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A lot of basic “adulting” involves a credit score. Renting an apartment? The landlord will want a credit score. Financing a car? Lenders need to see a credit score. Buying a home? You get the point.

A low or nonexistent score can get in the way of your life plans. But a few simple steps can set you on the path to success.

How Many Credit Cards Do You Need?

Don’t own a credit card yet? Getting a card is a simple way to start establishing credit. (People who already have a card with a balance might want to focus on paying it off instead of applying for a new one, though.) However, it’s crucial to use a card wisely. Otherwise, cards can do more harm than good.

Most people should consider applying for just one card, not five. And keep in mind that just because someone has a card doesn’t mean they have free money. Opening one new line of credit and using it responsibly is a good way to build credit.

Recommended: Does Applying for Credit Cards Hurt Your Credit Score?

How Credit Cards Impact Your Credit Score

While some people out there believe credit cards are the root of all evil, they can boost credit scores in multiple ways if used correctly. The most common credit score model is issued by FICO®. Your FICO Score is comprised of five factors:

•   Payment history: 35%

•   Amount owed: 30%

•   Length of credit history: 15%

•   Credit mix: 10%

•   New credit: 10%

Credit cards can be an effective tool in a new credit builder’s toolbox. When someone uses a credit card responsibly, this can potentially have a positive effect on all five FICO categories.

Payment history: Making monthly payments on time (even just minimum payments) can help your credit score. As you make consecutive monthly payments, your score should gradually increase — as long as you remain responsible with your finances in other areas of your lives.

Amount owed: Everyone has something called a credit utilization ratio, sometimes referred to as a debt-to-credit ratio. This is the ratio of debt you owe versus how much debt you can owe.

Credit cards have credit limits. Let’s say Dana’s credit limit is $10,000, and she owes $5,000 on her card. Her credit utilization ratio is 50%. If she pays off $1,000 and only owes $4,000, her ratio is 40%. The lower the ratio, the better. That’s why older adults often lecture teens and early 20-somethings to pay off their card balances in full. A low ratio means better things for borrowers’ credit scores.

Length of credit history: The longer you have a line of credit, the better it is for your score. Ideally, someone would open their first credit card and keep it for years while making payments on time and keeping their balance low.

Those who already have a credit card but have racked up debt may want to think twice before canceling their card for this very reason. They might be better off working to pay off the balance aggressively and keeping the card for longer. But if they want to remove the temptation to keep charging the card, they can cut up the credit card, like Rachel does in Friends. This way, the card isn’t sitting in their wallet, but their line of credit is still open.

Credit mix: FICO likes it when people have multiple types of debt. A recent college graduate’s only debt might be student loans. To improve their credit mix, they might consider getting a credit card as well.

New credit: When someone applies for a card, the issuer checks their credit score to determine whether they’ll be approved and what the interest rate should be. This is known as a hard credit inquiry.

A bunch of hard credit inquiries in a short amount of time looks bad for a credit score, especially for someone whose score is already low. Besides, by limiting themselves to only one card, young people who are still learning the ropes of establishing credit might be less inclined to spend recklessly.

Recommended: What Is the Average Credit Card Limit?

Consider a Secured Credit Card

Young people with low credit scores (or even no scores at all) may not be accepted if they apply for a top-notch credit card. Another option is to apply for a secured credit card. This type of card is meant specifically for people who want to build credit.

To use a secured credit card, people make a cash deposit to back their credit card account. The deposit amount typically becomes their spending limit. For example, John makes a $100 deposit when he receives his secured credit card. He can charge up to $100 to his card before paying it off. As long as he makes payments, he can keep charging to the card as long as the balance doesn’t exceed $100. If John doesn’t make payments on time, the issuer can take money from his cash deposit.

Secured cards benefit both the consumer and issuer. The consumer can build credit, and a cash deposit makes it less risky for the issuer to do business with someone who hasn’t yet proven that they can make payments on time.

