Your credit card closing date marks the end of your billing cycle, which determines how much you’ll owe when your credit card payment comes due. Your credit card due date, on the other hand, is when you’ll need to make at least the minimum payment if you want to avoid a late fee.
By understanding the implications of both your credit card closing date and your credit card due date, you can better strategize to make purchases and also ensure you make on-time payments.
What Is a Credit Card Closing Date?
A credit card closing date determines your credit card “billing cycle,” which spans an interval of about 28 to 31 days. This day might vary each month, but according to the Consumer Financial Protection Bureau (CFPB), it can’t vary by more than four days.
The bank uses your credit card’s statement closing date to determine which purchases are calculated toward the current statement’s total balance and the minimum credit card payment that’s due. Any purchases made after your credit card closing date are applied to the next month’s billing statement.
The closing date for a credit card is also the date the bank uses to calculate your credit card’s finance charges, which are also called the interest charges. Typically, credit card issuers offer a grace period on new purchases starting on the date after the closing date until your credit card payment due date. During this time, interest charges aren’t incurred yet.
Although many credit card companies offer a grace period, it’s not a requirement, so check the terms of your credit card closely.
Another critical date to remember when it comes to your credit card account is your credit card due date. Payments received by the bank by 5 p.m. on the credit card payment deadline are considered on-time; after this period, your credit card payment is considered past due. (Keep in mind that the time zone in which your bank is located may vary from yours. You might want to check that when trying to pay right before the deadline.)
Your credit card due date is the same for each billing statement. For example, if this month’s credit card bill is due on June 15, your next billing statement will be due on July 15. This due date applies regardless of whether you’re making a full payment for your statement balance or the minimum amount due.
Although you should always aim to make your credit card payment on time, card issuers generally don’t report late payments to credit bureaus until 30 to 60 days after your credit card due date. Late fees might be applied to your credit card account if you don’t make a payment by the credit card payment due date, however, given how credit cards work.
Differences Between a Credit Card Closing Date vs Due Date
Here’s a look at some of the key distinctions between credit card payment due date vs. closing date to keep in mind:
Credit Card Closing Date
Credit Card Due Date
Last date of billing cycle
Last date to submit an on-time payment
Date before grace period begins
Date before the next billing cycle begins
Date might change slightly
Same date every statement period
Affects your credit utilization ratio
Can impact your credit score
How Your Credit Card Closing Date Affects Your Credit Score
On your credit card statement closing date, your card issuer typically reports your account activity, including your card’s outstanding balance, to the three credit bureaus — Experian®, Equifax®, and TransUnion®. This information impacts your credit utilization ratio, which is the ratio of credit in use compared to the amount of credit you can access.
As an example, say your closing date is May 20, and you made a $2,000 purchase on your credit card on May 15. That purchase will be reported and can increase your credit utilization ratio. A high credit utilization ratio can adversely affect your credit score.
If the purchase isn’t urgent, perhaps you might wait until May 21 to put the charge on your credit card. In this scenario, your $2,000 credit card purchase wouldn’t be reported to the credit bureaus until the end of your next billing cycle. And if you pay it off before then, it might not affect your credit utilization ratio.
Determining Your Next Credit Card Statement Closing Date
Knowing how to decipher your credit card bill each month can help you to uncover your statement closing date. Typically, you’ll find your billing cycle dates at the top of your credit card bill. This might be called your “opening/closing dates,” and it typically will be displayed as a date range.
When reading your credit card statement, you can find these dates and then count the number of days between the dates. Then, count forward from the credit card closing date to determine your next credit card statement closing date.
Guide to Changing Your Credit Card Due Date
You might find that changing your credit card due date can help you better manage your credit card payments. This might come up if you get paid on a certain date each month and want your due date to fall closer to payday.
Generally, card issuers are willing to work with you on a due date that will help you make regular, on-time payments. However, credit issuers have different restrictions, so talk to your credit card issuer to see whether it’s flexible.
To change your credit card due date, you can either:
1. Call the phone number at the back of your credit card to speak to a customer service associate who can help.
2. Log in to your credit card’s online account and make the change (if available) yourself.
Be aware that it can take one to two billing cycles to see the change on your account.
What You Should Know About Determining Your Time to Pay
Your credit card closing date and payment due date can help you strategically decide when it’s time to pay your credit card bill. For example, if you need to keep your credit utilization low to improve your credit to secure a mortgage loan approval, then paying your credit card bill before your closing date can help.
However, if you simply want to avoid interest charges and late fees on your purchases, making a payment by your credit card due date is sufficient. Still, make sure to stay mindful of the potential to fall into credit card debt, which can be hard to shake (here’s what happens to credit card debt when you die).
The Takeaway
Your payment due date vs. closing date are two very important dates that relate to your credit card account. The closing date indicates the end of the monthly billing cycle, and the payment due date tells you when at least the minimum payment must be paid to avoid a late fee. Being aware of both dates can help you make purchases strategically and ensure you make payments on time.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
Should I pay off my credit card before the closing date?
Paying off your credit card as early as possible is always ideal. Doing so can help you maintain a low credit utilization ratio, which is beneficial to your credit score.
Can I make more than one payment per statement period on my credit card?
