How Do I Get the Best Interest Rate on a Loan?

Whether trying to consolidate debt with a personal loan or thinking about a loan to pay for a major life event, taking on debt is a financial move that warrants some consideration. It’s important to understand the financial commitment that taking on a personal loan — or any other debt — entails. This includes understanding interest rates you might qualify for, how a loan term affects the total interest charged, fees that might be charged by different lenders, and, finally, comparing offers you might receive.

Shopping around and comparing loans can increase your confidence that you’re getting the best interest rate on a loan.

What’s a Good Interest Rate on a Loan?

You may see advertisements for loan interest rates, but when you get around to checking your personal loan interest rate, what you’re offered may be different than rates you’ve seen. Why is that? A loan company may have interest rate ranges, but the lowest, most competitive rates may only be available to people who have excellent credit, as well as other factors.

When shopping around for a loan, it’s typical that when checking your rate, even with online personal loan companies, you can check your rate without affecting your credit score. This pre-qualification rate is just an estimate of the interest rate you would likely be offered if you were to apply for a loan, but it can give you a good estimate of what sort of rate you might be offered. You can compare rates to begin to filter potential companies to use to apply for a loan.

Recommended: Personal Loan Calculator

Getting a Favorable Interest Rate on a Loan

The potential interest rate on a loan depends on a few factors. These may include:

•   The amount of money borrowed.

•   The length of the loan.

•   The type of interest on your loan. Some loans may have variable interest (interest rates can fluctuate throughout the life of the loan) or a fixed interest rate. Typically, starting interest rates may be lower on a variable-rate loan.

•   Your credit score, which consists of several components.

•   Being a current customer of the company.

For example, your credit history, reflected in your credit score, can give a lender an idea of how much a risk you may be. Late payments, a high balance, or recently opened lines of credit or existing loans may make it seem like you could be a risky potential borrower.

If your credit score is not where you’d like it to be, it may make sense to take some time to focus on increasing your credit score. Some ways to do this are:

•   Analyzing your credit report and correcting any errors. If you haven’t checked your credit report, doing so before you apply for a loan is a good first step to making sure your credit information is correct. Then you’ll have a chance to correct any errors that may be bringing down your credit score.

•   Work on improving your credit score, if necessary. Making sure you pay bills on time and keeping your credit utilization ratio at a healthy level can help improve your credit score.

•   Minimize opening new accounts. Opening new accounts may temporarily decrease your credit score. If you’re planning to apply for a loan, it may be good to hold off on opening any new accounts for a few months leading up to your application.

•   Consider a cosigner or co-applicant for a loan. If you have someone close to you — a parent or a partner — with excellent credit, having a cosigner may make a loan application stronger. Keep in mind, though, that a cosigner will be responsible for the loan if the main borrower does not make payments.

Recommended: What is a Good APR?

Comparing Interest Rates on Personal Loans

When you compare loan options, it can be easy to focus exclusively on interest rates, choosing the company that may potentially offer you the lowest rate. But it can also be important to look at some other factors, including:

•   What are the fees? Some companies may charge fees such as origination fees or prepayment penalties. Before you commit to a loan, know what fees may be applicable so you won’t be surprised.

•   What sort of hardship terms do they have? Life happens, and it’s helpful to know if there are any alternative payment options if you were not able to make a payment during a month. It can be helpful to know in advance the steps one would take if they were experiencing financial hardship.

•   What is customer service like? If you have questions, how do you access the company?

•   Does your current bank offer “bundled” options? Current customers with active accounts may be offered lower personal loan interest rates than brand-new customers.

Recommended: Avoiding Loan Origination Fees

Choosing a Personal Loan For Your Financial Situation

Interest rates and terms aside, before you apply for a loan, it’s a good idea to understand how the loan will fit into your life and how you’ll budget for loan payments in the future. The best personal loan is one that feels like it can comfortably fit in your budget.

But it also may be a good idea to assess whether you need a personal loan, or whether there may be another financial option that fits your goals. For example:

•   Using a buy now, pay later service to cover the cost of a purchase. These services may offer 0% interest for a set amount of time.

•   Transferring high-interest credit card debt to a 0% or low-interest credit card, and making a plan to pay the balance before the end of the promotional rate.

•   Taking on a side hustle or decreasing monthly expenses to be able to cover the cost of a major purchase or renovation.

•   Researching other loan options, such as a home equity loan, depending on your needs.

Recommended: 39 Ways to Earn Passive Income Streams

The Takeaway

A loan is likely to play a big part in your financial life for months or years, so it’s important to take your time figuring out which loan option is right for you. And it’s also important to remember that interest rate is just one aspect of the loan. Paying attention to details like potential fees, hardship clauses, and other factors you may find in the small print may save you money and stress over time.

