Colorado Springs, with its stunning mountain views and lively outdoor culture, is a city that invites exploration. For renters who prefer to navigate their surroundings on foot, certain neighborhoods stand out for their walkability. Rentals are also fairly affordable, with the average one-bedroom apartment costing $1,440.
In this ApartmentGuide article, we’ll uncover the most walkable neighborhoods in Colorado Springs. From the charming streets of Shooks Run to the historic allure of Old Colorado City, prepare to discover the city’s most pedestrian-friendly areas.
All data sourced March 2024.
1. Shooks Run
Walk Score: 72
Shooks Run is the most walkable neighborhood in Colorado Springs, with a Walk Score of 72. Known for its beautiful trails and parks, residents and visitors alike can explore the area and take advantage of its walkable layout. Notable attractions include Shooks Run Park and the Pikes Peak Greenway Trail.
Search for Shooks Run apartments for rent.
2. Downtown
Walk Score: 69
Downtown has a Walk Score of 69, making it the second most walkable neighborhood in Colorado Springs. There’s a lot to love about the area, from its historic architecture to its diverse arts scene. While you’re walking around the neighborhood, check out the Colorado Springs Pioneers Museum.
See Downtown apartments for rent.
3. Knob Hill
Walk Score: 64
Knob Hill is the third most walkable neighborhood in the city. There are numerous walkable areas and attractions throughout Knob Hill, like the eclectic shops and eateries along Platte Avenue. And if you’re in the mood for an adventure, you’re not far from Memorial Park.
Find Knob Hill apartments for rent.
4. Westside
Walk Score: 63
Westside has plenty of amenities a resident might need within walking distance. From local boutiques to cozy cafes, you’re sure to find something to love. A notable amenity is Bancroft Park, which is a great spot for locals and visitors alike.
Browse Westside apartments for rent.
5. Ivywild
Walk Score: 58
As the fifth most walkable neighborhood in the city, Ivywild is known for its unique blend of residential and commercial spaces. Consider exploring Ivywild Park or grabbing a bite to eat at the Ivywild School with friends. There are plenty of other amenities in this urban community as well, like the Millibo Art Theatre and Bristol Brewing Company.
Discover Ivywild apartments for rent.
6. Old Colorado City
Walk Score: 57
Old Colorado City has a Walk Score of 57, making it the sixth most walkable neighborhood in Colorado Springs. Known for its historic charm, residents and visitors can choose from walkable amenities such as Bancroft Park and the Old Colorado City Historic District. While you’re out, check out the Magic Town museum.
Look for Old Colorado City apartments for rent.
7. North End
Walk Score: 55
North End is the seventh most walkable neighborhood in the city. This quiet community has quite a few hotspots for residents to visit on foot, including the Patty Jewett Golf Course and the Bon Shopping Center. While you’re walking, take a moment to smell the flowers at Monument Valley Park.
Search for North End apartments for rent.
8. Venetian Village
Walk Score: 55
Venetian Village has a Walk Score of 55, making it the eighth most walkable neighborhood in the city. There’s a lot to love about the area, from grabbing a bite to eat at Omelette Parlor, to taking a walk at Nancy Lewis Park. If you’re up for a longer outing, nearby Colorado Springs Country Club is popular among locals.
Find Venetian Village apartments for rent.
9. Divine Redeemer
Walk Score: 55
The ninth most walkable neighborhood in Colorado Springs is Divine Redeemer. Pedestrians can enjoy the variety of restaurants, cafes, and shops, like Wooglin’s Deli and Poor Richard’s Downtown. It’s also easy to walk over to Acacia Park for a great day out.
Peruse Divine Redeemer apartments for rent.
10. Stratton Meadows
Walk Score: 53
Stratton Meadows is the tenth most walkable neighborhood in the city. Local attractions here include Broadmoor Towne Center and Meadows Park, providing residents a spot to get together and enjoy their mile-high community.
Discover Stratton Meadows apartments for rent.
Methodology: Walk Score, a Redfin company, helps people find walkable, bikeable, and transit-friendly places to live, rating areas on a scale from 0-100. To calculate a Walk Score for a given point, Walk Score analyzes thousands of walking routes to nearby amenities, population density, and metrics such as block length and intersection density. Points are awarded based on the distance to amenities in each category.
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.
If you’re considering taking out a loan or credit card, you’ve probably checked your credit score to weigh your odds of getting approved. But what if it’s different depending on which scoring model you check?
Since you have multiple types of credit scores, the number can vary based on the scoring model. Continue reading to learn more about the different credit scores, including FICO® and VantageScore®.
Table of contents:
What is a credit score?
A credit score is a three-digit number that predicts your credit risk based on data from your credit report. Lenders use credit scores to determine who to approve for loans and at what interest rates. Credit scores typically range from 300 to 800 points. A high credit score indicates that you’re more likely to pay back your loans, while a lower credit score signals that you may be a risky borrower.
What are the different credit scoring models?
FICO and VantageScore are the two most popular scoring models used in the United States. Both models calculate your score based on a set of factors that assess an individual’s credit risk. However, the two models use different algorithms and assign different weights to each factor.
Let’s look at the different types of credit scores and how they stack up.
FICO scoring model
The FICO score was the first consumer credit score developed by the Fair Isaac Corporation (FICO) in 1989. According to myFICO, 90 percent of top lenders use FICO scores to determine loan approvals, interest rates and credit limits.
A good FICO score will help you secure better loan terms and rates. The latest FICO model categorizes your score based on these ranges:
800+: Exceptional
740 – 799: Very good
670 – 739: Good
580 – 669: Fair
<580: Poor
VantageScore model
The VantageScore model was developed in 2006 by the three credit bureaus—Experian®, TransUnion® and Equifax®—as an alternative scoring model.
Like the FICO scoring model, VantageScore ranges from 300 to 850. According to Experian, here’s how the newest VantageScore model groups scores:
781+: Excellent
661 – 780: Good
601 – 660: Fair
500 – 600: Poor
<500: Very poor
Other credit scoring models
While FICO and VantageScore are the most widely used, they aren’t the only scoring models out there. Here are some lesser-known credit scoring models you may encounter:
TruVision Credit Risk: Developed by TransUnion, TruVision aims to broaden credit opportunities with insights beyond traditional credit information. The model combines “traditional, trended, blended and alternative data.”
OneScore: Unveiled in 2023 by Equifax, OneScore is a new scoring model aimed to paint a more comprehensive picture of loan applicants. According to a recent press release, OneScore is a “robust, multi-data score that leverages traditional credit history and differentiated alternative data.”
CE Credit Score: Created by CE Analytics, CE is an independent credit scoring model that uses advanced analytics and behavioral trends.
How are credit scores calculated?
Your credit scores are calculated based on a set of factors from your credit report. However, each scoring model assigns a certain weight to each factor to calculate your score.
Let’s look at how the FICO and VantageScore models calculate credit scores.
How is your FICO score calculated?
With the latest FICO scoring model, your history of paying past accounts on time is the most important factor when determining your credit score. Other factors include how much of your available credit you’re using, how long you’ve had your accounts, the different types of loans you have and how many new accounts you have.
Here’s exactly how FICO calculates your score:
Payment history: 35 percent
Amounts owed: 30 percent
Length of credit history: 15 percent
Credit mix: 10 percent
New credit: 10 percent
How is your VantageScore calculated?
Like the FICO model, payment history is the most significant factor when calculating your VantageScore. Additional factors include the age of your accounts, how much credit you use, total balances on your accounts, new accounts you’ve opened and how much credit you have available.
Here’s a look at the factors that determine your VantageScore:
Payment history: 41 percent
Depth of credit: 20 percent
Credit utilization: 20 percent
Balances: 6 percent
Recent credit: 11 percent
Available credit: 2 percent
Why are my credit scores different?
It’s normal for your credit scores to be different. Here are a few of the main reasons credit scores vary:
Your score is calculated using different scoring models: Your credit scores may vary because there are multiple different types of credit scoring models. Since scoring models weigh certain factors differently, your score may vary slightly depending on which credit score you check.
There are different versions of credit scoring models: Each scoring model has multiple versions that periodically update. For example, FICO 8 and FICO 9 have key differences, such as the impact of third-party collections and rent payments.
Not all lenders report to all three credit bureaus: Another reason your credit score may vary is because some lenders don’t report to all three credit bureaus. As a result, one of the credit bureaus could be missing information that either increases or decreases your score.
Credit scores update frequently: When you check your credit score can play a role in what number you see. Credit scores generally update at least once a month and sometimes even multiple times per month. So even if you’re using the same scoring mode, it’s normal for your credit score to fluctuate over time.
How to check your credit score
Accessing your credit score doesn’t have to be a hassle. Here are the easiest ways to check your credit score for free:
Credit bureaus: You can check your credit score via any of the three major credit bureaus—Experian, TransUnion and Equifax.
Your bank or credit card issuer: Most banks and credit card issuers provide customers with complimentary access to their credit score.
Third-party platform: Some third-party platforms provide free credit scores. For example, Lexington Law Firm provides a free credit snapshot, which includes your credit score and credit report summary.
Regularly checking your credit score and credit report can help notify you of inaccurate information that may be hurting your credit. If you notice errors on your credit report, it’s important to investigate and address them with the credit bureaus.
Learn how Lexington Law Firm’s services could help you effectively manage and monitor your credit today.
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.
Reviewed By
Alexis Peacock
Supervising Attorney
Alexis Peacock was born in Santa Cruz, California and raised in Scottsdale, Arizona.
In 2013, she earned her Bachelor of Science in Criminal Justice and Criminology, graduating cum laude from Arizona State University. Ms. Peacock received her Juris Doctor from Arizona Summit Law School and graduated in 2016. Prior to joining Lexington Law Firm, Ms. Peacock worked in Criminal Defense as both a paralegal and practicing attorney. Ms. Peacock represented clients in criminal matters varying from minor traffic infractions to serious felony cases. Alexis is licensed to practice law in Arizona. She is located in the Phoenix office.
Amidst a backdrop of inflation, rising borrowing costs, and growing debt levels, employee financial wellness has been on the decline in recent years. According to PwC’s 2023 Employee Financial Wellness Survey, a full 60% of full-time employees are stressed about their finances. Indeed, employees are even more concerned about their finances today than during the height of the pandemic.
Given that money worries can take a toll on employee health and well-being, as well as productivity at work, it makes sense that a growing number of employers are enhancing support for financial wellness. Bank of America’s 2023 Workplace Benefits Report found that 97% of employers now feel responsible for employee financial wellness (up from 95% in 2021, and from 41% in 2013).
