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At some point, there may come a time when you need to ask the question: Does filing for unemployment benefits affect your credit score? The answer is no, fortunately.

Losing your job can be like a kick in the stomach. It can deflate you and leave you scrambling to figure out what to do next. That last thing that many people need, in addition to firing up a job search, is a hit to their credit score, too. If you do lose your job, many financial professionals will tell you that the first thing you should do, if you qualify, is to file for unemployment so that you still have some income as you revise your resume and start interviewing.

The good news, again, is that you don’t need to worry about a potential ding to your credit. More information below!

Why Your Credit Score Matters

Your credit score is, in a sense, your financial reputation. It can give lenders or creditors a quick and easy summary of your creditworthiness — or, how likely it is you are to pay back a loan on time and in full. Everyone has a credit report, and you can think of your credit score as a truncated version, or sort of like a CliffsNotes, to your credit score.

Your credit score matters because it’s used by lenders to gauge how risky you are as a borrower. It’s used to measure not only whether a lender would be willing to give you a loan, but how much they’d charge you for the privilege — or what the effective interest rate would be for borrowing.

When it comes to some of life’s bigger purchases, such as a car or a home, that can be very important. A couple of percentage points can mean that a borrower ends up paying tens or even hundreds of thousands of dollars more in interest over the years. As such, when a lender sizes up your credit application and takes a look at your credit score, the higher, the better.

As for what factors affect your credit score? It’s a mixture of things: Your payment history, total debt balances, credit utilization, credit history (how long you’ve had accounts), credit mix, and inquiries from lenders.

Recommended: Should I Sell My House Now or Wait?

Unemployment Won’t Appear on Your Credit Report

Again, you may be concerned that if you lose your job, filing for unemployment may affect your credit score. And, again, there’s no cause for concern. Not only will filing for unemployment not affect your credit score, it also won’t appear on your credit report. Your credit report contains information relating to your past borrowing activity, not your employment status.

So, unless there’s been a change in your credit history — say, you apply for a new line of credit or close an old credit card — your credit report won’t change. That said, your credit report may contain information relating to past employers, but the only thing that should have an effect on your credit score will be items relating to financial accounts.

That may become an issue if, say, you were issued a company credit card at a previous job. But for most people, your employment status, or past employers, aren’t likely to have an impact on your credit report or credit score.

Remember: Your credit score is a snapshot of your financial reputation, not your employment status!

How Unemployment Can Affect Credit Scores Indirectly

With all of that in mind, your employment status — or filing for unemployment — may have an effect on your credit score in an indirect way.

As mentioned, your employment status isn’t a part of your credit score’s calculation, and neither is whether or not you received unemployment assistance. It’s really all about paying back or down your debts, on time, and on schedule. As such, if you do lose your job and file for unemployment, you may find yourself in an income crunch. Your unemployment check is most likely going to be smaller than the paycheck you’re accustomed to receiving, and that may make it difficult to keep up with your payments.

You may also be tempted to start using your lines of credit more while unemployed as a way of making ends meet. For example, you might start using your credit card at the grocery store as a way of keeping money in your bank account, with the thought that you’ll pay off your balance once you get another job and a regular paycheck again. Some individuals may also look into personal loans for unemployed persons, too.

That logic may not be faulty, but doing so, you will increase your credit utilization and overall debt, which can lower your credit score.

Finally, if you find that you can’t keep up with your minimum payments due to the resulting cash crunch of losing your job, that, too, will ding your credit score. That’s why it’s important to maintain a line of communication with lenders. If you can’t make your payment, let them know, and they may be willing to work with you. Tools like a money tracker app may be helpful as well.

And, remember, if you do have a company credit card or some other type of financial account with an employer, and you lose your job, that credit line could be severed. That, too, could affect your credit score, as it ultimately lowers your total available credit.

Recommended: What Is The Difference Between Transunion and Equifax?