SoFi offers competitive unsecured personal loan options with fixed rates and no fees. Completing an easy online application will show what rate you qualify for — no commitment required and it won’t affect your credit score*.

Check your rate in just one minute.

Photo credit: iStock/Prostock-Studio

*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. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.


What Can You Use Student Loans For?

To attend college these days, many students take out student loans. Otherwise, they wouldn’t be able to afford the hefty price tag of tuition and other expenses.

According to U.S. News & World Report, among the college graduates from the class of 2020 who took out student loans, the average amount borrowed was $29,927. In 2010, that number was $24,937 — a difference of about $5,000.

Student loans are meant to be used to pay for your education and related expenses so that you can earn a college degree. Even if you have access to student loan money, it doesn’t mean you should use it on general living expenses. By learning the answer to, “What can you use a student loan for?” you will make better use of your money and ensure you’re in a more stable financial situation post-graduation.

Recommended: I Didn’t Get Enough Financial Aid: Now What?

5 Things You Can Use Your Student Loans to Pay For

Here are five things you can spend your student loan funds on.

1. Your Tuition and Fees

Of course, the first thing your student loans are intended to cover is your college tuition and fees. The average college tuition and fees for a private institution in 2021-2022 is $38,185, while the average for a public, out-of-state school is $22,698 and $10,338 for a public, in-state institution.

2. Books and Supplies

Beyond tuition and fees, student loans can be used to purchase your textbooks and supplies, such as a laptop, notebooks and pens, and a backpack. Keep in mind that you may be able to save money by purchasing used textbooks online or at your campus bookstore. Hard copy textbooks cost, on average, between $80 and $150; you may be able to find used ones for a fraction of the price. Some students may find that renting textbooks may also be a cost-saving option.

Recommended: How to Pay for College Textbooks

3. Housing Costs

Your student loans can be used to pay for your housing costs, whether you live in a dormitory or off-campus. If you do live off-campus, you can also put your loans towards paying for related expenses like your utilities bill. Compare the costs of on-campus vs. off-campus housing, and consider getting a roommate to help you cover the costs of living off-campus.

4. Transportation

If you have a car on campus or you need to take public transportation to get to school, work, or your internships, then you can use your student loans to pay for those costs. Even if you have a car, you may want to consider leaving it at home when you go away to school, because gas, maintenance, and a parking pass could end up costing much more than using public transportation and your school’s shuttle, which should be free.

5. Food

What else can you use student loans for? Food would qualify as a valid expense, whether you’re cooking meals at home or you’ve signed up for a meal plan. This doesn’t mean you should eat out at fancy restaurants all the time just because the money is there. Instead, you could save by cooking at home, splitting food costs with a roommate, and asking if local establishments have discounts for college students.

Recommended: How to Get Out of Student Loan Debt: 6 Options

5 Things Your Student Loans Should Not Cover

Now that you know what student loans can be used for, you’re likely wondering what they should not be used for as well. Here are five expenses that cannot be covered with funds from your student loans.

1. Entertainment

While you love to do things like go to the movies and concerts and bowling, you should not use your student loans to pay for your entertainment. Your campus likely offers plenty of free and low-cost entertainment like sports games and movie nights, so pursue those opportunities instead.

2. A Vacation

College is draining, and you deserve a vacation from the stress every once in a while. However, if you can’t afford to go on spring break or another type of trip, then you should put it off at this time. It’s never a good idea to use your student loans to cover these expenses.

3. Gym Membership

You may have belonged to a gym at home before you went to college, and you still want to keep up your membership there. You can, as long as you don’t use your student loans to cover it. Many colleges and universities have a gym or fitness center on campus that is available to students and included in the cost of tuition.

4. A New Car

Even if you need a new car, student loans cannot be used to buy a new set of wheels. Consider taking public transportation instead of buying a modest used car when you save up enough money.

5. Extra Food Costs

While you and your roommates may love pizza, it’s not a good idea to use your student loan money to cover that cost. You also shouldn’t take your family out to eat or dine out too much with that borrowed money. Stick to eating at home or in the dining hall, and only going out to eat every once in a while with your own money.

Student Loan Spending Rules

The federal code that applies to the misuse of student loan money is clear. Any person who “knowingly and willfully” misapplied funds could face a fine or imprisonment.

Your student loan refund — what’s left after your scholarships, grants, and loans are applied toward tuition, campus housing, fees, and other direct charges — isn’t money that’s meant to be spent willy-nilly. It’s meant for education-related expenses.

The amount of financial aid a student receives is based largely on each academic institution’s calculated “cost of attendance,” which may include factors like your financial need and your Expected Family Contribution (EFC). Your cost of attendance minus your EFC generally helps determine how much need-based aid you’re eligible for. Eligibility for non-need-based financial aid is determined by subtracting all of the aid you’ve already received from your cost of attendance.

