false bank account, write checks (depleting the account holder’s cash), and deposit them. The cash is then available for them to use as they desire.

5. Money Laundering

This term is used to describe the process criminals use to hide an illegal (or “dirty”) source of income — say from illegal drug smuggling or gambling operations — through a complex series of transfers. These transactions are designed to make the “dirty” money look legitimate, or “clean,” hence the term money laundering. A bit of trivia: Many people believe the term money laundering comes from gangster Al Capone’s habit of using his chain of laundromats to “launder” his illegal cash. This tale however probably isn’t true.

Now, here’s how the crime of money laundering can work: Often the “dirty” money is first deposited into a bank through a restaurant or other legitimate business. Let’s say that business actually did $1,000 worth of sales in a single day but they say they did $2,000. They then deposit the “real” $1,000 they earned plus the same amount of “dirty” money.

Next, to avoid taxes and detection, the money is distributed to other legitimate businesses or complicit companies, or is otherwise subjected to bookkeeping trickery. Multiple transactions can make the money hard to trace, and so it becomes “clean” enough to be used as the fraudster likes.

Banks may unwittingly or possibly complicitly play a role in many stages of money laundering, which is a severe form of fraud.

6. Credit Card Fraud

This term covers a slew of crimes; it refers to all fraudulent payments made with a credit or debit card. The bogus payments may be used to purchase goods and services, to withdraw funds from the account, or to make payments to another account controlled by a criminal. Fraud may happen by stealing the actual credit or debit card or by illegally obtaining the cardholder’s account and personal information.

The latter has become more common as online shopping and bill paying has soared, since there is no longer a need to have a physical card to make purchases. This is why you can still be in possession of your plastic, but be having all sorts of false charges turn up on your statement. As long as criminals can obtain enough personal information about an individual, they can use that information to open new credit card accounts or tamper with existing accounts.

Fortunately, thanks to the Fair Credit Billing Act, your liability should be capped at $50.

How Do Banks Recover Money That Was Fraudulently Taken?

When bank security personnel notice unusual transactions or a customer reports suspicious account activity, banks will typically conduct an investigation. Their goal: To confirm whether fraud exists and, if so, to uncover its details and take legal action against the perpetrators. Once a bank has determined fraud has taken place, most banks will refund stolen funds to customers. This happens as long as it is clear the customer is not an accessory to the crime or was not negligent with account security. In addition, you may want to report the crime to the authorities so they can work on finding and prosecuting those who stole your money. Some banks may require this, in fact, as a step towards catching the criminals.

What to do if you, the consumer, is defrauded of funds? Contact your financial institution’s fraud department and share what has happened. The representative will walk you through the steps required. Remember, the more quickly you alert your bank to any issues or report identity theft, the more likely you are not to lose any money.

Prosecuting fraud is complicated, time-consuming, and unfortunately sometimes impossible. As a result, many banks put extensive efforts into technological security solutions. These card fraud protection measures can help identify fraud quickly to avoid large losses as well as ward off many types of criminal activity in the first place.

Penalties for Bank Fraud

Bank fraud is a serious crime with serious penalties. How serious depends on how much money was stolen and what type of illegal activity was used to steal the money. It must also be proven that a person charged with bank fraud willfully and knowingly committed the crime. A money laundering conviction could result in:

•   A fine of up to $500,000 or twice the value of the property involved in the transaction, whichever amount is greater.

•   A sentence of up to 20 years in prison.

When bank fraud of other sorts is involved, the penalties can be worse still, according to the FDIC :

•   A fine up to one million dollars

•   A prison sentence of as long as 30 years

How to Avoid Bank Fraud

There are several steps you can take to avoid having money stolen from your accounts in a bank fraud scheme. Here are some of the most important.

•   Check your account activity regularly. With online banking, this is easy to do. It’s a good idea to log in at least once a week so you evaluate your bank accounts and your debit card and credit card histories. Report any unexpected or suspicious transactions. While you’re at it, why not make sure your bank offers debit card fraud protection, too? It’s important to secure that aspect of your banking.