Yes, you’re allowed to make more than one payment per statement period to pay off your statement balance. In fact, doing so can help you potentially avoid incurring interest charges and rolling a balance into your next billing cycle.
Can I use my credit card between the due date and the closing date?
Yes, you can use your credit card between the due date and the credit card statement closing date. Purchases made after your credit card due date are simply included in the next billing statement.
Is the credit card closing date the same every month?
Not always. Your credit card closing date might be the same date each month, but billing cycles can vary up to four days from the typical closing date.
Photo credit: iStock/Seiya Tabuchi
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.
Student loan borrowers with a good credit score generally have a better chance of qualifying for student loan refinancing. FICO®, the credit scoring model, considers a score of 670 to 739 to be good. Yet according to the most recent report by the Federal Reserve Bank of New York, the average credit score of student loan borrowers was 656, which falls short.
The higher your credit score, the more likely you are to be approved for refinancing, and also to get a lower interest rate and favorable loan terms. Here’s what you need to know about your credit score and student loan refinancing.
Key Points
• Most lenders require a good credit score, typically between 670 and 739, to refinance student loans.
• Some lenders may accept credit scores as low as 580 for refinancing.
• Checking with various lenders is important as credit score requirements can vary.
• In addition to making a borrower eligible for student loan refinancing, a higher credit score may also help secure better interest rates and terms.
• It’s beneficial to review and compare offers from different lenders before choosing a refinancing option.
Understanding the Credit Score Requirement
Your credit score is important because it gives lenders a synopsis of your borrowing and repayment habits. It’s based on information from your credit report, which is a highly detailed record of activity on all of your credit accounts. A credit score tells lenders how well you’ve managed your credit and repayments thus far.
With student loan refinancing, many lenders are looking for a good credit score. That’s because a higher score generally indicates that you’re likely to repay your debts on time. FICO calls a credit score of 670 to 739 a good score, while VantageScore®, another commonly used credit scoring model, designates a good credit range as 661 to 780.
Some lenders have more flexible credit score requirements than others, and they may set what’s called a minimum credit score requirement. This is the lowest eligible credit score for which they’re willing to approve a borrower for student loan refinancing.
However, higher is usually better when it comes to a credit score for refinancing, regardless of the scoring model that’s used. If your credit score exceeds the good range, and is considered “very good” or “excellent,” you may be more likely to qualify for student loan refinancing. This also improves your chances of getting a lower interest rate and favorable terms, which are important when you’re refinancing student loans to save money.
In addition to your credit score for a student loan, lenders have other requirements you’ll need to meet, whether you’re refinancing private student loans or federal loans. These eligibility requirements include:
Income
Lenders look for borrowers with a stable income. This indicates that you consistently have enough money coming in to pay your bills. You will likely have to provide lenders with proof of your employment and income, such as pay stubs.
If you’re a contract worker or freelancer whose income is more sporadic, you may need to show a lender your tax returns or bank account statements to show that you have enough funds in your bank account. Debt-to-Income Ratio
Your debt-to-income (DTI) ratio is a percentage that shows how much of your income is going to bills and other debts versus how much income is coming in each month. The lower your DTI, the better, because it indicates that you have enough money to pay your debts, making you less of a risk to lenders.
To calculate your DTI, add together your monthly debts and divide that number by your gross monthly income (your income before taxes). Multiply the resulting figure by 100 to get a percentage, and that’s your DTI.
Aim to get your DTI to below 50%, and pay off as much debt as you can before you apply for student loan refinancing.
Credit History
In addition to your credit score, lenders will also look at your credit history, which is the age of your credit accounts. Having some active older credit accounts shows that you have a solid pattern of borrowing money and repaying it on time.
Minimum Refinancing Amount
Lenders typically have minimum refinancing amounts. This is the outstanding balance on your loans that you want to refinance. For some lenders, the minimum refinancing amount is between $5,000 and $10,000. For others, it may be higher or lower. Lenders set minimums to ensure that they will earn enough interest on the loan.
If your credit score isn’t high enough to meet a lender’s minimum score requirement, you can work on strengthening your score and apply for refinancing at a later date. The following strategies may help you build credit over time.
Make Timely Payments
Making full, on-time payments on your existing credit accounts is the most impactful way to improve your credit. This factor accounts for 35% of your FICO credit score calculation and is at the forefront of what lenders look at when evaluating your eligibility.
Lower Your Credit Utilization Ratio
This is the ratio of how much outstanding debt you owe, compared to your available credit. Credit utilization ratio accounts for 30% of your FICO score. Keeping your credit utilization low can be an indicator that, while you have access to credit, you’re not overspending.
Maintain Your Credit History
A factor that’s moderately important when it comes to your FICO score calculation is the age of your active accounts. Keeping older accounts active and in good standing shows that you’re a steady borrower who makes their payments.
Keep a Balanced Credit Mix
As you’re establishing credit, having revolving accounts such as credit cards, as well as installment credit like student loans or a car loan, shows you can handle different types of credit. This factor affects 10% of your credit score calculation.