Starting for the 2024-2025 school year, the EFC will be replaced with the Student Aid Index (SAI). The SAI will work similarly to the EFC though there will be some important changes such as adjustments in Pell Grant eligibility.

Additionally, when you took out a student loan, you probably signed a promissory note that outlined what you’re supposed to be spending your loan money on. Those restrictions may vary depending on what kind of loan you received — federal or private, subsidized or unsubsidized. If the restrictions weren’t clear, it’s not a bad idea to ask your lender, “What can I use my student loan for?”

If you’re interested in adjusting loan terms or securing a new interest rate, you could consider refinancing your student loans with SoFi. Refinancing can allow qualifying borrowers to secure a lower interest rate or preferable terms, which could potentially save them money over the long run. Refinancing federal loans eliminates them from all federal borrower benefits and protections, inducing deferment options and the ability to pursue public service loan forgiveness, so it’s not the right choice for all borrowers.

The Takeaway

Student loans can be used to pay for qualifying educational expenses like tuition and fees, room and board, and supplies like books, pens, a laptop, and a backpack. Expenses like entertainment, vacations, cars, and fancy dinners cannot generally be paid for using student loans.

If you have student loans and are interested in securing a new — potentially lower — interest rate, consider refinancing.

There are no fees to refinance a student loan with SoFi and potential borrowers can find out if they pre-qualify, and at what rates, in just a few minutes.

Learn more about student loan refinancing with SoFi.

SoFi Student Loan Refinance
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see

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. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Paying your credit card early: Does it help your score?

Couple looking at finances together.

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Paying your credit card early can raise your credit score. After your statement closes, your credit card issuer reports your balance to the credit bureaus. Paying your bill ahead of time lowers your overall balance, so the bureaus will see you using less credit in total. Since utilization makes up around one-third of your credit score, paying your card early can have a positive overall effect. 

However, paying your credit card bill early may work differently if you carry a balance on your card each month. Instead of paying your next statement early, you’re actually making an extra payment on your previous balance. Therefore, you’ll likely still need to pay the minimum amount on your next statement, or your payment could be considered late.

In most cases, paying your credit card bill early is a good idea—and it can have a positive impact on your score. 

Read on to learn more about how paying your card early affects your score. 

How paying your credit card bill early can help your credit score

Paying your credit card bill early may increase your credit score, since the overall debt that gets reported to the credit bureaus is likely to be lower. 

To understand how paying a bill early could raise your score, you need to understand two things: the factors that make up your score and how your credit issuer reports to the credit bureaus. 

How paying early could raise your score

Your score is calculated based on several factors, and two of them are relevant to paying your bill early: credit utilization and payment history. 

  • Payment history makes up around 35 percent of your score, and simply put, paying your bill early means that you aren’t paying it late. Late payments can have a major negative effect on your score, so paying your bill on time or early will help boost your score.
  • Credit utilization accounts for around 30 percent of your score, and it represents how much of your available credit you’re actually using. As a general rule, you should aim to use one-third of your credit or less. For example, if you have a total credit limit of $9,000, you’d want to keep your balance below $3,000.

The credit bureaus—TransUnion®, Experian® and Equifax®—are responsible for keeping track of your credit history. They receive all of their information from lenders, like the financial institution that issued your credit card. 

After your monthly statement is issued with your balance, you have a grace period before the payment is due—typically around 21 days. During that time, your credit card provider will report your balance to the credit bureaus. If you pay your balance before your statement closes, the total listed balance will be lower, so the credit bureaus will see your overall utilization as lower, which could increase your score.

That said, your particular situation may change how early payments work, so you’ll want to make sure you understand your billing cycle and balance before making early payments.

Is it ever bad to pay your credit card early?

While it is never bad to pay your credit card bill early, the benefits you receive from doing so may vary depending on your circumstances.

For example, if you carry a balance on your credit card every month, you may need to adjust how you handle early payments. While it is a myth that carrying a balance on your card improves your score, there are reasons you may have lingering credit card debt nonetheless.

Early payments work differently if your credit card has a balance.

If you do carry a balance on your card each month, keep the following in mind:

  • Your early payment may not count as your minimum payment. If you have a balance from a previous month, you can’t make an “early” payment toward your next statement. Instead, you’re making an extra payment, so you’ll still need to make a minimum payment after your new statement is issued.
  • You may not save money on interest and fees by making an early payment. Depending on how your credit card issuer calculates finance charges on your previous balance, your early payment may not reduce your interest or fees by much or at all. For example, if you’re charged based on average daily balance, simply paying at the end of the month may not help much.

All that said, it’s still usually a good idea to pay down your credit card debt if you have the funds available to do so. You may not see an immediate score increase if you have a substantial balance, but over time, you’ll build the financial habits that can help you eliminate debt and begin making on-time—or early—payments consistently. 

