Building a credit history.

Two Bags, A Box and US$1000…

When my spouse and I first arrived in America, we had about $1000 dollars in Cashier check, our suitcases and 1 box of belongings and no credit. One of the first order of business was to open a bank account and to get a credit card.

With my residency contract in hand, Citibank was willing to help me with my bank account. With my lack of credit history, the only option I had for a credit card was a prepaid card with Citibank, which meant that I had to deposit a set amount of money and my card is only good for the amount I placed on it.

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What is a credit score?

A credit score is a number ranging from 300 to 850, that gives the lender a guide as to how likely you are to repay the money they loan you. The higher your score, the more likely you will be given a loan.

Issues affecting your credit score include:

  1. credit history (how you have been using the credit)
  2. payment history
  3. credit utilization ratio (ratio of outstanding debt to credit, i.e. your credit card has a limit of 3000 and your current payment due is 300, so the ration is 1:10)
  4. types of credit you have
  5. bankruptcies/short sales, etc
  6. balance owed on current debts

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No Credit, No Rental!

Another challenge was trying to rent an apartment. Everywhere we went to a leasing agent, they asked for a credit and background check – which we have none of, or for someone to co-sign (we didn’t know anyone!).¬† I was fortunate that there was a very nice private landlord (we ended up staying here for the entire three years of my training), who was willing to help.

Building a Credit History…

In the interim, my first pay check came in, we were able to build our credit history and score. We bought one first car cash (from an ebay auction, no less!), but took a car loan on the next car to continue building our credit history.

Even though I had driven for > 10 years in my home country, I was considered a new driver here, and along with my non existent credit, meant our first car insurance bill was astronomical Рabout 3x what we pay now (for more vehicles).

Credit Builder Loans May Help…

There are also credit builder loans you can get, mostly offered by credit unions and local (smaller) banks. Basically, you deposit a set amount of money (can be as low as 100) with the bank offering such loans. You will then get a loan in the same amount you deposited, as long as you pay off the loan on time, the company will report your timely payment to the credit bureau. This can raise your credit score by 30-50 points over 6-12 months.

From No Credit, to Excellent Credit –

With paying all our bills on time, and eventually paying off our car loan in full, we got our credit score from 400 range to > 800, within 6 years. This can make a big difference on loan approvals, interest rates you will receive on car loans and home mortgages, etc.

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