•   Keep your PIN and passwords secret. Do not give them to anyone and never write them down in an email or text message that could be easily intercepted. Avoid using public wifi networks for any banking, from checking your balance to paying bills. You could be leaving yourself vulnerable.

•   Use a strong password for online banking. And everything else for that matter. Remember to use numbers, capital letters and symbols. Change passwords regularly, and please: Don’t reuse passwords.

•   Beware phishing schemes. Do not give out your account information over the phone or through email. Anyone legitimate would not be asking for account information by either means. Don’t click links embedded in emails either; they could lead to a fraudulent website posing as your bank. If you receive an email that looks as if it is legitimately from your bank, it’s still better to visit your bank’s website and proceed from any message you receive there.

•   Keep your computer protected. Use anti-virus protection software, firewalls, and spyware blockers to protect your electronic information. Make sure you keep your computer updated with the most recent security upgrades.

The Takeaway

Bank fraud is a criminal activity that can leave you with a big mess to clean up: It can put you at risk for losing money and facing identity theft. Understanding the different types of bank fraud is one important step; knowing how to secure your personal financial information is another one. These moves can help protect you from being a victim.

When you open a bank account with SoFi, we work overtime to protect your money. Sign up for our Checking and Savings account with direct deposit, and you’ll earn a competitive APY. What’s more, you won’t pay any of the usual charges like account, monthly, and minimum balance fees.

Bank better and smarter with SoFi.

FAQ

How does bank fraud happen?

Bank fraud happens when criminals use deceptive means to steal money, assets, or property owned or held by a financial institution, including banks. It is also considered bank fraud when thieves steal money from customer accounts by posing as a bank or other financial institution or by using personal financial information obtained through identity theft.

How do banks recover money from a scammer?

It is challenging for banks to recover money from a scammer. They can seek to unravel who committed the crime and, with the help of law enforcement, prosecute those individuals. Because this is often so difficult, though, banks also are implementing new, technologically advanced ways of preventing and detecting fraud. This allows them to better protect their account holders.

Photo credit: iStock/Damir Khabirov

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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.

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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.

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

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

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May
01
2023

Can You Buy a Second Home Without a Down Payment?

By | Financial Independence, Home Ownership, mortgage | Comments Off on Can You Buy a Second Home Without a Down Payment?

While it is possible to buy a second home without a down payment, the scenarios where you can do so are quite rare.

Traditional zero-down payment programs may not be available to you because you’re no longer a first-time homebuyer. Lenders are also hesitant to offer second home mortgages with low down payments. The down payment requirements for a second home are usually 10% or more.

But you may be in luck: Sometimes you can figure out how to buy a second home with no down payment. Read on to learn:

•   What does buying a second home involve?

•   What are the usual down payment requirements for a second home?

•   How can you buy a second home with no down payment?

Note: SoFi mortgage loans requires a down payment.

What to Know About Buying a Second Home

Buying a second home comes with a different set of guidelines and rules than purchasing your first home. You’re no longer considered a first-time homebuyer, which disqualifies you from many down payment assistance programs. However, your situation will be treated differently depending on how you want to use the property. Consider the following possibilities:

Moving into the Second Home

If your plan is to keep your first home as a rental property and move into the second home, you may have some options. A low interest mortgage loan may be available in one of two ways.

Note: SoFi does not offer USDA loans at this time. However, SoFi does offer FHA, VA, and conventional loan options.

•   USDA loans in approved areas have zero down payment options. You’re allowed to get a second home with a zero-down USDA loan if you meet certain requirements involving citizenship, income, and other factors. You must live in the property as your principal residence, and you cannot have a USDA loan on your first property. In addition, you must financially qualify for both homes. To count rental income for the first home, USDA requires 24 months of rental income history.

Other qualifiers for this kind of loan include:

•   The current home no longer meets your needs for certain reasons (for example, if your family is growing and you live in a two-bedroom home, you’re relocating for a new job, or you’re getting divorced).

•   You don’t have another way to obtain the property without the USDA loan.

•   You can only keep one other house besides the new second home.

If, say, you’re moving from to a new region for a job opportunity and USDA loans are available in the area you’re moving to, it’s possible to keep your first home and buy a second if you meet the above conditions.