How to Protect Your Credit Score When Unemployed

As for protecting your credit score while unemployed, the most important things you can do are to try and keep your debt balances low and to keep an open line of communication with your creditors. Of course, a loss in income will probably spur you to change your spending habits by cutting back in certain areas. But in terms of maintaining your credit score, the best course of action is to keep doing what you’re doing: making your payments.

That means continuing to make your payments (at least the minimum) as scheduled. And, since it bears repeating, if you’re going to struggle to make those minimum payments, call your lender and let them know. Some will be willing to make accommodations (forbearance, extensions, etc), perhaps by deferring payments, although there’s no guarantee.

If you feel that you need more help, you can also work with a credit counselor to help you evaluate your options, and even negotiate with your lenders. You may also want to set up free credit monitoring, too, so that you can see any changes to your score.

The Takeaway

If you lose your job and file for unemployment, there shouldn’t be a direct effect on your credit score. That said, there may be indirect factors that could lower your score. The most important thing you can do to maintain a strong credit score is to keep making your payments and try to keep your debt balances (or credit utilization) to a reasonable level.

And remember that if you’re really struggling, it may be worth it to reach out to a professional for personalized advice.

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 apply for a credit card when I’m unemployed?

It’s possible to get a credit card while unemployed, but keep in mind that a creditor’s main concern is whether or not you can make your payments. As such, your approval for a credit card may hinge on your income and other debts or financial obligations.

What if my credit score goes down?

Credit scores go up and down all the time, but if you do experience a fall in your credit score while unemployed, you’ll likely know why — and it’s probably because you missed payments or saw your credit utilization go up. The good news is that you can always work on increasing it again.

What personal information does your credit report include?

The short answer? A lot of it. That includes your name, aliases, birth date, Social Security number, address (and former addresses), phone number, and possibly your employment history, among other things.

Photo credit: iStock/sorrapong

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.

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-Q224-1911223-V1

According to Bureau of Labor Statistics data, the average single person can spend between $238.46 and $434.33 per month on groceries. Many factors will impact a given individual’s expenses, such as location and eating style.

Nevertheless, looking at averages across the country can help one figure out if they are within the range of other people in their region, age bracket, and household size. Learn more here, including advice on trimming your grocery budget.

Grocery Bills and Inflation

Inflation can have a big effect on the price of groceries, making it harder to stay within your budget and reduce one’s bill. According to the USDA’s Economic Research Service, food prices rose 3.4% between April of 2023 and 2024.

That’s not a negligible number, but compared to the 10.8% increase in food prices between April of 2021 and 2022, it’s somewhat less challenging. That staggering increase was partly due to inflation and partly due to food shortages caused by the COVID-19 pandemic.

Average Monthly Grocery Budget Bill for One Person or More

There are several factors that determine how much a person might spend on groceries each month. These include age, gender, how many people live in the household, and monthly budget. Another major factor is the region one lives in. Some areas have much more expensive food than others.

The most expensive city for groceries is Honolulu, Hawaii, where the monthly average grocery bill was $556.76 in one recent year. The least expensive city is Manchester, New Hampshire with an average of $183.00, according to Zippia. As you see, cost of living can really make a difference. Other expensive states include Florida, Nevada, and Washington, while less expensive states include Iowa, Michigan, and Wisconsin.

In addition to groceries, one’s overall monthly bill for food can include any snacks and meals eaten out. The averages below are based on an individual or family cooking all their meals and snacks at home, they don’t include meals eaten out. Averages look at foods many people commonly purchase, such as eggs, dairy, meat, bread, and produce items.

Here are some numbers from a recent Bureau of Labor Statistics report:

Buying Groceries vs Dining Out

It’s up to each individual and family to decide how often to eat out or get takeout food and how much of their money to spend on dining at restaurants. In general, eating out tends to cost more than cooking at home, and it’s a good idea to keep track of and budget for or it can add up quickly.

Recent Bureau of Labor Statistics data suggests the average American spends as much as $300 a month on food outside the home, which is a significant number when budgeting. That doesn’t mean it’s the right number; just an average.