Alternatives to Refinancing
If your credit isn’t strong enough for you to qualify for student loan refinancing, you have a few other options to help you manage your student loan payments. Some ideas to explore include:
• Loan forgiveness programs. There are federal and state student loan forgiveness programs. For instance, the Public Service Loan Forgiveness (PSLF) program is for borrowers who work in public service for a qualifying employer such as a not-for-profit organization or the government. For those who are eligible, PSLF forgives the remaining balance on Direct loans after 120 qualifying payments are made under an IDR plan or the standard 10-year repayment plan.
Individual states may offer their own forgiveness programs. Check with your state to find out what’s available where you live.
• Income-driven repayment plans. You may be able to reduce your federal loan monthly payment with an income-driven repayment (IDR) plan, which bases your monthly student loan payments on your income and family size. Your monthly payments are typically a percentage of your discretionary income, which usually means you’ll have lower payments. At the end of the repayment period, which is 20 or 25 years, depending on the IDR plan, your remaining loan balance is forgiven.
• Consolidation vs. refinancing: Which is right for you? Whether consolidation or refinancing is right for you depends on the type of student loans you have. If you have federal student loans, a federal Direct Consolidation loan loan allows you to combine all your loans into one new loan, which can lower your monthly payments by lengthening your loan term. The interest rate on the loan will not be lower — it will be a weighted average of the combined interest rates of all of your consolidated loans. Consolidation can simplify and streamline your loan payments, and your loans remain federal loans with access to federal benefits and protections. However, a longer loan term means you’ll pay more in interest over the life of the loan.
If you have private student loans, or a combination of federal and private loans, student loan refinancing lets you combine them into one private loan with a new interest rate and loan terms. Ideally, depending on your financial situation, you might be able to secure a new loan with a lower rate and more favorable terms. If you’re looking for smaller monthly payments, you may be able to get a longer loan term. However, this means that you will likely pay more in interest overall since you are extending the life of the loan. On the other hand, if your goal is to refinance student loans to save money, you might be able to get a shorter term and pay off the loan faster, helping to save on interest payments.
Just be aware that if you refinance federal loans, they will no longer be eligible for federal benefits like federal forgiveness programs.
Understanding the Impact of Refinancing on Your Credit Score
Just as your credit score affects whether you qualify for refinancing, refinancing has an impact on your credit score.
When you fill out an application for refinancing, lenders do what’s called a hard credit check that usually affects your credit score temporarily. The impact is likely to be about five points of reduction to your score, which lasts up to 12 months, according to the credit bureau Experian.
After refinancing is complete, however, as long as you make on-time payments every month, your credit score might go up. Conversely, if you miss payments, or if you’re late with them, your score could be negatively affected.
It’s wise to keep your credit score as strong as possible before, during, and after refinancing. And watch out for common misconceptions about credit scores and student loan refinancing.
For instance, be sure to shop around for the best loan rates and terms. Checking to see what rate you can get on a student loan refinance, unlike filling out a formal loan application, typically involves a soft credit pull that won’t affect your credit score.
Also, if you choose to fill out refinancing applications with more than one lender, some credit scoring models may count those multiple applications as just one, as long as you apply during a short window of time, such as 14 to 45 days, which can lessen the impact to your credit.
Finally, keep paying off your existing student loans during the refinancing process. If you stop repaying them before refinancing is complete, your credit score may be negatively affected.
Making Informed Decisions About Student Loan Refinancing
As you’re considering refinancing, weigh the pros and cons of refinancing your student loans. Advantages of student loan refinancing include possibly getting a lower interest rate on your loan, adjusting the length of your payment term, and streamlining multiple loans and payments into one loan that’s easier to manage.
But remember: If you’re refinancing federal student loans, you will lose access to federal protections and programs like income-driven repayment plans. And refinancing may be difficult to qualify for on your own if you don’t have a good credit score and solid credit history, so you may need a student loan cosigner. Make the decision that’s best for your financial circumstances.
If you decide to move ahead with refinancing, be sure that your credit score is as strong as it can be. Then, shop around to compare lenders and find the best rates and terms. Once you’ve chosen a lender or two, submit an application. You’ll need to provide documentation of your income and employment, so be sure to have that paperwork on hand.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
FAQS
Can I refinance with a 580 credit score?
You may be able to refinance student loans with a credit score of 580, depending on the requirements of the lender. While most lenders look for borrowers with a good credit score, which FICO® defines as 670 to 739, some lenders set a minimum credit score as low as 580. If you meet other eligibility requirements, such as having a steady income and a low debt-to-income ratio, a lender may consider you with a 580 credit score.
What is the minimum credit score for a refinance?
Each lender has its own specific requirements, including the credit score needed to refinance. While most lenders look for applicants with a good score, which starts at 670, according to FICO, some lenders set a minimum credit score, which may be as low as 580. Check with different lenders to see what their requirements are.
SoFi Student Loan Refinance Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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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.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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.
Editor’s Note: The new FAFSA form for the 2025-2026 academic year is available. Based on early testing by students and families, the process seems to be improved from the 2024-2025 form. Still, it’s best to get started on the form and aim to submit your application as soon as possible.
This year, Federal Student Aid (FSA) estimates that filling out the Free Application for Federal Student Aid (FAFSA®) takes less than one hour. Read on for the information you’ll need, the steps to take before going to the FAFSA site, and what to expect when filling out the application online.
