In general, you cannot build credit with a debit card. That’s because debit cards typically draw funds directly from your checking account, and those transactions are not reported to the credit bureaus.
Finding other ways to establish and build your credit is, however, a good idea. Having a solid credit history provides greater access to competitive financing offers. Additionally, your creditworthiness may be reviewed, say, when renting an apartment unit or applying for a job.
Read on to learn more about debit cards, your credit profile, and how to build credit.
Key Points
• Building credit with a debit card is typically not possible as transactions aren’t reported to credit bureaus.
• Debit cards pull funds directly from the account they are linked to vs. paying on credit.
• Credit cards help build credit by reporting borrowing and repayment activities to credit bureaus.
• Responsible credit card use, like timely payments, aids in establishing a good credit profile.
• Alternatives for building credit include reporting rent payments and becoming an authorized user on another’s credit account.
How Does Building Credit Work?
Purchasing goods or services on credit means you’re borrowing money that you don’t already have to make the purchase now. When you enter into this agreement with a lender, you’re accepting the responsibility of repaying the balance — typically, plus interest — over time.
The lender reports the new credit account under your identity to the credit bureaus, which are Experian®, Equifax®, and TransUnion®. As you make payments toward the debt, your lender will send routine updates to the bureaus about the account’s status and repayment activity.
Your borrowing and repayment data is what creates your credit profile and what’s used to determine your credit score. Keep in mind that all data is reported by your lender, whether positive or negative. For example, if you’re chronically late on your loan payments but make on-time payments toward a credit card, all of this information is reflected on your credit report.
Can You Build Credit With a Traditional Debit Card?
Although they’re a helpful financial tool, when your goal is building your credit from scratch, the pros and cons of debit cards should be closely considered. One major downside is that you generally can’t build credit with a debit card.
That being said, some financial tech companies do offer debit cards with a credit-builder feature that can help you build your credit. This feature is not typical of most debit cards though.
Still, debit cards are convenient in that they let you spend your money without carrying physical cash. They can also help you avoid racking up debt for purchases, and in some cases, it’s even possible to pay a credit card with a debit card.
A credit card is a common financial tool that’s used to build credit. That’s because card issuers send credit card activity data to the credit bureaus.
A traditional credit card is a revolving credit line in which the issuer sets a maximum borrowing limit on the card. When using a credit card like a debit card, you can swipe your card to cover everyday purchases, like groceries or your cell phone bill. However, instead of those funds coming out of an attached bank account, you’re borrowing them — meaning you can spend with a credit card up to your credit limit, regardless of whether you actually have the money on hand at the moment.
At the end of each billing cycle, you’ll need to repay at least the minimum amount due, which is typically a portion of the total balance. Paying the minimum amount by the due date is sufficient to maintain positive payment data on your credit file.
However, this means you’ll accrue interest for rolling over a balance into the next billing cycle. When building your credit with a credit card, make sure you can afford to repay the full statement balance each month to avoid costly fees and deeper debt.
When you’re first starting out with credit, consider using a credit card for a few smaller purchases, like your next cup of coffee, or a recurring expense, like a streaming subscription. Keeping your purchases small and manageable adds bulk to your credit history while allowing you to better track your spending. That way, you don’t end up with overwhelming debt.
Your debit card, on the other hand, can be useful to pay for bills that only accept payment from a checking account, or if you’d like to access your cash at an ATM. You’ll need to ensure you have the funds in your account before you swipe, but you don’t run the same risk of racking up debt that you do with a credit card.
Other Ways to Build Credit
Since building credit with a debit card isn’t effective, you can start building your credit using one or more of the strategies below. Although these are all viable approaches to establishing credit, be aware that the process takes time.
Become an Authorized User
Ask a family member or trusted friend who has good credit if they’re willing to add you as an authorized user on their credit card. As an authorized user, a credit check isn’t required, and you’re ultimately not responsible for making the payments on the account.
If the card issuer reports data for both the primary cardholder and authorized users on the account, this strategy can help with establishing credit.
An unconventional way to build credit without a debit card is reporting payment data, such as rent payments or utility bills. Ask your landlord and service providers if they’re willing to report your rent payment history to the credit bureaus.