Regardless of how well-compensated your staff may be, this type of resource can help workers feel more financially confident and prepared for the future. Here’s a look at 10 reasons why adding this benefit is so important.
1. Decreases Distractions and Increases Productivity
According to PwC’s Survey (which included 3,638 full-time employed adults across a variety of industries), financially stressed employees tend to be more distracted and less engaged while at work. The study found that financial stress and money worries had a negative impact on the respondents’ sleep, mental health, self-esteem, physical health, and personal relationships. Nearly one-third of employees surveyed admitted that financial insecurity has negatively impacted their productivity at work.
When employees are able to easily get answers to their financial questions and access on-site support when dealing with money problems, there’s a good chance they’ll be less stressed about their finances and more able to focus on their jobs. That’s a win for both employees and employers.
2. Improves Employee Physical Health
Financial stressors have been found to correlate directly with not only mental health challenges but also with poor physical well-being. As the American Psychological Association points out in their Stress in America 2023 report, stress and anxiety put the body on high alert and ongoing stress can accumulate, causing inflammation, wearing on the immune system, and increasing the risk of a number of different ailments, including digestive issues, heart disease, weight gain, and stroke.
Providing your employees with the support they need now can go a long way toward staving off physical health challenges down the line.
3. Builds Loyalty
By offering financial wellness programs, employers demonstrate a commitment to their employees’ well-being, which can help foster employee loyalty and increase retention rates.
The PwC study found that just 54% of financially stressed employees felt there was a promising future for them at their employer, and they were twice as likely to be looking for a new job than employees who were less stressed about their personal finances. What’s more, 73% of financially stressed employees said they would be attracted to another employer that cares more about their financial well-being compared to just 54% of non-financially stressed employees.
Recommended: 3 Ways to Support Your Employees During Times of Uncertainty
4. Can Help Reduce the Burden of Student Debt
Employees struggling to pay down student debt often have difficulty contributing to 401(k) plans and achieving other financial goals, such as buying a house or car. By offering student loan repayment benefits and education, employers can reduce this burden and help employees plan for the future.
The good news is that these programs recently became more affordable. Under the Coronavirus Aid, Relief and Economic Security (CARES) Act, employers can now provide $5,250 tax-exempt annually for an employee’s student loan repayment through 2025. That means employees won’t pay income tax on contributions made by their employers toward educational assistance programs, yet the employer also gets a payroll tax exclusion on these funds.
A growing number of employers are offering some form of loan repayment support. In 2021, only 17% of companies offered any of these benefits. In October 2023, 34% of employers offered student loan benefits.
Recommended: How Student Loan Benefits Can Help Retain Employees
5. Employees Want It
According to the PwC study, the vast majority of employees want help with their finances. Not only that, the stigma around getting help with finances appears to be lifting. In 2023, employees overall were less likely to be embarrassed to ask for guidance or advice about their finances than they’ve been in the past: Just 33% said they find it embarrassing, compared to 42% in PwC’s 2019 survey.
In Bank of America’s Workplace Benefits Report (which surveyed more than 1,300 employees and nearly 800 employers), 76% of employees said they felt that employers are responsible for their financial wellness.
6. Can Help Parents Save for Future College Expenses
In a June 2023 survey of 1,000 parents of teenagers by Discover Student Loans, 70% of subjects said they were worried about financing their kids’ college expenses. In addition, 68% of parents were concerned about the amount of debt their kids will be saddled with even after the parents offer up their own financial assistance.
Providing employees with much-needed information about 529 college savings plans and giving them a convenient way to contribute directly from their pay, can go a long way in helping to relieve the stress associated with one of their top financial concerns.
While in the past, the options for using unspent 529 funds were limited (and often meant facing tax and penalty consequences), the SECURE 2.0 Act allows savers to roll unused 529 funds — to a lifetime limit of $35,000 — into the beneficiary’s Roth IRA, without incurring the usual 10% penalty for nonqualified withdrawals or generating any taxable income. The new rule went into effect January 1, 2024 and might come as a relief to any employees who worry about having excess funds stuck in a 529 should their child end up not needing the money.
Recommended: The Importance of Offering 529 Plan Contributions in an Employee Benefits Package
7. Helps to Clarify Confusing Financial Topics
Many young professionals want to buy their first home, but they don’t know how to save for a down payment or secure a mortgage. New to the workforce, they also struggle to understand financial topics they weren’t taught in school, such as income tax deductions (especially as they get married and have children), the necessity of life insurance, and wealth management and investing.
At the same time, older employees might feel overwhelmed by the financial options available to them. With educational resources and access to experts through a financial wellness program, employees can find the information they need from vetted and trusted sources. In PwC’s survey, 68% of employees said they use their employer’s financial wellness services such as coaching, workshops or online tools.
8. Protects Employees
Sometimes healthcare benefits just aren’t enough. In the event of a health emergency, employees need to be prepared for insurance deductibles and other unexpected costs. Solid financial preparations can prevent them from dipping into savings or making hardship withdrawals from 401(k) plans. Those withdrawals can not only damage their prospects for long-term financial stability, but also create administrative headaches for HR.
Providing an automated emergency savings program is fast becoming a way for employers to help provide a foundation for financial well-being for workers. These plans allow employees to make paycheck contributions to a dedicated account (possibly with a company match), and can help make your workforce more financially resilient in the face of life’s “What Ifs.”
Recommended: How Much Should Your Employees Have in Emergency Savings?
9. Enhances Your Organization’s DEI Efforts
These days, many employers of all sizes have a diversity, equity and inclusion (DEI) strategy or program in place to increase inclusion in the workplace. Offering financial wellness benefits to employees is yet another way to foster a more equitable company culture.
The reason is that financial wellness benefits can help level the playing field by helping to empower minorities and underrepresented groups, who may have more financial stress and encounter more barriers to economic opportunities. Giving all employee populations access to programs that can help them buy their first homes, pay down student debt, save for emergencies, and invest for the future allows them to build wealth for generations to come.
Recommended: How to Support Your Low-Wage Workforce
10. Helps Employees Plan for Retirement
Employer-sponsored retirement plans can help to ease the financial stress that stems from retirement planning. In addition to offering a retirement plan, you might also provide education programs on planning for retirement, understanding different types of accounts available, and best places to get started based on age and goals.
In addition, you might consider instituting a 401(k) match for their student loan payments. Thanks to a provision in Secure Act 2.0 (that went into effect at the start of 2024), companies can match employees’ qualified student loan payments with contributions to their retirement accounts, including 401(k)s, 403(b)s, SIMPLE IRAs, and government 457(b) plans. With this benefit, employees won’t need to make the decision regarding whether to contribute to their 401(k)s or make student loan payments.
Recommended: How Does an HR Team Implement a Student Loan Matching or Direct Repayment Benefit?
The Takeaway
Financial stress is a major concern for today’s employees, and something a growing number of workers want their employers to help with. Providing support for financial wellness can help boost employee engagement and retention, stave off mental and physical health concerns, help your company recruit top talent, and even lead to a more inclusive and equitable workplace.
SoFi at Work can help. We provide the benefit platforms and education resources that can enhance financial wellness throughout your workforce.
Photo credit: iStock/Inside Creative House
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Refinancing your mortgage, or replacing your existing home loan with a new one, can lower your interest rate and monthly payments or even get you extra cash from the equity in your home.
Not all homeowners are approved for refinancing, though. With home prices and interest rates still high, lenders are careful about who they approve. The rejection rate on mortgage refinance applications increased to 15.5% in 2023 from 9.9% in 2022, according to the Federal Reserve Bank of New York.
If you’ve been turned down, you still have options for refinancing — and ways to improve your chances next time.
What we’ll cover
Compare offers to find the best mortgage
Common reasons mortgage refinancing is rejected
Lenders rely on federal underwriting guidelines from Fannie Mae and Freddie Mac when deciding whether to approve a refinancing application. Some issues are easier for borrowers to address than others.
High debt-to-income ratio
How much of your money is tied up in paying off debts isa major factor in getting approved for refinancing. Your debt-to-income (DTI) ratio is determined by dividing your total monthly debts (including your current mortgage) by your gross monthly income.
A DTI of 35% or less is ideal, according to Experian, although lenders typically will consider a ratio up to 43% for refinancing a conventional mortgage, depending on how strong the rest of their application is.
Low credit score
A credit score of at least 620 is usually needed to secure refinancing, although you may be able to get FHA cash-out refinancing with a score in the 500s.
Low home appraisal
An appraisal of your home’s fair market value ensures it hasn’t significantly depreciated, especially to the point that it’s worth less than what you owe (known as an “underwater mortgage”).
If the appraisal indicates your home is in poor condition or has renovations that are not up to code, it could also lead to being turned down.
Not enough home equity
The amount of your home that you own outright is known as home equity. If you put 5% of the cost of the property as a down payment, you’re starting with 5% home equity. That amount increases as you make mortgage payments and as the home’s value increases. You typically need to own at least 20% of your home outright to refinance your mortgage.
Employment history
According toFannie Mae’s underwriting guidelines,lenders look at an applicant’s career history and income over several years. Ideally, they want to see at least two years at your current job, but you probably won’t have to worry about a promotion or a better-paying job in the same industry. A consistent income is the key.
Taking a lesser role or lower-paying job and lengthy gaps in employment are more serious red flags, as is changing jobs in the middle of the application process. However, you can always try to explain your circumstances to your lender.
What to do if you’ve been rejected for refinancing
Find out why you were denied
Lenders are legally required to explain why you’ve been turned down. Find out the reason (or reasons) and if possible, make any necessary changes so you’ll be approved next time.
Shop for another lender
You may need a lender that is willing to accept a lower credit score. Rocket Mortgage works with applicants with scores as low as 580, rather than the 620 required by most lenders.
Rocket Mortgage Refinance
Annual Percentage Rate (APR)
Apply online for personalized rates
Types of loans
Conventional loans, FHA loans, VA Interest Rate Reduction Refinance Loan (IRRRL) and jumbo loans
Fixed-rate Terms
8 – 29 years
Adjustable-rate Terms
Not disclosed
Credit needed
580 if opting for FHA loan refinance or VA IRRRL; 620 for a conventional loan refinance
Already have a mortgage through Rocket Mortgage or looking to start one? Check out the Rocket Visa Signature Card to learn how you can earn rewards
Ally Bank offers cash-out refinances for conventional and jumbo loans, allowing homeowners to convert their home equity into cash and take out a loan that’s larger than their current mortgage. Ally doesn’t charge application, origination or processing fees and its website has a refinance calculator that provides customized rates without affecting your credit score.