When is the best time to pay your credit card? 

The best time to pay your credit card bill is before the payment is late. While you may benefit from paying your bill early, you’ll definitely see negative effects if you pay your bill late. 

Paying early keeps your payment history intact and may help lower your overall utilization, while paying your bill more than 30 days late will likely lead to a negative item on your credit report. And if you neglect to pay long enough, your account could get sent to collections. 

If you do start paying your credit card bill early, you’ll want to begin checking your credit report regularly to see how your balance is being reported to the credit bureaus. Over time, you should see your utilization drop and your credit score increase.

While sifting through your credit report, it’s important to keep an eye out for inaccurate information like fraudulent accounts, incorrect negative items or factual mistakes. Any of these inaccurate items could be lowering your credit score. Fortunately, it’s possible to dispute these items on your report and repair your credit score. 

Reviewed by Horacio Celaya, Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Horacio Celaya was born in Tucson, Arizona but eventually moved with his family to Mexicali, Baja California, Mexico. Mr. Celaya went on to graduate with Honors from the Autonomous University of Baja California Law School. Mr. Celaya is a graduate of the University of Arizona where he graduated from James E. Rogers College of Law. During law school, Mr. Celaya received his certificate in International Trade Law, completing his thesis on United States foreign direct investment in Latin America. Since graduating from law school, Mr. Celaya has worked in an immigration firm where he helped foreign investors organize their assets in order to apply for investment-based visas. He also has extensive experience in debt settlement negotiations on behalf of clients looking to achieve debt relief. Mr. Celaya is licensed to practice law in New Mexico. He is located in the Phoenix office. 

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.


10 States With the Highest Credit Scores

Smiling man with credit card
ViDI Studio /

For years, we’ve heard that Americans are hopelessly mired in debt, leaving many to struggle with poor credit scores. But in fact, those scores are now on the upswing, according to data analytics company FICO.

In August 2021, the average U.S. FICO Score 8 — the company’s most widely used credit score — was eight points higher than at the same point in 2020. Scores are rising in all 50 states and in the 33 metropolitan areas evaluated by FICO.

FICO says a number of positive behavioral trends have sent scores higher, including:

  • Fewer delinquent accounts
  • Lower levels of consumer debt
  • Fewer consumers heavily using their credit cards

Consumers in a handful of states are leading the way, according to a recently released FICO analysis. Following are the states where average credit scores are the highest.

10. Nebraska (tie)

Omaha Nebraska
Aspects and Angles /

Average FICO score: 733

Nebraskans quietly go about their business without fanfare. But don’t mistake this lack of boasting for financial passivity.

In fact, Nebraska’s economy is chugging along, with a microscopic 1.9% unemployment rate in October 2021 — the lowest in the nation.

Apparently, the state’s residents are working too hard to get into credit trouble, earning them a spot on this list.

10. Hawaii (tie)

Honolulu, Hawaii
MNStudio /

Average FICO score: 733

Despite a high cost of living and elevated debt levels, residents of Hawaii keep their credit scores healthier than those of many consumers on the mainland.

A couple of years ago, the state’s government reported that while Hawaiians carry more credit card debt than other Americans, they manage it better and have a significantly lower delinquency rate than consumers in other parts of the country.

8. Washington

Marina at Grays Harbor, Washington
Bill Perry /

Average FICO score: 734

For the second straight year, U.S. News & World Report named Washington the best state in the nation. The publication praised Washington for having the country’s fastest-growing economy.

A booming economy keeps a lid on credit troubles, helping Washington to land on this list.

7. Massachusetts (tie)

Provincetown, Massachusetts
Lewis Stock Photography /

Average FICO score: 735

Massachusetts just recorded its sixth straight quarter of economic growth. That beats the nation as a whole, which has seen four straight quarters of positive movement.

A plethora of good-paying jobs keeps people out of credit trouble, resulting in the Bay State’s appearance on this list.


7. New Hampshire (tie)

Walter Liff sculpture
James Kirkikis /

Average FICO score: 735

New Hampshire’s motto of “Live Free or Die” apparently extends to living free of credit woes. The state has a low credit card delinquency rate and the lowest poverty rate in the nation, says 24/7 Wall St.

7. South Dakota (tie)

Wall drugstore in South Dakota
robert cicchetti /

Average FICO score: 735

Like Nebraska, South Dakota’s under-the-radar reputation masks a lot of financial moxie. In fact, the Washington Post recently dubbed the state “the new Cayman Islands for banks and finance,” thanks to tax-friendly — and controversial — laws that attract hordes of money from global elites.

The state’s residents are pretty financially savvy too, with credit scores that rank among the nation’s very best.