Your rent payment data is then included in your consumer credit report so you can establish your credit with your on-time rent payments.
Use a Credit Card Responsibly
As mentioned, credit cards do help when it comes to building credit. You might consider applying for a secured credit card or a more basic card with lower eligibility requirements as you get started establishing your credit profile. This will require consistently making on-time payments and keeping your spending in check.
Once you’ve started to build up your credit through responsible behavior, you might even have the opportunity to earn rewards as an added bonus alongside building your credit. Some of the different types of credit cards offer rewards points, miles, or cash back for each dollar you spend on the card.
The Takeaway
Debit cards can offer a number of advantages, but building credit with a debit card is not typically among them. Although you can’t usually build your credit with a debit card, there are many other ways to get your credit profile started. This can include becoming an authorized user on someone else’s credit account, getting your on-time rent or other bill payments reported to the credit bureaus, or opening a credit card account and using it responsibly.
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 debit card usage get reported to credit bureaus?
No, your debit card usage is not typically reported to the three credit reporting bureaus. Debit card transactions are linked to a bank deposit account in which you’re drawing funds from your own pool of money.
Why can’t you build credit with a traditional debit card?
You can’t build credit with a traditional debit card because while a debit card offers the convenience of cashless purchases, you’re not actually borrowing money. Instead, you’re pulling funds from a personal checking account that’s tied to the debit card.
Does a debit card affect your credit score?
No, using a debit card typically doesn’t affect your credit score. However, carrying a debit card can be a useful part of managing your finances.
Photo credit: iStock/Drazen Zigic
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This content is provided for informational and educational purposes only and should not be construed as financial advice.
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.
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.
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.
How old an authorized user has to be really depends on the credit card issuer. Some set the minimum age for an authorized user on a credit card at 13, while others require that an authorized user is 15 or even 16. Many issuers don’t specify a minimum age requirement at all.
In other words, it’s largely up to the adult’s discretion whether a minor seems old enough to become an authorized user. While it can serve as an educational tool and help build their credit, it also can lead to racking up debt and impacting both parties’ credit. You’ll want to make sure you know what you’re getting into in order to determine if it’s the right arrangement for you.
Key Points
• The minimum age for an authorized user on a credit card varies by issuer, typically ranging from 13 to 16, with some issuers having no minimum age requirement.
• Adding a minor as an authorized user can help them build credit early, but it also carries risks like increased debt and potential negative impacts on both parties’ credit scores.
• Educating minors on credit card basics, setting spending limits, and monitoring their usage is important to ensure responsible behavior.
• Some credit cards may charge a fee for adding authorized users, especially premium cards, so it’s crucial to check with the issuer.
• Removing a minor as an authorized user is straightforward, usually requiring a call to the credit card company to request the change.
That being said, the minimum age for an authorized user on a credit card ultimately depends on the credit card company, as each issuer has its own age requirements. Some set the minimum age to 13 years old, while others may make authorized users wait to get a credit card at 16 or 15 (SoFi requires an authorized user to be age 15 or older). Some credit card issuers don’t specify a minimum age for authorized users on credit cards.
Factors to Consider Before Adding a Minor as an Authorized User
Depending on the particular type of credit card and issuer, you might have to pay an additional annual fee to add an authorized user. For example, the Chase Sapphire Reserve card currently charges a $75 fee to add an authorized user.
Check with your card card issuer to see if you might get hit with a fee for adding authorized users to your account.
If They’re Old Enough to Handle the Responsibility
Even if you can add an authorized user as young as 13 to your card, doing so might not be in your best interest — or theirs. For instance, a child in their early teens might not have a basic grasp of managing finances, or they might not be mature enough to handle the financial responsibility and abide by basic credit card rules.
If you’re adding your minor as an authorized user to help them establish credit, a few years is enough time for them to be on their way. Plus, should you slip on your credit, it could also impact your child’s credit.
Most credit cards don’t issue unique card numbers to each authorized user. That means if you have multiple authorized users on an account, you won’t be able to easily figure out who made which purchases. Before you go ahead with adding an authorized user, make sure you have a system worked out so you’re not stuck covering their spending (unless you want to).
