8 tips how to build a good credit history in the USA

Loans paid on time are the key to a good credit rating. Photo: depositphotos.com

A credit score is like the second “I” of every American resident. It shows how respectable a person you are, whether you know how to handle money and whether you can be trusted. A lot depends on your credit rating: whether you can rent a house, take out a mortgage or a car loan. Some employers also check the credit history of applicants when hiring. ForumDaily has already told you, What is a credit history and what does a rating consist of?, now we have collected tips that will help build a good credit history and improve your credit rating.

First steps

Timur arrived in Chicago from Ukraine on an 8 tourist visa months ago and applied for political asylum. A week after arriving in the US, Timur opened a deposit account in Bank of America. From documents in a financial institution showed a passport and a rental agreement in the United States.

Timur began to build a credit history immediately after arriving in the USA. Photos from the personal archive

After only a month of using Timur’s deposit card, the bank itself invited him to open a so-called secure credit card. It differs from a regular card in that the client initially deposits money on this card and then treats it like a credit card: after spending a certain amount, he regularly tops it up to the initial level. Timur put $300 on this card. “This is beneficial for both me and the bank: I began to build a credit history, although I had not even received a Social Security number yet. At the same time, the bank does not lose anything, because I put my personal funds on the card,” he says.

All payments on this credit card the guy made on time. Through 8 months, his credit rating rose to 769 points from 850 possible. Such a credit rating is considered excellent. And Bank of America itself returned $ 300 to Timur's deposit account and gave him an ordinary loan with a limit of $ 800.

“It seemed to me that Bank of America is the most loyal bank to newly arrived immigrants,” says Timur. “My friends, who found themselves in the same situation as me, opened a deposit at Chase Bank, but they were unable to get a credit card from this bank, even when they already had a Social Security number.”

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Denis came to the United States from Ukraine on a work visa 2,5 years ago. Lives in San Francisco. I started building a credit history immediately after my arrival. “All my friends advised me to open an account and a credit card at Capital One bank - they say that the correct use of cards from this particular bank allows you to increase your credit rating much faster,” he says.

Denis submitted an application on the financial institution’s website and immediately opened a secured credit card for $800 with his personal money. I used this card for about six months and then applied online for a standard credit card. The bank approved him a credit card for $1500. But Denis did not return the $800 that he put on a secured credit card. Denis decided to close it altogether. “It was my mistake - my credit rating dropped dramatically. Later I learned that for banks it matters how long I have been their client and how long I have had accounts in America. I did not know that. It took me two years to rebuild my credit rating. Now he has again reached 800 points,” admits Denis.

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Nikolai came to the USA from Ivano-Frankivsk on a green card and has been living in Chicago for a year and a half. Works from the very arrival and receives a good income. But when he just moved to America, he did not have extra funds to open a deposit in the bank. Therefore, Nikolai began to build his credit history differently.

“I opened several credit cards for purchases in specific places - at a BP gas station, at Walmart. All you needed to do was have a Social Security Number (SSN), and I already had one. I topped up all my credit cards on time. My credit score started to rise. After 6-7 months, different banks themselves sent me letters with offers to open a credit card with them,” he says.

Nikolay now has several credit cards: from the bank Chase, the Polish credit union Polish & Slavic Federal Credit Union and Capital One. He pays all his cards on time and currently has a credit rating of 820 points.

What you need and do not need to do to have a good credit rating

The process of building a credit rating has its own rules. Here are the main ones.

1. You need to use a credit card, and the more often the better.

If you get a credit card and don't use it, your credit score drops a few points every month. “To start building your credit history in the USA, you need to not only get your first credit card, but also start using it, and if you want to have a high credit rating, you need to use it as actively as possible,” advises Bank of America manager Natalya Karan .

Nikolay from Chicago uses each of his three credit cards in his own way: with one card he pays in supermarkets, with the second he buys clothes, and with the third he uses it to pay for restaurants. “I have been actively using all my cards for a year and a half and regularly pay on them. During this time, my credit rating has grown to an excellent level,” says Nikolai.

Infographics: amyvanderlinden.wordpress.com

2. Pay off your credit card on time: better yet, in full, but as a last resort, make at least the minimum monthly payment

This is perhaps the most important point in building a successful credit history. If you are late or forget even once, you will get a black spot on your credit history. Banks send account statements to their customers by mail in advance as a reminder indicating the amount to be paid.

“You need to pay the card on time - this is the most important condition for building a good rating and it is better, of course, to pay in full, as this will help avoid paying additional interest. But if it is not possible to pay the full amount at once, then at least the minimum payment must be made. And you must do this before the deadline indicated on your bank account. Don’t ever forget about this!” recommends Bank of America manager Natalya Karan.

