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Canceling a credit card might seem like a good idea if you’re trying to get debt under control or you want to consolidate your cards. But closing a credit account may do more harm than good and damage your credit standing. Before you take action, here’s what you need to know — and other strategies you may want to consider instead.

Understanding the Impact of Credit Utilization Ratio

In order to understand why canceling a credit card can hurt your credit score, you need to know about something called the credit utilization ratio. This is the ratio of your total credit to your total debt.

Another way to think of it is how much of your available credit you’re using. For instance, if you have two credit cards with a total line of credit of $20,000 and you use $5,000 of that, you have a credit card utilization ratio of 25%. In addition to credit cards, your credit utilization ratio can include things like loans, such as a mortgage, car loan, and personal loan.

Your credit utilization ratio directly affects your credit score. In fact, it accounts for 30% of your FICO score. Your credit utilization ratio is the second-most important factor in your credit score (payment history is number one). Ideally, lenders like to see a person’s credit utilization ratio below 30%.

When you cancel a credit card, you reduce your available credit. This can cause your credit utilization ratio to jump up — especially if you owe money on other credit cards — and can negatively impact your credit score.

Reasons to Cancel a Credit Card

There are several factors that may be motivating you to want to cancel a credit card, including:

•   Too much debt. Perhaps having the card on hand is causing you to overspend and take on even more debt. If canceling the card will help you manage your finances better and get your debt under control, it can be a good option.

•   A high annual fee. If the card’s fee is high and you aren’t taking advantage of any of the perks like travel rewards to offset it, you may want to find a card that’s a better fit.

•   Too many cards. If multiple credit cards are causing you to stress out and miss payments, fewer cards might help lighten the load. (A budget planner app can help you spot upcoming bills and manage bill paying.)

How to Cancel a Credit Card

If, after considering the pros and cons, you’ve decided to go ahead and cancel the credit card, here’s how to do it:

1.    Pay off the remaining balance on the card, or transfer the balance to another credit card.

2.    Contact the credit card company, preferably by phone. Some credit card companies allow customers to cancel online, but most will require a call. Keep in mind the company wants to hold onto customers, which could mean that they will try to entice you with offers or deals. You have the right to cancel at any time.

3.    Consider sending written confirmation to make things official. Send a letter to the credit card company informing them that you have canceled the same credit card account. Post it via certified mail to ensure the company receives the letter with confirmed receipt.

4.    Cut up the card. Shredding or destroying the card helps prevent fraud.

5.    Look at credit reports for changes to your credit score. The canceled account should be reflected in your credit score within several weeks. AnnualCreditReport.com offers a free copy of your credit report once a year.

Keep in mind that you can also track your credit score with a money tracker app. It helps you stay up to date with any changes that affect your score, allows you to connect all your bank accounts, and lets you monitor your spending habits and savings all in one place.

Can Closing a Credit Card Impact Your Credit History?

Closing a credit card can affect the length of your credit history. That’s important because credit history is one of the factors used to help determine your credit score. In general, creditors want to know that you’ve had credit accounts over a period of time, so the longer the relationship, the better.

Recommended: 10 Credit Card Rules You Should Know

How to Downgrade Your Credit Card

If you’re considering canceling your credit card because of high fees or a high interest rate, you might want to downgrade the card instead. By downgrading, you can swap your current credit card for one with a lower fee or lower interest rate.

Downgrading can provide some of the benefits of canceling the card without the negative impact of closing the account.

If downgrading sounds like a good option for you, these strategies can help:

•   Research the credit card issuer. Do they have cards with a low or no annual fee? It may be worth switching to credit card issuers with one of those.

•   Call the credit card company and ask for a downgrade. They may offer to waive the annual fees on your existing card. Or they may downgrade you to a low-interest card with no annual fee.

•   Ask about a partial refund. Some credit card companies will provide a partial refund on the annual fee, depending on when you downgrade. Ask the customer service representative if they can prorate the annual fee or provide any refund.