Key Points
• The FAFSA 2025-2026 form is now available. The form closes on June 30, 2026, but it’s best to fill out and submit the form as soon as possible.
• The FAFSA form for the 2025-2026 school year has been modernized to improve user experience, with additional staff and expanded help hours available for applicants.
• Creating an FSA ID is the first step in completing the FAFSA form, necessary for both students and parents if parental information is required.
• Logging in with the FSA ID allows students to fill out personal and financial information, including tax returns and income details.
• Reviewing the application for errors and ensuring all information is accurate is crucial before signing and submitting the form.
Completing the FAFSA Application for Academic Year 2025-2026
If this is your first time submitting the FAFSA, you’ll be glad to know that it usually takes less time after the first time (yes, FAFSA is submitted annually.)
Not quite ready to submit your FAFSA, but want an estimate of your student aid package? You can fill out an abridged Federal Student Aid Estimator .
Before you start the online FAFSA form, it’s useful to have the info you’ll need handy. That includes:
• Your Social Security or alien registration ID
• Federal income tax returns for 2023, W-2s and other financial documents for yourself (and your parents if you’re a dependent)
• Most recent bank statements
• Any untaxed income amounts
12 Steps to Filling Out the FAFSA
For the 2025-2026 academic year, the FAFSA opened November 21, 2024, and it closes June 30, 2026. (For the 2024-2025 academic year, the FAFSA opened in December 2023, and closes June 30, 2025.) That said, schools and state and scholarship programs have varying deadlines, so it’s a good idea to check and double-check the FAFSA deadlines for everything you are applying to.
Here are the steps to completing the online FAFSA form.
1. Creating Your FSA ID
The first step is creating a Federal Student Aid ID . This is simply the username and password you’ll use to log into FAFSA. Note that if your parents’ financial info is required to complete the application, a parent will also need to create a FSA ID.
2. Logging in
Now that you have a FSA ID, you’re ready to log into the online FAFSA form. Use this FAFSA tool to determine which parent should participate in your FAFSA form.
Once you’re in, you will be asked to accept or decline the disclaimer, which details how the site will use and monitor your data. You should then be prompted to start a FAFSA application for 2025-2026.
You’ll also be asked to create a save key, which is a temporary code in case you leave the site before you submit your application. In other words, if you don’t finish FAFSA in one sitting, you can enter your save key and pick up where you left off.
3. Filling in Your Personal Information
You (the student) will be asked to fill in the following info (you’ll be prompted to hit “Continue” several times):
• Your Social Security number
• Full name
• Date of birth
• Email address
• Phone number
• Mailing address
You’ll then need to answer questions about:
• Your marital status
• Whether you are a citizen
4. Filling in Your Student Information
Next, you’ll need to answer questions about your education and future plans. Specifically, you’ll be asked about:
• Your college grade level at the beginning of the 2025-2026 academic year
• The college degree or certificate you will be seeking to earn
Additionally, you’ll be asked to provide:
• Information about your personal circumstances
• Whether you’ve ever been in the foster care system
• Any unusual circumstances regarding your parents, such as being unable to contact them
5. Filling in the College Search Section
To send your FAFSA information to schools you’re applying to, you’ll need to add the federal school code for each school. Doing so allows colleges to receive your FAFSA information and so use it to provide you a financial aid package. The online form will help you find the codes; you just input the school name, city, and state. You can add up to 10 colleges at a time.
Next, for each school, you’ll need to select your housing plan (on campus, with parent, or off campus).
6. Filling in Info That Helps Determine Your Dependency Status
Your answers in this section will determine whether you are an independent or dependent student— and so determine the financial information you and your parents will need to provide. Specifically, you’ll be asked about:
• Whether you have children that you support
• Whether you have other dependents who live with you and you support
• Whether you are on active duty or a veteran of the U.S. armed forces, are an emancipated minor, whether someone other than a parent or stepparent has legal guardianship, and whether you have ever been in foster care or a ward of the court or both parents have died since you were 13.
• Whether you were homeless or self-supporting and at risk of being homeless on or after July 1, 2024
7. Learning Your Dependency Status
The smart technology of the online FAFSA form determines whether you’re a dependent or not. If you are single, have no children or other dependents, and answered “none of the above” and “no” on the previous two screens, you are likely a dependent. As a result, your parents’ financial information will be needed in addition to yours to complete the form and calculate your expected family contribution (which will soon be replaced with the student aid index).
Please note that the rest of these steps assume you’re filing as a dependent. While the process of filing as an independent will be similar, you won’t be asked to provide information about your parents.
8. Filling in Your Parents’ Personal Information
You (the student) can answer the following questions about your parents:
• Their marital status and whether they are separated, divorced, widowed, or remarried
• Each parent’s name, Social Security number, date of birth, and email
• State of parents’ residence and date they became a resident
• Number of other dependent children and other dependents your parents have
9. Providing Your Parents’ Financials
You will need info about your parents’ tax return for 2023 to answer the following questions about:
• Their tax return status
• The type of tax return they filed (i.e., 1040 or something else)
• Their tax filing status (e.g, married-filed joint return)
At this point, you can either use the IRS Data Retrieval Tool (DRT) that pulls their tax return information into the FAFSA form or enter their info manually. In addition to being more convenient, using DRT means you may not have to later provide IRS documentation. (As mentioned earlier, one of your parents will need to create and provide an FSA ID and password to use DRT.)