Whether You’ll Give Access to the Card
While you can give an authorized user their own card, you don’t have to, especially if you’re worried about how they’ll spend with it. If you’re strictly adding a child to your card to help them build credit, there’s no need to hand them a card. They don’t need to have access to your credit card number, either.
Steps to Add a Minor as an Authorized User
First and foremost, you’ll want to carefully weigh the pros and cons of adding someone under the age of 18 as an authorized user. If you have decided that you want to proceed, you’ll need to do the following.
1. Educate the Child About Credit Card Basics
Before adding a minor as an authorized user and giving them the privilege to spend on your card, sit them down and walk them through how credit cards work. For instance, you’ll want to explain what a credit limit is, how interest rates work, what one’s financial responsibility is when putting purchases on a card, and why it’s beneficial to build credit.
Next, you’ll need to contact the credit card company to let them know you’d like to add an authorized user to your card. You can do so by calling the number on the back of the card or by logging onto your account online.
You usually need to provide the following information about the individual you’re adding as an authorized user:
• Name
• Date of birth
• Social Security number
• Address (for them to receive the card)
• Additionally, you may be able to set spending limits or restrictions for the authorized user at this point in the process.
3. Check Your Account
To make sure the authorized user was correctly added, log on to your account on the issuer’s website or through the app. Double-check to make sure the minor’s name and details are all correct. You might also receive an email notification informing you of this change.
The Cost of Adding an Authorized User
Many credit card issuers do not charge a fee to add an authorized user to an account. However, premium credit cards or cards that already charge annual fees, may charge an annual fee for adding authorized users. This fee may apply per authorized user, or you may pay a flat cost for up to a certain number of users.
Beyond this potential fee, there are other costs you could incur by adding an authorized user. For instance, additional purchases made by the authorized user could cause you to rack up a balance. Plus, their activity can impact your credit utilization, which could hurt your credit score.
Pros and Cons of Adding a Minor as an Authorized User
Here’s an overview of the advantages and downsides of adding a minor as an authorized user to your credit card:
thumb_up
Pros:
• Can help build credit
• May allow you to earn more rewards
• Serves as an educational tool
thumb_down
Cons:
• May cause you to rack up debt
• Can’t easily track who’s making purchases
• Can impact credit of both primary cardholder and authorized user
Pros
Adding an authorized user can have the following benefits:
• Can help build credit: A major upside of adding a minor as an authorized user is that it can help them establish credit at a young age. They’ll have a more firm financial footing as a result.
• May allow you to earn more rewards: Another person making purchases on your card means there’s greater potential to earn more rewards. You can gain rewards more quickly than if you would if you were the sole user.
• Serves as an educational tool: You may find that adding a minor as an authorized user to your card can help them learn credit basics and how to manage credit card debt, especially if you coach them through the process.
Beware of the potential downsides of having an authorized as well:
• May cause you to rack up debt: It can be easy to rack up debt and overspend on the credit card with an authorized user. This is especially possible if you’re giving a child access to your card who is still wrapping their head around financial basics.
• Can’t easily track who is making the purchases: Because purchases aren’t tracked by the authorized user, it might be tough to figure out which person was responsible for which transaction with your card. This is particularly tricky when you have, say, a joint account user and several authorized users.
• Can impact credit of both primary cardholder and authorized user: If having additional users on your card equates to carrying a higher balance, that can up your credit utilization ratio. As credit usage makes up 30% of your credit score, you’ll want to keep that ratio under 30%, preferably closer to 10%. Beyond potentially hurting your credit, also know that any irresponsible credit behavior on your card can hurt your authorized user’s credit. For instance, if you are late on a credit card payment, both your credit and the credit of the minor you added to your card can suffer.
If those possible downsides are making you nervous, here are a few things you can do to ensure your minor uses their privileges responsibly:
• Set limits. Talk to your child and give them an amount they can spend on the card each billing cycle. Also, determine if they’ll be responsible for helping you pay off their share. Or perhaps you might consider an alternative arrangement, such as doing chores around the house to cover purchases they made on their credit card. Hash this out beforehand.