How to Keep Your Credit Utilization Rate Low

Whether you downgrade a credit card or not, it’s important to improve your credit utilization rate since it counts for 30% of your FICO score. Here’s how to keep yours low.

•   Make more than one credit card payment a month. Making more than two automatic bill payments or one payment per billing cycle can benefit your credit score. That’s because credit card companies report balances towards the end of the billing cycle. Making several payments can reduce your credit utilization ratio when your balance is reported.

•   Keep credit accounts open, if possible. Keeping a card open, even if you rarely use it, increases your credit limit and helps lower your credit utilization rate.

•   Ask for an increase in credit limit. If you have a record of on-time payments, your credit card company may be willing to increase the credit limit for your account. And the more available credit you have, the better your ratio. Call customer service to make the request.

The Takeaway

Canceling a credit card can negatively impact your credit score, so make sure to consider all your options carefully. You can keep the credit account open, which can help with your credit history, and rarely use the card. Or you can downgrade to a card with a lower interest rate and no annual fee. In the end, the decision is yours, but it’s good to know you have choices.

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

FAQ

How do I close a credit card without affecting my credit score?

Closing a credit card is likely to have a negative impact on your credit score. Downgrading to a card with a lower interest rate and no annual fee may be a better option.

Is it better to cancel unused credit cards or keep them?

If the credit card has a low interest rate and no annual fee, it can be better for your credit score and your credit history to keep the card.

Does canceling a credit card hurt your credit?

Canceling a credit card can hurt your credit score. However, practicing other good credit habits, like paying your bills on time, can help you gradually get back in good standing.

Photo credit: iStock/Doucefleur

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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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

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.

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 .

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.

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.

SORL-Q224-1921170-V1

Considering a job in the Great Lakes State? A typical worker in Michigan earns around $58,000 a year, according to a 2024 Forbes analysis of data from the Bureau of Labor Statistics (BLS). In comparison, the average annual salary nationwide is slightly higher, at $59,428.

Of course, the amount you bring home will depend on a number of factors, including the type of job you have, where you live, and your age. Let’s take a closer look.

Average Salary in Michigan by Age in 2023

When it comes to earning potential, your age — and by extension, experience level — play a role. As the Census Bureau’s American Community Survey shows, workers aged 45 to 64 have the highest median household income ($82,652), followed by those aged 25 to 44 ($75,984). The median income for those 65 and older is around $51,010. At $40,683, people under the age of 25 have the lowest median household income, which is perhaps indicative of the entry-level salaries this age group often earns.

No matter where you are in your professional journey, it helps to have a firm grasp of your finances. A money tracker can give you insights into your spending habits and help you make progress toward short- and long-term financial goals.

Recommended: U.S. Average Income by Age

Average Salary in Michigan by City in 2023

Where you live can also impact how much you earn. As the chart below shows, workers in some Michigan cities may be making out better than others. In Sterling Heights, for instance, the average wage is 28.0% higher than the state average.

But well-paying jobs can be found in smaller cities, too. Career opportunities are expanding in South Lyon, for example, and with it, wages: The average salary is $65,369 a year. Tools like a budget planner app can help you make the most of whatever your take-home pay is.

Median Salary in Michigan by County

Salaries don’t just vary by city. They can also differ from county to county. According to Census Bureau data, median family incomes in Michigan’s southern and southeastern counties — as well as those near large cities like Detroit — tend to be higher than in other parts of the state.

Here’s a look at the median household incomes of the ten most-populous counties in Michigan.

Recommended: Average Pay in the United States

Examples of the Highest Paying Jobs in Michigan

Michigan has long burnished its reputation as a center for auto manufacturing, but it’s also cementing its status as a hub for tech and healthcare. Not surprisingly, some of the highest-paying jobs in the state can be found in the engineering, management, technology, and healthcare sectors.

As the list below shows, some of the top-paying positions require specialized training or advanced degrees, while others may be a good job for introverts.