Another suggestion by many financial experts is that food costs (meaning groceries and food outside the home) account for no more than 10% to 15% of one’s take-home pay, regardless of which type of budget method you use.

Recommended: Does Net Worth Include Home Equity?

9 Tips for Reducing Your Grocery Bill

In looking at the average grocery bills above, one might start to think that they are spending too much on groceries, if they didn’t already feel that way before. Here are a few tips for lowering one’s monthly grocery bill.

1. Make a Budget and Plan Ahead

Allocating funds for groceries in a monthly budget planner then making a plan for what to buy can help reduce one’s grocery bill. Meal planning and shopping lists can help you stick with your budget.

2. Look for Discounts and Sales

There are many discount apps and coupons available for those who are grocery shopping on a budget. They are free and can help with reducing one’s grocery bill. However, some coupons can be tricky and actually cause additional spending, if they ask one to purchase two or more of an item to get the discount or they result in buying an item that wouldn’t have been purchased otherwise. Some stores also have sale days, especially after a big holiday, so those can be good days to go shopping.

3. Don’t Shop on an Empty Stomach

Avoiding impulse buying is another way to reduce one’s grocery bill. Studies have shown that shopping on an empty stomach leads shoppers to spend more and to buy high calorie foods that may be less healthy.

4. Consider Meal Kits

Although meal kit services may appear expensive, and some are, if they reduce the amount that one eats out at restaurants or the amount spent on groceries, that is a plus. Meal kits provide pre-portioned meals, so they prevent buying extra ingredients that go to waste.

5. Pay Attention to Delivery Fees

Having groceries delivered can be a great way to save time, and since it can help with sticking to a plan and grocery list, it can also help prevent impulse buys. However, delivery fees and tips can add up, so it’s important to factor those into monthly budgeting.

6. Shop at a Different Store

It can be easy to fall into a pattern of shopping at a certain grocery store due to convenience or their offering of foods one likes. But if that store has higher prices, it may be worth considering going to a different store for some or all of one’s groceries.

7. Create a Routine

Another way to stay on top of grocery budgeting is to create routines. This can help with sticking to a shopping list and making sure extra food doesn’t get purchased. Habits like these can help you avoid impulse buying or purchasing food that winds up going to waste.

8. Buy Generic Brands instead of Name Brands

Many stores carry their own brands of food that are cheaper than big name brands. These items are very similar in taste and quality but have a lower price point. This can hold true at wholesale clubs, too, further increasing how much you can save.

9. Shop More Often

It may seem surprising, but going to the grocery store more often can help people spend less money than if they go on mega runs. The reason is that it avoids food waste because it’s easier to think about what will be eaten within the next few days than the next couple weeks.

Recommended: Building a Line Item Budget

The Takeaway

Since there is more flexibility in buying groceries than other expenses such as rent and other bills, cutting back on grocery spending can be a great way to save. If you’re looking to start making a budget, setting savings goals, or paying off debts, you might benefit from a money tracker tool.

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 much should you be spending on groceries a week?

According to the USDA’s food plans, a couple could spend between $92 to $183 per month, depending on which food plan they follow, ranging from Thrifty to Liberal.

What is the average cost of groceries per month?

One recent study put the average cost of groceries per month at $475.25, put of course much will depend on household size, age of household members, location, and eating style.

What are examples of popular discount grocery stores?

Popular discount grocery stores include Walmart, Aldi, Sam’s Club, and Trader Joe’s.

Photo credit: iStock/andresr

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.

SORL-Q224-1911179-V1

One of the most important chores on any financial to-do list is to regularly review your credit reports for errors. If an error does appear, disputing it is a fairly simple process with a big potential payoff: It might help build your credit score.

Keep reading to learn how to dispute a credit report and win.

How to Get an Accurate Credit Report

Consumers can access their credit reports for free every 12 months from the three major credit bureaus: Experian, TransUnion, and Equifax. These credit reporting companies feature similar but not identical data, and any errors may appear on one or more reports.