• Treat the card as a teaching tool. Sit down with your child and go over basics of a credit card, such as how interest fees work, how to read a billing statement, and what can happen if you’re late or miss a payment. You’ll also want to teach them how repayment works.
• Set alerts. To keep an eye on your child’s spending, consider setting alerts on your credit card. You can set it up so you get notifications for transactions over a certain amount, or any transactions made online, in person, or over the phone.
Removing a minor as an authorized user from a credit card is a relatively simple and painless process. To do so, you call the number on the back of the card and let them know the name of the person you’d like taken off. If you have several authorized users on a card, be sure to specify which card user you’re removing.
It’s not a bad idea to leave a paper trail and send a letter to the credit card company reiterating that you’ve requested the change over the phone.
The Takeaway
The minimum age for an authorized user on a credit card varies depending on the credit card issuer. Some require an authorized user to be 13, while others set the age limit at 15 or 16 or even have no formal limit at all. Before adding a minor as an authorized user on a credit card, you’ll want to carefully weigh the pros and cons before doing so. If you decide to add a child as a user, set some ground rules and teach them credit and financial basics beforehand.
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
Do some issuers allow authorized users with no minimum age?
Usually the minimum age requirement to add an authorized user to a credit card is at least 13. However, there are several credit card issuers that don’t note a specific minimum age.
How many authorized users can I add to my account?
It depends on the credit card issuer. Some allow, say, between four and seven, while others have no limit as to how many authorized users you can add to a credit card. The number of authorized users might also depend on what type of card it is, such as a rewards or travel credit card.
Is an authorized user relationship or a joint account holder better?
It depends on what kind of privileges you want the additional card user to have and the reason you’d like to add them. If you want to help build someone’s credit and not have them responsible for making payments, then an authorized user could be the better route. If you’d like the user to be equally responsible for making payments and have access to make changes on the account, a joint account holder might make sense.
Photo credit: iStock/Manuel Tauber-Romieri
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This content is provided for informational and educational purposes only and should not be construed as financial advice.
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.
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.
Financial stability can mean different things to different people, and there’s no single way to measure whether someone is financially secure. There are, however, certain money behaviors that can indicate when you’re on the right track. These can include following a budget, growing your savings account, and living within your means vs. accruing high-interest debt.
Knowing how to recognize the signs of being financially stable can help you fine-tune your money plan.
Key Points
• Financial stability can be defined differently for each person, but there are some common indicators of being financially secure.
• Signs of financial stability include following a budget, living below your means, saving money consistently, prioritizing debt repayment, and paying bills on time.
• Financially stable individuals typically have clearly defined financial goals, regularly invest, have the right insurance coverage, make decisions based on their own needs vs. FOMO, and stress less about their finances.
• Achieving financial stability can take time and effort. In addition to making smart money decisions, you may find advice from a financial professional helpful as well.
What Is Financial Stability?
If you search online for a definition of financial stability, the results are usually geared toward organizations or governments, not individual people. For example, the Federal Reserve defines financial stability as “building a financial system that can function in good times and bad, and can absorb all the good and bad things that happen in the U.S. economy at any moment.”
That’s an institutional way to define financial stability, but it’s possible to adapt that to fit personal finance. For instance, creating a budget and adding money to an emergency fund can help you manage money wisely during the good times. It can also allow you to be prepared for the unexpected, such as a job layoff or an emergency expense.
The best way to define financial stability is in a way that has meaning for you. For instance, you might create a personal financial mission statement that outlines your ideal money vision for yourself. For some people, that vision might involve having six months’ worth of expenses in an emergency fund. For another, it might involve putting enough money in their savings account to take a two-week vacation or meeting goals for funding their retirement.
Why Does Financial Stability Matter?
Being financially stable is important because it can influence your overall financial health. When you feel financially secure, it may be easier to pay bills without stress. Or you might have developed the discipline to save money and be excited about it, versus spending everything that you make.
In a nutshell, being financially stable can help you to:
• Have the money that you need to cover day-to-day expenses while working toward financial goals
• Avoid costly debt
• Manage your money without it feeling like a chore or a cause for anxiety
Chances are, you might be doing some of the things on this list already. And if you’re not, then these moves could help you to overcome your personal financial challenges.