What happens to that cash deposit down the road? If all goes well, people should get back their money. Many reputable credit card issuers offering secured credit cards give consumers the option to upgrade to a regular “unsecured” credit card once their credit score improves. When the user upgrades, they should receive that deposit back.

People researching secured credit cards may want to look for issuers who will let them transition to an unsecured card. This can simplify the process of switching to a regular credit card. Plus, the borrower won’t have to hang onto an unnecessary card or cancel the secured card later — which can help the “length of credit history” part of their FICO score!

Become an Authorized User on a Parent’s Credit Card

Some people may not trust themselves to use a credit card without racking up a ton of debt. Or they have the exact opposite fear: They might never use it, so they wouldn’t be making payments to boost their payment history. The latter fear may be the case for young people who are still receiving financial help from their parents and therefore don’t have many expenses to put on a card.

In either of these cases, young people might consider becoming an authorized user on a parent’s credit card. The parent can call the credit card issuer to officially put their child’s name on the card.

Young people should only add their name to a parent’s card if the parent has a high credit score and solid financial habits. If the parent starts to miss payments or accumulate a ton of debt, it will negatively affect the authorized user’s credit score.

Establishing credit through a parent’s card can help someone acquire a decent score before getting their own credit card. If they have a good credit score prior to applying for their first card, they might be approved for a harder-to-get card at an attractive interest rate. After receiving their own card, they might decide to remove their name from the parent’s card so they can have sole control over their personal credit score.

Pay Bills on Time

We’ve established that making monthly credit card payments positively contributes to the “payment history” part of a credit score. Credit cards aren’t the only things people can pay on time, though. Making timely payments on things like car loans or student loans also helps.

Certain bills don’t show up on credit reports, such as cell phone bills and insurance payments. While paying those bills doesn’t improve people’s credit scores, skipping payments can certainly hurt their scores. When people default on their payments, their credit scores can take a major hit. So it’s important for people to pay all their bills, even the ones that aren’t on their credit reports.

Take Out a Credit-Builder Loan

Just as secured credit cards exist for people trying to build credit, there are special loans for this purpose as well. These are called credit-builder loans, and they are usually offered by smaller banks and credit unions.

When people take out credit-builder loans, the loan amount is held in a separate bank account until the borrower pays off the full amount. By making payments on time, the “payment history” part of people’s scores should gradually improve. Borrowers do have to pay interest on the loan, and the percentage will depend on the lender. But there’s a huge bonus: Once people pay off the loan, they get to pocket the full loan amount and the interest they’ve paid. Not only do they walk away with a better credit score, but they now have money to put toward their emergency fund or student loan payments.

While people don’t need a good score to be approved for a credit-builder loan, they do need proof that they earn enough money to make monthly payments on time. They may need to provide documents such as bank statements, employment information, housing payments, and more.

Considering taking out a credit-builder loan? When shopping around, it is a good idea to keep an eye out for factors like APR, required documents, term length, loan amount, and additional fees before making a decision.

Keep Track of Your Credit Score

Many people have no idea what their credit score is. By regularly checking their score, they can know exactly where they stand and how much progress they need to make to reach their goals.

Some people may be concerned that checking their credit score can lower their score. But don’t worry, only “hard inquiries” affect credit scores. Hard inquiries occur when issuers or lenders check borrowers’ scores to determine whether to approve them for a credit card or auto loan, for example. But when a person checks their own score on a website or money tracker app, this is considered a “soft inquiry” and doesn’t affect their score.

The Takeaway

When establishing credit, keep in mind that “slow and steady wins the race.” People shouldn’t get discouraged when their credit score doesn’t surge after two months of making payments on time. And if they do get discouraged, they shouldn’t give up. The important thing is to continue making payments on time and using a card responsibly. The reward will come.

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.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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

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

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

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-Q225-013

Most businesses report information to the credit bureaus every 30 to 45 days. Each on-time payment you make may barely affect your score, while a missed payment can have a significant effect.

But how often does your credit score update? Let’s find that answer, and learn how to keep an eye on your credit history and credit score.

When Do Credit Reports Update?