4. North Dakota (tie)

Fargo, North Dakota
David Harmantas /

Average FICO score: 736

North Dakota just edges out its neighbor to the south when it comes to average credit scores.

Nearly 90% of North Dakota’s land and one-fifth of its workforce are devoted to agriculture. Perhaps all that hard work on the farm keeps the state’s residents out of credit trouble.

4. Wisconsin (tie)

Madison, Wisconsin
MarynaG /

Average FICO score: 736

Folks in the Midwest have a reputation for being sensible, which might account for Wisconsin’s place on this list.

Late last year, reported that Wisconsin had the third-lowest credit card burden among all U.S. states and the District of Columbia.

2. Vermont

Vermont couple walking in park in Autumn
Sergii Kovalov /

Average FICO score: 738

Vermont is famous for its foods — maple syrup, cheddar cheese and Ben & Jerry’s ice cream. It also has a solid reputation as a place where people know how to manage their spending.

The credit card delinquency rate here is a scanty 2.65%, according to 24/7 Wall St.

1. Minnesota

Minneapolis, Minnesota
Pinkcandy /

Average FICO score: 742

Minnesotans are a hearty bunch. With average high temperatures barely topping 20 degrees Fahrenheit in January, perhaps it’s too cold to live high off the hog.

Whatever the case may be, the state’s residents clearly are doing something right. Minnesota — which typically ranks high in terms of the economy and education — is No. 1 in the nation with an average credit score of 742. You betcha!

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.


What Credit Score Is Needed For A Us Bank Platinum Visa?

Are you thinking about applying for the US Bank Platinum Visa?

The minimum recommended credit score for this credit card is 750.

US Bank Platinum card

How to Increase Your Chances of Getting Approved for US Bank Platinum Visa

Getting approved for a credit card requires a little planning. Most credit card offers require very good credit. When applying for new credit, it’s important to know your credit scores and what’s on your credit reports.

Credit card issuers want to see a strong credit history, steady income, and low credit utilization. If you’re using too much of your existing revolving credit, it’s a sign that you may not pay them back. It’s also important to make sure that you haven’t applied for too much credit in the recent past. Having too many credit inquiries can lessen your chances of getting approved.

Need help improving your credit score?

One of the best ways to improve your credit scores is by removing negative items from your credit report. Lexington Law can help you dispute (and possibly remove) the following items:

  • late payments
  • collections
  • charge offs
  • foreclosures
  • repossessions
  • judgments
  • liens
  • bankruptcies

They have over 28 years of experience and have removed over 7 million negative items for their clients in 2020 alone. So if you’re struggling with bad credit and want to increase the likelihood of getting approved for new credit, give them a call at (800) 220-0084 for a free credit consultation.

Does Having a Credit Card Balance Hurt Your Credit Score?

Follow these hints from people with credit scores above 800:
Finally, don’t worry too much about small fluctuations in your credit score. Your score can vary from month to month based on the balance you have at the time your creditor reports to the bureaus. Fluctuations are completely normal. Focus on making on-time payments and keeping your balances low, and you’ll build a healthy credit score.

How Your Credit Card Balance Affects Your Credit Score

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected] or chat with her in The Penny Hoarder Community.

  • Payment history (35%)
  • Credit utilization (30%)
  • Average age of credit (15%)
  • Credit mix (10%)
  • Hard inquiries and new credit (10%)

That said, you shouldn’t worry about a balance showing up on your credit report. As long as your balances — both overall and on each individual card — stay below 30%, you’ll be able to build good credit.
There are five things that determine your credit score. These credit score factors break down as follows:
Ready to stop worrying about money?
Here’s where it gets a bit tricky. If you’re regularly using credit, a balance will probably show up on your credit report. That’s because you don’t control when your credit card company reports activity to the bureaus.
If your credit utilization ratio is 0% because you never use your credit cards, your score could suffer. When you’re not making regular credit purchases and you don’t have outstanding loans, you aren’t generating activity that’s reported to the credit bureaus. That’s harmful because payment history is even more important than your credit utilization.
You probably know that paying down debt is good for your credit score. But there’s a persistent myth about credit card balances and credit scores. Some people say that carrying a small balance from month to month somehow helps your credit score.

Should You Carry a Credit Card Balance?

That doesn’t mean the average person with a perfect score is carrying a 5.8% balance from month to month. When your creditor reports to the bureaus, they’re simply providing a snapshot of your account at that given moment. Even if you pay off your balance in full each month, it’s likely that your account will show that you’re using up part of your open credit.
There’s no benefit to your credit score when you don’t pay off your balance in full. You’ll also pay unnecessary interest, unless you’re taking advantage of a temporary interest-free window.
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  • Make every payment on time. The No. 1 habit of people with exceptional credit scores is that they never miss payments. One late payment will stay on your credit report for seven years.
  • Always keep your utilization below 10%. Most members of the 800 club pay off their balances in full each month, but many say they never let their balances climb above 10%.
  • Keep your oldest card open. As you build good credit, you typically qualify for better credit card rewards. But people with top-notch credit keep those old cards open and use them for a small monthly purchase. Credit scoring models favor customers who have long-term relationships with their cards.