1. Following a Budget
A budget is the foundation for your financial plan. When you make a budget, you’re dictating where your money goes instead of simply spending without a plan. If you don’t have a budget yet, then making one should be a top priority.
There are a number of budgeting methods you can use, including:
Experimenting with different budget systems can help you find one that works for you.
2. Living Below Your Means
Here’s one of the secrets to how to have financial freedom: Live below your means. This simply means spending less than you earn. Making a budget is central to living below your means because without one, you may not have a clue how much you’re spending each month.
Tracking expenses can be a great way to determine if you’re living below your means. You can write each expense down in a notebook, use a spreadsheet, or link your bank account to a budgeting app. It’s a good idea to track expenses for at least one month to get a realistic idea of what you spend, which can help you to better define your budget.
3. Saving Money Is a Consistent Habit
You may have heard the expression “pay yourself first,” and it’s a wise move. This simply means that before you spend any money on payday, you first deposit some of your earnings into savings. Paying yourself first is a sign of financial stability as it suggests that you have money reserved for emergencies and are also saving for longer-term financial goals.
Setting up direct deposit into savings or scheduling automatic transfers from your checking account each payday are easy ways to automatic savings. When the money is directed to savings automatically, there’s no opportunity for you to spend it.
4. Paying Down Debt Is a Priority
Debt can be a roadblock to reaching your financial goals and too much debt could make you financially unstable. Making an effort to pay down debt (or avoid it altogether) is a sign that you’re committed to living within your means instead of spending money unnecessarily.
If you have debt, consider the best ways to pay it off. For example, the debt snowball method involves paying off debts from smallest balance to highest. The debt avalanche, on the other hand, advocates paying off debts from highest APR to lowest in order to maximize interest savings.
When choosing a debt repayment method, consider how much of your budget you can commit to it. If you’re only able to pay the minimums to your debts, you may need to review your expenses to see where you can cut back or look into debt consolidation.
5. Bills Get Paid On Time
Paying bills late can trigger nasty late fees. What’s more, late payments can lower your credit scores.
A good credit score is a sign of financial stability because it means that you’re responsible with how you use credit. On-time payments can work in your favor while late payments can hurt your score.
If you’ve fallen behind, getting caught up on late payments as soon as possible can help you turn things around. From there, you can commit to paying on time each month. Scheduling automatic payments or setting up payment reminders is an easy way to keep track of due dates.
6. Financial Goals Are Clearly Defined
Setting financial goals can help you to make the most of your money. Financial goals can be short-term, like saving $10,000 for an emergency fund. Or they might be long-term, like saving $1 million for retirement.
Someone who’s financially stable understands the value and importance of setting goals and how to set them effectively. For example, they may follow the SMART rule for goal setting and create money goals which means they are:
• Specific
• Measurable
• Actionable or achievable
• Realistic
• Time-bound
If you’re not setting financial goals yet, consider what you want to do with your money or what kind of lifestyle you’d like to have. If you created a personal financial mission statement that can be a good guide to deciding what kind of goals to set.
7. Regular Investing Is Part of Your Financial Routine
Investing money and saving it are two different things. When you invest money, you’re putting it into the stock market. Investing can help you grow your money faster and build a higher net worth thanks to the power of compounding interest.
There are different ways to invest. If you have a 401(k) or similar retirement plan at work, for example, you may defer 10%, 15%, or more of your income into it each year. At a minimum, it’s a good idea to contribute at least enough to get the full company match (which is akin to free money) if one is offered.
You might also open an Individual Retirement Account and a taxable investment account. With an IRA, you can save for retirement on a tax-advantaged basis. A taxable investment account, on the other hand, is useful for trading stocks, mutual funds, exchange-traded funds (ETFs), and other securities without restrictions on how much you can invest.
Having the right coverage in place can help to minimize financial losses in a worst-case scenario. If your home or apartment is damaged because of a fire, for instance, then your insurance policy could help you to rebuild or replace your belongings.
Life insurance is also important to have, especially if you have a family. Life insurance can pay out a death benefit to your loved ones if something should happen to you. That means they’re not in danger of becoming financially unstable after you’re gone.
