Credit in a New Country:
A Guide to Credit in the United States
When you go into many retail stores
in the U.S., you may be offered an opportunity to apply for a credit card "instantly."
How is it that companies can offer credit on the spot? It’s because they use credit
scores that predict how likely someone is to pay their bills in the future.
Most credit scores are created by a company
called Fair Isaac, which creates what are called "FICO" credit scores. To create a credit
score, information in credit reports, account histories, or credit applications is evaluated
to find out what consumers who pay their bills on time have in common and then they are
assigned a number, and that is their credit score.
According to Fair Isaac, the factors that make
up your credit score fall into five main categories:
|
Payment History |
35% |
|
Amounts You Owe |
30% |
|
Length of Credit History |
15% |
|
New Credit |
10% |
|
Type of Credit In Use |
10% |
The most important factors in a score
are your payment history and the amounts you owe. If you have few or no credit
accounts that have been reported to the credit reporting agencies then you may have
no credit score, or your score may be low due to little credit experience.
Credit scores usually fall between
350 and 850. A score below 650 is usually considered quite low (risky) and
therefore it will be difficult to get credit at the most favorable terms. A
score of 650 – 680 is still risky but credit is generally available at less
favorable terms. A score of 680 – 720 is better, while a score of 720 and above
is usually considered very good. Keep in mind that every creditor has its own
policies, and each one may look at the same score differently.
Also, keep in mind that your credit score
can be different, depending on which of the three major credit bureaus supplied the
information used to create it, what kind of loan is being considered, and what formula
each lender uses.
Note: Even though Equifax operates
in Canada and Experian in England, the foreign credit reporting agencies do not share
files with the U.S. You must establish your own credit history here.
