Building a Credit Score From Scratch
We all know that having a credit history is very important for issuing any loan. The system of loans has existed for a long time and today it is simply difficult to imagine life without the ability to borrow money. Cars and large things in the house, that kind of money can still be saved somehow, but the house itself is difficult. Few people could afford to immediately buy property for cash. That is, it is possible (and desirable) to say that we do not like loans and will only live on our own money, but knowing what a credit history is, how it works and why it is necessary.
Credit history can be thought of as a list of our debts, paid and unpaid, for all financial institutions and a rating on these debts.
We can say that your credit history shows your willingness to pay back your debts, expressed in numbers. The lower the number, the more likely it is that the bank may have problems with you in the future, and, accordingly, the bank tries to play it safe, issues a loan at a higher interest.
We can say that the existing system is correct, incorrect, or does not reflect all the nuances, but it exists and we must understand it.
Credit history begins from the moment you receive your first credit card either bank or store. It doesn’t matter if it is a Visa or a store card, the credit history is already underway. Although bank cards are, of course, preferable, it is more difficult for immigrants to obtain them. Sometimes, if you start to work only now, you can make a security deposit to get a bank credit card. But this contribution, which plays a protective role, is usually frozen for 1-2 years, moreover, the amount of this contribution will be specified by the bank.
Another way is to ask someone of your relatives or friends with sufficient credit history to act as a co-signer, that is, the one who takes responsibility together with you to answer the debts in the event you find yourself insolvent. Those who act as a co-signer need to be careful, because if the applicant is unable to repay the debts, you will be responsible.
To create a good credit history, it doesn’t matter whether you initially have $ 500 or $ 3,000 Visa. The most important thing is how you pay for your financial obligations and what is your rating.
Checking your credit history, for example, by a bank representative makes it possible to obtain the following information:
- Full name, SIN;
- Current and previous residential addresses;
- Place of work and position (if the latest information has been entered);
- All recent inquiries about your credit history (date, name of the organization, its phone number);
- The name of the organizations in which you worked;
- Names and addresses of your bank accounts;
- A list of your liabilities (lines of credit, bank cards, store credit cards, loans), limit and balance on all accounts.
How to create credit score?
Tip#1: History of payments made on time
According to statistics, 61.37% of the population pays loans on time. 8.97% of Americans have at least one overdue payment. Only 1% of residents (300,000 people) are on the lists of banks as persistent defaulters.
There are two tips to give readers for this point.
First, always make a payment within a week of the invoice appearance (payment statement). Don’t wait until the last day. Remember that banks often make mistakes that are very difficult to correct later. The overlap may not be your fault. If the payment has not passed within 48 hours, address the bank.
In very rare cases, late payments are not taken into account by credit agencies. However, this only happens when the delay does not exceed 30 calendar days.
Secondly, always pay more than the minimum payment specified in the statement. Even if you pay $ 25.01 instead of $ 25.00, the system will take this into account. You will be identified as a person seeking to pay off debt as soon as possible.
Tip#2: The age of the loan
20.91% of the United States population has had mortgages and plastic cards for over 25 years. The majority of the population (55.98%) can boast of 8 – 25 years of credit history. Newly arrived immigrants need at least two years for banks to start giving them $ 500 – $ 1,000 credit cards.
If you just got your Social Security number or are recovering your financial history from bankruptcy, get 2-3 security credit cards. Use them as actively as possible and cover the resulting debt every month.
Do not close your first credit card under any circumstances. Even if the maximum limit on it is $ 100, and large banks will start giving you $ 20,000 – $ 30,000, save this credit card. Credit agencies will determine the age of the credit history on the very first card.
Tip#3: Debt rate is the third factor affecting credit history
Your numbers will go up if your total debt does not exceed 10% of your total credit limit. For example, banks give you $ 100,000, and you spent only $ 8.5,000.
45.16% of Americans strictly obey this rule. 19.95% of the population did not pay more than 61% of debt on cards, mortgages, student loan, etc.
Do not be afraid to open new cards if you feel that serious expenses await you in the future. Strictly adhere to the 10% limit if you dream of a perfect credit history. Don’t spend more than 30% if you don’t want your rating to drop.
Tip#4: The frequency of requests for new credit cards
Over the past two years, 42.28% of Americans have refused new loans, thus maintaining an ideal reputation in the eyes of credit agencies.
30.65% of the population tried to get 1 – 2 credit cards. All the rest have more than three attempts to borrow. The rating drops rapidly if you have more than 6 requests in 24 months.
So, if you need money, but do not want to issue new cards, then call the bank and ask to increase the amount of the limit (sometimes this service is available via the Internet). Most lenders raise it every 6 months, but not all do it automatically.
Tip#5: New loans approved by banks
75.67% of Americans adhere to the strict rule of taking out one loan per person annually. For example, a refrigerator is bought on credit by a wife, a TV set by a husband, and a son pays for a purchased motorcycle. 12 months later, they apply for new loans and buy some other large goods or services.
Approximately 14.55% of US residents take out two loans annually. In principle, there is nothing to worry about, but the rating will no longer grow as rapidly as with one new source of funding every 12 months.
Tip#6: The total amount of money available on credit cards
11.73% of the population have $ 50.001 or more. 32.19% of residents – from $ 15.001 to $ 50.000. 28.12% of Americans only have $ 2,500 or less in stock.
Helpful Hint: Don’t waste the lender’s money on goods and services that you can easily live without. Remember that a person who spends on excesses today may not have enough for the essentials tomorrow. The large amount available on credit cards is a great opportunity to relax and not think about lack of money. Even if you lose your job and regular income, the cards can be used to pay for housing, utilities, study and food.
Tags: credit score, finance