The Takeaway

The typical worker in Michigan may not be drawing a six-figure salary, but their take-home pay of $58,000 is near the national average. Plus, the cost of living in the Great Lakes State — think transportation, utilities, groceries, and housing — is lower than the national average. Keep in mind that as with other states, your take-home pay in Michigan will vary depending on a number of factors, including where you live, the type of work you do, and where you are in your career.

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

FAQ

What is a good average salary in Michigan?

A “good” average salary is one that can cover basic living expenses with enough left over for savings and some fun. For a single adult in Michigan, a salary of more than $54,000 a year may qualify as “good.”

What is the average gross salary in Michigan?

The average salary in Michigan in 2024 is $58,000.

What is the average income per person in Michigan?

The average income per person in MIchigan is $27.88 per hour, or $58,000 per year, according to a 2024 Forbes analysis of data from the Bureau of Labor Statistics (BLS).

What is a livable wage in Michigan?

According to MIT’s Living Wage Calculator, a livable wage for a single adult in Michigan is $42,182. But if you live in a household with multiple people, you’ll likely need more money. For instance, if you and your significant other both work and have two children, you could make ends meet on $53,622 a year.

Photo credit: iStock/PeopleImages

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.

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.

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.

SORL-Q224-1842154-V1

If you’re single and you only have to worry about taking care of yourself financially, you may be able to live pretty comfortably on a salary of $65,000.

According to the Bureau of Labor Statistics (BLS), the median salary nationwide was $59,228 in the first quarter of 2024. This means at $65,000 per year, you’re earning more than the typical worker. But if the cost of living is higher where you live or if you’re carrying a lot of debt, stretching your paycheck from month to month could be a challenge.

Read on to learn how a $65,000 salary stacks up depending on location and other factors.

Is $65K a Good Salary?

If you’re single and child-free, you may be able to get by fairly well on a $65,000 income. But the amount you pay — all on your own — for housing, utility bills, groceries, and other basic costs could be a major factor in how well you’re able to manage. Tools like a money tracker can help you monitor your spending and spot upcoming bills.

Of course, day-to-day expenses can vary widely depending on where you live. To get an idea of where you stand, and if $65,000 a year is a good salary for you, it can help to look at the cost of living and the average salary in the U.S. and the state where you live.

Median Salary by State

A $65,000 annual salary is above average in most of the U.S., but wages differ significantly from state to state. Here’s a summary of the median household income in each state, based on the most recent data available from the U.S. Census Bureau.

Recommended: Highest Paying Jobs by State

Average Cost of Living in the US by State

If you live in one of the more expensive states in the U.S., you already know how the high cost of housing, utilities, and other basics can affect your budget. Here’s a breakdown of where each state ranks when it comes to the cost of living, according to 2023 data from the Missouri Economic Research and Information Center (MERIC).

How to Budget for a $65,000 Salary

Even if you’re earning a six-figure salary, creating a realistic budget can help you stay on course when it comes to managing your money.

One popular budgeting method that can give you an idea of how to divide up your wages every month is the 50/30/20 rule, which allocates after-tax income to three basic categories:

•   50% to “needs.” This includes essentials like housing, utilities, food, transportation, insurance payments, and debt payments.

•   30% to “wants,” which encompasses everything from dining out to vacations to shopping.

•   20% to savings for future goals. This category can include things like extra payments to help pay off loans sooner, saving for a down payment on a home, an IRA or other retirement contributions, or an emergency fund.

Using this method, a $65,000 salary, which comes to about $54,800 a year after federal taxes, or $4,567 each month, might look like this:

•   $2,283 each month to needs

•   $1,370 each month to wants

•   $914 each month to savings and/or paying down debt

While this approach leaves room for a little fun, it may not work for everyone. If you find you need to make some adjustments to fit your circumstances, a budget planner app may make it easier to track your spending so you can decide where to cut back.