The idea that carrying a balance helps your credit score is totally false. Read on to learn the facts about how your balance affects your credit score.

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For example, suppose you have a ,000 limit and a zero balance. Then you make a 0 purchase. If your creditor then reports to the bureau, you’ll have a 2% credit utilization ratio (,000/0 = 2%), even if the bill hasn’t come due yet.

If a Debt Is Not on My Credit Report, Do I Have to Pay It?

Not all debts show up on your credit report, BUT that doesn’t mean you don’t owe them. Creditors aren’t under any obligation to report unpaid debts to the credit bureaus. They can if they want, but they aren’t required to do so.

What does this mean for you?

Can a creditor, or collection agency harass you for payment if the debt isn’t on your credit report?

They can. Here’s why.

couple on computer

What does it mean when a debt isn’t on my credit report?

You can borrow money for instance personal loans or student loans and not have it show up on your credit report. Even some mortgage lenders don’t report the debt to the credit bureaus. Most private creditors don’t report to the credit bureaus – it’s another expense they don’t want to take on, but that doesn’t mean you don’t owe the debt.

It also doesn’t mean the debt won’t show up on your credit report if you don’t pay it.

Say, for example, you decide you aren’t going to make your loan payment because times are tough and you know they don’t report to the credit bureaus. If you go long enough without paying the debt, the lender could send your account to a collection agency.

If that collection agency reports debts to the credit bureaus, suddenly the debt shows up on your credit report in the worst way possible – as a collection.  This would have a negative impact on your credit history and lower your credit scores.

Do collection accounts always appear on a credit report?

Collection accounts don’t always appear on a credit report. Some collection agencies don’t report right away. If they’re able to secure the payment from you without reporting it to the credit bureaus, it increases their profits, so some wait.

But, if you don’t pay the debt, the collection agency may try to leverage your payment by reporting to the credit bureaus.

The minute a debt collection agency reports your debt to the credit bureaus, it hurts your credit score and chances of securing new credit. This may make you more likely to make good on your debt.

Even if a debt appears on your credit report, don’t automatically pay it without looking into it, as it might be an incorrect debt. Make sure all information is accurate on the account. Does the collection agency have the right to collect in your state? Do they have all the right information? Does the account belong to you?

If anything they reported is unfair or inaccurate, you have the right (by law) to dispute it. Before you pay the debt, try getting it removed from your credit report. You’ll still need to negotiate with the debt collector and come up with a payment plan unless you can prove the debt doesn’t belong to you at all. If it does, though, you may be able to work out a payment arrangement.

If you have inaccurate or incomplete collection accounts on your credit report, the Fair Credit Reporting Act gives you the power to dispute this information directly with the credit bureaus or creditor. 

What if the original account is on your credit report?

Sometimes you can get hit twice with the same debt. If you defaulted on a debt with a creditor that reports debts to the credit bureaus and then they sold it to a collection agency that reports to the credit bureaus, you’d see the debt twice.

Not only will you see the debt twice, but so will anyone that pulls your credit. This means they’ll see that not only did you have late payments with the original creditor, but you got so behind that they sent it to a collection agency.

Your original creditor may show the account as ‘charged off’ or something similar. This shows that you didn’t live up to the agreement you made and still owe the debt, but the creditor sold it off to someone else to handle.

If you’ve reviewed your credit reports and neither the original account nor the collection account is appearing, gather as much information as you can from the collection agency and the original lender to help you determine if you owe the money.

See also: Should I Pay the Debt Collector or Original Creditor?

How long does a collection stay on your credit report?

If the creditor sent your account to collections, it could remain on your credit report for seven years. The clock starts from the original date you were delinquent. This means the original debt and the collection can sit there for seven years.

Even if the collection agency doesn’t report the debt to the credit bureaus right away, hoping you’ll pay it, the clock starts on the original date of delinquency. 

What can you do about a collection that’s not on your credit report?

You may wonder what you can do about a collection that’s not on your credit report.

Should you pay it or ignore it?

Will it hurt you in the long run if you don’t pay it?

These are all valid questions, but the bottom line is that you must satisfy the issue. This may or may not mean paying it. First, you have to get down to the bottom of the issue.

Get the Debt Validated

Determine if the debt is valid. If it’s not reporting on your credit report, you’ll have more sleuthing to do. You must determine where the account originated – who was the original creditor? If the collection has been sold multiple times, you may have to do a little more digging. Sometimes collection agencies only hold onto a debt for a few months before they sell it to someone else.