If you are manually entering your parents financial info, you will need to answer questions about:
• Their adjusted gross income
• Amount each parent earned
• Amount they paid in federal taxes
• Amounts of other income (such as college grants and tax-exempt interest income)
• Amounts of child support paid, earnings from work under a Cooperative Education Program, and taxable earnings from need-based employment programs
• Amounts of untaxed income (such as child support or payments to tax-deferred retirement savings plans)
• Their assets (including the value of cash and bank accounts, investments, and owned businesses and investment farms)
10. Providing Your Financials
You’ll also need to provide your financial information. Basically, you will be asked for the same info about yourself that you provided in the previous step about your parents’ income and assets.
11. Checking for Errors
Once you’ve reached the end of the application, you’ll see a summary to review. Checking that all the information is accurate may help avoid having to file a FAFSA correction later.
You’ll also need to answer a few more questions that the federal government collects about gender, ethnicity, and race. This info has no impact on whether you will receive financial aid.
FAFSA requires you to accept or reject its agreement of terms. If your parent or parents provided information because you filed as a dependent, one of them will also need to accept these terms in order for you to submit the application. Both you and your parent will e-sign using your FSA ID. Once you’ve signed and submitted your application, your FAFSA is complete.
Downloadable FAFSA Form for 2025-2026
Here’s the FAFSA form for 2025-26 if you want to see it before logging in to fill it out — or if you want to print it, fill it out, and mail it in.
What’s Different About the 2025-26 FAFSA
The Department of Education says it has modernized the FAFSA process and improved the user experience and functionality in filling out the online form. They have also added more staff to address applicants’ questions, and expanded the hours to provide help. You can reach staff through the Federal Student Information Center and find answers to frequently asked questions about filling out the FAFSA form at the FAFSA Help Center.
Additionally, the 2023-24 form does not ask about Selective Service registration status or drug convictions.
A Few Extra Tips
Completing FAFSA can be an overwhelming process. It can also be tempting to skip it altogether, especially if you’re from a middle- or high-income family and you believe you aren’t eligible for aid. However, that’s an assumption that could mean leaving aid on the table. Here are three more helpful tips:
1. Schools, states, and scholarships have varying deadlines. As stated earlier, FAFSA opened November 21, 2024, and closes June 30, 2026, for the 2025-2026 academic year. However, the schools and scholarships you’re applying to may require you to fill out your FAFSA before that time, so it’s best to check each school’s and program’s FAFSA deadlines to avoid losing out on aid.
2. The IRS Data Retrieval Tool can help you avoid making mistakes. This tool auto-fills your (and your parents’) latest tax information from the IRS database. So instead of having to figure out what the adjusted or non-taxed income was on your parents’ tax return, you can let the tool do it for you.
3. It doesn’t pay to guess. Not sure how to fill out a section or what the answer is? FAFSA offers helpful tips and clarifications throughout each section of the FAFSA form, so be sure to use the text and articles embedded on the form—just click on the question mark icon. Inaccurate answers can result in receiving less financial aid than you’re eligible for as well as needing to file corrections and send in supporting documentation.
Filling out the FAFSA is a great first step to pay for your dream school. This is one of the best ways of getting scholarships and grants you won’t have to pay back or government-backed loans to help you pay for college-related costs. By learning how to properly fill out the FAFSA (and then actually doing so!), you can increase your odds of getting a bigger financial aid package.
However, if your financial aid package doesn’t cover all your college expenses, you may want to consider a private student loan. It’s important to note that private student loans don’t offer the same protections as federal student loans, like income-driven repayment plans or deferment options. For this reason, private student loans are generally considered only after other sources of funding have been considered.
SoFi’s private student loans are available for undergraduate and graduate students, as well as parents. In just a few minutes, you can apply online for student loans and be well on your way to financing your education.
SoFi private student loans offer competitive interest rates for qualifying borrowers, flexible repayment plans, and no fees.
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SoFi Private Student Loans Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
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Financing a car can help you build credit, as long as you manage the loan responsibly and the loan’s activity is reported to one of the major credit bureaus.
Like with most other debt obligations, responsibly making on-time payments can help your credit score. However, making late or missed payments can hurt your credit score, as can the hard pull of your credit report that potential lenders conduct when you apply for an auto loan.
Key Points
• Making regular, on-time payments on a car loan can positively impact credit scores.
• Late or missed payments on a car loan typically have a negative impact on credit scores.
• A car loan adds to the credit mix, which can help build credit.
• Paying off a car loan may reduce credit scores if it affects credit mix or account age.
• Hard credit inquiries from applying for a car loan usually but only temporarily lower credit scores.
How Does Car Financing Work?
While it is possible to pay for a new car with cash, it’s common for many potential auto buyers to use car financing. You may get a car loan for the full purchase price, or make a down payment and get a loan for the rest of the amount.
The lengths of car loans vary but are commonly between 24 and 96 months, with six years (72 months) being the average. After making your payments for the balance of the loan, the loan is paid off and you take full ownership of the car.
Note that your car acts as collateral for an auto loan. This means that if you fail to repay the amount borrowed, the lender can take your car to recoup its losses.