There are three ways to request a report:

•  Online: AnnualCreditReport.com

•  Phone: (877) 322-8228

•  Mail: Download an Annual Credit Report Request form from the URL above, and mail it to:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281

You can request all three reports at once or each one at different times without paying a fee. Helpful hint: By ordering one at a time and spacing out requests every four months, you can be fairly confident about catching major issues while they’re fresh and easier to dispute. For example, you might order the Experian report in February, the TransUnion one in June, and Equifax in October – all for free.

After your free annual access has ended, you can pay to check your credit reports as often as you like. Credit reporting companies can’t legally charge a consumer more than $13.50 for a report. It’s also possible to access credit reports through specialty consumer reporting companies, some of which charge a fee.

Recommended: What Is the Difference Between Transunion and Equifax

Why It’s Important to Correct Mistakes in Your Credit Report

Credit reports generally make it easy to spot negative financial information like missed payments. However, take care to review your credit report for other incorrect data, however minor, such as former addresses and employers. Common credit report errors include inaccurate bank balances, duplicate account info, and false late payments.

In case of an error, take steps to have the mistake removed as soon as possible. Credit report errors can lead to a bad credit score, impact loan applications, or raise your interest rate. Bad marks on a credit report can also affect your employment options, insurance premiums, and ability to rent an apartment.

Recommended: Developing Good Financial Habits

How to Dispute Errors on Your Credit Reports

To dispute an error on a credit report, you’ll need to contact each credit bureau that published the error. Mistakes can appear on one report only or all three. Each credit bureau has its own dispute process, so check the instructions on AnnualCreditReport.com or the individual credit bureau sites. You’ll likely need to fill out a dispute form and provide supporting documentation that helps prove an error was made.

If your dispute is accepted, follow up to make sure the credit bureau and the business that supplied the incorrect information update their records accordingly. If a mistake is easy to prove, start with the business that made the error. Be aware that credit bureaus and businesses cannot charge you to correct errors on your report.

In the case that a mistake on a credit report is due to identity theft, it’s important to report that to IdentityTheft.gov and get a personalized recovery plan.

Recommended: Guide to Building Credit With No Credit History

Example Letter for Disputing a Mistake on Your Credit Report

Usually, a dispute needs to be submitted in writing. If you submit a letter via the Post Office, send it certified mail with “return receipt requested.” That way you have proof that the credit bureau received the letter.

The following information should generally be included in a dispute letter:

Identifying Information

The date, consumer’s name, and their address all need to be included in the letter.

Each Item That Needs Disputing

Whether there is one error or many, each one should be outlined briefly and clearly. Identify each error, explain why the information is wrong, and supply the correct information if applicable. Then request to have the error corrected or removed.

Copy of the Credit Report

It can be helpful to enclose a copy of the credit report with the errors circled. Don’t send any original documentation with your letter. Make copies and keep the originals safe in case they are needed again.

Why Consider Credit Score Monitoring

To efficiently keep an eye on your credit reports, you may opt to use a credit monitoring service. These services will update account holders when certain credit updates appear, such as new accounts, hard inquiries, high credit card balances, or a missed payment.

Not only does credit monitoring make it easier for consumers to stay on top of their credit and work toward building their credit score, but it can help catch fraud and identity theft early.

How to Report Credit Scams

If you suspect you’ve been the victim of a credit scam, report it to IdentityTheft.gov, a division of the Federal Trade Commission. They will provide a personalized recovery plan, walk you through the steps, track your progress, and even pre-fill forms and letters for you. Then, you should dispute any false information on your credit report.

The Takeaway

Disputing and correcting errors on your credit report is usually straightforward, as long as the mistake can be proven. Whenever possible, reach out directly to the business that reported the mistaken info. Then, follow the dispute instructions for each of the three major credit bureaus: Experian, TransUnion, and Equifax. Regularly review your credit reports annually to catch errors early, before they negatively affect your financial record – and your life.

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

Who always wins a credit dispute?

There is no one party or side that always “wins” a credit dispute. If the consumer can document that an error was made, they will likely win the dispute.

What reason should I put for disputing a credit report?