“You can set up an automatic payment through online banking for a specific date. If you pay via mail, send your payment a few days before it is due,” advises Nikita Kibardin, assistant vice president and head of the USBank branch. Their bank even developed a special service, Financial Genius, which helps clients build a credit history and use credit cards correctly.

Nikita Kibardin also recommends paying off your monthly balance in full: “You will start to build a good credit history if you pay off your credit card balances in full every month. If this is not possible, then try to pay more than the minimum payment that is required. Always pay as much of your total monthly balance as possible, especially on high interest cards.”

3. Do not allow to check your credit history often.

There are two types of checking your credit score: Soft Pull and Hard Pull. The first check, the Soft Pull, only shows a score and does not affect your credit score in any way. Landlords do this check when renting your property, if you connect the Internet or electricity or take the phone in installments. You can do at least 50 such checks per day. The second type of check - Hard Pull - involves an analysis of all your financial actions. This check is done by banks for issuing loans and mortgages, landlords, employers and various organizations that want to know how reliable and responsible a person you are. Hard pull checks significantly lower your credit score. Experts advise doing no more than 2-3 such checks per year.

“As a rule, all services request your social security number, otherwise they will not issue you a credit card, and, accordingly, this can only be a Hard Pull check,” emphasized Bank of America employee Natalya Karan. If within one year you need to rent an apartment, buy a car on credit and open several credit cards, and everywhere you need such a Hard Pull check, then this will be a huge minus for your credit rating.

4. “Secured loans” have a positive effect on your credit history - such as buying a home on credit, credit and car leasing

Real estate and cars in the United States, as a rule, buy on credit. Dmitry from Ukraine studies in San Francisco and works part-time at his own college. “I realized there was no point in buying a car with cash in the US,” he says. “And since I’m temporarily in America and don’t know what my fate will be like next, there’s no point in buying a car at all.” But leasing - long-term rental of a car with the right to buy it in the future - this is my option. Moreover, all my monthly payments for using the car will be taken into account by the bank and form my credit history. With a regular cash purchase, I only lose. I immediately have to pay a considerable amount of money and this will not improve my credit rating in any way, and in the future I simply will not be able to qualify for more advantageous offers, services and deals without a good credit history.”

5. Open credit cards for stores, supermarkets, gas stations - they will help improve your credit history.

“Start small. To get started, open a checking account. Use it correctly, don’t go into the red. A checking account is not a line of credit, but it will also affect your reputation with the bank. You can also open a savings account and continue moving towards your goal, advises Nikita Kibardin, assistant vice president of US Bank. Once you have a checking account at the bank, apply for a credit card at one of the stores or gas stations. These cards are easier to obtain, but your credit limit will be low. Use these cards and pay them on time.”

6. Do not close old accounts, even if you do not use them.

If you close your old credit card, the overall length of your credit history will decrease. And the shorter the credit history, the lower the rating. So, weigh the pros and cons carefully when you decide to lose one of your accounts.

7. Try to have enough credit limit for you

If you are a good customer, banks often increase your credit line themselves. But you can speed up this process: ask banks to increase your credit limit approximately once every six months. Try not to ask for a lot at once - for example, if you have $500, you can ask to increase it to $800.

In addition, banks look at how much of the credit line you spend - it is advisable not to use the entire amount available on the credit card. The logic here is this: you can spend $500 with a limit of $1000, but you shouldn’t spend $500 with a limit of $600. The amount is the same, but for banks it is important not only it, but also the percentage ratio to your credit line. It is believed that if you have credit cards for large amounts, but you spend only a small part, it means that you know how to handle money correctly. In such a situation, the rating increases.

“A good rule of thumb for building a high credit score is: Don't let your credit balance exceed 20% of your net annual income (income after all taxes are taken out). Don’t use more than 10% of your monthly income to pay off credit cards every month,” Nikita Kibardin shares financial wisdom. — Another good rule: do not have a credit limit higher than the amount of money you have in your savings account. This way, if any unforeseen situation happens to you, you will have enough funds to cover it. If your credit card company offers to increase your credit limit by an amount that is too high for you, ask them not to increase it or even lower it. This will help curb the urge to overspend and keep you out of debt.”

8. Do not vouch financially for other people.

The financial problems of a person you know or someone close to you may also affect your credit history. For example, your friend asked you to act as a guarantor for his purchase. But if he has financial difficulties? If he does not pay the payment on time? Forget to pay? This is all badly reflected on you.

Rating self control

Once a year, the state allows each person to check their full credit report on the website for free AnnualCreditReport.com. All other checks will be paid.

There are also special sites (CreditSesame.com, CreditKarma.com), where you can check your credit rating for free.

Credit Sesame service forms your total credit score, based on information from one of the three main credit bureaus: Experian, Equifax и TransUnion. Credit Karma tracks credit ratings using information from all three credit bureaus in the United States. Both services allow you to access credit reports at any time and find out your credit rating.

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