Credit is one of those puzzles that everyone who moves to the United States comes across, and the internet is filled with ridiculous amounts of (sometimes terrible) information. Everything below is from my personal experience combined with speaking to as many professionals as I can possibly meet. Credit. Is. Important. Get onto it early, and here's how!
It's one of the first things you should start thinking about when you arrive, and it will haunt you at every turn. Whether it's buying a house or doing something as seemingly simple as getting onto a phone plan, your credit score is going to play a big role in your new life in the United States.
What is a credit score?
You will have attached to you (via your social security number) a report, and a “FICO” score from three major credit bureaus (Experian, Equifax, and TransUnion).
These three institutions collect data from banks and other sources to build out a snapshot profile of your financial history in an attempt to objectively say how likely you are to pay back a loan on time and how trustworthy you are from a financial perspective.
What's a credit score used for?
It's accessible to anyone who wants to give you something that involves credit (e.g. Banks) or relies on you for something (e.g. Rentals).
For most new arrivals to the US, this really comes into play when trying to get a credit card or an apartment rental, in addition to renting or buying a car, and renting or buying a house.
You might be able to tell a great story of your adventure to the US but to a supplier of these goods, they will want a more objective outlook and therefore this is the way they do it.
What' a good and bad credit score?
This score is from 350 to 850 with anything below 550 being “Bad” and anything above 700 being “Good” or “Excellent”.
While those “bad” and “good” reviews are one measure, not all organizations will look to the same ranges in the same way. If you're getting a credit card with lots of rewards and features, a bank might look to a higher score than just “good” whereas if you're looking for a cell phone contract, it's likely they just want to make sure your numbers are not “bad”.
How do you build good credit?
Your score starts building when you have your Social Security Number because your credit history then has an identification to attach to. It's important that you maintain this as best as you can because, without a good one, you're going to struggle to have any institution trusting you.
It's important that you maintain this as best as you can because, without a good one, you're going to struggle to have any institution trusting you.
The key factors or things to remember about maintaining a good credit score are:
- Building credit as early as possible (“age of credit history”) is important (longer = better, and this only applies to credit accounts, not checking/savings);
- If someone asks for a “Hard pull” or “Hard inquiry” on your credit, really be sure that it is essential. It effectively means they want more than just a number, and every time someone does this, it affects your score negatively (slightly);
- Credit utilization basically refers to the percentage of credit you are using of what you have available. You want to keep that below 10% where you can (e.g. If you have a $500 credit limit, only use $50 of it);
- On that, it's also relevant how many credit facilities you have. You want to keep it relatively low, but everyone will have a different opinion of what is ideal here (I would suggest ~3).
- On-time payment history is essential. Don't be late on any money you owe for any reason;
- The number of bad marks against your credit. Pay your bills, on-time, and frequently; and
- Your income does play a part and obviously, this one isn't as easy. In very short: The more money you earn, the higher amount of debt you're basically allowed.
What are some of the first things you can do to build credit?
When you first arrive it will feel like a real chicken and egg: To get good credit, you need to apply for things… that require credit. You'll feel thrown around and don't worry, that's completely normal.
The best thing you can do is look to organizations like Nova Credit who can help with your first credit card (based on your home country's credit score – even if you didn't know you had one) and also banking institutions that might be able to give you a “secured” credit card to start.
Every opportunity you get to grab onto a little bit of credit and trust and pay it down is worth it in the early days and after 6-12 months you'll have a score that flourishes and makes life so much easier.
Just do not miss one payment by $1 or go without paying a bill you owe, do that and you'll ruin all your momentum for some time.
Other important notes about building good credit
- Opening and closing checking and savings accounts do not affect your credit, but opening and closing lines of credit can potentially impact things; and
- Paying off phone bills does not improve your credit, but using your credit card to pay them and paying off your credit card does.