The reason for disputing an error on a credit report can be a typo, outdated information (more than seven years old), data that belongs to another consumer, or fraud, among other things. Include any supporting documentation you have to help strengthen your argument.

Does disputing a collection notice reset the clock?

No, but a dispute does pause the clock in regard to bill collectors. Once you dispute a debt in collections, the collections agency can’t contact you again until they have provided verification of the debt in writing to the consumer.

Photo credit: iStock/mediaphotos

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.

SORL-Q224-1921134-V1

If you’re saddled with credit card debt, you’re not alone. Average credit card balances increased by 10% in 2023 to $6,5013, according to Experian’s 2023 Consumer Credit Review. And according to a November 2023 Bankrate survey of 2,350 U.S adults, a full 49% of cardholders carry credit card debt from month to month. Considering the average credit card interest rate in the U.S. today is 24.71%, that average balance could end up costing Americans quite a bit in interest.

Using your credit card wisely can help you not only avoid having to make hefty interest payments, but can have a positive impact on your credit, since 30% of your FICO® Score is determined by your amounts owed. If you’re working on getting out of — and staying out of — credit card debt, here are some tips on being a savvy credit card user.

How to Use a Credit Card Wisely: 7 Tips

If you have a credit card, it’s crucial that you use your credit card responsibly. Here are some tips to keep in mind to ensure your credit card usage stays in check.

1. Always Try to Pay Off Your Statement Balance in Full

With average interest rates topping 24%, credit cards can be a very expensive way to borrow money. It’s important to pay off your statement balance in full after each billing cycle if you want to avoid dealing with high-interest charges.

If you’re already in the habit of paying your balance in full when it comes due, you could consider leveraging your credit card spending to earn favorable reward points, such as points toward travel or cash back rewards.

2. Cut Your Interest Rate if You Have Credit Card Debt

If you have a large balance or multiple cards, paying off your credit card debt is likely top of mind. It could help to consolidate your credit card debt with a personal loan. Debt consolidation generally makes sense if you can get a lower interest rate than you’re currently paying on your balances. This can help you save money and pay your debt off faster. Debt consolidation also simplifies repayment by giving you just one bill to pay each month.

If you have a large balance on just one card, you might look into getting a 0% interest, balance-transfer credit card. You would then transfer your current high-interest debt onto this card and make sure you pay it off during the promotional period to get the interest-rate savings. You generally need good or excellent credit to qualify for a 0% interest card, however. Also keep in mind that balance-transfer credit cards typically charge a fee of 3% or 5% of the total balance you transfer to your new card.

Recommended: Balance Transfer Credit Cards vs Personal Loans

3. Make Sure to Pay on Time

This one may seem like a no-brainer, but it’s still worth discussing. Paying your statement balance even one day after the due date can trigger a steep late fee, on top of interest if you’re not paying off the card in full. Also, since payment history is 35% of your FICO Score, paying late can also potentially hurt your credit. Consider putting your credit card bills on autopay if you have a history of an occasional late payment.

4. Build an Emergency Fund to Avoid Turning to Credit Cards in a Bind

Emergencies happen and, ideally, you’d be able to turn to your savings instead of leaning on a credit card to take care of an unexpected expense. If you don’t have an emergency fund yet, it might be a good goal to prioritize once your credit card debt is under control. In general, an emergency fund makes for a much better safety net for these situations.

Recommended: Why Having Emergency Savings Should Be a Financial Priority

5. Use the Snowball Method to Help Pay Off Debt More Quickly

If you’re paying off multiple debts, the popular snowball debt-payoff method may help you pay them off faster. Here’s how it works:

•   Make a list of all of your debt balances from largest to smallest, then target the account with the smallest balance to pay off first. Put extra money towards that balance each month while paying the minimum on the others.

•   Once the target account is paid off, add the amount that you were allocating to that debt to the next-smallest balance, while paying the minimum on the rest.

•   Repeat this process until all debt balances are paid off.

For many, this method works by providing incremental victories from knocking out smaller debts, which can offer momentum toward tackling larger balances.