Ally Home
Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Types of loans
Fixed-rate, adjustable-rate and jumbo loans available
Fixed-rate Terms
15 – 30 years
Adjustable-rate Terms
5/6 ARM, 7/6 ARM, 10/6 ARM
Credit needed
Not disclosed
Terms apply.
Pay down your existing mortgage
If you didn’t put 20% down when you bought your home, you may need to pay off another chunk of your mortgage before you’re able to secure refinancing.
Work on your credit
If your credit is the problem, take some time off to raise your score. Focus on making on-time bill payments and lowering your credit utilization ratio, or the amount of available credit you’re using. Avoid opening or closing any lines of credit and check your credit reports for any errors.
Experian Boost™ is a free way to improve your credit score. It links utility, phone and streaming service payments to your Experian credit report and uses the You’ll get an updated FICO® score delivered to you in real-time.
Experian Boost™
On Experian’s secure site
Cost
Average credit score increase
13 points, though results vary
Credit report affected
Experian®
Credit scoring model used
FICO® Score
Results will vary. See website for details.
How long should I wait before applying again?
Technically, you can reapply right away, but each application requires a hard credit check, which temporarily lowers your FICO score. So, consider why you were rejected first — if your credit score was too low or you don’t have enough home equity, address the issue before applying again.
If you were turned down because of a recent job change, you may have to wait up to two years to reapply.
How to lower your mortgage payments without refinancing
Whether it’s because you’ve been denied or the rates are still too high, refinancing might not be an option. Fortunately, there are ways you can lower your mortgage payment without refinancing.
Get rid of mortgage insurance
If you have a conventional mortgage, your lender will automatically cancel PMI when you reach 22% equity. You might be able to request cancelation once your equity reaches 20%.
Recast your mortgage
Some lenders will allow you to make a large lump-sum payment toward your principal balance and then re-amortize your loan. The terms remain the same when you recast your mortgage, but the lower balance means smaller monthly payments and an overall decrease in the amount you’ll pay in interest.
Request a loan modification
If you’re facing financial hardship, you can ask to change the terms of your mortgage permanently to help you avoid foreclosure. You can also request a forbearance to temporarily reduce or pause your mortgage, but you’ll eventually have to repay the late or suspended payments.
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FAQ
What is mortgage refinancing?
Refinancing your mortgage is when you replace your existing home loan with a new one, typically to get a lower interest rate.
How much does it cost to refinance a mortgage?
Depending on the lender, there are several fees associated with refinancing, usually 3% to 6% of the loan. Freddie Mac suggests putting aside $5,000 for refinancing closing costs
Can I lower my mortgage payments without refinancing?
Bottom Line
An applicant can be denied refinancing for various reasons, from a low credit score to a new job. If you know why you were turned down, you can work on the problem and reapply.
Why trust CNBC Select?
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Everymortgage article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge ofproducts. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.
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*Results will vary. Not all payments are boost-eligible. Some users may not receive an improved score or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost™. Learn more.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
There is a difference between being rich and wealthy.
However, most people combine rich and wealthy into one bucket because they both seem so far off and unreachable.
It is important that you understand the distinction because what one person considers “rich” might actually be considered “wealthy.”
There is a huge difference between the two words, no matter how they are used.
Earning a lot of money does not automatically lead to happiness and success because when one achieves happiness when it can be reflected in the fulfillment of ambition.
Being rich usually means that you have an abundance of material things such as money and expensive items.
Being independently wealthy can be seen as someone who has a lot of money, but it also means that they have enough money that will last the test of time.
There is a difference between being rich and being wealthy, but they are both can be seen as positive things.
Let’s discuss the different types of wealth and how they are defined in order to help differentiate these two concepts.
The real key of Rich vs Wealthy is the discussion on which one you should be striving to be.
So, is it better to be rich or wealthy?
What is a Rich Person?
A rich person is someone who has a lot of money and assets. This may be a businessperson, an investor, or just someone who has been very successful in their field.
This rich person has probably created new money vs old money.
Rich people tend to barely save any money and spend excessively, meaning they run out of cash quickly. For example, a rich person might earn $10,000 in a month while spending $12,000 to wind up with a negative $2000 when the month is over.
The amount of debt for a rich person tends to be higher. They are willing to keep up the lifestyle rather than tell others about their debts.
To be rich you have to be able to take the risk of having money to invest and time to wait for the windfall.
What is a Wealthy Person?
A wealthy person is someone who has a lot of money for their lifestyle standards.
Since a wealthy person is consistently growing their money because they save and are wise with what they have. They tend to think of the future and put away some cash for it rather than spending everything.
Their goal is to take their large sum of money and grow that money even more through active or passive income.
A wealthy person does not have to be a number-crunching billionaire or someone who is living lavishly.
It is all about the decisions that you make and how those decisions can lead to wealth.
You can start to build wealth when you hit your first $100k in investments. When you have a salary of over $100k a year, this is much easier to do fast.
Wealthy people are those who have a lot more money than you do, but they work hard every day in order to keep it.
Rich vs Wealthy Money Habits
Rich people tend to spend more money than wealthy people.
The difference between rich people and wealthy people is that rich people have money habits that often lead to debt. Rich people are not usually frugal, and they tend to spend a lot of money.
Also, rich people have the ability to earn more if they choose something different in the future.
Rich people are usually defined as those with a net worth of over $10 million, but there is no set number for how much money someone has to be considered rich.
Wealthy people, on the other hand, have an annual income of $150,000 or more. Their wealth comes from hard work and saving money to slowly increase their net worth.
Broke People Habits:
Spend time watching TV and playing video games
Keep up with the Joneses’
Blame others for failures
The concept of change is too overwhelming
Too afraid of setting goals because they don’t want to be accountable
Deep in debt
Feel their situation will never change
Never save money
Willing to get a credit card just for a discount
Think bank fees and overdraft fees are a part of life
No emergency fund
Rich Habits:
Earns a lot of money
Spends a lot of money
Enjoys a flashy lifestyle
Okay being in debt
Focuses on the short term
Not big savers of their money
They frown upon being frugal
Prefer a challenge to make more money
Takes on bigger risks
Their inner circle is people exactly like them
Very impulse with decision making
Wealthy Habits:
Set long term goals
Creates an action plan to reach their goals
Take responsibility for their actions
Saves money consistently
Understands that passive income will grow their wealth
Constantly learning
Spend time reading
Enjoys the fact they have options
Lives below their means
Embraces frugal
Shy away from debt
Finds a mentor
How to Go from Rich to Wealthy
Many people feel the need to be rich because they have the idea that being rich is key to success.
However, many times, wealthy people are wealthier than their counterparts who are both richer and wealthier.
If you are rich, then it is important that you are not frugal because many times, being wealthy means having a lot of money and saving the rest. If you have a lot of money and are not frugal with it, then you could end up broke.
However, if your goal is to become wealthy meaning having a lot of money AND saving, then you are on the right path to financial freedom.
This is the difference between being rich and wealthy.
Rich vs Wealthy Mindset
First of all, the definitions of each of these are really close.
A rich mindset is a state of mind that knows that there are no limits to what you can achieve.
A wealthy mindset believes that success and wealth come from hard work and dedication.
Honestly, both money mindsets are needed to keep pushing yourself to reach financial freedom and enjoy time freedom.
You need a rich mindset to grow your money, but a wealthy mindset to keep that wealth.
The wealthy are more likely to have a growth mindset than the poor because they know that money is merely an instrument for achieving their goals.
Whereas, rich people often spend too much time worrying about what others think of them and why they aren’t as successful or wealthy as other people in society.
How to Become Wealthy
This is a question that has been asked many times, and finding the answer depends on how you define wealth.
In general, becoming wealthy means having enough money to support yourself without any outside help.
You have enough money to cover your expenses without the need for an additional influx of money. For many people, that means they need at least $1 million dollars, so they can live off the investments gains and dividends. If you are single, then $500k may be enough.
As such, becoming wealthy is one of the most difficult things to do.
If you are constantly struggling to make ends meet and never saving money, then becoming wealthy will be even harder for you to accomplish!
Here is what you need to do to move from well off vs rich vs wealthy.
Step #1 – Get out of debt
For people who are in debt, the solution is simple: get out of debt.
But for a lot of people, they need to make some changes before they can do that.
It’s important to get out of debt and that takes time. The more debt you have, the longer it will take.
However, I will tell you from personal experience. Until we paid off our debt, we didn’t make any progress financially. We were stuck on a hamster wheel. Since paying off our debt, we reach our financial goals so much easier.
Track your progress, set goals, and stay motivated while getting out of debt.
Step #2 – Stop comparing yourself
Although comparisons can be helpful and may indicate which side is doing better or worse, they are not always accurate. Sometimes comparing yourself to others will make you feel inferior and frustrated.
Keep in mind that you are not just the sum of your accomplishments.
Stop comparing yourself to other people and start focusing on the things that make you happy.
Conversely, spending time with people who inspire you will help cultivate a wealthy mindset. It can be anyone from your family members to celebrities, but it is important that these individuals are inspirational and not toxic for your mental health.
Step #3 – Become Your Own Boss
This doesn’t mean you can’t keep your 9-5 job. It means you are looking for ways to make money outside the traditional “job.”
An entrepreneur is a person who organizes and runs a business, typically with manageable risk and a small amount of capital, in order to turn it into a profitable venture.
Become creative with ways to bring in extra money. Some ideas include day trading, dropshipping, starting an Etsy shop, driving for Uber, or walking dogs.
Here are great ways to make money on the side:
It is possible to make more money on your business than you make more money in your current job or career.
Step #4 – Be Generous
Be generous to others.
Being wealthy means living a comfortable life and being able to help others.
Giving away money can be a way to build wealth, but it is not the only way. This helps you realize the impact you can have on the world.
Your small contribution can help shape and change the lives of so many.
Consequently, giving and helping others will motivate you to work harder and continue building your wealth.
Step #5 – Think Long Term & Set Goals
Life goals have exploded in recent years and many of us are now focused on growing our own wealth.
The truth of the matter is both wealth and richness are great.
Wealth enables a person to live life on his own terms and allows them to achieve the things they have dreamed of.
But, getting there does not just magically appear.
It takes a plan of action to reach those smart financial goals.
By consistently saving money, you will slowly build your net worth. Step by step you are building the foundation to become wealthy.