Once you finally get account information, compare your findings. Look at original account numbers, delinquency dates, balance due, and the name of the original creditor. If something doesn’t match, ask questions.

You can write to the debt collector and ask them to prove where the account originated, the account number, and any other information you want to be verified. They must be able to prove beyond a reasonable doubt that you owe the debt to them. 

If they prove it, you’ll need to pay it or at least work out a payment arrangement. Collection agencies are often willing to negotiate too. Most collection agencies buy debts for pennies on the dollar. They then try to collect the full amount from you – this is how they make a profit.

Negotiate with the Debt Collector

But, this leaves room for you to negotiate a lower amount. When you negotiate with debt collectors, start with a lower amount, assuming the collection agency will negotiate – they usually do. Eventually, you’ll land on a number you both agree on, but make sure you get it in writing.

You can also simply ask the debt collector or original collector to remove the collection. This usually involves sending the debt collector or collection agency a goodwill deletion letter explaining your mistake, asking for its forgiveness, and showing them how your payment history has improved. 

If you choose not to pay the debt, be aware that the collector can continue to pursue you for the debt indefinitely – that means calling, sending letters, or suing you for debts still in the statute of limitations – even if it’s not on your credit report. 

Take These Steps Before Paying A Collection

Whether your collection is on your credit report or not, always take these steps to protect yourself.

  • Make sure the account belongs to you. Do as much research as you can to make sure the collection is legitimate, especially if it’s not on your credit report.
  • Negotiate a lower amount; never pay the full amount. But ensure that the collection agency will mark the account ‘paid as agreed.’
  • Get all agreements in writing. This is very important if the collection agency reports the debt to the credit bureaus. If they agree to remove the debt from your credit report after you pay it and they don’t, you can dispute the debt with the credit bureau with your proof.
  • Check your credit 30 days after paying the debt. Make sure the collection agency held up their end of the deal.

Final Thoughts

Do you think, ‘if a debt isn’t on my credit report, I don’t have to pay it’?

Don’t fall for it, because chances are you still have to pay for it. Any unpaid debt is owed, whether it’s on your credit report or not. If a creditor or collection agency can prove the debt belongs to you and let it go unpaid for too long, they can sue you. It’s unlikely, but it does happen.

Don’t rely on your credit report for 100% accuracy. If you have debts not reported to the credit bureaus, you still owe them, and if you default, there will be consequences. If you’ve fallen behind and can’t catch up, talk to your creditors about options, they have to avoid your account getting sent to collections. 

If debt collectors are sent to try and reclaim a debt, you can follow our guide so you’re fully aware of your rights and the ways to proceed. 


Options for When You Can’t Afford Your Child’s College

Every parent wants to help their child succeed. But when it comes to paying for college, it’s not always possible.

Fortunately, depending on the circumstances, you and your child may have several options to help them pay for school. First off, there are a variety of resources for students designed to help them pay for college. This includes things like federal student loans, scholarships, and grants.

Beyond that, students could look into getting a part-time job or paid internship. This could potentially boost their resume while offering an opportunity to earn money to pay for college.

From there, parents can consider options including borrowing a loan to help pay for college.

Options for Parents and Students

Parents and students can work together to create a plan to help pay for college. Here are some ways you can both work together to pay for college.

Fill Out the FAFSA

If your student is a dependent, the FAFSA® or Free Application for Federal Student Aid requires both your child’s information and yours as their parent. Work together to fill out the form. The FAFSA is used to determine eligibility for federal student aid including federal student loans, some scholarships and grants, and the federal work-study program.

The FAFSA needs to be filled out annually.

Choose a More Affordable School

Enrolling in a more affordable school may relieve some of the financial burden facing your family. Depending on your child’s interests and career goals, they may be able to enroll in a community college for the first two years of study to cut down on tuition costs.

Living at Home

If your child’s school is local, you can also offer to have them stay home, so room and board are covered. If your child’s school is not close to home, you can still review housing costs. While some schools require first-year students to live on-campus, after, students may find that living in off-campus housing may be more affordable than paying on-campus rates. Explore the realities for your student.

Options for Students

There are a variety of funding sources available to students. When triaging, focus first on the options that don’t need to be repaid, such as scholarships or grants. Then, there are things like part-time work and student loans that can be used to pay for college. Here are a few options to consider.

Applying for Scholarships and Grants

Depending on the school your child is planning to attend and their grades and activities in high school, they may be able to qualify for an academic or merit-based scholarship .

Grants, on the other hand, are generally based on your child’s financial need. Students typically aren’t required to repay scholarships or grants, so they’re a great option if you can’t pay for college on your own and want to avoid debt as much as possible.