Most car loans are reported to the major credit bureaus, and your payment history and balance is usually included on your credit report. Making on-time payments on your car loan can have a positive impact on your credit. Potential lenders want to see a history of reliably paying your debts, and making payments on a car loan can help with establishing that.
Another factor that makes up your credit score is having a healthy mix of different types of credit. This can be another reason why having an active auto loan can help build credit, as it adds to the types of credit you have.
How Financing a Car Can Affect Credit Negatively
Just as making on-time payments on your car loan can have a positive impact on your credit score, missed or late payments can affect your credit negatively.
Additionally, when you initially apply for an auto loan, the lender will conduct a hard pull on your credit report to verify your creditworthiness. This can drop your credit score by a few points, though those drops usually only last a few months. If you’re working with multiple lenders, keep in mind that hard credit pulls by multiple lenders in a short period of time will usually get combined so it appears as a single inquiry.
And while paying down debt is often a good idea, paying off a car loan affects your credit in some additional ways. If you don’t have other debts or loans, it’s possible that paying off your loan can have a negative impact on your credit score. This is because your on-time payments no longer get reported, and you’ll have one fewer type of credit to your mix. Additionally, if you took out your car loan a while ago, paying it off can impact the average age of your open accounts, which also influences credit.
Factors That Influence Your Credit Score
The biggest factor that influences your credit score is your payment history. Potential lenders want to see that you reliably pay your debts, and making on-time payments is one way to show that. Other factors that influence your credit score are:
• Your average age of accounts
• Credit mix
• How much you owe
• How many recent inquiries appear on your credit report
Tips to Build Your Credit Score
Here are some tips to consider that can help build credit:
• Make sure that you always pay your bills on time.
• As you apply for new debt or credit, only apply for loans that you know you have the financial ability and discipline to pay.
• Aim to keep your credit utilization — the amount of your total credit you’re using — at 30% or lower. Having a higher credit utilization rate can negatively affect credit.
• Remember to check your credit report at least once a year. Not only can this help you to monitor your credit health and understand the impacts of various activities on your credit, it can help you spot any errors or fraudulent activity.
One of the biggest mistakes that you can make when financing a car is applying for a higher loan amount than you can afford. When you take out a car loan, you’re making a multi-year commitment to make those monthly payments. If you take out a loan for more money than you can reasonably afford, you run the risk of destabilizing your overall financial situation and ending up in a situation where you make late payments or, even worse, miss payments.
A car loan can be a good option to help build your credit. Remember, what potential lenders are looking for when they look at your credit report is a history of meeting your debt repayment obligations. A car loan that you regularly pay on time can be a great way of showing that you are reliable.
Also follow additional tips for getting a car loan to help give you a head start toward building your credit.
Other Ways to Build Credit
Aside from turning to car financing to build credit, here are a few other ways to build credit that you might consider.
Become an Authorized User
Another way that you can build credit is by becoming an authorized user on someone else’s credit card account. When you are an authorized user on a credit card account, you’re not financially responsible for paying the statement, but it still shows up on your credit report. Keep in mind that how the primary account holder manages their account can affect your credit score, either positively or negatively.
Another option to build credit is by taking out a personal loan. Unlike a car loan, which is considered a secured loan since the car itself acts as collateral for the lender, a personal loan is an unsecured loan. That means that there is no collateral for the lender to seize if you stop making payments.
In certain situations, this can make a personal loan a great option for building credit. In fact, if an auto loan isn’t the right option, you can consider getting a personal loan for a car.
Apply for a Credit Card
Responsibly using a credit card and paying it off in full each month is another way that you can establish credit. Your credit card balance and payment history are typically reported to the major credit bureaus.
Additionally, some credit cards offer rewards, such as cash-back rewards, with each purchase. Those rewards can be a boost to your monthly budget.
If you take out an auto loan to buy a new or used car, it will typically get reported to the major credit bureaus. That means making on-time payments on your auto loan can help you build credit. Similarly, late or missed payments can have a negative impact on your credit score.
Applying for a credit card and making regular payments can be another way to build your credit.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
Does paying off a car loan help build credit?
While making regular payments on your car loan helps you build credit, paying off your car loan doesn’t always have the same impact. When you pay off your car loan, you no longer have the monthly payment history showing up on your credit report. Still, paying off a car loan can be a good financial move since it helps lower the total amount of your debt.
How can I keep my payment within my budget when financing a car?
The monthly payment amount of your car loan will depend on a variety of factors — the total purchase price of the car, your down payment, the length of the car loan and your interest rate. If you want to keep your monthly payment below the average payment for a car, you can get a cheaper car, make a higher down payment, or take out a longer loan. You can also work on building your credit score to hopefully qualify for a lower interest rate.
How fast can a car loan raise my credit score?
While taking out a car loan can possibly build your credit, you shouldn’t count on an immediate positive impact. In the short-term, it’s possible that your credit score may decrease from the new credit inquiries and the additional debt that shows up on your credit report. However, over time, making regular and on-time payments on your auto loan could build your credit score.
Does leasing a car build credit?
Most lease payments are reported to the major credit bureaus. That means that regular, on-time payments can help you build your credit in a similar manner to buying a car with a car loan. However, if you make late payments or miss payments on your lease, it can have a negative impact on your credit score.