Baby steps to becoming wealthy.
Rich vs Wealthy Quotes
This rich vs wealthy quote from Stephen Swid is one of my favorite all-time quotes.
This quote quickly summarizes the difference between the wealthy vs rich definition.
“Being rich is having money; being wealthy is having time.”
As an American businessman and investor, Stephen Swid spent countless hours on various deal negotiations and build his own wealth. He understood the wealthy vs rich meaning.
This quote is something I focus on when making decisions of what next steps to take.
What does this quote mean to you?
What is considered being wealthy?
Being wealthy is a subjective term that can be interpreted in many ways. The definition of the term is different for everyone, so it’s hard to answer this question definitively.
Many people believe you need 7 figures or even 10 figures.
One could be considered to be wealthy or poor based on their country’s standards, their personal spending habits, and the types of investments they have.
The richest people are those who have made their wealth through investments and not necessarily the ones that have spent a lot of money.
The definition of wealthy is different for everyone, but it’s generally considered to be someone who has a lot of money and financial stability.
Being wealthy is measured by how much money you accumulate and save.
It is understanding your personal finances to budget, track savings, contribute to retirement, and grow liquid net worth.
A wealthy person is someone who has made wise decisions. Wealth does not have anything to do with how much money you have in your bank account.
Do you Fit the Definition of Wealthy vs Rich?
Now, we have covered the difference between the wealthy and the rich. If you’re wondering what is the difference between rich and wealthy, it’s not that complicated.
Rich people are those who have saved, invested, and built net worth through their income or assets. Wealthy people can follow these three simple steps to build your own wealth: save money in a savings account or investment account; invest in stocks, bonds, or other securities for growth; create an asset such as real estate by purchasing property with borrowed funds on low-interest rates
The key distinction between being rich or wealthy is the mindset.
Rich people might have more money in their bank accounts or assets, but they don’t think of themselves as rich because they are worried about their appearance and keeping up with their elite society. Wealthy individuals are those who see value in accumulating wealth primarily through investing and growing their financial portfolio with investments over time.
A rich person is someone who has more money than the average person but may not wealthy. They are always looking to make more money and spend more because they believe that there is not enough time or money in this world for them to enjoy.
Wealthy individuals are those who can afford to buy things and choose not to because it helps them increase their net worth and become more wealthy.
The only way to be wealthy is by being smart on your investments and having time for yourself in order to find happiness.
Being rich may or may not be something you should aspire to be. The more money you have, the more responsibilities you get.
There are many rich and wealthy people who are unhappy because they are so busy trying to keep up with society’s expectations.
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
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.
Personal loan interest rates can range from 6 to 36 percent and are based on various factors. Your interest rate may depend on your credit score, the lender type and other factors based on your financial situation.
Recent data shows Americans have over $241 billion in personal loan debt. Whether you have personal loan debt or are considering taking out a personal loan, this may not always be bad debt. When used responsibly, personal loans can help you get better interest rates by consolidating other debts or help when you need additional funds. When taking out a loan, it’s helpful to know the average personal loan interest rates so you can get the best deal possible.
The interest rate is a fee based on the percentage of the loan amount, so ideally, you want the lowest interest rate possible. We’re going to discuss the average interest rates based on various factors, like your credit score and lender types, to help you find a loan that has the best rates.
Average personal loan interest rates by credit score
One of the best ways to get the lowest interest rates for personal loans is by having a high credit score. There are ways to get a loan with bad credit, but these loans often have some of the highest interest rates. High interest rates mean you may pay hundreds or thousands more in interest fees when you take out a loan. Below is a chart showing the difference between interest rates when taking out a loan based on your credit score:
Credit score
Average loan interest rate
300 – 629
28.50% – 32.00%
630 – 689
17.80% – 19.90%
690 – 719
13.50% – 15.50%
720 – 850
10.73% – 12.50%
Source: Bankrate
Average personal loan interest rates by lender type
You have a variety of options when taking out a personal loan. You can go into traditional brick-and-mortar financial institutions like banks or credit unions and find personal loans online. Some of these lenders may even offer bad credit loans, but remember, these typically come with higher interest rates.
In the following sections, we show interest rates from some of the most popular lenders from each category. As you’ll see, each lender has a range of interest rates, which depends on your credit score, income and other financial information.
Average personal loan rates by bank
Personal loan interest rates from banks can range from 6.99 percent to 24.99 percent. Currently, Santander Bank offers the lowest interest rate range.
Average personal loan rates by credit union
Credit unions are another way to get personal loans, and they’re similar to banks except they’re member cooperatives and not-for-profit. Each of the credit unions listed below has lower interest rates on the higher end of the range, with none being over 20 percent.
Average personal loan rates by online lender
Many people turn to online lenders because not only are they convenient, but they’re also more likely to lend to those with bad credit or those who need a personal loan after a bankruptcy. Depending on your credit score and credit history, some of these personal loans have the highest interest rates.
5 factors that affect your personal loan interest rate
If you’re in the market for a personal loan, it’s helpful to know what lenders are looking for. This helps you get approved for the loan and the best interest rate possible. If you have poor credit, using a cosigner may help with approval, but if you want to get a personal loan without a cosigner, here’s what lenders are looking at:
Credit score and report: Your credit score and report show your credit history and how likely you are to pay back your loan. A low credit score can lead to higher interest rates.
Income: Lenders use your income to determine the loan amount and whether you can pay the amount back.
Debt-to-income ratio: Your debt-to-income ratio is a calculation of how much debt you currently have compared to your income. Ideally, it should be low.
Employment status: Employment shows a steady flow of income. If you’re self-employed or an independent contractor, it may make getting a loandifficult.
Length of loan: Shorter loan terms often come with higher interest rates.
What is a good personal loan interest rate?
What’s considered a “good” personal loan interest rate will depend on the person and their situation. Typically, a good interest rate is anything below the average rate for your credit score. Ideally, you want to improve your credit to get even better interest rates on personal loans.
How your credit score affects your personal loan interest rate
Your credit score and credit history play a big part in getting a good personal loan interest rate. As mentioned earlier, a high interest rate can cost you thousands in additional interest fees. If you have a bad credit score, you may have errors on your credit report that are hurting your credit. Lexington Law Firm offers an in-depth credit assessment that shows you where your credit stands before you apply for a loan. Get your free credit assessment today.
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.
Reviewed By
Nature Lewis
Associate Attorney
Before joining Lexington Law as an Associate Attorney, Nature Lewis managed a successful practice representing tenants in Maricopa County.
Through her representation of tenants, Nature gained experience in Federal law, Family law, Probate, Consumer protection and Civil law. She received numerous accolades for her dedication to Tenant Protection in Arizona, including, John P. Frank Advocate for Justice Award in 2016, Top 50 Pro Bono Attorney of 2015, New Tenant Attorney of the Year in 2015 and Maricopa County Attorney of the Month in March 2015. Nature continued her dedication to pro bono work while volunteering at Community Legal Services’ Volunteer Lawyer’s Program and assisting victims of Domestic Violence at the local shelter. Nature is passionate about providing free knowledge to the underserved community and continues to hold free seminars about tenant rights and plans to incorporate consumer rights in her free seminars. Nature is a wife and mother of 5 children. She and her husband have been married for 24 years and enjoy traveling internationally, watching movies and promoting their indie published comic books!
Many or all of the products and brands we promote and feature including our ‘Partner Spotlights’ are from our partners who compensate us. However, this does not influence our editorial opinion found in articles, reviews and our ‘Best’ tables. Our opinion is our own. Read more on our methodology here.
Comparing mortgage rates is key to keeping your mortgage costs lower. It’s also why you should shop around if you’re looking for a new mortgage deal. Whether you’re ready to compare mortgages right now or want to keep tabs on the latest mortgage rates in the UK, everything you need is here.
Partner Spotlight
Compare Mortgage Rates
Tell us what you’re looking for and see current UK mortgages available, including rates, repayments and product information. Continue online to our partner L&C for fee-free mortgage help and advice.
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How to get the best mortgage rates and deals
Mortgage rates vary depending on the type of mortgage you’re looking for, your financial situation and your credit score. But when we talk about getting the best mortgage rate, it’s important to find the best rate among the mortgage deals that suit you and your circumstances.
Mortgage fees and the features you want in a mortgage should always be considered alongside the mortgage rate when making mortgage comparisons and shopping around for any mortgage deal.
If you’re in any way unsure or want help finding the best mortgage deal for you we recommend you seek mortgage advice.
Are mortgage rates going down?
Mortgage rates have mainly been rising in the past week, continuing the upward trend seen during much of February. The average rate on two-year fixed-rate mortgages increased to 5.15% in the week to 28 February, rising from 5.08% a week earlier, according to Rightmove. At the same time, the average rate on five-year fixed-rate mortgages increased to 4.80%, up from 4.72%.
Many of the big UK lenders have increased the cost of their fixed-rate mortgages in recent weeks. However, average rates remain lower than at the beginning of the year, due to the significant rate cuts seen during the mortgage rate price war in January.
Some experts are predicting that more mortgage rate rises may be on the way. This is mainly because of expectations that the Bank of England base rate may need to stay higher for longer, to get inflation down.
What are current UK mortgage rates?
The average two-year fixed-rate mortgage rate, if you have a 25% deposit or equity, increased to 4.99% over the past week, up from 4.90%, while the average rate on a similar five-year fixed-rate mortgage rose to 4.70%, from 4.61%. If you have a smaller deposit or equity of 5%, the average two-year fixed rate remained unchanged at 5.79%, while the average five-year rate increased to 5.38%, from 5.35%. All rates are according to Rightmove as at 28 February 2024.
Latest average two-year fixed-rate mortgage rates
Loan to value (LTV)
21 February 2024
28 February 2024
Week-on-week change
⇩ ⇧
60% LTV
4.50%
4.62%
+0.12%
⇧
75% LTV
4.90%
4.99%
+0.09%
⇧
85% LTV
5.08%
5.14%
+0.06%
⇧
90% LTV
5.31%
5.38%
+0.07%
⇧
95% LTV
5.79%
5.79%
No change
⇔
Latest average five-year fixed-rate mortgage rates
Loan to value (LTV)
21 February 2024
28 February 2024
Week-on-week change
⇩ ⇧
60% LTV
4.19%
4.30%
+0.11%
⇧
75% LTV
4.61%
4.70%
+0.09%
⇧
85% LTV
4.67%
4.73%
+0.06%
⇧
90% LTV
4.86%
4.93%
+0.07%
⇧
95% LTV
5.35%
5.38%
+0.03%
⇧
Data sourced from Rightmove/Podium. Correct as at 28 February 2024.
