If you are planning to live in the USA for a long time, you should consider increasing your credit score. A good credit score is essential for several situations, like taking a loan, applying for a credit card, getting insurance, purchasing a phone or renting a room, etc. The system of the US might seem unfamiliar to many migrants, but once you know all the basics and workings of the US system, you can build a good credit score.
What is a credit score?
A credit score identifies the creditworthiness of an individual. A good credit score ranges between 300 and 850. It is calculated from the past transactions on your credit card, your payment history, and the duration of the credit. It helps to determine how soon you can pay back your debts. It is highly important for lenders or banks to decide on the loan and the period of the loan. It also increases the chance of approval of a loan.
As you know, a credit score can be between 300 and 850. For credit score ranges generally used by lenders, you can refer to this post. However, a good credit score is above 670. It will give you access to a greater number of financing options if you have a credit score above 670. On average, Americans have a 700 credit score. To be competitive, you need the same or higher score. Usually, it takes around 6 months to build a good credit score in the US.
Why is a US credit score needed?
A credit score is required in various situations, like renting an apartment, mortgage, needing a loan, applying for a new credit card, etc. It also helps in increasing the limit of a credit card if you have a good credit score. If you plan to buy a new phone or get a new home, a credit score is required. If you don't have a good credit score, it will work against you. Your application might get rejected, or the loan amount will be decreased. Three credit bureaus assess and scrutinize your score, i.e., Equifax, TransUnion, and Experian. A credit score is used by the banks, creditors, and lenders to decide the loan amount and duration. Sometimes they refuse to offer the loan when a credit score is low.
9 ways to build a US credit score:
The first thing you need to do is open a bank account. Initially, building a credit score will be daunting if you are a new immigrant and have no credit history. However, we have gathered a few options for you to get started. The 9 ways to build your US credit score are as follows:
- Use a credit card
Start using a credit card, secured or unsecured. An unsecured credit card doesn't require a security deposit against the limit of the credit card. A secured card requires a deposit amount for security purposes. You can use a credit card to purchase groceries or other stuff. It will help you build a credit score.
- Become an authorized user on your friend’s card
If you become an authorized user of your friend's card, it will allow you to build your credit score using your friend's score. You will need your friend’s permission to do so. You can ask your friends if you can be added as an authorized user to one of their accounts.
- Apply for a credit-builder loan
A credit builder loan is similar to a secured credit card. You will get a loan similar to your deposit amount, and you can pay the loans and installments with that amount. Once you pay it back, the deposit will be received. It will help you if you already have a credit history.
- Pay bills on time
It is essential to pay your bills on time to build a good credit score. No matter how small your debt is, pay the amount on time. It will help you create a good payment history for reference in the future.
- Use your credit card frequently
Use your credit card and make payments frequently. The small credit payments will help you generate a good credit score. If you make multiple payments every day, it will improve credit utilization and credit score.
- Diversify the credit types
If you have credit card debt, consider getting a loan. Or get a credit card to pay off your student loans. It will be a mix of good credit. It will diversify your credit types and add to your credit score. It will boost your creditworthiness on multiple routes.
- Keep your utilization ratio less than 30%
It is essential to keep your utilization ratio below 30%. Credit utilization is part of the credit that you are using. Keeping your debt low helps to increase your credit card score faster.
- Verify the credit bureau check
While applying for a credit card, verify if the bureau check is a soft check or a hard check. A bureau check can reduce your credit card score. A soft check will not affect your score, but a hard check can.
- Pay debts before due dates
If you pay your debts before due dates, it will boost your credit score and show a good credit history. It shows that you are a responsible and reliable borrower. It also means low interest rates.
Thus, to conclude, we can say that it is not hard to improve your credit card score. Planning is required to build a good score. If you follow the steps mentioned above, you can easily manage your US credit score.