Photo credit: iStock/Zorica Nastasic
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
This content is provided for informational and educational purposes only and should not be construed as financial advice.
Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
There are unfortunately many things in life that can rock a person’s financial stability, ranging from divorce to a devastating flood. Situational poverty is a type of poverty that occurs due to a sudden change in circumstances such as a major life event or natural disaster.
If you’re in the grip of a situation like this, it can feel impossible to get back on your feet. But it is indeed possible to overcome situational poverty. Using a variety of techniques, it’s often possible for people to pull themselves out of a difficult and painful moment. Here’s a closer look at what causes situational poverty and how to break out of a poverty cycle once it starts.
Key Points
• Situational poverty often arises from sudden life changes, such as natural disasters or personal tragedies, and is typically temporary compared to generational poverty.
• Access to education and financial literacy plays a crucial role in overcoming situational poverty, helping individuals make informed financial decisions and improve their circumstances.
• Establishing supportive relationships, such as finding mentors and connecting with well-informed organizations, can provide guidance and resources essential for escaping poverty.
• Utilizing community and government resources, including financial assistance programs, can offer critical support to those experiencing situational poverty and aid in recovery efforts.
• Developing a positive money mindset, setting clear financial goals, and practicing good budgeting habits can empower individuals to break the cycle of poverty and achieve stability.
What Is Situational Poverty?
Situational poverty is a type of poverty that is the result of a sudden or severe crisis. It usually has a specific cause or triggering event, and the financial difficulties may be only temporary. Those in situational poverty may have ways to steadily improve their finances.
This is in contrast to generational poverty, where at least two generations of a family are born into poverty. In this case, poverty is largely the result of circumstance; people don’t have the knowledge or skills to escape poverty, so often their finances do not improve.
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Reasons for Situational Poverty
Situational poverty is often the result of a sudden or severe crisis in a person’s life. While there are many events that may lead to situational poverty, they are often temporary. Here’s a look at some of the triggers that can cause this sort of disadvantaged scenario.
Being Born Into a Disadvantaged Background
Being born into a disadvantaged background can contribute to situational poverty; it can also be a factor in generational poverty, which requires at least two generations to be born into poverty.
In terms of situational poverty, if you were born into poor circumstances, even if your parents had been wealthier earlier in their life, it may still be difficult for you to get ahead financially. You might face issues like lack of access to medical care and educational resources. You don’t get that boost into financially stable adulthood that some people do.
Making Bad Financial Decisions
When you are grappling with poverty, you may wonder, why am I so bad with money? But it’s not uncommon for people to make a series of unwise money moves and wind up in poverty as a result. Perhaps you made a bad investment or took on a large debt (say, a mortgage) that you couldn’t keep up with. Or maybe you poured all your savings into a business idea that didn’t succeed. Sadly, these things happen every day. In some cases, the consequences of these sorts of decisions can trigger situational poverty.
Experiencing a Tragedy
It’s painful to think about it, but there are many types of tragedies that can send a person’s finances into a downward spiral. For instance, you might lose your house in a hurricane or your spouse (with whom you share your finances) might die unexpectedly. These events can leave a person without the means to live above the poverty line.
Lack of Good Education
Education is a path out of poverty, and sadly, the inverse is also true: Not getting a solid education can lead to a person not succeeding financially. They may lack the skills to earn higher wages.
Lack of financial education, such as the importance of an emergency fund and how to manage your finances, can also result in or contribute to situational poverty. Unfortunately, many U.S. high schools don’t require personal finance education as a graduation requirement. As a result, many people enter adulthood without basic financial skills like how to open a new bank account, set up a basic budget, and avoid “bad” debts.
Tips for Breaking the Vicious Cycle of Poverty
The scenarios above reveal some of the ways that a person can slip into poverty. Once you’re in that situation and possibly struggling to pay bills, however, it can feel impossible to climb your way out. Fortunately, there are several paths that may help you rise up and get on better financial footing. Here, some ideas for how to get out of situational poverty.
1. Getting a Sound Education
A good education — and specifically a good financial education — is one of the first steps toward getting out of poverty. While financial education classes in school are ideal, you can still learn the basics on your own, even as an adult. For example, the FDIC’s How Money Smart Are You? can help you learn the basics. Many universities and organizations also have personal finance courses for adults. You can also find free educational materials online that can help boost your financial IQ and guide you towards making money-smart choices.
2. Having a Close Mentor
Having a great mentor is one of the best ways to get a leg up in life, and the same applies to escaping situational poverty. A career mentor can help you gain the skills and experience you need to find (or find a better) job, while a financial mentor can help you learn how to budget, save, and ultimately break the cycle of poverty.
It can take some searching but you may be able to find a mentor where you work or by networking with friends, family members, and neighbors. People who have achieved success and escaped poverty themselves are often happy to give back by helping others in the community.
3. Working With Well-Informed Organizations
Another way to improve your financial literacy and learn how to overcome situational poverty is to work with trusted organizations. There are a number of nonprofit groups that specialize in different aspects of personal finance that could be holding you back. For example, the National Foundation for Credit Counseling (NFCC) helps people who are saddled by large amounts of debt. Operation Hope provides financial education to underserved communities, while Accion is a nonprofit that is focused on bringing financial technology and tools to underserved communities.