Average rates are based on 95% of the mortgage market and products with a fee of around £999.
What mortgage do I need?
If you’re looking for a mortgage, you’ll usually fall into one of the following categories of mortgage borrower.
If you’ve never owned a home before, you’ll usually need a first-time buyer mortgage. Knowing that you’re just starting out, the deposit requirements on most first-time buyer mortgages are generally small. You should also be able to find mortgage deals where upfront fees are kept to a minimum. However, mortgage rates for first-time buyers tend to be higher than if you’re already on the property ladder. This is because you’re likely to require a larger loan relative to the value of your property – so borrow at a higher loan-to-value (LTV) – making you a riskier proposition in the eyes of lenders. As it’s your first mortgage, lenders also have less to go on when trying to assess your reliability as a mortgage borrower.
If you already have a mortgage but want to switch to a new one, you are looking to remortgage. You may want to remortgage because your current fixed-rate or discounted term is at an end and you don’t want to move on to your lender’s standard variable rate (SVR), which may be higher. Other reasons you may remortgage include to raise funds to pay for home improvements, or because falling interest rates or a rise in the value of your home means remortgaging could save you money. If you’ve built equity in your property since taking out your current mortgage, it may be possible to borrow at a lower LTV for your new mortgage – and the lower your LTV, the lower mortgage rates tend to be.
If you already have a mortgage but are moving home, you may be able to take your current mortgage with you – this is called porting. Alternatively, you may want to arrange a new mortgage altogether, either with your current lender or a different one. Whichever option you’re considering, it’s important to weigh up the costs of either porting or exiting your existing deal, along with any potential fees you may need to pay on a new mortgage deal.
If you’re buying a property to rent out to tenants, you’ll be looking for a buy-to-let mortgage. You’ll normally need a larger deposit for a buy-to-let mortgage than you would for a residential mortgage, and buy-to-let mortgage rates tend to be higher too. Lenders will also want to see that the rental income you expect to receive will more than cover your monthly repayments.
How mortgage rates work
Mortgage rates are the interest rate you pay to a lender on the mortgage balance you have outstanding. The lower your mortgage rate, the lower your monthly mortgage repayments tend to be, and vice versa.
Different types of mortgage
The type of mortgage you take out can affect the mortgage rate you pay, and whether it may change going forward.
Fixed-rate mortgage
A fixed-rate mortgage guarantees that your mortgage rate, and therefore your monthly repayments, won’t change during the set fixed-rate period that you choose.
This can help with budgeting and means you are protected against a rise in mortgage costs if interest rates begin to increase. However, you’ll miss out if interest rates start to fall while you are locked into a fixed-rate mortgage.
Variable rate mortgages
With a variable rate mortgage, your mortgage rate has the potential to rise and fall and take your monthly repayments with it. This may work to your advantage if interest rates decrease, but means you’ll pay more if rates increase. Variable rate mortgages can take the form of:
a tracker mortgage, where the mortgage rate you pay is typically set at a specific margin above the Bank of England base rate, and will automatically change in line with movements in the base rate.
a standard variable rate, or SVR, which is a rate set by your lender that you’ll automatically move on to once an initial rate period, such as that on a fixed-rate mortgage, comes to an end. SVRs tend to be higher than the mortgage rates on other mortgages, which is why many people look to remortgage to a new deal when a fixed-rate mortgage ends.
a discount mortgage, where the rate you pay tracks a lender’s SVR at a discounted rate for a fixed period.
Offset mortgages
With an offset mortgage, your savings are ‘offset’ against your mortgage amount to reduce the interest you pay. You can still access your savings, but won’t receive interest on them. Offset mortgages are available on either a fixed or variable rate basis.
Interest-only mortgages
An interest-only mortgage allows you to make repayments that cover the interest you’re charged each month but won’t pay off any of your original mortgage loan amount. This helps to keep monthly repayments low but also requires that you have a repayment strategy in place to pay off the full loan amount when your mortgage term ends. Interest-only mortgages can be arranged on either a fixed or variable rate.
» MORE: Should I get an interest-only or repayment mortgage?
How rate changes could affect your mortgage payments
Depending on the type of mortgage you have, changes in mortgage rates have the potential to affect monthly mortgage repayments in different ways.
Fixed-rate mortgage
If you’re within your fixed-rate period, your monthly repayments will remain the same until that ends, regardless of what is happening to interest rates generally. It is only once the fixed term expires that your repayments could change, either because you’ve moved on to your lender’s SVR, which is usually higher, or because you’ve remortgaged to a new deal, potentially at a different rate.
Tracker mortgage
With a tracker mortgage, your monthly repayments usually fall if the base rate falls, but get more expensive if it rises. The change will usually reflect the full change in the base rate and happen automatically, but may not if you have a collar or a cap on your rate. A collar rate is one below which the rate you pay cannot fall, while a capped rate is one that your mortgage rate cannot go above.
Standard variable rate mortgage
With a standard variable rate mortgage, your mortgage payments could change each month, rising or falling depending on the rate. SVRs aren’t tied to the base rate in the same way as a tracker mortgage, as lenders decide whether to change their SVR and by how much. However, it is usually a strong influence that SVRs tend to follow, either partially or in full.
» MORE: How are fixed and variable rate mortgages different?
Mortgage Calculators
Playing around with mortgage calculators is always time well-spent. Get an estimate of how much your monthly mortgage repayments may be at different loan amounts, mortgage rates and terms using our mortgage repayment calculator. Or use our mortgage interest calculator to get an idea of how your monthly repayments might change if mortgage rates rise or fall.
Can I get a mortgage?
Mortgage lenders have rules about who they’ll lend to and must be certain you can afford the mortgage you want. Your finances and circumstances are taken into account when working this out.
The minimum age to apply for a mortgage is usually 18 years old (or 21 for a buy-to-let mortgage), while there may also be a maximum age you can be when your mortgage term is due to end – this varies from lender to lender. You’ll usually need to have been a UK resident for at least three years and have the right to live and work in the UK to get a mortgage.
Checks will be made on your finances to give lenders reassurance you can afford the mortgage repayments. You’ll need to provide proof of your earnings and bank statements so lenders can see how much you spend. Any debts you have will be considered too. If your outgoings each month are considered too high relative to your monthly pay, you may find it more difficult to get approved for a mortgage.
Lenders will also run a credit check to try and work out if you’re someone they can trust to repay what you owe. If you have a good track record when it comes to managing your finances, and a good credit score as a result, it may improve your chances of being offered a mortgage.
If you work for yourself, it’s possible to get a mortgage if you are self-employed. If you receive benefits, it can be possible to get a mortgage on benefits.
Mortgages for bad credit
It may be possible to get a mortgage if you have bad credit, but you’ll likely need to pay a higher mortgage interest rate to do so. Having a bad credit score suggests to lenders that you’ve experienced problems meeting your debt obligations in the past. To counter the risk of problems occurring again, lenders will charge you higher interest rates accordingly. You’re likely to need to source a specialist lender if you have a poor credit score or a broker that can source you an appropriate lender.
What mortgage can I afford?
Getting an agreement or decision in principle from a mortgage lender will give you an idea of how much you may be allowed to borrow before you properly apply. This can usually be done without affecting your credit score, although it’s not a definite promise from the lender that you will be offered a mortgage.
You’ll also get a good idea of how much mortgage you can afford to pay each month, and how much you would be comfortable spending on the property, by looking at your bank statements. What is your income – and your partner’s if it’s a joint mortgage – and what are your regular outgoings? What can you cut back on and what are non-negotiable expenses? And consider how much you would be able to put down as a house deposit. It may be possible to get a mortgage on a low income but much will depend on your wider circumstances.
» MORE: How much can I borrow for a mortgage?
Joint mortgages
Joint mortgages come with the same rates as those you’ll find on a single person mortgage. However, if you get a mortgage jointly with someone else, you may be able to access lower mortgage rates than if you applied on your own. This is because a combined deposit may mean you can borrow at a lower LTV where rates tend to be lower. Some lenders may also consider having two borrowers liable for repaying a mortgage as less risky than only one.
The importance of loan to value
Your loan-to-value (LTV) ratio is how much you want to borrow through a mortgage shown as a percentage of the value of your property. So if you’re buying a home worth £100,000 and have a £10,000 deposit, the mortgage amount you need is £90,000. This means you need a 90% LTV mortgage.
The LTV you’re borrowing at can affect the interest rate you’re charged. Mortgage rates are usually lower at the lowest LTVs when you have a larger deposit.
What other mortgage costs, fees and charges should you be aware of?
It’s important to take into account the other costs you’re likely to face when buying a home, and not just focus on the mortgage rate alone. These may include:
Stamp duty
Stamp duty is a tax you may have to pay to the government when buying property or land. At the time of publication, if you’re buying a residential home in England or Northern Ireland, stamp duty only becomes payable on properties worth over £250,000. Different thresholds and rates apply in Scotland and Wales, and if you’re buying a second home. You may qualify for first-time buyer stamp duty relief if you’re buying your first home.
» MORE: Stamp duty calculator
Mortgage deposit
Your mortgage deposit is the amount of money you have available to put down upfront when buying a property – the rest of the purchase price is then covered using a mortgage. Even a small deposit may need to be several thousands of pounds, though if you have a larger deposit this can potentially help you to access lower mortgage rate deals.
Mortgage fees
Among the charges and fees which are directly related to mortgages, and the process of taking one out, you may need to pay:
Sometimes also referred to as the completion or product fee, this is a charge paid to the lender for setting up the mortgage. It may be possible to add this on to your mortgage loan although increasing your debt will mean you will be charged interest on this extra amount, which will increase your mortgage costs overall.
This is essentially a charge made to reserve a mortgage while your application is being considered, though it may also be included in the arrangement fee. It’s usually non-refundable, meaning you won’t get it back if your application is turned down.
This pays for the checks that lenders need to make on the property you want to buy so that they can assess whether its value is in line with the mortgage amount you want to borrow. Some lenders offer free house valuations as part of their mortgage deals.
You may want to arrange a house survey so that you can check on the condition of the property and the extent of any repairs that may be needed. A survey should be conducted for your own reassurance, whereas a valuation is for the benefit of the lender and may not go into much detail, depending on the type requested by the lender.