How to Maximize a $65,000 Salary

Besides thoughtful budgeting, there are several other things you might be able to do to help maximize your $65,000 salary. Here are some strategies to consider:

Make the Most of Employee Perks

Good benefits can sometimes make up for a smaller paycheck or add value to an already solid salary. If your employer’s 401(k) plan offers a matching contribution, it could help you save more for retirement. And if you’re able to work remotely, you might be able to spend less each month on transportation costs or your work wardrobe.

Avoid Account Fees

Small monthly fees can sometimes go unnoticed when you’re worrying about bigger bills, like your rent or car payment. But with a little research and comparison shopping, you may be able to avoid the common bank fees, credit card fees, and investment fees that can slowly eat away at your hard-earned income.

Pay Bills on Time

Besides the penalty fees you might face if you push your bill-paying limits too far, late payments can take a toll on your credit score, which could affect the interest rate you might pay on a loan or credit card.

Build an Emergency Fund

An unexpected expense like a high car repair or a temporary pay cut can quickly blow up a budget. Setting aside money in an emergency fund could help keep you from falling behind on your regular obligations.

What Quality of Life Can You Expect with a $65,000 Salary?

Everyone has a different idea of contentment, and the amount of money you need to feel comfortable may look different than another person’s. When deciding if $65,000 is a good salary for you, some factors to consider might include:

•   Do you want to live in a big city, or is life in the suburbs or a small town more of your thing?

•   How much do you like to go out to eat, attend concerts, and travel? Are you willing to sacrifice other things so you can have these experiences?

•   If you’re new in your career, is $65,000 a good entry-level salary for the type of job you have? Do you expect to make more later?

•   How much are you hoping to save for short- and long-term goals, like a wedding, home, or retirement?

•   Is a 50/30/20 budget doable on your salary?

Is $65,000 a Year Considered Rich?

“Rich” is another subjective term. If your definition of rich is what the top earners in the U.S. make, $65,000 falls short. According to the Economic Policy Institute, the top 10% of earners made, on average, $167,639 in 2021, the most recent year for which data is available. The top 5% earned $335,891. And to make it into the top 1%, you’d have to earn $819,324 or more.

But wealth isn’t necessarily determined only by the number on a paycheck. If you own much more than you owe, you may still have a high net worth. And if you can live comfortably on $65,000, you may feel richer than someone who earns a six-figure salary but can’t manage to make ends meet.

Recommended: Net Worth Calculator By Age

Is $65,000 a Year Considered Middle Class?

Generally speaking, yes. Pew Research defines “middle-income” Americans as those whose annual income is two-thirds to double the median household income, adjusted for household size. Using the BLS’s median income number from the first quarter of 2024, $59,228, that means a single person who earns from $39,485 to $118,456 could be considered middle income.

What Kinds of Jobs Pay a $65,000 Salary?

If you’re looking for work, you’ll likely find there’s a wide range of jobs that offer a $65,000 salary, including entry-level positions for new grads, jobs for introverts, and high-paying vocational jobs that don’t necessarily require a degree. According to the BLS, jobs for health-care workers, software developers, clergy, law clerks, civil and industrial engineering technicians, and many more fall within this pay range, although salaries can vary significantly depending on where you live.

Tips for Living on a $65,000 Salary

Proactive planning can play an important role in living well on a $65,000 salary. Here are a few steps that could help make your money go further month to month and year to year:

Live Within Your Means

Before you make a major purchase, consider crunching the numbers again to make sure the costs will work with your budget.

Pay Down Debt

If you’re carrying a balance on your credit cards and paying anywhere near the average interest rate (currently 27.65%), a big chunk of your paycheck could end up going just toward interest each month. If you’re struggling with high-interest debt, you may want to look into debt consolidation or a repayment plan like the snowball method to help you get back on track.

Save and Invest

Finding a way to save for retirement and other long-term goals can seem like a big ask if you’re struggling to make ends meet. But the sooner you can start stashing away money, the more your savings can start to grow.

