Must Read for a US newcomer:

Building Credit in the USA.

Ok, so now you have your admission, you finally got the coveted F1 Visa and you
will live happily ever after in the USA where all your dreams will come true,
right? Well, unfortunately, the story is a bit more complex, and life in the USA
can pose significant challenges for someone arriving from a different
country/culture and especially if there is a lack of good mentor ship.

One of the key aspects of managing finances in the USA is understanding and
utilizing credit. Credit in the USA is key to financing many of the major events in
a person’s life, such as purchasing a car, purchasing a house, getting married,
major medical expenses, childbirth, etc. or even something like buying a high-end
cell phone you would want for college. Pretty much large scale financial decision
here has credit as a major factor.

#CreditProfile: In the USA, a person’s credit-worthiness (i.e.) how likely is it that

a bank or financial institution will lend you money (for things like buying a
house, car or even groceries) depends on their credit profile. In almost all cases, a
person’s credit profile is identified by their social security number (SSN). This 9
digit number is a unique identifier given to every person in the United States
eligible to be paid a salary or wage. Therefore, if you have an SSN you
automatically have a credit profile.

#CreditHistory: So now you have an SSN, what next? Well, you have a profile, but
in all likelihood, the profile is empty because there are no records on it. Putting
records on your credit profile is how financial institutions can measure how
creditworthy you are. This measure of credit-worthiness is also known as a credit
score. There are 3 major agencies in the USA who keep track of individual credit
scores, and they are Experian, Transunion, and Equifax. Scores at the 3 agencies
vary slightly, but they all fall into ranges between 300 and 800/900

#CreditScores: So, what is a credit score? Like all other scores, the higher the
better. Usually, someone with no credit history starts off at a base score like 400
or 450 depending on the agency. Then, as you add records (hopefully positive
records) to your credit history, your score changes. This indicates to financial
institutions about how reliable you are with money, and therefore things like your
mortgage rate, car payment rate, insurance rates, approval likelihood for credit
cards, etc. are all heavily reliant on your credit score. Typically, scores below 500
are considered very poor and are highly unlikely to be even considered for
approval for credit cards and generally incur the highest interest, mortgage, and
insurance rates. Scores between 550 and 650 and considered poor but stable, and
have slightly better outlooks. The average score for most people lies within the
650-750 range and at this level, most credit card providers will approve you,
albeit you most likely still won't qualify for the lowest possible mortgage rates.
Above 750, and especially above 800 is considered very good, and this tier
provides the best possible rates and lines of credit.

How to get that high score:

So as stated above, the higher the credit score the better. So, how do we go about
it?

Well, the exact formula for calculating the credit score varies slightly between
agencies, but all have the same major components which make up the total:

1: Number of accounts: Any account that counts as a “credit” account will show
up here. The more the better. Credit card accounts are the most common type,
but accounts like a car loan, car lease, personal loan and mortgage carry more
weight and typically a good score has atleast 6 or 7 accounts.

2: Age of accounts: the older, the better. Pretty intuitive, the more history you can
show the more credit worthy you are.
3:Derogatory remarks: Have you ever been late with a payment? Missed a
payment? Not paid the correct due? These count as derogatory remarks, and each
one carries a significant negative impact on the score. Once a credit report has a
derogatory remark, you can dispute it, but typically it stays on your record for
atleast 7 years.

4: Total credit available: How much credit do you already have available to you?
The more you have, the higher your score.

5: Total credit usage: How much of your available credit are you using? The
higher this number, the lower your score. Basically, this means that a bank is less
likely to lend you money if you already have significant debt

6: Number of credit inquiries: How many times have you applied for a
loan/credit card/mortgage recently? The higher this number, the lower your
score, however this does not impact your score in a large way and these inquiries
disappear from your record in a matter of months (on average between 12 and 24
months)

7: Payment history: Have you made all your payments on time? If so, you will get
a good score. The deeper your payment history, the higher your score and this
shows that you are financially responsible.

Tips on getting good scores:

1: USE #CREDITCARDS RESPONSIBLY: heavy use of credit cards is perhaps the

fastest way to increase your score, however you must ALWAYS pay off your credit
card on time, and even though you may be tempted, remember this is a loan and
not cash you have in hand. Not paying the credit card in full at the end of the
billing cycle can cause you to incur very heavy interest rates, and typically these
are extremely high for young people with little to no credit history.

2: Major purchase coming up? Use a credit card. This is a no brainer, if you use
the credit card and pay it off responsibly your score gets a boost
3: Avoid credit cards with fees, especially in the initial stages. Most credit cards
you can get will not have a fee, but some will and these are best avoided until
later on where they are actually worth the money you spend.

4: READ THE FINE PRINT. Whenever you sign a financial agreement or

document, always carefully read all the terms and conditions. Put those mad
SAT/TOEFL/IELTS reading skills to good use.

5: Never share your SSN, Credit Card Number, CVV2 code and other such details
unless you absolutely need to. These are your personal, private information and
they are best kept to yourself.

6: Use credit monitoring tools (like creditkarma) to keep track of your overall
credit history and score from time to time.

For more information on this: Please keep an eye out for a video by Muntaser
Jems Syed coming out next week! Questions? Leave a comment.