Credit Score And Its Importance In The USA

In simple words, a credit score is a three-digit number that depicts your creditworthiness to different parties involved in any kind of monetary or money-related transaction. The most well-known credit scoring system, developed by the Fair Isaac Corporation, is called the FICO score. The FICO score typically ranges from 300 to 850. The three major credit bureaus in the USA i.e. Equifax, TransUnion, and Experian utilize the FICO scoring model for their proprietary systems. 
 

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There are several situations in which your credit score plays a vital role in deciding whether to accept or reject you. These situations will be explained in the later sections of this blog, but first, let’s understand how credit scores work in the USA. Overall the credit score is divided into different ranges that determine your creditworthiness. Although there can be some exceptions in the shown range here is a general overview.

Now let’s have a look at how credit scores are calculated. Do not worry, there will be no calculations but a general overview of what parameters contribute more or less to making or breaking your credit score. They are - 

• Payment history (35%)
• Amounts owed (30%)
• Length of credit history (15%)
• Types of credit (10%)
• New credit (10%)

You need to take care of all these aspects in order to sustain a good credit score. 

Few ways in which you as an international student can build a credit score in the USA are - 

• Getting a credit card - There are several credit card options available for international students. Nova Credit is one such company that can provide you with credit cards as an international student. Several credit card options like secured credit cards, unsecured credit cards, and premium credit cards are available based on your eligibility and needs.
• Paying utility bills on time - Any defaults in your utility bills also reflect on your credit score. Any delayed payment can lead to throttling down your credit score. Making timely payments of these utilities will lead to a better credit score.
• Store credit card - These are similar to credit cards but the difference is that these are valid in certain stores only. For an international student, it is easier to get one of these as compared to a normal credit card. 
• Reporting your rent - In the USA the rent is not automatically reported as this information is not directly managed by a credit bureau. Nevertheless, Experian has started to acknowledge rent reports, and it's advisable to sign up with their RentBureau. This way, you can ensure that your expenses for off-campus housing contribute to your credit score in the USA.  

Here are a few ways you can improve your credit score if it has fallen short of a good score.

• Pay on time - Missing a single bill payment can lower your credit score, and it takes at least six months of consistent, on-time bill payments to partially correct this impact.
• Lower credit usage - As mentioned above, the credit utilization with respect to the total credit available to you must be less. In general, a credit utilization of 30% or less is considered good. 
• Diversify credit types - you should have a mix of credit options like when you have a loan and a credit card and you are maintaining them well then it can help in the improvement of your credit score. Although this is a method that should be least preferred. 
• Apply wisely - the more applications you have the lower your credit score will be. Now this applies when multiple applications are made in a very short period of time. Thus having a proper gap between applications can be very useful. 
• Monitor and correct - it is your responsibility to monitor your credit report at regular intervals. This can help you to ensure that there is no error and if there is any you should immediately get it corrected.  

Consider your credit history as a comprehensive record of your credit payments over the last few years while your credit score can be considered as the final and current standing in realtime in terms of your creditworthiness.

Many details are not taken into account when determining your credit score or examining your credit history in the United States. These include:

• Your age, gender, or marital status.
• Your income or employment track record.
• Your racial background, ethnicity, nationality, or religious affiliation.
• Your savings or possessions.

In the United States, there are three major credit bureaus that track your credit history are:

• Equifax
• Experian
• TransUnion

Why should I care about credit history as an international student?

Developing a credit history as a student can be beneficial for your future if you decide to stay in the USA. Your credit score is connected to employment, rental agreements, utility deposits, future loans, and various other aspects of your financial life. 

The credit score scale ranges from a minimum of 300 to a maximum of 850.