Keep an Eye on Costs

Tracking your spending with an app can help you see where your money is going in real time, which could make it easier to stick to your budget. It also can be a good idea to check your online credit card and bank statements weekly or monthly.

The Takeaway

Is $65k a year a good salary? Though it may not qualify as “rich,” in many parts of the country, a $65,000 salary is higher than the average pay in the United States. And it can provide a comfortable lifestyle — especially if you’re single. The idea of living day to day within your means on $65,000 while also working toward your long-term goals may seem challenging. But having the right attitude, discipline, and financial tools can improve your chances of success. Creating a budget that you can stick to can be an important first step.

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

FAQ

Can I live comfortably making $65,000 a year?

If you’re earning $65,000 a year, you’re making more than the median salary for U.S. workers nationwide. How well you can get by on that pay depends on where you live and how you spend your money.

What can I afford with a $65,000 salary?

If you’re single, you can decide your own spending priorities. The 50/30/20 budget rule — which breaks down your costs and how much you may want to put toward your wants, needs, and savings each month — can be a useful tool for deciding what you can afford on a $65,000 salary.

How much does a $65,000 a year salary come out to hourly?

A $65,000 annual salary comes out to about $31.25 per hour if you’re working a 40-hour work week.

If you make $65,000 a year, how much does that come out to monthly?

If you’re earning $65,000 a year, that comes to about $5,417 per month before taxes.

How much does a $65,000 annual salary come out to per day?

If you’re earning $65,000 a year, that comes to about $1,250 for a 40-hour work week, or $250 for an eight-hour workday.

Photo credit: iStock/mixetto

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.

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.

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.

SORL-Q224-1874646-V1

Contrary to logic, a person’s starting credit score doesn’t begin at zero. In fact, no one’s credit score is zero. The lowest credit score is 300, but that doesn’t necessarily mean that’s a person’s starting score. If a person is just starting and has no credit history, they’re more likely to have no score.

So, for a person just beginning their credit journey, what is the starting credit score? Read on to learn the factors that impact this score from the beginning, and the habits to establish to ensure a better credit score.

How Your Credit Score Is Calculated

There’s no standardized starting credit score. That may be partly due to the factors that influence how a score is calculated. What a person’s done in their young credit history will impact their starting score.

The FICO® Score is widely used in the U.S. to help determine a person’s credit score. This FICO company uses the following to calculate its score:

Payment History

Payment history is the most important factor for any credit score, including a starting credit score. Paying on time and avoiding missed payments account for 35% of a person’s credit score. That’s why it’s important to pay everything from credit card bills to rent on time — even a single late payment can harm a starting credit score.

Credit Utilization

The second most important factor in a credit score is credit utilization, which makes up 30% of a person’s score. Credit utilization is the percentage of their available credit a person actually uses. The ideal credit utilization ratio is 30% or under.

Length of Credit History

How long someone’s accounts have been open makes up 15% of their credit score. The longer an account has been open, the higher the credit score.

While it’s out of their hands, consumers who are just beginning to establish credit will likely be negatively impacted by this factor, lowering their starting credit score.

Recommended: How to Get a Personal Loan With No Credit History

Credit Mix

Making up 10% of a person’s credit score, credit mix refers to the different types of credit a person has. Generally, the two types of credit are:

•   Installment loans: Think car loans, student loans, and mortgages.

•   Revolving credit: Includes credit cards and home equity lines of credit (HELOCS).

If an individual can manage different types of credit without late or missed payments, it reflects well on their score.

Recommended: Does Net Worth Include Home Equity

New Credit

Opening multiple new accounts at a time? This factor accounts for 10% of a credit score. New credit includes “hard inquiries” as well as opening new accounts.

For a person with a starting credit score, they may have all, none, or some of these factors on their credit history. The mix varies from person to person, making it hard to predict one starting credit score for everyone.

Recommended: Should I Sell My House Now or Wait?

What Is a Good First Credit Score?