Conveyancing fees cover the legal fees that are incurred when buying or selling a home, including the cost of search fees for your solicitor to check whether there are any potential problems you should be aware of, and land registry fees to register the property in your name.
Some lenders apply this charge if you have a small deposit and are borrowing at a higher LTV. Lenders use the funds to buy insurance that protects them against the risk your property is worth less than your mortgage balance should you fail to meet your repayments and they need to take possession of your home.
If you get advice or go through a broker when arranging your mortgage, you may need to pay a fee for their help and time. If there isn’t a fee, it’s likely they’ll receive commission from the lender you take the mortgage out with instead, which is not added to your costs.
These are fees you may have to pay if you want to pay some or all of your mortgage off within a deal period. Early repayment charges are usually a percentage of the amount you’re paying off early and tend to be higher the earlier you are into a mortgage deal.
Government schemes to help you buy a home
There are several government initiatives and schemes designed to help you buy a home or get a mortgage.
95% Mortgage Guarantee Scheme
The mortgage guarantee scheme aims to persuade mortgage lenders to make 95% LTV mortgages available to first-time buyers with a 5% deposit. It is currently due to finish at the end of June 2025.
Shared Ownership
The Shared Ownership scheme in England allows you to buy a share in a property rather than all of it and pay rent on the rest. Similar schemes are available in Scotland, Wales and Northern Ireland.
Help to Buy
The Help to Buy equity loan scheme, designed to help buyers with a smaller deposit, is still available in Wales, but not in England, Scotland and Northern Ireland.
Forces Help to Buy
The Forces Help to Buy Scheme offers eligible members of the Armed Forces an interest-free loan to help buy a home. The loan is repayable over 10 years.
First Homes Scheme
Eligible first-time buyers in England may be able to get a 30% to 50% discount on the market value of certain properties through the First Homes scheme.
Right to Buy
Under this scheme, eligible council tenants in England have the right to buy the property they live in at a discount of up to 70% of its market value. The exact discount depends on the length of time you’ve been a tenant and is subject to certain limits. Similar schemes are available in Wales, Scotland and Northern Ireland, while there is also a Right to Acquire scheme for housing association tenants.
Lifetime ISAs
To help you save for a deposit, a Lifetime ISA will see the government add a 25% bonus of up to £1,000 per year to the amount you put aside in the ISA.
How to apply for a mortgage
You may be able to apply for a mortgage directly with a bank, building society or lender, or you may need or prefer to apply through a mortgage broker. You’ll need to provide identification documents and proof of address, such as your passport, driving license or utility bills.
Lenders will also want to see proof of income and evidence of where your deposit is coming from, including recent bank statements and payslips. It will save time if you have these documents ready before you apply.
» MORE: Best mortgage lenders
Would you like mortgage advice?
Taking out a mortgage is one of the biggest financial decisions you’ll ever make so it’s important to get it right. Getting mortgage advice can help you find a mortgage that is suitable to you and your circumstances. It also has the potential to save you money.
If you think you need mortgage advice, we’ve partnered with online mortgage broker London & Country Mortgages Ltd (L&C) who can offer you fee-free advice.
Key mortgage terms explained
Loan to value (LTV)
Your loan-to-value ratio is the amount you wish to borrow through a mortgage expressed as a percentage of the value of the property you’re buying.
Initial interest rate
This is the interest rate you’ll pay when you’re still within the initial fixed-rate period of a mortgage deal.
Initial interest rate period
This is the period of time your initial interest rate will last, before your lender switches you over to its SVR.
Annual Percentage Rate of Charge (APRC)
The APRC is a single percentage figure designed to help you compare the annual cost of different mortgage deals.
Annual overpayment allowance (AOA)
This is the amount a lender will let you overpay on your mortgage each year without being charged a fee.
Early Repayment Charge (ERC)
This is a charge you may need to pay if you want to pay off some or all of your mortgage earlier than you agreed with your lender.
Mortgage term
A mortgage term is the full period of time over which the mortgage contract is taken out for – it should not be confused with the deal term. At the end of the term you will have paid off the full debt or all of the interest depending on what type of mortgage you took.
The current average rate on a five-year fixed-rate mortgage for a 10% deposit or equity is 4.93%, up from 4.86% a week earlier. For an equivalent two-year fixed-rate mortgage, the average rate of 5.38% has increased from 5.31%. If you have a 40% deposit/equity, the average five-year fixed rate is 4.30%, up from 4.19% a week earlier, while the average two-year fixed rate is 4.62%, rising from 4.50%. All rates are according to Rightmove as at 28 February 2024.
A mortgage rate is the interest rate a lender charges on the mortgage amount that you borrow. Mortgage interest rates may be fixed, guaranteeing that they will remain the same for a certain length of time, or variable, meaning it may fluctuate.
Mortgage providers regularly review the mortgage rates that they offer to take into account the costs involved with funding its lending activities, their latest priorities in terms of target borrowers, and wider conditions in the market. As a result, when searching for a new mortgage, it’s always a good idea to consider various lenders and take the time to compare different mortgages. Crucially, you need to bear in mind that a deal offering the best mortgage rate may not necessarily be the one that is most suitable for you. The mortgage rate is important, but at the same time, you need to consider other factors, such as the charges and fees attached to a mortgage, the type of mortgage that you need, and the mortgage term that you want.
While mortgage rates have been rising in recent weeks, many commentators still expect to see mortgage rates fall across 2024 as a whole.
The next move in the Bank of England base rate, which currently sits at 5.25%, is widely forecast to be down. But with inflation remaining unchanged in January, and wage growth easing by less than expected, some experts predict the first rate cut may not be made until September. Towards the end of 2023, some believed the rate could begin falling in March.
The uncertainty makes it even more difficult than usual to predict what may happen to mortgage rates next.
The interest rate is the percentage of a loan amount that a lender charges for borrowing money, whereas the APRC, or annual percentage rate of charge, is a calculation expressed as a percentage that takes into account both the interest rate and associated costs of a mortgage across its lifetime. The aim of the APRC is to help borrowers make meaningful comparisons between mortgage deals.
Taking the time to compare mortgage rates and deals, making sure your credit score is in good shape, saving for a larger deposit and paying off existing debts can all help improve your chances of getting a good mortgage deal.
When looking for a mortgage it is vital that you compare mortgage lenders and the rates and deals on offer. Taking the time to carry out a mortgage comparison can improve your chances of finding the best mortgage for your circumstances.
A mortgage is a loan you take out to help you buy a property you don’t have the money to pay for up front. You may be a first-time buyer, remortgaging, securing a buy to let, or moving to your next home. The amount you need to borrow will depend on the purchase price of the property, and how much you can put down as a deposit or already hold in equity in your current property. The mortgage is secured against the property, which means your home is at risk if you don’t meet the repayments.
With a capital repayment mortgage, your monthly repayments pay off your interest and some of your original loan amount each month, so that everything should be paid off by the time you reach the end of your mortgage term. The alternative to a repayment mortgage is an interest-only mortgage, where you will repay only the interest each month before needing to pay off your original loan amount in its entirety at the end of the mortgage term.
A mortgage term is the period of time you agree with a lender over which you intend to entirely pay off your mortgage and interest. A typical mortgage term in the UK is usually considered to be 25 years, but you may opt for a shorter period or a longer one, if allowed. Some lenders offer mortgage terms of up to 40 years. If you have a longer term, your monthly repayments will be lower, but you’ll pay more interest overall.
The cost of your mortgage will depend on many factors, including how much you borrow, the size of your deposit, the length of your mortgage term, the mortgage rate you’re paying, and whether you can afford to make overpayments. Your mortgage lender must provide you with the full cost of the mortgage before you apply.
» MORE: How much could your mortgage cost you?
Besides making sure your monthly repayments are affordable, there are many other costs associated with arranging a mortgage. These may include arrangement, survey, valuation and mortgage broker fees.
If you’ve previously owned a home and the property you’re buying is worth more than £250,000, stamp duty will be payable as well; if you’re a first-time buyer, stamp duty only becomes payable on properties worth over £425,000.
To get a mortgage as a first-time buyer you’ll usually need at least a 5% deposit and a regular income. Most lenders offer first-time buyer mortgages aimed primarily at those with smaller deposits. First-time buyers may also be able to secure a mortgage with the help of close relatives through a guarantor mortgage.
Some lenders offer buy-to-let mortgages that can be arranged on a property you want to rent out to a tenant, rather than live in yourself. You’ll usually need a larger deposit for a buy-to-let mortgage than for a residential mortgage, and interest rates are often higher. You may also need to already own your own home or have a residential mortgage on another property.
It may be possible to get a mortgage with bad credit but you’ll probably have fewer mortgage deals to choose from and need to pay higher mortgage rates.
You may want to consider remortgaging if your initial fixed-rate period is close to ending and you want to avoid moving on to your lender’s SVR. Choosing to remortgage has the potential to save you money if you find the right mortgage deal.
» MORE: How remortgaging works
It’s always important to think about your plans, particularly when it comes to choosing the type of mortgage that will suit you best. For instance, if you plan to move in perhaps two years, choosing a five-year fixed-rate mortgage may mean you have to pay early repayment charges if you need to get a new mortgage.
Getting an agreement in principle, or AIP, from a lender will give you an idea of how much you may be able to borrow for your mortgage without needing to formally apply. Getting an AIP usually involves a soft credit check, which shouldn’t affect your credit score. However, having an AIP does not guarantee that a lender will offer you a mortgage. An agreement in principle is also sometimes referred to as a decision in principle or a mortgage promise.
Yes, some providers offer halal or Islamic mortgages in the UK. These are compliant with Sharia law and allow people to borrow but not pay interest.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a loan or any other debt secured on it.
Information on this page is a guide. It does not constitute advice, recommendation or suitability to your needs or financial circumstances. Seek qualified mortgage advice before proceeding with a mortgage product.
NerdWallet strives to keep its information accurate and up to date. This information may be different than what you see when you visit a financial institution, service provider or specific product’s site. All financial products and services are presented without warranty. When evaluating products, please review the financial institution’s Terms and Conditions.
Owning a home is an integral part of the American Dream, but it can often feel more like a mirage to those wrestling with bad credit. The idea of being shackled by a poor credit score might have you convinced that the dream of homeownership is unattainable.
But here’s a plot twist — a poor credit score does not necessarily slam the door to your dream house. Yes, it might add a few challenges to the journey, but the path to homeownership is far from being erased.
In this article, we’re going to simplify the process and illuminate the steps you can take to make your dream of homeownership a reality, even with bad credit. So buckle up and prepare for a deep dive into the world of credit scores, mortgages, and the surprising possibilities that await you.
