Credit Score and Its Importance in the US
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Credit Score And Its Importance In The USA

Credit Score And Its Importance In The USA

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Credit Score holds its own importance in the US and this article we will discuss why you should be aware of it and how it can affect your life overall.

GyanDhan
Rohit Gidwani
Updated on:  12 Oct 2023  | Reviewed By: 
Aman 
| 5.98K | 8  min read

Credit Score and its Importance in the US

Many people are unaware of the importance of their credit score until they need a loan or make a significant purchase. A survey by the Economic Times of 1,500 people revealed that over half were not aware of their credit score. Similarly, in the USA, a recent survey by NY Sports Day found that 23% of Americans don't know their credit score. But as an international student having a proper understanding of credit scores and their importance in the USA is very important to sustain a good life after graduation. Thus, this blog is developed to help you learn several important aspects of credit score.

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What is a credit score?

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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How does credit score work in the USA?

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.

How does credit score work in the USA?

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 - 

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

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

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Factors that impact credit score

Below are a few points that can impact your credit score and thus you should keep a close eye on these points. They are - 

  • list items Payment history - You may have various subscription-based payments to manage, and it's essential to pay these bills promptly. A payment delayed by more than 30 days can have a lasting impact on your credit score for several years.
  • list items Credit utilization - This shows how much credit limit you had and what percentage you have used. The lower the credit utilization the better. 
  • list items Credit age - Your credit score benefits from having a longer credit history and a higher average age of your loan accounts.
  • list items Credit mix - Your credit score can be benefited if you have a good mix of credit like a home loan and a credit card.
  • list items Hard inquiries - These are the applications that are made when you need a loan. The more it is in a short period of time the more desperate and risky your profile becomes in the eyes of lenders. 
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Importance of good credit score in the USA

Establishing a credit score may not initially seem like a top priority upon arriving in the USA, but the sooner you begin, the better. In the long run, having a credit history becomes crucial to demonstrate your reliability as a borrower. Lenders require assurance that you'll repay borrowed money, and a robust credit score offers that assurance.

In India, the importance of a credit score is often associated with obtaining loans, but this differs in the USA. Here, a good credit score is crucial for the following reasons:

  • list items Hassle-free apartment rentals
  • list items Drive down insurance costs 
  • list items Cost saving on loans
  • list items Boost your job prospects
  • list items Lower utility deposits


Let's explore in depth the reasons behind these.

  • list items Hassle-free apartment rentals - In the USA, landlords often look at your credit score as it helps to identify how reliable you are when it comes to making recurring payments. In case you do not have a good credit score then it leads to a perception that you may not pay rent on time and thus it can be difficult for you to rent an apartment. 
  • list items Drive down insurance costs - Insurance companies in the USA often look at your credit reports to determine the sum they will insure you for and the premium rate they will offer you. 
  • list items Cost saving on loans - Once you complete your graduation you may require some kind of loan in order to fulfill a need or a desire. In this case credit score not only helps you to get a better interest rate but also helps you in saving some additional costs like upfront processing fees and more similar expenses. 
  • list items Boost your job prospect - Yes, you read it correctly. In the USA, your credit score is directly linked to your employability. Employers may assess your credit score to gauge your financial stability and long-term commitments. Additionally, this evaluation can uncover any financial irregularities and provide insights into your overall character.
  • list items Lower utility deposits - There are several utilities that require you to make a deposit. For Example - you may avail of a prepaid TV service. The service provider will ask you to make the deposit for contingency cases. In several cases, these deposits are not fixed and the service provider may ask you more if you have a bad credit score.   

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How to build a credit score in the USA?

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

  • list items 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.
  • list items 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.
  • list items 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. 
  • list items 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.  
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How to improve your credit score?

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

  • list items 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.
  • list items 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. 
  • list items 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. 
  • list items 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. 
  • list items 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.  


Now you know how important having a credit score in the USA will be for you in the long term. Therefore with the information given in this blog, you will be able to understand the concept of credit score and put it to use in real life. If you are still confused and have some doubts related to credit score or any other thing related to studying abroad then feel free to join GyanDhan’s Discussion Forum where individuals with hands-on experience can resolve all your doubts

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Frequently asked questions

What is the difference between credit score and credit history?

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.

What does not affect my credit score?

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

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

Who tracks credit history in the USA?

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

  • list items Equifax
  • list items Experian
  • list items 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. 

What is the lowest and highest credit score?

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

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