9. FOMO Doesn’t Drive Decision-Making
FOMO, or fear of missing out, can be a threat to financial stability. It’s the modern-day equivalent of keeping up with the Joneses: What it means is that you make financial decisions out of peer pressure or societal pressure. Trying to mimic the lifestyle of social media influencers, for example, can wreck your finances if you’re going into debt with FOMO spending on things that you can’t afford.
Someone who’s financially stable, on the other hand, is relatively immune to FOMO. They don’t buy things on impulse (or at least not often). And they don’t make financial decisions without considering the short- and long-term impacts.
10. There’s No Worrying About Money
Worries about money can keep you up at night if you’re fretting over the bills or debt. Financially stable people don’t have stress over money because they know that they’re in control of their situation. They approach money with a calm, confident attitude.
So how do you reach that zen state with your finances? Again, it can all come down to making smart money decisions like sticking to a budget, saving, and avoiding debt. The more proactive you are about making your money work for you (and finding the right banking partner and financial advisors, if you like), the faster money worries may fade away.
If You’re Struggling to Become Financially Stable
If you recognize that your financial situation isn’t as stable as you’d like it to be, it’s important to consider how you can improve it. Working your way through this list of action items is a good starting point but what if you’re overwhelmed by debt or struggle to make a budget?
In that case, you may benefit from talking to a nonprofit credit counselor or a financial advisor. A credit counselor can help you come up with a plan for budgeting, paying down debt, and getting into a savings routine. And once you begin to gain some stability, you can think about things like investing or insurance.
In addition, you can consult these government sources for more insight:
Achieving financial stability can take time, but it’s typically possible if you’re using the right approach to managing money. Taking small steps, such as setting one or two money goals or changing bank accounts, can add up to a big difference in your situation over time.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.
FAQ
How much money is considered financially stable?
The amount of money needed to be considered financially stable is subjective and depends on a person’s individual situation. But generally, having a net worth of $1 million or more can indicate that someone is financially stable or secure and has a good grasp of money management.
What are the signs of a financially stable person?
The most common signs of a financially stable person include having little to no debt (or at least avoiding high-interest debt), being able to make and stick to a budget, having a healthy amount of money in savings, and having a good credit score. Financially stable people tend to see their net worth increase year over year. What’s more, money generally isn’t a source of stress or worry.
At what point are you financially stable?
Someone could be considered financially stable when money is no longer a cause for anxiety or frustration. A financially stable person isn’t necessarily measured by how much money they have. Instead, their stability is based on their overall financial situation and their approach to managing money. They are likely to have savings for emergencies, as well as short- and long-term goals.
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
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SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
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Building good credit (or any credit at all) doesn’t happen overnight. Instead, if you’re starting from scratch, you may need to have an open credit account for around three to six months before you first get a credit score.
From there, a good credit profile and good credit score can take a while to build. In reality, it can be much faster and easier to lower your credit score, which is why it’s vital to aim to make solid financial choices, like consistently paying your bills on time. Building and maintaining good credit isn’t always easy, but by following a few simple steps, you can improve your standing.
Key Points
• Establishing a credit score takes three to six months after opening a credit account.
• On-time payments are essential for a good credit score.
• Credit scores depend on payment history, credit utilization, account types, age of accounts, and inquiries into accessing credit.
• Opening too many accounts at once can harm credit scores.
• Beware of scams promising quick credit improvement; building credit is gradual.
How Long It Can Take to Build Credit From Scratch?
The exact length of time it takes to build credit from scratch varies. That being said, it’s usually around three to six months from the time you first open a credit account.
Even though establishing and building credit can take time, it’s worth it as a way to improve your overall financial situation. Having good credit can make it easier to get approved for loans and secure lower interest rates.
If you’re hoping to begin building credit, here are some tactics you might consider.
Become An Authorized User
One way to help build your credit is by becoming an authorized user on an account of someone who already has good credit. This might be a trusted friend or family member. As they manage the account responsibly, that can have a positive impact on your credit score as well. Just know that if they miss or make late payments, that can also negatively impact your credit.