10 Steps to Buy a House With Bad Credit
Bad credit doesn’t mean a ‘no’ to homeownership—it just implies a more strategic approach is required. From understanding your credit situation and improving your score, to exploring different mortgage options and considering a larger down payment, there are several actionable steps you can take.
Let’s embark on this journey together, helping you turn the dream of owning your own home into a reachable reality, irrespective of your credit score.
1. Know Your Credit Scores
How low are your credit scores? Do you know what’s causing you to have poor credit? Or are you assuming it’s bad because of past financial missteps?
What is a ‘bad’ credit score?
What constitutes a bad credit score? Generally, the ranges are as follows:
Excellent: 781 and above
Good: 661-780
Fair: 601-660
Poor: 501-600
Bad: 500 and below
So, if your credit score is 600 or lower, you’d fall into the subprime consumer category.
Check Out Our Top Picks for 2024:
Best Mortgage Loans for Bad Credit
How Your Credit Scores are Calculated
You should also have an understanding of how your credit score is calculated so you’ll know how much to improve it before applying. The five components are as follows:
Payment history (35%): Do you make timely payments to your creditors each month? If you’ve missed several payments in the past, your credit scores could be suffering. And other past-due bills that became collection accounts also negatively impact your payment history.
Amounts owed (30%): How much do you still owe creditors? If your debt-to-available credit or credit utilization ratio on revolving accounts is high, it could affect your credit scores.
Length of credit history (15%): How long have you had credit? A more established credit profile could equate to a higher FICO score.
Credit mix (10%): Do you have a healthy mix of revolving and installment credit? Lenders like to see a combination of both, and having several of one and not the other could lower your credit scores.
New credit (10%): Have you recently opened several new credit accounts? If so, prospective lenders may see you as more of a risk.
How to Check Your Credit Score
There are several free options to choose from. However, you can start by contacting your bank to see if it’s a service provided to account holders, free of charge. Or if you have credit cards, check the statement or online dashboard as it may appear there.
Did you recently apply for a mortgage and were denied? Lenders must explain their decisions in a letter and disclose that you can request a copy of the credit report used to make the decision.
In some instances, the denial letter will explain the denial and the credit score the lender used during the evaluation process. Lenders use different algorithms and credit scoring models. However, you can use this number as a starting point.
Lastly, you can use credit monitoring tools, like Identity IQ and Identity Guard, to view variations of your credit score. They also offer great identity theft protection.
2. Rectify Errors in Your Credit Report
According to the results of a study conducted by the Federal Trade Commission (FTC), 20% of credit reports contain errors. But why does this matter? Well, what’s in your report determines your credit score. And there’s a possibility that an error could result in a low credit score and prevent you from obtaining a mortgage.
So, you’ll want to get a free copy of your report and review it from top to bottom. If you spot errors, take the following steps to have them rectified:
Step 1: Print out a hard copy of your credit report and circle the items in question.
Step 2: Draft up a letter of dispute to submit to the credit bureaus. For a template, click here.
Step 3: Send the letter, the highlighted copy of your credit report, and any supporting documentation to the credit bureaus.
Step 4: Follow-up in writing with the credit bureaus after 30 days if you still haven’t received a response.
If you need additional help with credit report errors, review this comprehensive guide from the FTC.
It can take a while for credit reports to reflect updates made by disputing errors. So, prepare to fix your credit at least a few months before applying for a mortgage. That way, you can ensure any positive changes have time to improve your credit.
What if everything is accurate?
There’s a possibility that a series of financial missteps or a rough patch has left your credit in shambles and the effects are lingering. If that’s the case, reach out to the creditors and request that they remove the negative mark from your credit report in exchange for a settlement of the account in question.
This is called a pay-for-delete agreement and can do wonders for your credit if the creditor is on board. But be sure to get the agreement in writing.
If the account is showing as a paid collection item, this approach won’t work since the account has already been paid off.
However, you can write a letter to the creditor explaining your circumstances and ask that they honor a goodwill adjustment so you can get approved for a mortgage. You may not have luck with either approach right away, but consistency could pay off.
3. Run the Numbers
Mortgage loans designed for consumers with subpar credit sometimes come at a higher cost. Why so? It’s all a matter of risk.
The mortgage lender wants to be protected if you default on the loan and the home goes into foreclosure. So, if you’re adamant about getting a mortgage with bad credit, be prepared for the financial implications.
To illustrate, assume you’re seeking a 30-year fixed-rate mortgage for $250,000. Below is an example of how the figures could play out, based on your creditworthiness:
CREDIT SCORE
MONTHLY PAYMENT
INTEREST PAID OVER LIFE OF LOAN
TOTAL COST OF LOAN
Excellent Credit
4%
$179,674
$429,674
Good Credit
5%
$233,139
$483,139
Fair Credit
6%
$289,595
$539,595
Poor Credit
7%
$348,772
$598,772
And these figures don’t even factor in property taxes, homeowner’s insurance, and private mortgage insurance (if you make a down payment that’s less than 20%).
The good news is you can always refinance the loan at a later date when your credit score and financial situation improve.
4. Consider an FHA Loan
An FHA Loan is a great option for anyone who wants to buy a house with bad credit. These loans are issued by private lenders, but the loan is guaranteed by the Federal Housing Administration. This guarantee protects the mortgage lender from borrowers that eventually default on their mortgage.
FHA loans come with less stringent requirements so they are easier to apply for than a conventional mortgage. However, FHA loans tend to have higher interest rates and closing costs than conventional mortgages.
FHA Loan Requirements
That being said, there are a few requirements you’ll need to meet:
You need a minimum credit score of 580.
You must have proof of a stable monthly income.
If your credit score is 580 or higher, you’ll need a minimum down payment of at least 3.5%.
If your credit score is 500 or higher you’ll need a minimum down payment of at least 10%.
The home you’re purchasing must be your primary residence.
There are other requirements you’ll need to meet to qualify for an FHA loan. These loans are capped at a certain amount, though this will vary depending on where you live.
You’ll also have to work with an FHA approved lender and pay private mortgage insurance (PMI), which will increase your monthly payment.
See also: FHA Loan Requirements for 2024
5. Consider a VA Loan
If you’re a veteran who has bad credit, then you may be eligible to take out a VA loan. VA loans are issued through private lenders, but the mortgage is backed by the U.S. Department of Veterans Affairs.
The program is designed to help veterans get back on their feet and has served as a lifeline for many struggling veterans. And VA loans have many advantages.
There is no down payment required, and you don’t have to purchase PMI. Additionally, there is no minimum credit score requirement. The interest rates are very competitive, and it’s fairly easy to apply for a VA loan.
VA Loan Requirements
However, there are a few requirements you’ll need to meet first:
Active duty military or a veteran who was honorably discharged.
You’ve served for at least 90 consecutive days during active wartime.
You’ve served for at least 180 consecutive days during active peacetime.
More than six years in the National Guard.
If your spouse died in the line of duty you may qualify for the VA loan program as well.
See also: VA Home Loans: Everything You Need to Know
6. Consider a USDA Loan
The USDA typically offers these no-down-payment mortgage loans in rural areas and lower-density suburbs. To qualify for a USDA loan, borrowers must meet income limits based on their household size and the median income of their county. You must also have a minimum credit score of 580.
See also: Guide for First-Time Homebuyers with Bad Credit
7. Explore Other Lending Options
If you aren’t a candidate for FHA or VA loans, you might consider alternative lenders. Loan aggregators like Lending Tree are a good way to determine if you qualify for conventional loan products.
Lending Tree won’t give you a loan but will match you with mortgage lenders that are willing to work with you. It only takes a few minutes to sign up on the company’s website, and you can receive mortgage offers from multiple lenders.
If you’ve been banking with the same financial institution for an extended period of time, you might also consider applying for a mortgage there.
Banks tend to have stricter lending requirements, but they may be willing to consider you for a mortgage based on your long-standing history with the bank. At the very least, it can’t hurt to try.
8. Save Up for a Down Payment
Lenders may be reluctant to approve you for a house with bad credit. And the higher the loan amount, the more risk they’ll have to assume.
It is more likely that you’ll be approved if you put down a large down payment, since the loan amount will be lower. Plus, you’ll save a bundle on interest.
So, how much should you save for a down payment? The standard 20% required for most conventional loans is a good starting point, but the higher, the better. (Plus, you may be able to avoid mortgage insurance).
It’s also a good idea to have as much cash in your savings account as possible. This demonstrates to lenders that despite having poor credit, you can handle financial emergencies or cover unexpected financial occurrences as they arise. It’s not necessary to stow away an entire year of income in the bank, but three to six months will suffice.
Worried about your credit taking a hit if you apply with several lenders? Don’t be. According to myFICO, “inquiries for mortgage loans generated in a 30-day window count as a single inquiry.”
So, if you shop around and apply with ten separate lenders in a 30-day window, your credit will only be impacted by one inquiry since FICO scoring models recognize that you’re conducting a home loan search.
10. Sign on the Dotted Line
Congratulations! You’ve done your homework, saved up for a down payment, and shopped around to find the lowest interest rate. Despite your credit troubles, you’ve done the legwork to buy the home of your dreams.
But if you weren’t as fortunate and found that it wasn’t the right time to buy, don’t fret. Be patient while working diligently to boost your credit score and get your finances in order.
Furthermore, be sure to make all your rent payments on time to show potential lenders that you are responsible and can handle your housing obligations. That way, you’ll have more luck next time around.
Sell-to-open and sell-to-close are two of the four order types used in options trading. The other two are buy-to-open and buy-to-close. Options contracts can be created, closed out, or simply exchanged on the open market.
A sell-to-open order is an options order type in which you sell (also described as write) a new options contract.
In contrast, a sell-to-close order is an options order type in which you sell an options contract you already own. Both types of options, calls and puts, are subject to these order types.
Key Points
• Sell-to-Open involves selling a new options contract, while Sell-to-Close involves selling an existing options contract.
• Sell-to-Open profits from decreasing option values, while Sell-to-Close profits from options that have increased in value.
• Sell-to-Open can increase open interest, while Sell-to-Close can decrease open interest.
• Sell-to-Open writes a new options contract, while Sell-to-Close closes an existing options contract.
• Sell-to-Open benefits from time decay and lower implied volatility, but can result in steep losses and be affected by increasing volatility. Sell-to-Close avoids extra commissions and slippage costs, retains extrinsic value, but limits further upside before expiration.
