Table of contents
If you live in the US, you’ve probably faced the need to build your credit history and prove a clean record to get even a single credit card to begin with and perhaps one day apply for a personal loan or mortgage.
You have just arrived in the US ? Here are the steps to follow :
- You definitely need a Social Security Number, which can be obtained through a government administration, otherwise, you cannot proceed to step 2.
- Ask for a secured credit card! In the US, I recommend Discover, which allows a deposit of $ 200 or $250 only and in addition it offers Cash Back (1% on purchases). The deposit will be returned 6-12 months later at the discretion of the bank, so be patient and above all be an exemplary card holder.
- We will assume that you have blocked a security of $ 200 on your credit card. Each month, do not exceed 30% of your credit limit, i.e. do not spend more than about $ 60. In addition, your credit limit and balance ratio will be low, moreover your credit score will progress in the right direction. Do not forget that the goal is to prove you are creditworthy and can be trusted, so that you do not end up with a cap on your credit limit and especially having to pay interest.
- Pay your balance every month. If you seriously need money and have a good credit history then, apply for a personal loan. Rates are sometimes 10 times lower than a credit card!
- Six months later, open a second secured card with another credit card provider. In fact, the more cards you have, the more you will be considered creditworthy and trusted by banks. However, do not open 10 cards in a year, many requests will greatly lower your future credit score and this will give the impression to the banks that you absolutely need money … Do not open more than one card every 6 months at least.
- 7-9 months later, request a copy of your credit history! For example, Equifax USA allow you to know where you stand!
Check your credit score for free with Credit Karma, click here !
What are the factors that influence your credit rating ?
FICO is an organization in the USA that uses the same rules as the three main Credit Score bureaus: TransUnion, Equifax and Experian. FICO uses its own algorithm.
Several factors can influence your credit rating, including but not limited to:
- Payment History: Your payment history is a significant factor in determining your credit rating. It involves whether you have made your payments on time, any instances of late or missed payments, and if you have any accounts in collections or have declared bankruptcy. Consistently paying your bills on time positively impacts your credit rating.
- Credit Utilization: Credit utilization refers to the amount of credit you are currently using compared to your total available credit. It is recommended to keep your credit utilization ratio below 30% to maintain a good credit rating. Higher utilization can indicate a higher risk for lenders and may negatively affect your credit score.
- Length of Credit History: The length of time you have held credit accounts also influences your credit rating. A longer credit history allows lenders to assess your creditworthiness more accurately. It takes into account the age of your oldest account, the average age of all your accounts, and the age of your newest account.
- Credit Mix: Having a diverse mix of credit types can positively impact your credit rating. It includes a combination of revolving credit (e.g., credit cards) and installment loans (e.g., mortgages, auto loans). Responsible management and successful repayment of various credit accounts can demonstrate your ability to handle different types of debt.
- New Credit: Opening multiple new credit accounts within a short period may negatively affect your credit rating. When you apply for new credit, it triggers a hard inquiry, which can temporarily lower your credit score. It is important to be cautious when applying for new credit and only do so when necessary.
- Public Records and Negative Information: Certain public records, such as bankruptcies, tax liens, and judgments, can significantly impact your credit rating. These negative records stay on your credit report for several years and can lower your credit score.
- Credit Inquiries: When you apply for credit, lenders may perform a hard inquiry on your credit report to assess your creditworthiness. Multiple hard inquiries within a short period can indicate a higher risk, potentially lowering your credit score. However, soft inquiries, such as checking your own credit report or pre-approval checks, do not affect your credit rating.
It’s important to note that credit scoring models may vary, and different countries may have different factors that influence credit ratings. While the factors mentioned above generally apply, specific scoring algorithms and criteria may differ depending on the credit bureau or organization assessing your creditworthiness.
Regarding your achievement of a score over 730, maintaining a good credit score often requires discipline, responsible financial management, and understanding how credit works. Being serious and patient with your credit obligations, making payments on time, and avoiding excessive debt can contribute to building and maintaining a positive credit rating. Additionally, being mindful of the potential pitfalls of the credit card system, such as accumulating high balances and paying high interest rates, can help you navigate the credit landscape more effectively.