Worth noting: An obstacle for borrowers can be that lenders need a way to verify rental income. A signed lease and bank statements may not be enough. Your lender may want to see the rental income reported on your taxes for two years to count.

•   VA Loans may also offer zero down payment options. Available to veterans, service members, and surviving spouses, these government-backed loans can only be used to purchase property that will be a primary residence. So, if you’re moving from one place to another and qualify, you can use a VA loan to purchase the next property with no money down.

Buying the Second Home as a Vacation Home or Rental

Is there a way to buy a second home with no down payment if you plan to use it as a vacation home or rental? Options are few and far between if you’re not planning to use the property as your principal residence. When you’re looking at non-owner-occupied financing, lenders usually want a bigger down payment, not a smaller one.

That said, here are a couple of options that could answer the question of how to buy a second home with no down payment:

•   Private loans: If you finance through a relative or other private source, it’s possible to obtain a no-money-down mortgage. Terms are agreed upon by both parties.

•   Seller financing: Much like a private loan, the conditions of seller financing (aka owner financing) a loan are whatever the two parties agree on. If the seller is willing to let you buy the property with no money down, you might be able to make this work. However, seller financing usually comes with a bigger down payment, not a smaller one.

Do You Need a Down Payment on a Second Home?

Down payment requirements for a second home are usually higher. Lenders also look for a higher credit score. The loftier down payment requirement and credit score reflect the fact that the lender is taking on elevated risk since borrowers are more likely to default on a second home than a first home. A lender may expect your down payment to be right around the average down payment on a house, which is currently 13%.

Yet, your mortgage lender is also looking for a loan that accommodates your unique situation to help you to buy a second home. Though no down payment options are rare, your lender may have access to financial products that allow for a smaller down payment.

Can You Buy Another Home When You Have a Current Mortgage?

If you financially qualify, buying another house when you have a mortgage is possible. Generally speaking, lenders look for a strong credit history and enough income to cover your debts (including the cost of the new mortgage) to determine if you qualify for an additional mortgage.

Recommended: What Is a Second Mortgage?

Using Home Equity as a Down Payment Source

If you don’t have enough cash for a down payment on a second home, you may be able to tap your home equity. A home equity loan or a home equity line of credit (HELOC) can help you access money to use for a down payment on a second home.

Though not all lenders will permit this, using home equity may be possible if you want to keep your first home and have no other way of obtaining enough money for a down payment on your second.

It may be advisable to get a home equity loan or HELOC while you are still living in your first house. This allows you to qualify for owner-occupant rates, which are typically much lower than non-owner-occupied rates.

Recommended: HELOC vs. Home Equity Loan: How They Compare

The Takeaway

While there aren’t many options for financing a second home with no down payment, you may be in luck. There are some no down payment loans available to qualified buyers, and these loans can help you preserve cash for renovations, improvements, and other expenses. Even if you can’t find a no down payment mortgage for a second home, you will likely have a number of financing options you can tap into that may allow you to snag another property.

When you’re thinking about home financing options, whether for a mortgage or a HELOC, you’ll want a flexible, helpful partner to help you through the process. SoFi can do just that. In addition to mortgage loans, we offer a home equity line of credit that can help you tap into your home’s value and use the funds for a variety of purposes. You can access up to 95% of your home’s equity up to $500,000, enjoy low interest rates, and have a dedicated SoFi Mortgage Loan Officer to guide you.

Unlock your home’s value with a home equity loan brokered by SoFi today.

FAQ

What is the minimum down payment for a second home?

For a second that is not going to be your primary residence, most lenders look for at least a 10% down payment.

How do I buy a second home without 20% down?

With a higher credit score and other financial qualifications, you may be able to find a lender or a program with a required down payment less than 20%.

Can I buy another house if I already have a mortgage?

If you’re a qualified buyer with good debt and income levels with a strong credit history, a lender may be able to approve you for a second mortgage.

Can I use my equity to buy another house?

It may be possible to use home equity to buy another home. Contact a lender to go over your unique situation.

Photo credit: iStock/Nuttawan Jayawan

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

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

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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