It’s also possible to get scholarships through private organizations. Websites like and FastWeb allow you to search through thousands of scholarships, making it easier to find one for which your child might qualify.

There are also scholarships available for current college students, so your child can continue to apply for those options even after he or she is enrolled.

Work-Study Program

When filling out the FAFSA, you can specify whether you are interested in participating in the work-study program. This program offers part-time jobs to students who demonstrate financial need. Depending on the school, students may be assigned a job or have the option to apply for a job.

One major perk of the work-study program is that the money earned won’t count toward income totals when filling out the FAFSA for the next school year.

Part-Time Job

Attending classes, doing homework, and establishing a social life are all important elements of a college experience. But working a few hours a week can help relieve some of the stress of dealing with the expenses that come with that experience.

For example, let’s say your child gets a job working eight hours a week and earns $10 per hour. Over the course of four years, assuming they don’t change their schedule, they could earn around $16,640. Even after taxes, that might help reduce the amount they would need to borrow or spend for college by thousands of dollars.

Borrowing Student Loans

Both federal and private student loans are available to students. The U.S. Department of Education provides student loans to college students without requiring a credit check (except for PLUS loans). And federal loans come with relatively low fixed interest rates, plus access to some special benefits — such as income-driven repayment plans or the option to pursue Public Service Loan Forgiveness.

As mentioned above, to apply students need to fill out the FAFSA each year. Undergraduate students may qualify for two types of federal loans: subsidized or unsubsidized. Direct Subsidized Loans are awarded to students based on financial need. The government subsidizes, or pays for, the interest on these loans while the borrower is enrolled in school and during the grace period and other qualifying periods of deferment.

Direct Unsubsidized Loans are not awarded based on financial need and borrowers are responsible for paying all of the interest that accrues on this type of loan.There is no credit check when applying for these types of federal student loans.

Recommended: Private vs Federal Student Loans

Students can also look into borrowing a private student loan, though it’s worth noting that these loans may lack the benefits and protections afforded to federal student loans (like income-driven repayment plans) and are therefore generally considered as a last resort option.

Private student loans are offered by private lenders and to apply, students will have to fill out an application directly with their lender of choice. Each lender may have different terms and rates so it can be worth shopping around to find the best option for your personal situation. Lenders will generally evaluate a borrower’s financial situation and creditworthiness when determining how much to lend and at what rates. If a student does not qualify for a private loan on their own, they may be able to add a cosigner to the loan.

Options for Parents

As a parent, it can be frustrating and stressful when you feel like you can’t afford your child’s college tuition. Take the time to consider what you can afford without sacrificing your own important goals, including retirement.

Here are a few actions that could help you assist your child pay for their college education.

Borrow a Loan

Parents can consider borrowing a private student loan or a federal student loan. Parent PLUS or private student loans.

Parent PLUS Loans are federal loans that are available to parents. The interest rate on these loans is a bit higher than for Direct Subsidized or Unsubsidized Loans and a credit check is required. In order to qualify, parents must not have an adverse credit history . In the case that a potential parent borrower does not qualify for a Parent PLUS loan on their own, they may be able to add an endorser to their application.

If you need extra help funding your children’s
education, you can look into private
parent student loans from SoFi.

Private lenders may also offer parent student loans. Parents can apply directly with the lender, and as mentioned above, it can be worth shopping around to see what types of rates and terms for which you may qualify. SoFi offers parent loans that can be applied for directly online and are fee free.

Cosign a Student Loan

If you do not want to borrow a loan to pay for your child’s college education and your child has exhausted their federal student loan options, you could cosign a private student loan with them. Keep in mind that, as already noted, private student loans are generally considered an option only after all other sources of aid and funding have been exhausted. This is because they don’t offer the same borrower protections as federal student loans.

Cover What You Can

Another way is to find other expenses you can cover. You may consider footing the bill for their textbooks every semester, or maybe you have enough income to help with their monthly rent or college-provided room and board fees. While covering a smaller expense may feel anticlimactic, it can still make a difference to your student.

The Takeaway

If you’re struggling to pay for tuition costs, you’re not alone. As you consider ways to help your child pay their way through college resources like scholarships, grants, work-study, and federal student loans are all options to consider. In some situations, you and your child may consider transferring or enrolling in a less expensive school or cutting costs by living at home.

If those options aren’t enough — some students and their families may consider private student loans. In the spirit of complete transparency, if you do need to resort to student loans, we want you to know that we believe you should exhaust all of your federal grant and loan options before you consider SoFi as your private loan lender.

If you do decide a private student loan is the right fit for your education, know that SoFi’s private student loan process is trusted, easy, and fast. We offer flexible payment options and terms, and there are no hidden fees.

Learn more about SoFi’s private student loans; get a rate quote to see what kind of terms you might qualify for.

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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
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