4. Utilizing Community and Government Resources
There is no shortage of community and government resources that can help if you are experiencing situational poverty. Churches, schools, community centers, and public libraries can offer support within your community.
Beyond your community, there are extensive government resources that can also help. For example, you might qualify for benefits like SNAP (Supplemental Nutrition Assistance Program) or the child tax credit. There are dozens of government programs that use poverty as a qualifying criterion. The U.S. Department of Health & Human Services (HHS) has a list of programs on its website.
5. Changing Your Money Mindset
Your mindset can hold you back just as much as it can empower you. It’s worthwhile to try to improve your money mindset. Something that is important to remember is that situational poverty is often temporary.
This is especially true if a bad financial decision or a natural disaster was a major contributor to your lack of funds. These are passing, albeit difficult, moments. By leveraging some of the resources mentioned in this article and practicing financial self-care, you can make progress.
6. Setting Financial Goals
Setting financial goals is important whether you are experiencing poverty or not. But it is even more important when you are hoping to build up your financial resources. Money goals can help you work toward something specific. Consider taking some time to map out what steps you want to take to move through your situational poverty. Some common goals are developing a budget with positive cash flow and paying down high-interest credit card debt.
7. Cutting Expenses and Spending Wisely
One aspect of budgeting that can help you pull yourself out of a tough financial spot is cutting any nonessential expenses, and then funneling that money towards your goals, such as paying down debt (more on that below) or taking a class to learn a skill that can help you get a promotion or a higher-paying job.
To “find” money, it can help to look at your current expenses and see where you may be able to trim back. For example, if you have any streaming services, you might pause them until you have your finances in order. Or if you have a cell phone plan, you might switch to a prepaid plan so you aren’t being charged automatically and can take control of your spending. You might also negotiate lower interest rates by calling your credit card issuer; this tactic may yield rewards.
8. Paying Down Your Debt
If you have large amounts of debt, you’ll want to prioritize paying down those with the highest interest rates first. You might look into a balance transfer credit card, which may give you no or low interest for a period of time. That can help you whittle down debt as it gives you some breathing room from a high annual percentage rate (APR). If you can qualify for a low rate on a personal loan, you may use it to consolidate your debt. Working with a non-profit credit counseling organization is another option to help you manage this common aspect of poverty.
Payday loans offer cash advances before payday to those who need cash quickly, but this money infusion can really cost you. These loans typically have extremely high interest rates. Even with state laws limiting fees to no more than $30 per $100 borrowed, you could still end up paying the equivalent of 400% interest or more. And if you are unable to pay back a payday loan, you may end up in a debt cycle that can be difficult to break out of.
10. Making Saving a Priority
Saving is generally always smart, but situational poverty can highlight its importance. When you’re financially vulnerable, any expense you aren’t expecting could really rock your situation. A big medical or car repair bill could be a huge problem.
Even if you don’t have the means to put much aside, even a small contribution to savings each month can slowly but surely add up to a solid cash cushion over time, especially if you put the funds in a savings account that pays a competitive rate, such as a high-yield savings account. This allows your money to grow just by sitting in the bank. As your finances improve, you can gradually increase how much you siphon off into savings each month.
11. Finding Out Where You Stand
Finding out where you stand can be a powerful exercise. We tend to be our own biggest critics, and that applies to finances, too. When you take a look at the numbers (go ahead and really study your income, cash outflow, assets, and debt), you might find you are doing better than you think.
Granted, this may not be the case when you first find yourself in situational poverty. But as you start to work on things, you might find your debt declining. Or that your savings by age is better than you expect. That can give you the confidence boost you need to keep exercising good financial habits and continue to improve your situation.
Also, even if you are in the midst of situational poverty and your status isn’t great, you will at least know exactly where you are. That benchmark will be what you build from.
The Takeaway
Situational poverty is a type of poverty typically caused by a life event, such as a divorce, severe health problems (and the resulting bills), or a natural disaster. This type of poverty is usually temporary and can often be overcome by boosting your financial education, accessing community and government resources, and prioritizing debt elimination and saving.
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FAQ
How can I overcome a poverty mindset?
Overcoming one’s mindset is often a key step to getting out of poverty. Here are some ways to break out of a poverty mindset and feel more empowered:
• Set achievable financial goals and celebrate small victories to build confidence.
• Educate yourself on personal finance through books, courses, and mentors.
• Surround yourself with positive influences and avoid those who reinforce negative stereotypes.
• Practice gratitude to appreciate what you have.
• Cultivate a growth mindset by seeing challenges as opportunities for learning.
How do I know if I am poor or not?
The federal poverty guideline for 2024 for the lower 48 states and D.C. is an annual income of $15,060 or less for an individual. For a couple, poverty is defined as an annual income of $20,440 or less. For a family of four, it’s defined as an income of $31,200 or less.
How many people are in situational poverty?
It is difficult to know exactly how many people live in situational poverty. However, a large number of people live in poverty in general. According to the latest data from the U.S. Census, the official poverty rate is 11.5% of the population, with 37.9 million people living in poverty.
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Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://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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