Getting to know your U.S. credit score
In the U.S., every consumer has a credit score – a 3-digit number that assesses each person’s “creditworthiness.” Credit scores vary from 350, which is poor, to 850, which is excellent. When you have a high score, you can qualify for loans and credit cards at low interest rates. On the other hand, if you have bad credit then you will be charged higher interest rates if you can get approved at all.
We explain exactly how credit scores are calculated and what you can do to change your credit score in our full Credit Scores section. What’s important to note here is that until you take out a loan or get a U.S. credit card, you won’t have any credit history. This means your credit score will be really low. You need to take steps to start using credit so you can establish a good credit history. We explain how in the next section.
Getting started
Building a credit history can be difficult but there are methods to help. First, the Fair Isaac and Company has developed a new credit score called the FICO Expansion Score. “Based on non-traditional credit data, it can effectively predict risk for the growing number of US consumers that don’t receive a traditional FICO score due to non-existent or “thin” credit histories.”
Another option is a company called Pay Rent Build Credit (PRBC). They state that “Using your utilities, cable, rent, mobile phone, and other everyday bills, we can help you establish a PRBC Alternative Credit Score. Then we’ll help you find businesses ready to accept this score, and offer you credit.”
If you’re trying to build credit, you can also use many of the same tips we offer to consumers who want to Rebuild Their Credit.
What types of credit can you apply for?
You can apply for a traditional credit card, but you may need the following items:
- Valid Social Security number or Tax Identification Number (TIN) — apply for a TIN through the Internal Revenue Service (IRS). Visit www.IRS.gov
- Proof of your address, such as a copy of a utility bill in your name
- Proof of income such as a copy of recent pay stubs or W-2s
- A checking and/or savings account in your name
Every creditor has different requirements, so be sure to ask about the lender’s minimum requirements before you apply for their credit card.
Other types of credit to apply for include:
Installment loans: A loan that is repaid over time with a set number of scheduled monthly payments. An example is a car loan that you pay off in two to five years.
Secured credit cards: This could be your first step into the world of credit. You need to make a deposit and borrow against that amount, while you make monthly payments to build credit.
Tips for smart credit card use
Once you establish credit, use these tips to avoid payment penalties and debt.
- Don’t be an impulse buyer. Only purchase items you need and make sure you have the money saved to pay off the item in full when your credit card bill is due.
- Read the fine print on your credit card statements and any correspondence you receive. There may be important information in them such as interest rate changes.
- If you’re mailing your payments, always mail at least five business days before the due date. Most companies have steep late payment penalties.
- Call the creditor if you can’t make a payment on time. Ask about alternative payment arrangements that won’t damage your credit or raise your interest rate.
- Notify the issuer 30 days before you move if you relocate, and don’t assume that just because you didn’t get a bill you don’t have to pay it.
- Pay off your total balance each month. Just paying the minimum is a trap.
- Aim to keep your debt payments at less than 10% of your income after taxes.
Once you establish credit, do not abuse it. Continue to make timely payments and only charge items on your card that you need because debt quietly builds up and can bury you.
Avoid credit card fraud
The U.S. Federal Trade Commission gives these tips to avoid fraud:
- Don’t give your account number to anyone on the phone unless you’ve made the call to a reputable company. If you’ve never done business with them, do an online search first for scams.
- Carry your cards separately from your wallet. It can minimize your losses if someone steals your wallet or purse. Only carry the card you need for that outing.
- During a transaction, keep your eye on your card. Make sure you get it back before you walk away.
- Never sign a blank receipt. Draw a line through any blank spaces above the total.
- Save your receipts to compare with your statement.
- Open your bills promptly – or check them online often – and reconcile them with the purchases you’ve made.
- Report any questionable charges to the card issuer.
- Notify your card issuer if your address changes or if you will be traveling.
- Don’t write your account number on the outside of an envelope.
We Can Help You Get Ahead Now that You’re Here
If you’re concerned about taking credit card debt in the U.S. or just have questions regarding money management in general, call Consolidated Credit today. A certified credit counselor can evaluate your debts and help you better understand your finances.