Unfortunately, a starting credit score won’t be the perfect 850. More likely it’s in the good (670-739) or fair credit score (580-669) range.

That’s mostly because of their limited payment history. If a person just opened a credit card or started paying back student loans, the credit bureaus don’t see an established history of timely repayment. Even if the consumer has never missed a payment, payment history is limited.

Similarly, the length of credit history is short, perhaps only a few months, which doesn’t give lenders enough data to judge a consumer as low- or high-risk.

Recommended: What Credit Score is Needed to Buy a Car

Ways to Establish Good Credit

While it can be discouraging that a starting credit score is penalized just for being new, it doesn’t take long to build credit with a few simple habits:

•   Paying bills on time will continue to be important, as payment history is a major factor in a credit score.

•   Keeping accounts open and in good standing, even if they’re no longer used, can help lengthen a person’s history.

•   Adding to the credit mix with a personal loan, credit-builder loan, or other types of credit can boost the credit mix.

•   Paying bills in full can help keep the credit utilization ratio balanced at 30% or below.

•   Not applying for too much at once will avoid the pitfall of too many hard inquiries and new accounts, which can have a negative impact.

While an individual can proactively try to build their score, a good portion of a credit score comes from paying bills consistently over time.

Establishing good habits, and continuing them, will likely lead to a higher credit score.

Recommended: When Do Credit Card Companies Report to Credit Bureaus?

Why Your Credit Score Is Important

It may be just a three-digit number, but a good credit score is a gateway to better financial opportunities. With a very good (740-799) or exceptional (800-850) credit score, borrowers have better odds of being approved for loans and may even have better repayment terms or more favorable interest rates.

Businesses and lenders may pull your credit history to confirm your qualifications for any of the following:

•   Credit cards

•   Mortgages

•   Rental apartments

•   Job applications

•   Car loans

•   Personal loans

•   Student loans

With a low credit score or no credit score, getting favorable terms or qualifying for anything above could be challenging.

How to Check Your Credit Score

Checking a credit score isn’t just a good way to track progress; it can also highlight any incorrect or fraudulent activity tied to a person’s name.

Monitoring a credit score is free and easy. Anyone can get their free FICO Score annually from Experian using AnnualCreditReport.com. The site allows visitors three free reports annually, one from each credit bureau.

In addition, credit card companies and lenders often offer free credit score reporting on their portals.

Recommended: What is The Difference Between Transunion and Equifax

The Takeaway

Having a starting credit score doesn’t mean starting from zero – or with a perfect 850. Consumers may start at a fair to good level. Working to establish healthy credit habits, such as paying bills on time and in full, will build their credit score. A solid credit score is important because the higher your credit score, the more financial opportunities you will have.

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

FAQ

What are the FICO credit score ranges?

FICO® credit scores range from 300 to 850.

Can you have a credit score without a credit card?

Yes. Credit scores aren’t based solely on credit cards. The score takes into account student loans, rent, utility payments, and more.

What are the differences between FICO, Experian, and Equifax?

Experian and Equifax are credit bureaus that create credit scores and compile credit histories. FICO® creates its own credit score. All three companies provide slightly different credit scoring models.

Photo credit: iStock/blackCAT

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.

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

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

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

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Technically, once a check clears it can’t be reversed, meaning the payer cannot get the funds back. The only exception to this is if the check payer can prove that identity theft or fraud has occurred, in which case they may get their money back.

When discussing the ins and outs of check clearing, it can be helpful to understand how checking accounts work, typical clearance times, and exceptions to the rule. Read on to learn more about how checks get cleared.

How Long Does It Typically Take for a Check To Go Through?

It typically takes between two and five business days for a check to clear, but some banks will process it more quickly. The first $225 is made available in one’s account the next business day after a check is deposited, and then the rest of the check will be made available in the next four days.

The time it takes for a check to clear can depend on several factors, including the relationship the account holder has with the bank, the amount of money already in their account, and the amount that the check is for. A larger check may take longer to clear than a smaller one. If it’s a government check or a check from a certified fund, the bank is required to make the funds available within one day.