Whenever consumers take some sort of action relating to their credit, their score — usually a number between 300 and 850 — will fluctuate.

For instance, if they apply for a loan or miss a credit card payment, their score could change.

There is no set date for a credit score update because a lender or creditor may send information to the three main credit bureaus at different times: Experian one day, Equifax five days after that, and TransUnion a week later.
An update, though, will occur at least every 45 days.

Rather than constantly checking for updates, you might want to focus on long-term goals that can help you build credit, like paying off debt, always sending payments on time, and ensuring that your scores are going in an upward direction.

Need help managing your finances? With an online budget planner, you can set budgets, organize spending, and spot upcoming bills.

Recommended: Which Credit Bureau Is Used Most?

What Is a Good Credit Score?

Lenders most often use FICO® Score, but the credit bureaus introduced the VantageScore® in 2006 to provide a score that was more consistent among the three credit agencies.

This is how the FICO Score and the latest VantageScore models break down:

People with high scores typically have access to higher lines of credit and lower interest rates. Those with low credit scores may not be approved for certain credit cards and loans. And if approved for, say, a mortgage, they will usually pay a much higher mortgage interest rate.

How to Check a Credit Report

Under federal law, consumers are entitled to one free copy of their credit report every week from each of the main credit reporting agencies: TransUnion, Experian, and Equifax.

AnnualCreditReport.com is the only authorized website for free credit reports, according to the Federal Trade Commission.
Consumers can also call 1-877-322-8228 and provide their name, address, Social Security number, and date of birth to verify their identity.

If you want to check your credit history more frequently, you can ask one or all three credit reporting bureaus for another copy. They may charge you a small fee for the service.

Why check your credit report periodically? Mainly:

•   To make sure the information is accurate and up to date before you apply for a home or car loan, buy insurance, or apply for a job.

•   To help guard against identity theft.

Recommended: How to Read A Credit Report

How to Check a Credit Score

The free credit reports do not include your credit score — or more accurately, scores. Your credit score from each of the credit bureaus will vary based on the information each has. Lenders also use slightly different credit scores for different kinds of loans.

How to get your credit scores then? Here are a few ways:

•   Buy a score directly from the credit reporting companies or from MyFICO.com.

•   Look at a loan statement or a credit card statement. Some financial companies provide credit scores for customers as a perk.

•   Use a credit score checker. Some services give consumers access to their credit scores but charge for premium services like checking a score daily. Other sites may require that you sign up for a credit monitoring service with a monthly subscription fee in order to get your “free” score.

•   Sign up for a money tracker app like the one from SoFi. It provides free weekly updates on your credit score and tracks all of your money in one place.

When signing up for credit score checking websites, it’s important for consumers to look at the terms of service and ensure they’re not being charged for premium services they do not want.

Also, it’s best to avoid an “educational” credit score vs. a score that a lender would use. For some, there will be a meaningful difference, according to the Consumer Financial Protection Bureau.

What Makes Up a Credit Score?

Learning about what factors make up a credit score can help consumers raise their scores. Main factors that contribute to the score include:

Payment History

Payment history is the most important factor when calculating a score, so it’s critical to always repay debts on time.

Credit Utilization

The credit utilization ratio is the amount that is owed in relation to how much credit a person has overall. Keeping your credit utilization ratio below 30% is commonly recommended.

Length of Credit History

For the length of the credit history, consumers can increase their score by not closing cards. The longer someone’s credit history is, the better.

New Credit

Applying for a new credit card and loan that requires a hard inquiry could ding your credit score. But rest assured, the drop is temporary. It’s multiple hard inquiries on a credit report in a short period that can cause damage. Then again, if someone is shopping for a mortgage or auto loan, both FICO and VantageScore account for multiple hard inquiries in a grace period of 14 to 45 days.

Credit Mix

Credit mix refers to credit cards, student loans, auto loans, personal loans, and mortgages. By having a mix, consumers show that they can manage all kinds of debt.