Recommended: How to Pay Off Debt in 9 Steps

6. Keep Your Card Open Even After You Pay Off the Balance

Having access to available credit that you don’t use can help to improve your credit profile. This is because you’ll be using a smaller percentage of your available credit. Remember, “amounts owed” accounts for 30% of a FICO Score. One of the elements that FICO considers in this factor is your credit utilization ratio — how much of your available credit you are actually using.

To lower your credit utilization low, it can help to keep a card you’ve paid off open and, if you do use it, to pay off the balance in full each month.

7. Try Sticking to Cash to Reduce Credit Card Spending

Paying in cash rather than putting everything on the credit card can help you better track — and control — of your spending. The key is to withdraw a set amount of cash to cover your expenses for the week and only spend that amount.

To try this method, you’d want to decide how much you need to spend each day and put that amount of cash in your pocket. When it’s gone, you’re done spending for the day. It may take a lot of discipline, but if it helps you successfully pay off your credit card debt, it could be worthwhile.

Recommended: The Envelope Budgeting Method: What You Need to Know

The Takeaway

Using your credit card responsibly is key to avoid racking up interest charges and potentially harming your credit score. You’ll want to ensure you make at least the minimum payment on time each month and, if you can, pay off your balance in full. Other tips for using credit wisely include ensuring you have an emergency fund and considering sticking to cash for more strict budgeting guide rails.

And if you do find yourself in credit card debt, consider exploring solutions like the snowball method or securing a lower interest rate through a personal loan.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

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

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

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.

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 .

SOPL-Q224-1910257-V1

Generally speaking, the better your credit score, the better your potential loan rates and offers may be. The reason is that your credit score tells lenders how much risk you pose as a borrower. A good credit score may qualify you for what’s known as a prime loan.

Here, what a prime loan is and how it works.

Understanding a Prime Loan

To understand a prime loan, it can help to understand the prime rate. The prime rate is established by banks as the interest rate given to its best customers, generally large corporations that borrow and repay loans on a regular basis This number is based on the federal funds rate set by the Federal Reserve.

The prime rate is a critical financial benchmark. Banks and other lenders typically use it to set interest rates for various consumer products, including credit cards, personal loans, personal lines of credit, auto loans, and home loans. Lenders will use the prime rate as a baseline, then add a margin on top of the prime rate to determine a loan’s interest rate. How much more a borrower will pay above the prime rate will depend on their creditworthiness.

Many loans are based on the prime rate, so it can be a good rate to track if you’re in the market for any type of lending product. For example, if you’re considering a fixed-rate loan, like a mortgage or a personal loan, and the prime rate is currently low, you may be able to lock in a lower rate for the life of your loan. If you’re considering variable-rate debt, like a credit card or home equity line of credit (HELOC), your rate might start low but go up over time if market rates rise. If market rates decline, on the other hand, your rate could go down.

Prime Loan Borrowers

The term “prime” is also used by lenders to refer to high quality in the consumer lending market — including borrowers, loans, and rates. Prime loans generally have a competitive interest rate and are offered to borrowers who have a low default risk and good or better credit scores. The opposite of prime is subprime, a term for riskier loans with a higher interest rate.

According to the Consumer Finance Protection Bureau (CFPB), borrowers with a credit score of 660 to 719 are generally considered prime borrowers. Those with scores above 720 are considered “super-prime” borrowers, and will receive even more favorable interest rates.

Here are the five credit score categories for borrowers:

Knowing your credit score can help you assess the category you will fit in.

Prime Loan Rates

As of May 20, 2024, the current official prime rate is 8.50%, according to The Wall Street Journal’s (WSJ’s) Money Rates table, which aggregates prime rates charged throughout the U.S. and in other countries. The prime rate is typically three percentage points higher than the federal funds rate, set by the Federal Reserve.

Each bank has the ability to set its own prime rate, but most base it off the national average listed under the WSJ prime rate.

