Credit History

Credit history is the history of a person’s payments, his financial reputation. The United States is a country of immigrants, so credit history serves as an indicator of how solvent a person is and whether he can be trusted. A credit history is needed when buying real estate, a car, linking-up electricity, taking out insurance, concluding a lease treaty, and so on. Sometimes it is reviewed by the employer when applying for a job.

What is credit report?

Credit report is data about a person’s credit history from different sources. It is important to systematically review your credit report to ensure that all information provided on it is error-free and up-to-date. You also need to ensure that no fraudulent accounts are opened in your name. Once a year, you are entitled to receive a free copy of your credit report from major US credit agencies – Equifax, Experian, TransUnion.

What is a credit rating?

The information provided in the credit report is used to determine the credit score. This is a three-digit number ranging from 300 to 850. Typically, a rating of 700 or more is considered good.

Factors affecting the credit rating

Percentage of Credit Card Money You Use
For effective rating growth, it is best to use between 1% and 20% of the total credit card limit. Using 21% to 40% is slightly worse. If you don’t use a credit card or spend between 41% and 60%, it’s even worse. Using more than 60% is a disaster. Let’s say you have a credit card limit of $ 500. For the best rating, you need to spend from $ 5 to $ 100 per month.

Credit payments history
Pay off all loan payments on time, or at least make the minimum contribution. Avoid late payments! If you are late with a payment by 30 days, such a payment will be displayed in your history for up to 7 years, and all this time it will spoil your reputation.

The age of your credit history
To calculate the age of a credit history, take all credit accounts, from oldest to newest, and calculate their average age. So don’t close your first credit card! If you close it, your history will be shortened exactly as long as it took before the moment you opened the second credit card.

Loan inquiries
Credit inquiries appear in history when someone looks at your credit report. These queries can be “hard” or “light”. “Light” inquiries are initiated by lenders who want to understand the attitude of the credit market towards you. For example, when you want to link-up electricity, rent a mobile phone or change your provider. You initiate “hard” requests at the time of applying for a loan. For example, to open a new credit card, take out a loan to buy real estate, a car, or pay for education. The more “hard” queries you have, the worse the situation is.

Number of credit accounts
The more credit accounts you have, the better it is. But keep in mind the previous point and increase the number of accounts gradually! Do not apply for a new loan every month, as the credit bureau will regard you as an unreliable client, and, as a result, will lower your credit rating.

It is important to understand that when issuing a loan, not only the credit rating is taken into account, but also other factors. So, for example, your rating may be 720 points, but the income level is low. Under such circumstances, a loan may be issued on bad terms, at a high interest rate, or not at all.

How to start history?

Here are some ways:

#1. Secured credit card or secured credit card

In fact, this is not a credit card, but a deposit card. You need to place a deposit in the bank for the amount of the credit limit to use it. That is, if you put $500 into your account, you will receive a loan for exactly this amount. The minimum bank deposit is $200. A secured credit card can be issued from any bank as it is risk-free.

#2. Get a credit card for a store or gas station

If you visit the same places, such as a store near your home or a gas station, you can apply for a credit card there. This is a convenient way to build a credit history, as you often pay there.

#3. Become an additional user

If your parent, spouse have a good credit history, you can become an additional user on their credit card. Technically, it turns out that your credit history has already begun from the moment a relative’s credit card was issued.

#4. Apply for a student loan

In order to pay for education in America, many take out a student loan. Timely payments can also help in building a good credit history.