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 self of every American. It shows how respectable 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 job seekers during employment. ForumDaily has already told, 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 a month of Timur's use of a deposit card, the bank itself offered him to open a so-called secured credit card. It differs from the usual one in that the client initially deposits money on this card and then treats it like a credit card: having spent some amount, it regularly replenishes to the initial level. Timur put $ 300 on this card. “It is beneficial for me and the bank: my credit history has begun to form, although I have 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 acquaintances, who found themselves in the same situation as me, opened a deposit at Chase Bank, but they failed 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 began to build a credit history immediately after my arrival. “All my acquaintances advised to open an account and a credit card at Capital One bank - they say that the correct use of the cards of this particular bank allows you to increase your credit rating much faster,” he says.

Denis applied on the website of a financial institution and immediately opened a secured $ 800 credit card 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 the $ 800 that Denis put on a secure credit card was not returned. Denis decided to close it altogether. “It was my mistake - my credit rating dropped a lot. Later I learned that it matters to banks how long I have been a client and how long I have opened accounts in America. I did not know that. It took me two years to restore my credit rating. Now he has reached 800 points again, ”Denis admits.

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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 a Walmart store. To do this, you only needed to have a Social Security Number (SSN), and I already had one. I have topped up all my credit cards on time. My credit score started to go up. After 6-7 months, different banks themselves have already 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. Credit card must be used, and the more often the better

If you get a credit card and don't use it, your credit score drops by several points every month. “To start building your credit history in the United States, you need 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: he uses one card to pay in supermarkets, with the second he buys clothes, and the third he uses to pay for restaurants. “I have been actively using all my cards for a year and a half and regularly pay for them. During this time, my credit rating has grown to an excellent level, ”says Nikolay.

Infographics: amyvanderlinden.wordpress.com

2. Pay your credit card on time: better - 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 at least once, you will get a black spot on your credit history. Banks in the form of a reminder in advance send their clients by mail account statements indicating the amount to be paid.

“You need to pay for 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 to avoid paying additional interest. But if the full amount cannot be paid immediately, then at least the minimum payment must be made. And this must be done before the deadline indicated on your bank account. Do not forget about it ever! ”, - recommends the manager of Bank of America Natalya Karan.

“You can set an automatic payment through online banking on 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 USBank Branch. Their bank even developed a special Financial Genius service that helps clients build credit history and use credit cards correctly.

Nikita Kibardin also recommends paying off your monthly balance in full: “You will start building a good credit history if you pay your credit card balance 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 cards with high interest. ”

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

There are two types of checking your credit rating: Soft Pull and Hard Pull. The first check - Soft Pull - shows only the score and does not affect your credit rating in any way. This check is done by landlords when they rent your home, 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 the 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 you are. Hard Pull Checks will significantly lower your credit score. Experts advise to do no more than 2-3 such checks per year.

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

4. Secured loans, such as home loans, loans and car leases, have a positive effect on credit history.

Real estate and cars in the United States, as a rule, buy on credit. Dmitry is from Ukraine studying in San Francisco and moonlighting at his own college. “I realized there was no point in buying a car with cash in the US,” he says. - And since I am temporarily in America and do not know how my fate will develop further, there is no point in buying a car at all. But leasing - a long-term car rental with the option to purchase 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 give a rather large 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 apply for better offers, services and transactions without a good credit history ”.

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

“Start small. First, open a checking account. Use it correctly, do not go negative. A checking account is not a line of credit, but it will also affect your reputation with the bank. You can also open an account for savings and continue to go towards your goal, - advises Nikita Kibardin, Assistant Vice President of US Bank. Once you have a checking bank account, apply for a credit card at one of the shops or gas stations. These cards are easier to obtain, but your credit limit will be low. Use these cards and pay for them on time ”.

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

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

7. Try to have enough credit limit for you

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

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

“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). Do not use more than 10% of your monthly income every month to pay for credit cards, ”shares Nikita Kibardin's financial wisdom. - Another good rule of thumb: do not have a credit limit higher than the amount you have in your savings account. In this case, if you have any unforeseen situation, you will have sufficient funds to cover it. If your lending company suggests that you raise your credit limit by an amount that is too much for you, ask them not to raise it or even lower it. This will curb the urge to spend too much and keep yourself 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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