Credit in a New Country:
A Guide to Credit in the United States
Establishing good credit is often
frustrating for those who are new to this country and don’t understand how
the system works. Establishing credit is a critical component for financial
survival. For instance, if you do not have a credit history you will not be able
to have your electric or telephone turned on in your home in many states unless
you pay a hefty deposit.
If you are not careful, you may fall for credit scams
that can cost consumers a lot of money. This publication is designed to help
you understand how credit works, how to get credit, and avoid expensive
traps.
An Overview
Credit allows you
to:
- Buy now, and pay for the item later
- Make large purchases and pay for them over time
- Build a good credit rating if you pay your bills on time
There are two
main types of credit:
Installment loans
let you borrow a fixed amount and pay it back in fixed monthly payments. A
good example is a car loan, where you will borrow enough to buy the car and
then pay it back over two to five years.
Revolving accounts
or "lines of credit" give you a certain amount you can borrow against (your "credit
limit"). You can usually then pay the balance off in full or make smaller minimum
payments. A good example of a revolving account is a credit card.
Warning! The minimum
required payments on most credit cards is so small that even a balance of
$500 -- $1000 can take years to pay off if you only make the minimum payment
each month.
Some loans are secured which means
you pledge collateral the lender can "repossess," or take back, if you don’t
pay the loan as agreed. Most car loans and home loans are secured loans.
Other loans, especially credit cards,
are unsecured, which means there is no collateral for the loan. Unsecured loans
can be harder to get because there is nothing to back up the loan, other than
your promise to pay.