Why Credit Scores Matter

Having a high credit score can help consumers in a number of scenarios. For starters, it can help consumers qualify for better interest rates, which in turn can lower the cost of borrowing.

Consumers with a strong credit score can often reach their financial goals quicker and utilize better products. For example, they may get approved for a credit card that offers perks like bonus travel rewards or cash-back rewards. They might also be able to use a card with a 0% introductory APR or 0% balance transfer rate for a certain period.

But the benefits extend beyond borrowing. People with a high score may be able to rent a better apartment or home since landlords often check prospective tenants’ credit. They may also gain access to better car insurance rates and be able to avoid paying deposits to utility companies and cellphone providers.

The Takeaway

How often does your credit score update? All the time, really, but once every 30 to 45 days is a good barometer. While it can be tempting to constantly check your score — especially if you’re getting ready to make a major purchase — you may instead want to focus on strategies that build up your credit. Some steps include paying bills on time, paying down revolving debt, and keeping older accounts open.

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.

About the author

Kylie Ora Lobell

Kylie Ora Lobell is a personal finance writer who covers topics such as credit cards, loans, investing, and budgeting. She has worked for major brands such as Mastercard and Visa, and her work has been featured by MoneyGeek, Slickdeals, TaxAct, and LegalZoom. Read full bio.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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

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

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

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-Q225-012

A bull call spread, also known as a long call spread or a type of vertical spread, is an options trading strategy used to capitalize on moderate price increases for a stock. The strategy involves buying a call option at a lower strike price and selling a call option at a higher strike price.

Investors use a bull call spread when they’d like to take advantage of a slightly bullish trend in a stock without taking too much risk. This type of options trading strategy limits both profits and losses, making it a popular strategy for investors with limited capital and a desire for downside protection.

What Is a Bull Call Spread Position?

To initiate a bull call spread, options traders buy a call option at a lower strike price while selling a call with a higher strike price. Both options have the same expiration date and underlying asset.

This options strategy establishes a net debit or cost and makes money when the underlying stock rises in price. The potential profits hit a limit when the stock price rallies above the strike price of the short call (the leg sold with the higher strike price), while potential losses hit a limit if the stock price declines beneath the strike price of the long call (the leg bought with the lower strike price).

In a bull call spread, a trader cannot lose more than the net premium, plus commissions. A trader’s maximum gain is the difference between the strike prices of the short and long call minus the net premium, plus commissions.

Recommended: How to Sell Options for Premium

Bull Call Spread Example

Let’s say a trader establishes a bull call spread by purchasing a call option for a premium of $10 (the long call). The call option has a strike price of $50 and expires in three months. The trader also sells (or writes) a call option for a premium of $2 (the short call). The call option has a strike price of $70 and expires in three months. The underlying asset of both options is the same and currently trades at $50.

Since options contracts typically cover 100 shares, the trader’s total net cost would be $8 per share x 100 shares, or $800.

Assume that three months have passed and the expiration date has arrived.

Scenario 1: Maximum Profit

If the stock price is $60 or above at expiration, both calls would be in-the-money. The maximum gain can be determined by subtracting the net premium paid for the options from the difference between the two strike prices. In this example, the maximum profit for the trader would be $1,200, minus any commissions or fees.

•   Strike price difference: $70 – $50 = $20 per share

•   Less net premium paid: $20 – $8 = $12 per share

•   Total max profit: $12 x 100 = $1,200

Scenario 2: Maximum Loss

If the stock price is $50 or lower at expiration, both options expire worthless. The maximum potential loss would be the net premium paid upfront, plus any commissions or fees.

•   The trader loses the entire initial $8 per share investment

•   Max loss = $8 x 100 shares = $800

Scenario 3: Breakeven Price

The breakeven occurs when the total gain offsets the initial cost, which can be determined by adding the net premium ($8) to the long call strike price ($50), which results in a breakeven price of $58.

•   Long call gains = (Stock price – $50) x 100

•   Breakeven price = $50 + $8 = $58

Variables Impacting a Bull Call Spread

As with any options trading strategy, various potential factors can have an effect on how the trade will play out. The ideal market forecast for a bull call spread is “modestly bullish,” or that the underlying asset’s price will gradually increase.

