Your Credit Score: Great Power and Great Responsibility
Having a credit card can be a significant convenience for consumers, as well as a smart financial choice. Credit cards act as a loan, allowing you to make purchases that you can choose to pay for over time (along with an interest charge). Many credit cards in the U.S. offer perks and benefits, such as: “cash back,” a return of a percentage of your charges; store discounts or free shipping; or “points” you can use for travel expenses like hotel stays and airline tickets. But is there an advantage of having a credit card besides convenient purchasing power?
In short, absolutely. Credit isn’t just money you borrow—it’s also a measure of your financial trustworthiness, which indicates how likely you are to pay back debt. Many companies will want to know you are financially responsible before doing business with you, including banks who might be considering offering you a student or home loan, landlords who may check your credit history before renting a property to you, or even (depending on state law) potential employers who may use your credit score as part of their evaluation process when you apply for a job. This can put internationals who have recently moved to the U.S. in a difficult position, since they aren’t likely to have a credit history here yet.
How is credit different in the U.S. from other countries? Most countries have their own system of scoring credit, so even if you have established a credit history in your home country, you will need to begin again when you move to the U.S. Credit in the U.S. is represented by a three-digit “score,” which ranges from zero to more than 800. (Generally, scores around 700 or higher are considered good.) There are three credit bureaus in the U.S.—Equifax, Experian and TransUnion—that keep track of your credit history and create your score (so you actually have three scores, which may differ slightly from each other). The bureaus evaluate your credit based on a few main categories. First, they consider your payment history—whether you have made payments for previous credit accounts consistently, and on time. The credit bureaus also consider how much credit you are using, and whether your debt is at (or close to) your approved credit limits. To a lesser degree, they also consider how long you’ve had credit accounts for (a longer history is better), whether you have different types of credit (credit cards, or car or home loans), and if you’ve opened many new accounts in a short amount of time. You have the right to view your credit reports from these three bureaus; they are required to provide your credit report for free, once each year. You also have the right to correct any errors you might find in them.
It’s probably obvious that the higher your credit score, the better. But there is a conundrum in the credit process: in order to be given credit, you must first show a good credit history, which you cannot do until you have been given credit! So, what is the way out of this dilemma? Start small. Apply for a credit card with a low limit, use it consistently, and make payments on time. If you are able to, consider opening a joint credit card, by asking someone with established credit history to co-sign the account with you. Consider applying for a credit card created specifically for new immigrants to the U.S., such as one offered by Sable. Unlike other credit cards, Sable’s card provides a quick, easy, all-online application that does NOT require a Social Security Number or U.S. credit history, making it the ideal first credit card for an international living in the U.S. to start building credit here. Once you have established a history of financial responsibility by making payments on time, you can request an increase in your credit card limit to grow your credit, as well. Finally, make sure you make payments on all your debt on time—whether credit cards, car loans, mortgage payments, or student loans, they all impact your credit score.