How to build a credit history

How to build a good credit history in the USA

America lives on credit — everybody knows it. But how do the Americans manage not to get caught up in debt? We will help to understand this issue and not to break the eye of complex terms.

The new material from American Butler is all about the credit system in the United States: simple, affordable, and nothing superfluous. We will tell you why this is needed and how to build your credit history, and also give you a credit score calculation table and useful life hacks on the rational use of credit cards.

What does US credit history affect?

Credit history in the United States is completely different from credit history in other countries. For example, in Russia this is a kind of certificate only in order to receive loans.

Credit history in America is a confirmed aggregate of all credit financial transactions, which is perceived by government agencies as a full-fledged rating of a person’s trustworthiness.

To make it clear why to have this very story and use not only debit accounts, let us list the areas where a good credit history makes life much easier.

• The cost of rental housing

With a good credit history you need to pay only the minimum amount of the deposit on top of the monthly rental price, or not to pay them at all. With an undeveloped credit history, you can either be denied a lease or set a commission in the amount of another monthly rental price.

• Terms of contracts

Insurance, mobile communications and any other. The better the credit history, the lower the cost of services and the more favorable conditions. It also works with utilities — not every company will work with a homeowner with a bad credit history.

• Interest rate on loans

The higher the credit history score, the lower the interest on any loan (mortgage, car loan, consumer loans, etc.).

And this is an incomplete list. If there is nowhere without a credit history, then we will figure out how it is built.

How to open a credit account in the USA

To open a credit account, you will need:

• Passport;
• Visa;
• Social Security Number or SSN (some banks meet visitors and can open an account before you receive an SSN, but after that you will still need to provide it).

When opening the first credit account, the bank does not provide its own money into circulation. First you have to play with your own money. For this, a Secured Credit Card is issued — a credit account where you deposit your own money and spend it as credit. This is called a security deposit and amounts from $300. This minimum, you can make more.

During a certain period (usually from 3 months to 1 year), the bank tracks all your card transactions. If the user shows himself from the good side, the bank returns his security deposit to the credit or debit account, and the credit limit and credit history credit scores increase.

Below we will explain how to make a good credit history take a year or two, and the confidence of banks grow quickly and efficiently. But first, let's deal with the rating.

Credit Score

Credit scores or credit scores are calculated by special agencies based on the amount of your credit limits, the repayment order, and the presence of overdue payments. You can check your credit score on special sites (for example, www.creditkarma.com), but they give only an approximate result.

Even when you just arrived in the States, your rating is not zero. Minimum is the mark of 630 points.

Credit Score Scale

• 630

Minimum. In fact, this lack of credit history.

• 630-690

Satisfactorily. The available credit limit is from $300 to $700-1000, expanding in the absence of late payments.

• 690-720

Good. The credit limit can be extended up to $2000-3000, the confidence of banks increased.

• 720-850

Fine. Credit limits are available at about $5,000 per account, interest rates are lowered, and bonuses are available.

• 850

Maximum. All possibilities of the American credit system are open.

In addition to the credit rating, there are several important reliability indicators:

1. 01.Age of credit history. As a rule, banks are reluctant to work with those whose credit history is younger than 5 years. The system involves the gradual building of a good story, so the story of 8 years is called ideal. It is believed that during this time a person accurately shows his responsibility or, on the contrary, careless attitude towards money.
2. 02.Number of credit lines (accounts). The more loans you have properly repaid (absolutely everything is taken into account, even operations that did not go through the banks — rent, installments, whatever), the better. The ideal is about 15-20 credit lines for 5-8 years of history.

To make the rating grow much faster, there are several tricks.

Life hacking with American credit cards: how to increase credit score

A good credit history is quite realistic to build in a year or two. The faster this happens, the more advantages the financial system opens before you. But for this to happen, you need to follow a few rules.

1. 01.Monthly spending on credit cards should not be more than 20-30% of the amount of the credit limit. In this case, the bank believes that you are not extremely in need of money and have a steady income — rating points are growing as fast as possible.
2. 02.No minimum payments — the amount of the account (statement) at the end of the month must be fully extinguished. In this case, you avoid two problems at once: interest on the loan and accidental late payments.
3. 03.By the way, about late payments — they should not be allowed. Even one small delay can seriously lower a credit score and require large interest payments. Moreover, after 2-3 years of using credit accounts without delay in payments, credit cards with a huge number of bonuses — miles, discounts, special conditions, minimum interest rates, are available.
4. 04.Every year and a half to open a new credit account. This has a positive effect on history and is beneficial from a household point of view: even if you spend only 30% of the card limit, in the amount you get quite tangible money that can be returned without interest.