All About American Credit Score: Guide for Migrants

In the United States, when migrants arrive they quickly discover that the country’s system works on credit and insurance! As soon as you go shopping in a store, you are offered the store’s credit card, and you quickly realize that Americans buy everything on credit… even (and especially) gas and food! There are even often discounts if you buy on credit rather than cash. For individuals (from other countries) who are not used to credit, this is not easy to understand. So you try to understand and get caught up in the game of wanting to build a credit score and increase it. When arriving in the US for the first time, you have neither SSN, nor credit score. And this creates hindrance for many services for example: renting an apartment. Without credit score, organisations (real estate agencies, gas and electricity companies, shops, etc.) will not trust us and are reluctant to get deal with us.

What is a credit score?

The credit score is a score that is assigned to each person in the United States with a social security number. It is supposed to reflect its ability to repay its debts. In other words, it establishes your financial profile to know if you are a honest person (if you pay your bills and pay off your debts on time) or a bad payer. The higher your rating, more banks will appreciate you and easier it will be to get a credit card or any type of credit (personal loan or car loan and others), and better would be the borrowing rate. Three credit bureaus (Equifax, TransUnion, Experian) are responsible for calculating the credit score and each has its own way of calculation. When you wish to obtain your credit score, you will be able to obtain these 3 values but the median value will be taken into account by the organizations.

How to build a good credit score?

At first it’s like snake biting its tail. Without a credit score, organizations will not trust you and without a credit card, it is impossible to have a credit Score. So you have to start slowly and take your time. This is why secured credit card in USA is the best starting point, especially for migrants. At the beginning, it is good to ask your bank for a credit card (it is important to have one credit card per person in the family so that both can work towards their credit score). After a few months, you can apply for another credit card (from another organization or bank), then a few months later for another one.

To build a good credit score, you must

  • Pay rent and all bills on time: Ask your bank for a credit card, make payments using it, and pay it back every month before the due date. Your bank will be the first organization that can trust you and give you a credit card because they receive your salary every month.
  • You shouldn’t wait until after your credit score. You just have to live.
  • It is also advisable not to use more than 30% of your credit limit and to have at least 3 credit lines (and therefore, 3 credit cards)! Repayment of all your credit cards every month before the due date is recommended and will prevent you from paying extra “fees” (charges/interest and late payment penalties).
After a few months of good payment of your bills and proper functioning of your credit card, you will start to have a credit score and can have new credit cards, which will allow you to improve your credit score (and so on). You will know soon enough when you get there because you will receive many letters from different organizations offering you credit cards! Stores will also allow you to have their credit cards.

What is the credit score for?

As you have just seen, living in the United States, it is very important to have a good credit score. Because it allows you to obtain a credit card, a loan (home loan for example), and more generally it facilitates many transactions in everyday life. A good credit score will allow you:
  1. To get a better interest rate
  2. Save on your car or home insurance
  3. To open an account with various service provider (electricity, gas, mobile, etc.) without having to post a deposit.

How is it calculated?

The credit score is calculated based on several parameters:
  1. 35% of the credit score is based on the regularity of payments made (rent, consumer bills, credit card refunds…)
  2. 30% of the credit score is based on your credit card usage percentage. It is therefore more advantageous to use only 30% of your credit card rather than going up to the maximum limit (which then corresponds to 100%).
  3. 15% of the credit score is determined according to the age of the credit history.
  4. 10% of the credit score is based on the type of credit you have: consumer credit, home loans, car loans, student loans, credit cards,…
  5. 10% of your credit score is based on your credit score requests (when you want to know your Credit Score, when you request a credit, when you apply for a credit card, …). All this affects your rating negatively.
So don’t try to know your credit rating frequently and request it only when needed.

How to save with the credit score?

Generally, when a store or bank offers you a credit card, you can take advantage of the situation.
  • There are credit cards for cash back, rewards, miles, and others. For each amount spent, you will earn a % in cash or miles.
  • Cash back can be recovered whenever you wish.
  • Store credit cards generally offer multiple payment facilities or coupons (Target offers 5% discount on any purchase made with their store card).
  • You even have a special credit card to pay your bills and the bank offers $30 every 3 months if you pay bills on time.
  • You can therefore choose the most advantageous solution in relation to your consumption habits.
You imagine that despite all these rewards/cashbacks related to credit cards, banks and stores must also find your account there. If only to build customer loyalty!

Where to get credit score from?

CreditKarma is the site on which you can get your credit score free and unlimited times. Simply register by entering your SSN and each week, your credit score is updated. However, this is only an estimate of your true credit score which is usually slightly different from the one announced on CreditKarma. Good to know: You have the right to get 3 credit reports once a year on Annualcreditreport.com. It’s free and allows you to make sure there are no anomalies (bad information, identity theft,…).

Author Bio:

This article has been written by Chandra Mehta.

Chandra is a seasoned banker with 20+ years of experience in banking and financial services industry. He’s a retired banker and has served as Chief Manager and Assistant Vice President in State Bank of India/or its subsidiaries.

He has authored many articles on this site (allonmoney.com).

He can be reached at [email protected]. You may also visit his LinkedIn profile.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.