Prime rates for consumer loans, however, aren’t the same as the “prime rate” that is used for a bank’s top corporate customers. Since consumers generally do not have the same resources as large companies, banks typically charge them the prime rate plus a surcharge based on the product type they want and their qualifications as a borrower. For example, a credit card interest rate might be the prime rate plus 10%.

How Does the Prime Loan Rate Affect You?

The prime loan rate affects everyone. From buying a car to buying a house to opening a credit card, the benchmark prime loan rate will have an influence on how much interest you’ll pay. You may be more vulnerable to prime loan rate fluctuations if you have a lot of variable interest loans, like credit card debt. As the prime rate climbs, so too might the APR of your cards. When you see a prime rate hike, it can mean that your APR will quickly rise as well.

Conversely, when the prime rate falls, some people use that time to refinance a mortgage or lock in a rate for a loan, like a personal loan or an auto loan.

Because the prime rate affects credit cards, some people who carry a high credit card balance who have good credit may consider using a personal loan to consolidate their credit card debt. This is one popular use for personal loans and can potentially help you save money on interest, depending on the rates offered.

What Is the Difference Between a Prime Loan and Subprime Loan?

Prime rates for consumer lending products are what lenders charge individual borrowers with good or better credit scores. Borrowers with lower credit scores are considered subprime borrowers and can apply for subprime lending with higher (or subprime) rates. Here’s a closer look at the differences between prime vs. subprime loans.

Interest Rates

Interest rates are one of the most obvious differences between a prime and subprime loan. But even within the prime lending category there may be subcategories that receive different interest rate offers. For example, a prime borrower with a credit score near super-prime territory may receive more favorable rates than a borrower whose credit is close to subprime.

Recommended: 8 Reasons Why Good Credit Is So Important

Repayment Periods

A subprime borrower may also have fewer options when it comes to repayment periods. They may have a shorter repayment period at a higher interest rate than a prime borrower.

Down Payments

A prime borrower may have a low, or no, down payment required for a loan. But subprime borrowers may have to make a substantial down payment to qualify for a loan. This is especially true for loans like car loans or mortgages.

Loan Amounts

Prime borrowers may have access to greater loan amounts than subprime borrowers.

Fees

Non-prime borrowers may also have to pay more loan fees than a prime borrower. This may be due to the types of loans they can access. If they can’t get a loan from a traditional bank, a subprime borrower may seek payday loans or other loans that come with sky high interest rates and fees.

Recommended: How Does a Subprime Personal Loan Work?

What Do You Need To Qualify for a Prime Loan?

You generally need a credit score of 660 higher to qualify for a prime loan. If your score is 720 or above, you may qualify for super-prime loans. That said, a lender will typically look at more than your credit score to determine whether you qualify for a prime or better loan. Other factors that can impact your loan rates and terms include your income, employment status, and how much debt you currently carry.

Recommended: Debt-to-Income Ratio (DTI): How to Calculate It

The Takeaway

The prime rate is out of your control. But you do have some control over the actual interest rate you’ll pay for a loan. One key factor is your credit score. If you’re not currently considered a prime borrower, building your credit before you apply for new credit can help you have the most competitive loan options, whether you’re researching mortgages, credit cards, or personal loans.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

FAQ

What does prime mean in loans?

The term “prime” is used in consumer lending to refer to high quality borrowers, loans, and rates. Prime loans generally have a competitive interest rate and are offered to borrowers who have a low default risk and good or better credit scores. The opposite of prime is subprime, a term for riskier loans with a higher interest rate.

Is there a difference between prime loans and subprime loans?

Yes. Prime loans come with competitive interest rates and favorable terms and are generally offered to people whose credit scores are in the 660 to 719 range. (Borrowers with credit scores above that are considered super-prime borrowers and may be given even better rates and terms.) Borrowers with lower credit scores are considered subprime borrowers and may only be able to access loans with high interest rates and less favorable terms.

What is the current loan prime rate?

As of May 20, 2024, the current official prime rate is 8.50%, according to The Wall Street Journal’s Money Rates table.

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