As with all options, the price of the underlying security is only one of several factors that can impact the trade.

Stock Price Change

A bull call spread will increase in value as its underlying stock price rises and decline in value as the stock price falls. This kind of position is referred to as having a “net positive delta.”

Delta estimates how much the price of an option is expected to change for every $1 change in the underlying security’s price. The change in option price is usually less than that of the stock price. For example, if the stock price falls by $1, the option may only fall by $0.50.

Change in Volatility

Volatility refers to how much a stock price fluctuates in percentage terms. Implied volatility (IV) is a factor in options pricing. When volatility rises, option prices often rise if other factors remain unchanged.

Because a bull call spread consists of one short call and one long call, the price of this position changes little when volatility changes (an exception may be when higher strike prices carry higher volatility). In options vocabulary, this is called having a “near-zero vega.” Vega is an estimation of how much an option price could change with a change in volatility, assuming all other factors remain constant.

Time

Time is another important variable that influences the price of an option. As expiration approaches, an option’s total value decreases, a process called time decay.

The sensitivity to time decay in a bull call spread depends on where the stock price is in relation to the strike prices of the spread. If the stock price is near or below the strike price of the long call (lower strike), then the price of the bull call spread declines (and loses money) as time passes. Conversely, if the stock price is above the higher strike price, time decay works in favor of the trader, as the short call loses value faster than the long call.

On the other hand, if the price of the underlying stock is near or above the strike price of the short call (higher strike), then the price of a bull call spread rises (and makes money) as time passes. This occurs because the short call loses time value faster than the long call, which benefits the trader. The long call is deep in-the-money, and therefore primarily composed of intrinsic value (and less affected by time decay).

In the event that the stock price is halfway between both strike prices, time decay will have little impact on the price of a bull call spread. In this scenario, both call options decay at more or less the same rate.

Risk of Early Assignment

Traders holding American-style options can exercise them on any trading day up to the expiration date. Those who hold short stock options have no control over when they may have to fulfill the obligation of the contract.

The long call in a bull call spread doesn’t face early assignment risk, but the short call may be subject to the risk of early assignment. Calls that are in-the-money and have less time value than the dividends that a stock pays are likely to be assigned early.

This can happen because when the dividend payout is greater than the price of the option, traders would rather hold the stock and receive the dividend. For this reason, early assignment of call options usually happens the day before the ex-dividend date of the underlying stock (the day by which investors must hold the stock in order to receive the dividend payout).

When the stock price of a bull call spread is above the strike price of the short call (the call with a higher strike price), traders must determine the likelihood that their option could be assigned early. If it looks like early assignment is likely, and a short stock position is not desirable, then a trader must take action.

There are two ways to do away with the risk of early assignment. Traders can either:

•   Close the entire spread by buying the short call to close and selling the long call to close, or

•   Buy to close the short call and leave the long call open.

Pros and Cons of Using a Bull Call Spread

The main advantages of using a bull call spread is that it costs less than buying a single call option and limits potential losses. In the earlier example, the trader would have had to pay a $1,000 premium ($10 for 100 shares) if they had only been using one call option. With a bull call spread, they only have to pay a net of $800 ($8 for 100 shares).

The potential losses are also capped. If the stock were to fall to zero, the trader would realize a loss of just $800 rather than $1,000 (if they were using only the long call option).

The biggest drawback of using a bull call spread is that it caps potential gains. In the example above, our trader only realized a maximum gain of $1,200 because of the short call option position. In the event that the stock price were to soar to $400 or higher, they would still only realize a $1,200 profit.

The Takeaway

A bull call spread is a two-leg options trading strategy that involves buying a long call and writing a short call. Traders use this strategy to try and capitalize on moderately bullish price momentum while capping both losses and gains.

As with all trades involving options, there are many variables to consider that can alter how the trade plays out.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Photo credit: iStock/kupicoo