Every foreign student studying in the United States has to understand their credit score, how it works, and why it is so crucial to their short- and long-term financial well-being.
The information you need to know about American credit ratings and how to raise it as an international student studying there is provided below.
How to build your credit score in the U.S. as an international student
Moving to a new nation is difficult on many levels, including financially, professionally, and psychologically. Even if you have excellent credit in India, you must rebuild your financial life from scratch in the United States.
In addition, credit ratings in the U.S. operate very differently; you must have a decent credit score to do even the most fundamental tasks, like acquire a cell phone plan, rent a house, purchase insurance, buy a car, and occasionally even submit a job application.
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You can wind up needing to pay extremely large security deposits as an overseas student without a U.S. credit score if you want to do things like rent a house or acquire a credit card.
For instance, you could be required to pay a $500 deposit to your bank in order to acquire a credit card or a $2,500 security deposit to your landlord in order to rent a space.
Even worse, certain service providers, such as insurance or loan providers, may even reject your application.
So, how do you start building your credit score?
To begin improving your credit score, you typically need a credit instrument like a loan or credit card.
But financial institutions require you to have a credit score in order to be approved for a loan or a credit card. a well-known “chicken-or-the-egg” conundrum!
Fortunately, there are still methods you may use to establish credit in the United States from day one; more on that in a moment.
But first, let’s go back and answer a few crucial queries.
What is a credit score?
A credit score is a statistic that reflects a person’s creditworthiness.
It is computed by entities referred to as credit bureaus. To determine your credit score, credit bureaus look at your credit and repayment history.
By assessing the likelihood that you will pay your debts on time, financial institutions, potential lenders, and others use this score to decide whether you qualify for credit and the conditions of that loan.
Over 90% of American lenders utilize a FICO score, which is the most common credit score used in the country.
How is the credit score calculated?
Your credit history, which includes factors like the number of credit accounts you have, the oldest account, late payments, and the amount of recent credit score requests, is often used to determine your credit score.
What is the lowest and highest credit score?
FICO scores range from 300 to 850, with 850 being the best possible score.
Good credit is defined by FICO as being between 670 and 739, very good credit as 740 to 799, and exceptional credit as 800-850.
What are the top factors affecting the credit score?
Your FICO score is typically calculated using five elements. Additionally, the weights of these elements vary depending on the score.
- Most significant component of the FICO score, accounting for 35% of the score, is payment history. This shows if you’ve timely repaid past and present loan goods.
- In a close second place, accounts for 30%, are amounts owing. This shows if you are utilizing a significant portion of your overall credit limit across all of your credit products. If, for example, your credit limit on your credit card is $1,000 per month and you only spend $900 per month, that suggests that you are overextended and lowers your credit score.
- Length of credit history (15%) – This factor indicates how long you have had credit goods. Generally speaking, a longer credit history raises your credit score.
- Credit mix (10%): This is an indicator of the variety of credit products you have, such as credit cards, loan installments, mortgages, etc. Generally speaking, the better you are at managing various credit products, the higher your score will be.
- New credit (10%) – Your score is typically adversely impacted if you create many credit accounts quickly or even apply for several accounts at once.
Once you obtain a credit product and begin using it appropriately, your credit score will typically rise over time. Starting off, six months of on-time credit payments may often assist you in obtaining a respectable FICO credit score.
Your credit products can be improved and diversified over time.
Your FICO score will probably rise as you make timely payments, watch out for using a large portion of your credit limits, establish a longer repayment history (for example, by keeping your old credit accounts open), diversify your credit products, and avoid applying for too many credit products at once.
How to check your credit score?
You may view your credit file from each of the three major U.S. credit agencies (TransUnion, Equifax, and Experian) once a year for free via www.consumer.ftc.gov/articles/0155-free-credit-reports or www.consumerfinance.gov/learnmore/ to check your score.
You may check your credit ratings on a number of other fintech websites as well.
How to get a U.S. credit card and start building your credit score?
Overall, establishing credit as quickly as possible is the most important thing you can do as an international student to get your financial life in order.
The simplest approach to begin establishing credit is typically by applying for a credit card.
Large banks often won’t issue credit cards without a credit score, but there are a few possibilities available to you:
- A secured credit card is one that your bank issues to you after you make a security deposit with them. These cards often feature modest credit limits and little bonuses or incentives.
- You do not need to make a deposit to apply for a beginner unsecured credit card. However, these frequently have unbranded or less well-known cards, minimal credit limits, and little incentives.
- Premium credit cards from international banks are available through Nova Credit; you may receive one much like your American counterparts, with rewards and advantages that suit your needs right now.
Nova Credit collaborates with smart credit card issuers to enable you to apply for premium U.S. credit cards using your domestic credit history (for example, your Indian CIBIL score).
The credit card companies obtain your home country’s credit report from Nova and are able to assess your U.S. credit card application using that score.
In order to help you apply for the proper credit card with more assurance, Nova Credit additionally provides you with a tailored list of credit card suggestions depending on the credit score in your native country.
So, if you have strong credit in your native country, Nova Credit may be able to help you obtain a premium credit card as your first American card. No security deposit required, no yearly charge, and elite incentives. By individuals who had moved to the country for their MBA, Nova was created with immigrants to the country in mind.