If you’re getting a credit card for the first time, know that it is possible to apply for and get approved for a credit card with no existing credit history. However, you do need to be selective about which card you apply for.
You’re unlikely to get approved for, say, a rewards credit card if you don’t already have excellent credit. Still, there are credit cards that are marketed toward those who have no credit or a limited credit history. You might also consider a secured credit card, where you put down a refundable deposit that then serves as your credit limit.
If you can get approved for a credit card, and then use your credit card responsibly, such as by making on-time payments, can help you build up your credit.
If you aren’t able to get approved for a loan on your own, you might consider applying for credit with a cosigner. Using a cosigner with good credit can help improve your chances of getting approved for a loan.
Then, your loan payments will be reported to the major credit bureaus and hopefully help you start building your credit score. Of course, that depends on your making those payments on time.
Maintain Good Credit Habits
Once you have opened a credit account like a loan or credit card, it’s important to practice good credit habits. This includes paying your statement off in full, each and every month. Demonstrating a pattern of reliably paying your bills over time shows potential lenders that you’re likely to repay your debts.
There are five major factors that affect your credit score:
• Credit utilization: Your credit utilization is the amount of the credit you’ve used compared to your total available credit. It’s recommended to keep this ratio to 30% or less.
• Payment history: This indicates how reliably you make payments on your existing accounts.
• Types of credit accounts: Having a good mix of different types of credit accounts has a positive impact on your credit score, as it indicates to lenders that manage multiple types of accounts.
• Your average age of accounts: Having a lengthy credit history is a positive sign. This shows you have experience in responsibly managing accounts.
• New credit: Opening a number of accounts or making a number of hard inquiries in quick succession can suggest to lenders that you’ve overextended yourself and are in need of funding to bail you out.
The first thing you’ll want to do is make a budget. Getting a new credit card should not be viewed as a way to fix your budget or dig yourself out of a financial hole. Instead, the best way to use a credit card is as a tool of convenience for money that you already have. Make sure that you have the financial ability and discipline to pay your bills in full, each and every month.
Watch Out For Scams
Usually building credit is something that you do over a period of several months or years. If someone tells you that they can build or repair your credit quickly, it could be a sign of a credit card scam. There aren’t many shortcuts to the simple rules noted above, like regularly paying your bills on time.
Don’t Open Too Many Accounts At Once
You might think that since opening a credit account can help build credit, opening many accounts will help build credit even faster. However, that is usually not the case. Many lenders view a high number of credit inquiries in a short period of time as a negative indicator. They may see it as a potential red flag that someone is in a bad financial situation.
The Takeaway
If you’re just starting out and have no credit history at all, you generally start without an actual credit score. It can take a few months after you open a credit account to start establishing a score. As you continue to show that you’re responsible for the credit you have, your score will likely increase. Building credit can take time, and you should be skeptical of any people or programs that say they can build your credit fast.
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
What credit score do you start with?
There isn’t a starting credit score for those without any credit history. While you might think that you start with the lowest possible credit score (like 300) and have to build your way up, you actually don’t start with any credit score at all. As you open credit cards or other accounts, you’ll start to establish a credit history and score.
How long does it take to build a good credit score?
It usually takes anywhere from three to six months to start building a credit score after you’ve opened your first credit account. You’ll then continue to build and improve your credit by continually making on-time payments. You can always check your credit score periodically to see where you’re at on your credit journey.
How long does it take to recover from a hard inquiry on your credit?
Usually when you apply for a new credit card or other loan, your potential lender will pull your credit file. This is known as a hard inquiry. Since the number of recent hard inquiries is one factor in determining your credit score, applying for credit cards can lower your credit score. However, these inquiries typically only lower your score by a few points and drop off your report after a few months.
How fast can you build your credit in 3 months?
How fast you can build your credit depends on a number of factors. Generally, it takes a few months after you’ve opened a credit account to even establish any credit. Your credit score will improve as you continue to use your credit responsibly. It’s best to think about building credit as more of a marathon than a sprint.
Photo credit: iStock/YakobchukOlena
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This content is provided for informational and educational purposes only and should not be construed as financial advice.
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 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.
