The Importance of Credit History
In this article, we are going to discuss credit history. We will be outlining how it all works, what you can do to increase your Credit Score, and what you can avoid to decrease it.
Everyone thinking of relocating to the United States will face quite some issues with the Credit Score. The reason for this is that they won’t have built up any Credit History, and without a full credit history, you can’t do much in the states.
In the United States, there are three Credit Bureaus, being Experian, Equifax, and Transunion. These Credit Bureaus keep records of all financial data like loans, mortgages, and credit card information.
It works quite weird for most people, but we will explain precisely how. In the United States, even if you show a $10,000 monthly salary cheque and show you’ve got $100,000 on your savings account, you’re simply not creditworthy enough. You won’t get any loan, let alone a mortgage, even if you’re working over ten years at the same company.
How can you build up a Credit History if not a single financial institution wants to borrow money to you, one might ask? This is indeed quite difficult, especially if you just turned 18 or recently arrived in the United States.
For example, you just arrive in America, or you just turned 18 or 21, depending on what state you live in and want to purchase a mobile phone so at least people can contact you. Well, that’s going to be difficult as not a single carrier wants to sell you a mobile phone with a data package on contract. This is because they will check your Credit History, and you simply don’t have one yet. There’s only one thing you can do, which is to deposit a guarantee of $500 for the mobile phone.
Okay, you can live with that, right? The deposit will be refunded within a year on your bank account anyway, if you don’t rack up debts left, right and sideways, that is.
But you also need a house to live in. Forget buying one, as you don’t have any Credit History yet, and thus won’t get a mortgage. Note that in some cases, you can get a mortgage if you deposit a significant amount of money upfront.
This means you probably end up renting a place instead of buying one. Luckily, this is quite easy as long as you’re willing to wire transfer a two-months deposit. Yet, also, in this case, most landlords will take a look at your Credit History.
Once you found a place to live, you also would like to have electricity and running water. The same counts again as for the purchase of the mobile phone: they look at your Credit History, which is still blanc, and this you will be asked to refund a deposit.
And now what? You have a place to live, a mobile phone, electricity and running water. But you still didn’t build up any Credit History, and as long as you don’t have one, you keep running in all these hassles.
This is why you should know your fair share of knowledge about Credit History. Your Credit History consists of a few essential points, and guess what, you’ll have to earn these points. Earning these points can only be done by proving yourself that you can handle borrowed money and that you pay your bills on time, month after month.
Once you’ve built up enough points in your first six months, some companies might give you a chance to trust you and thus giving you credit.
The point-based Credit History point system varies between 350 and 850 points. This is called your Credit Score. The higher your Credit Score, the lower the interest rates you’re being charged. The lower your Credit Score, the smaller the chance you get anything done in America unless you want to pay top dollar in interest payments.
As we explained before, your Credit Score always varies between 350 and 850 points and is rated as follows:
Excellent: 750 – 850 points
Good: 660 -749 points
Fair: 620 – 659 points
Poor: 350 – 619 points
As a newcomer in the States or a just-turned adult, you luckily don’t get the POOR rating straight away. Rather you receive points based in the FAIR range and most often even more towards GOOD than POOR. It all depends on how you are going to prove yourself in the next few months.
So that you know, the Average Credit Score in the U.S. is about 678. Make sure you reach this as it will make your life a whole lot easier.
To build up a good Credit Score, you must prove that you pay your bills on time, especially the bills that are connected to one of the three Credit Bureaus: Experian, Equifax, and Transunion.
A good Credit Score is being build up when you have at least three institutions that are trackable in your Credit History Report.
Utility companies always communicate your payments to one of these three Credit Bureaus. So most likely, you already have two out of three covered, and you can start building up your Credit History. You do this by ALWAYS paying your bills on time!
As you need a third trackable company, one of the smartest things to do when you just turn adult or arrive in the states is by applying for a credit card. Credit Cards and what you do with them are being registered with the Credit Bureaus. You could also buy a car on a lease contract if you don’t like credit cards too much.
So, it’s all quite simple in the end. Just make sure you always pay your bills on time so you avoid your Credit Score going down and prove that you can handle borrowed money at all costs. Apart from that, just don’t overspend on your credit card limit and simply play by the rules.