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Have you heard the term “credit score”? If not, it’s time to become familiar with it. A credit score is a rating given to you based on your history of taking on and paying back loans or other forms of credit. A good credit score carries with it a host of benefits—from advantageous rates on loans to your ability to rent an apartment or purchase big-ticket items like a car. It’s possible to get loans with no credit, but being able to get any kind of loan with a good credit history will save you all kinds of money in the long run.
If you’re an international student, it’s never too early to start thinking about your credit history in the US. Below we’ll show you how to establish, build and maintain excellent credit.
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There are several ways to begin building credit. You want to show potential lenders that you are a safe, responsible bet.
A number of factors affect your credit score. Here are the 5 factors that impact your score the most. Not all of these elements affect your score equally, but all of them are important.
The biggest factor is your history of payment on credit cards and loans. Repaying credit regularly and speedily helps your credit score. Late payments, or charges due to a breach of credit conditions, will affect your score negatively.
The amount you owe on all outstanding lines of credit or loans affects your score.
How long you’ve had a credit history also affects the score. The longer it’s been the better it is for your score. This is one reason why it’s best to start building credit responsibly as soon as possible.
If you’ve recently opened a lot of new credit cards, this will damage your credit score. Opening a lot of accounts at once can look irresponsible—it seems like you need a lot of credit in order to make purchases. It’s better to have a few sources of credit and use them responsibly. Learn more of what the difference is between bad credit and no credit, and what each is made up of: No Credit History vs Bad Credit: What’s the Difference and How Do You Fix it?
Having different types of credit—credit cards, store cards, loans—can be beneficial to your credit score. That said, this isn’t a huge factor in your overall score. It’s better to have a few types of credit which you can manage easily, then a bunch of different types that you struggle to pay off.
Establishing good credit may not be your first priority when you arrive in the US, but the soon you get started the better. A solid credit score comes with several advantages, and there are some things which are difficult or even impossible to get without a credit history.
A good credit history means that you seem like a safe bet to lenders. A lender will want some kind of assurance that you will pay them back promptly each month before they lend you money. A solid credit score means you have a history of doing exactly that. Without a good score, it can be difficult to do several things, like buy a car, purchase a home, or get approved to rent an apartment.
Find out more about loans for international students with our guide: International Student Loans: The Complete Guide
If you apply for a loan or mortgage and have zero or bad credit history, you will probably have to pay an additional fee up front. You usually can avoid this by having a co-signer (someone else who agrees to take responsibility for the loan with you) who is a US citizen. But even if this is an option for you, it makes the process more complicated. It’s better to spend the time building a good, established credit history.
Perhaps the easiest way to start building credit is to own a credit card. The best way to use a credit card to build credit is to use it for your day-to-day expenses, and make sure that you pay it off promptly at the end of the month.
Another way to begin building credit is by opening a bank account. Assuming you have a savings account, regular transfers into that account can improve your credit. Having a bank account can also help your credit in less direct ways. Many banks offer direct debits for things like utilities, ensuring that you always pay your bills on time.
Another great way to build credit is simply by paying your utilities regularly and on-time. If you rent an apartment, whether on your own or with a roommate, you will probably have a number of different utility bills due each month, including gas, electric, phone, or internet. Even if you don’t rent—if you are staying with relatives, say, or in student housing—you probably have at least one bill you’re responsible for each month, such as your cell phone.
Even if you do not want or can not get a credit card, you still might be able to build credit through another family member’s card. For instance, if you had a sibling already studying in the US with a credit card, you might be able to get authorized on it as a family member. Note that you will share responsibility for the use of the card. If your family member misuses the card, that will impact your credit as well.
A final way to begin establishing a credit history is through a store credit card. These are credit cards which can be used within specific stores. Often, you get various rewards by having the card, such as information on new promotions, or discounts are certain products. These are usually quite easy to apply for but don’t have as high a credit limit as more traditional cards.
Once you have six months of good credit activity—regular payments on time—you should have a good, if not a perfect, credit score. Building a better score just takes time. In general, the longer your credit history the better your credit score will be. This is one major reason why it’s important to start building credit as soon as possible.
Building good credit takes time. When you first set foot in the US, starting a credit history might not be the first thing on your mind. But a good credit score opens up lots of advantages—from lower rates on loans to the ability to rent a good apartment or buy a car. The soon you can get started the better.