Note that check clearance rules apply to paper checks only. If you pay bills electronically by ACH, a different set of guidelines will apply.

Recommended: How to Get a Checkbook

How to Know If Your Check Cleared

In order to know for certain that a check has cleared, call the bank where the check was deposited and ask them. Banks do not inform payees if a check for less than $5,000 bounces. However, if a check for more than $5,000 bounces, banks are required to inform payees.

Financial software like SoFi can help you track checks and alert you when they clear. You may also benefit from other handy tools, including a budget planner app, debt payoff planner, and credit monitoring.

Recommended: What Is the Difference Between Transunion and Equifax

How Check Clearance Works

When a check gets deposited, there are a few steps involved in processing and clearing it. First, the bank makes a request to take the funds out of the check payer’s account. Typically, the bank actually deposits funds into the payee’s account first, as long as the check is not flagged as risky or there’s another reason that it might not clear.

In the event that the funds aren’t available in the payer’s account, the check “bounces.” In that case, the funds are then withdrawn from the payee’s account.

Recommended: How to Sign Over a Check

How Long Can a Bank Hold a Check?

The length of time that a bank will hold a check depends on a few factors, including the amount of the check, the bank the check is coming from, the relationship of the payee to the bank, and more. If both the payer and the payee use the same bank, the clearing time will be shorter. Usually it takes two business days for a check to clear, but it may take up to seven days.

The time that it takes for a check to bounce varies depending on the bank’s size and technology. Larger banks with more technological capabilities will know more quickly that a check has bounced. It will take longer for a smaller bank to process bounced checks. Generally after 30 days, one can assume that a check has cleared.

Factors That Affect Hold Times

In certain cases, a “risky” check may take up to seven business days to clear. The following reasons can cause this to happen:

•   Insufficient funds in the account

•   Checks larger than $5,525

•   Accounts younger than 30 days

•   Repeated overdrafts associated with the account

•   Checks from international banks

Clearance Times for Large Checks

If a check is larger than $5,525, it may take up to nine business days for it to clear because the bank will want to ensure the check will clear before processing it. However, $225 of the funds may be made available within one day after the deposit. If a check is very large, it may be a good idea to inform the bank ahead of time that the transfer will be occurring to speed up the clearing time.

Personal Checks vs Government-Issued Checks

While it takes between two and five business days for personal checks to clear, banks are required by law to make funds available from government checks and U.S. Treasury checks within one business day.

Certified checks and cashier’s checks are both types of personal checks. A certified check is a check where the money is taken out of a checking account, ensuring that the funds are available in the payer’s account. Generally a certified check is required for making larger transfers. With a cashier’s check, the money is taken out of the bank’s account, also ensuring that the funds are available.

Cases of Fraud

If a check bounces, fraud protection does not cover it. The account holder is responsible for repaying the funds even if they have already withdrawn them from their account.

Once a check is cleared, the payer can’t reverse it and get their money back. However, if they can prove to the bank that the check was fraudulent or a case of identity theft, they can potentially get their money returned to their account.

Recommended: What Credit Score is Needed to Buy a Car

The Takeaway

Once a check has cleared, it cannot be reversed unless fraud or identity theft is suspected. However, many banks will make the first $225 of a check deposit available for immediate use.

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

FAQ

How can a check clear and then bounce?

If a bank doesn’t see any red flags that a check might bounce, they may go ahead and transfer funds into the payee’s account. However, it may turn out during their processing that funds weren’t available from the payer, so then the check bounces.

Can a bank reverse a check deposit?

Technically, a cleared check cannot be reversed. But if a check bounces, the bank can remove funds they had deposited into the payee’s account.

Can you dispute a cleared check?

If identity theft has occurred or if a check is fraudulent, then a cleared check can be disputed. If the bank finds the evidence to be believable, the funds may be returned to the account.

Photo credit: iStock/sturti

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.

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

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

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