only relevant for the US
Author: Stefan Waldvogel
This is a bonus article, and I describe the credit score system in the US.
Overview
The credit score system is for every American citizen. If you need credit for a car or a house, this score determines how high your interest rate is. The range is between 300 and 850. The level (according to Experian) is like this (we have different models):
>670 good
>740 very good
>780 excellent
Overview
The credit score system is for every American citizen. If you need credit for a car or a house, this score determines how high your interest rate is. The range is between 300 and 850. The level (according to Experian) is like this (we have different models):
>670 good
>740 very good
>780 excellent
source:www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/
How can you build a better score?
There are three main factors with a high impact:
Most people can improve their scores by managing their credit card statements. Each credit card has a reporting date, and on this date, the (percentage) balance is reported to the three credit score providers.
Let us say you have a limit of $1000, and you use $100. This means you use 10% of your credit limit.
This is okay for building a credit score but try to be under 3 to 5%. This often looks impossible, but this value counts for all credit cards together.
Catch-22
Building a credit score is difficult for people with financial problems. Many cannot get a credit card because the score is too low (or 0) or they never had a credit card.
Some banks offer a "Secured Credit Card." Here, you deposit $500, and you have $500. If you take each month $5 and add $5 later, you use 1% of your card. This is exceptional and will increase your score.
A different option is: "Become an authorized user." Here you ask a person with a very good score, and this person shares a credit card with you. You might never want to touch this unique credit card, but if your friend is doing well, you get an increase, too. Problem: You need trust. The person has to trust you, and you have to trust this person.
A third way is via a special student credit card. I never used this path, so you have to research on your own.
Sometimes you can build your score via self-reporting. You might live in an apartment, here you can report your monthly payment manually. You can do this with a lot of bills like water/gas/electricity and even phone bills.
As an immigrant, there is another way. Before you move to the US, you can open an American Express account with a credit card. If you hold it for 6 months and move to the US, American Express allows you to open a US credit card.
Conclusion
Think about building an excellent credit score as early as possible. The reason is, if you buy a house, the difference between 790 and 810 could be >$10000. If you build a score from 0, you need about 6 months to reach >780 if you handle your credit card limit under 3 to 5% and report regular payments.
How can you build a better score?
There are three main factors with a high impact:
- Total credit usage, balance, and available credit: Extremely influential
- Credit mix and experience: Highly influential
- Payment history: Moderately influential
Most people can improve their scores by managing their credit card statements. Each credit card has a reporting date, and on this date, the (percentage) balance is reported to the three credit score providers.
Let us say you have a limit of $1000, and you use $100. This means you use 10% of your credit limit.
This is okay for building a credit score but try to be under 3 to 5%. This often looks impossible, but this value counts for all credit cards together.
Catch-22
Building a credit score is difficult for people with financial problems. Many cannot get a credit card because the score is too low (or 0) or they never had a credit card.
Some banks offer a "Secured Credit Card." Here, you deposit $500, and you have $500. If you take each month $5 and add $5 later, you use 1% of your card. This is exceptional and will increase your score.
A different option is: "Become an authorized user." Here you ask a person with a very good score, and this person shares a credit card with you. You might never want to touch this unique credit card, but if your friend is doing well, you get an increase, too. Problem: You need trust. The person has to trust you, and you have to trust this person.
A third way is via a special student credit card. I never used this path, so you have to research on your own.
Sometimes you can build your score via self-reporting. You might live in an apartment, here you can report your monthly payment manually. You can do this with a lot of bills like water/gas/electricity and even phone bills.
As an immigrant, there is another way. Before you move to the US, you can open an American Express account with a credit card. If you hold it for 6 months and move to the US, American Express allows you to open a US credit card.
Conclusion
Think about building an excellent credit score as early as possible. The reason is, if you buy a house, the difference between 790 and 810 could be >$10000. If you build a score from 0, you need about 6 months to reach >780 if you handle your credit card limit under 3 to 5% and report regular payments.
© 2021. This work is licensed under a CC BY-SA 4.0 license