What Is Sell-to-Open?
A sell-to-open transaction is performed when you want to short an options contract, either a call or put option. The trade is also known as writing an option contract.
Selling a put indicates a bullish sentiment on the underlying asset, while selling a call indicates bearishness.
When trading options, and specifically writing options, you collect the premium upon sale of the option. You benefit if you are correct in your assessment of the underlying asset price movement. You also benefit from sideways price action in the underlying security, so time decay is your friend.
A sell-to-open order creates a new options contract. Writing a new options contract will increase open interest if the contract stays open until the close of that trading session, all other things being held equal.
How Does Sell-to-Open Work?
A sell-to-open order initiates a short options position. If you sell-to-open, you could be bullish or bearish on an underlying security depending on if you are short puts or calls.
Writing an option gives the buyer the right, but not the obligation, to purchase the underlying asset from you at a pre-specified price. If the buyer exercises that right, you, the seller, are obligated to sell them the security at the strike price.
An options seller benefits when the price of the option drops. The seller can secure profits by buying back the options at a lower price before expiration. Profits are also earned by the seller if the options expire worthless.
Pros and Cons of Selling-to-Open
Pros
Cons
Time decay works in your favor
A naked sale could result in steep losses
Benefits from lower implied volatility
Increasing volatility hurts options sellers
Collects an upfront premium
Might have to buy back at a much higher price
An Example of Selling-to-Open with 3 Outcomes
Let’s explore three possible outcomes after selling-to-open a $100 strike call option expiring in three months on XYZ stock for $5 when the underlying shares are trading at $95.
1. For a Profit
After two months, XYZ shares dropped to $90. The call option contract you sold fell from $5 per contract to $2. You decide that you want to book these gains, so you buy-to-close your short options position.
The purchase executes at $2. You have secured your $3 profit.
You sold the call for $5 and closed out the transaction for $2, $5 – $2 = $3 in profit.
A buy-to-close order is similar to covering a short position on a stock.
Keep in mind that the price of an option consists of both intrinsic and extrinsic value. The call option’s intrinsic value is the stock price minus the strike price. Its extrinsic value is the time value.
Options pricing can be tricky as there are many variables in the binomial option pricing model.
2. At Breakeven
If, however, XYZ shares increase modestly in the two months after the short call trade was opened, then time decay (or theta) might simply offset the rise in intrinsic value.
Let’s assume the shares rose to $100 during that time. The call option remains at $5 due to the offsetting changes in intrinsic value and time value.
You decide to close the position for $5 to breakeven.
You sold the call for $5 and closed out the transaction for $5, $5 – $5 = $0 in profit.
3. At a Loss
If the underlying stock climbs from $95 to $105 after two months, let’s assume the call option’s value jumped to $7. The decline in time value is less than the increase in intrinsic value.
You choose to buy-to-close your short call position for $7, resulting in a loss of $2 on the trade.
You sold the call for $5 and closed out the transaction for $7, $7 – $5 = $2 loss.
Finally, user-friendly options trading is here.*
Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.
What Is Sell-to-Close?
A sell-to-close is executed when you close out an existing long options position.
When you sell-to-close, the contract you were holding either ceases to exist or transfers to another party.
Open interest can stay the same or decrease after a sell-to-close order is completed.
How Does Sell-to-Close Work?
A sell-to-close order ends a long options position that was established with a buy-to-open order.
When you sell-to-close, you might have been bullish or bearish an underlying security depending on if you were long calls or puts. (These decisions can be part of options trading strategies.) A long options position has three possible outcomes:
1. It expires worthless
2. It is exercised
3. It is sold before the expiration date
Pros and Cons of Selling-to-Close
Pros
Cons
Avoids extra commissions versus selling shares in the open market after exercising
There might be a commission with the options sale
Avoids possible slippage costs
The option’s liquidity could be poor
Retains extrinsic value
Limits further upside before expiration
An Example of Selling-to-Close with 3 Outcomes
Let’s dive into three plausible scenarios whereby you would sell-to-close.
Assume that you are holding a $100 strike call option expiring in three months on XYZ stock that you purchased for $5 when the underlying shares were $95.
1. For a Profit
After two months, XYZ shares rally to $110. Your call options jumped from $5 per contract to $12.
You decide that you want to book those gains, so you sell-to-close vs sell-to-open your long options position.
The sale executes at $12. You have secured your $7 profit.
You purchased the call for $5 and closed out the transaction for $12, $12 – $5 = $7 in profit.
2. At Breakeven
Sometimes a trading strategy does not pan out, and you just want to sell at breakeven. If XYZ shares rally only modestly in the two months after the long call trade was opened, then time decay (or theta) might simply offset the rise in intrinsic value.
Let’s say the stock inched up to $100 in that time. The call option remains at $5 due to the offsetting changes in intrinsic value and time value.
You decide to close the position for $5 to breakeven.
You purchased the call for $5 and closed out the transaction for $5, $5 – $5 = $0 in profit.
3. At a Loss
If the stock price does not rise enough, cutting your losses on your long call position can be a prudent move. If XYZ shares climb from $95 to $96 after two months, let’s assume the call option’s value declines to $2. The decline in time value is more than the increase in intrinsic value.
You choose to sell-to-close your long call position for $2, resulting in a loss of $3 on the trade.
You purchased the call for $5 and closed out the transaction for $2, $5 – $3 = $2 loss.
What Is Buying-to-Close and Buying-to-Open?
Buying-to-close ends a short options position, which could be bearish or bullish depending on if calls or puts were used.
Buying-to-open, in contrast, establishes a long put or call options position which might later be sold-to-close.
Understanding buy to open vs. buy to close is similar to the logic with sell to open vs sell to close.
The Takeaway
Selling-to-open is used when establishing a short options position, while selling-to-close is an exit transaction. The former is executed when writing an options contract, while the latter closes a long position. It is important to know the difference between sell to open vs sell to close before you start options trading.
If you’re ready to try your hand at options trading, you can set up an Active Invest account and, if qualified, trade options from the SoFi mobile app or through the web platform.
And if you have any questions, SoFi offers educational resources about options to learn more. SoFi doesn’t charge commissions, see full fee schedule here, and members have access to complimentary financial advice from a professional.
With SoFi, user-friendly options trading is finally here.
FAQ
Is it better to buy stocks at opening or closing?
It is hard to determine what time of the trading day is best to buy and sell stocks and options. In general, however, the first hour and last hour of the trading day are the busiest, so there could be more opportunities then with better market depth and liquidity. The middle of the trading day sometimes features calmer price action.
Can you always sell-to-close options?
If you bought-to-open an option, you can sell-to-close so long as there is a willing buyer. You might also consider allowing the option to expire if it will finish out of the money. A final possibility is to exercise the right to buy or sell the underlying shares.
How do you close a sell-to-open call?
You close a sell-to-open call option by buying-to-close before expiration. Bear in mind that the options might expire worthless, so you could do nothing and avoid possible commissions. Finally, the options could expire in the money which usually results in a trade of the underlying stock if the option is exercised.
Photo credit: iStock/izusek
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Bad credit is detrimental to your financial standing in many ways. A low credit rating can mean getting credit cards and other credit lines at exorbitant interest rates and low limits.
If your rating is really low, your credit applications may not be approved at all. Further, landlords may decline your rental application or ask for higher security deposits.
Simply put, the negative effects of bad credit are so far-reaching that many people are willing to do anything to get a better score. To this end, you’ll find services offering to delete negative items from your reports.
So, do such fixes work? If not, how do you go about fixing poor credit?
Let’s find out:
Can Poor Credit History Be Erased?
Yes and No. If the right steps are taken to remove mistakes in your report, then bad history can be erased, allowing your rating to get a boost.
On the other hand, a service that promises to erase correct, but negative, information on your report is a scam. Companies running such frauds can even go further in promising you a completely new and blemish-free identity.
Are Credit Repair Companies Legal?
Credit repair is a legal service that is guided by the Credit Repair Organizations Act (CROA). Under the act, companies work within a framework that protects consumers from unscrupulous practices.
This consumer protection act has been in effect since 1996 and bans:
Changing a client’s identity to hide them from lenders and credit reporting bureaus.
Assuring consumers that they can erase items from a credit report.
Getting paid for incomplete repair services.
Advising you to make deceitful claims to furnishers of credit information or agencies.
Credit repair companies are also obligated to notify consumers that they can directly raise issues with credit reporting agencies.
Furthermore, the bureaus are required to make certain that their reports are without error and investigate any issues about the reports they generate.
It’s also worth noting that it’s within your right to sue any company that contravenes the CROA.
How Do Credit Repair Firms Remove Bad History?
Companies in this field act on your behalf to access your financial reports and dispute errors. A successful service ensures that the damaging information is excised from your credit report. The service involves:
Checking Credit Reports
The company requests your reports from Experian, Equifax, and TransUnion. With the three reports, credit repairers can have a complete picture of your finances, since creditors are not required to subscribe to all credit agencies.
Reviewing and Disputing Errors
Credit repair professionals go through the different entries in your reports, confirming details as contained in supporting documents from the primary sources.
For example, to find out if a credit limit is accurate, the entry is checked against a statement from the specific credit line issuer. Such errors are marked and the right documents are prepared to initiate a dispute.
Disputes are raised with both credit bureaus and the originators of the misleading information. Errors can be anything from a misspelled name to duplication of debt.
If the disputes have merit, the bureaus are required to erase the affected entries. This is usually effected within a month or so after the process is initiated via mail or online.
What Can’t Be Erased from a Credit Report?
No matter how expensive a credit repair service is, some entries can’t be removed from a credit report. In a nutshell, all correct information stays on your report, irrespective of how damaging it is to your credit rating.
At the same time, bureaus are required to retain some vital entries in your reports, long after you have cleared the debt. Such entries include:
Payments for the last 24 months, whether they were timely or not.
Bankruptcies on your report can remain for up to 10 years, even after your status changes before the duration lapses
Applications for loans, credit cards, business loans, and other forms of credit. The entries are known as hard inquiries and stay on your credit report for 2 years.
The Takeaway
One approach to improving your credit standing is finding and disputing wrong information in your credit report. Common errors include incorrect accounts, inaccurate personal details, and data management errors.
With your authorization, credit repair services can help rectify mistakes and erase errors that are lowering your credit rating. However, such businesses are governed by laws that prescribe limits to what can or can’t be erased from a credit report.
Ultimately though, you need to build your credit through timely payment of balances and not maxing out your credit limits.