I’ve been putting this post off for a while now. Building your credit history in the US is tough–especially when you come so late in life. You know why? Because you’re starting from scratch. In a system that makes no sense. No sense at all!
Before you read on please know I’m not a financial advisor. I have no inside knowledge and really just thought I should write one of those “don’t-do-as I-do/learn-from-my-mistakes” kind of posts.
When you first arrive here there is a huge emphasis on your credit rating because it affects virtually everything you do while you’re setting up shop. In those first few months everything seems to be impacted by your lack of credit history–renting a house, getting an LADWP (LA Department of Water & Power) account, applying for credit cards. And there’s no way to sugar coat the fact that it bites the big one. It’s frustrating and you wonder why on earth you thought it would be a good idea to move over quite frankly.
How does it affect my stuff?
Here’s the tough bit. In the US you allegedly get charged more if you’re deemed a credit risk. So basically if you’re struggling it’s going to cost you more. If you can afford it you’re sweet. Nice huh? Talk about how to kick someone when you’re down.
So when we first arrived and tried to rent a house, having no credit history did not work in our favour. The first application we put in got rejected. They said another application came in but it didn’t seem like anyone else was looking when we were. And the house was still advertised for a while after. Anyway, I don’t think it was meant to be because the house we ended up renting was ideal for us in our first couple of years. And the area was perfect–who doesn’t want to move into a 90210 post code when they first move to LA?
I digress…
Deposits
We had to set up an account with LADWP, which is the Department of Water and Power. We had to put a bond down of (from memory) $500 to get an account. All because of our credit history (or lack thereof). Too bad if you’re struggling and didn’t have a spare $500 lying around.
Also good luck getting a credit card that is unsecured. The only was you’re going to get a credit card is by putting the money down first. Yep, you’re using your own money to pay for stuff on a credit card. But it’s a necessary evil. And the sooner you do it the better off you’ll be.
(Note: if you had international bank accounts or a track record with American Express you may have a better chance getting an unsecured credit card so do explore your options. There’s also Bank of the West BNP Paribas who has a special program for Expats so it’s worth chatting talking to its team. The team has been in touch with me to spruik its Expat packages so part of what I can do as a Destinations Consultant is put you in touch with the right people. And no, I don’t get any kickbacks for that service–unless they decide to take out an ad on my page–wink wink.)
Building credit
So, once you’ve got yourself settled it’s time to start thinking about how to build your credit. You need to do this pretty early on so you can get your rating up to a respectable “good” and make it easier for you to live your life without paying more than you should.
According to my FICO score on my bank’s app there are three things that affect your credit history:
- Time
- Amount of credit
- Credit checks/new credit opened.
Apply for an unsecured credit card
Step number one is what I just said–as soon as you can apply for an unsecured credit card. Make sure you only use a third of your money, or top it off so you’re only spending one third of your available “credit”. One third seems to be the magic number to bring your credit rating up from non existent to average to good in six months to a year.
Apply for a store card
Another bit of advice I got was to apply for a store card. I’m not sure exactly why but I think it’s because they are slightly easier to get and then you get a chunk of credit that you don’t necessarily use. And, when you pay it off when the statement is due, it means you’ve got “unused credit” being assessed so you’re not a credit risk.
Don’t apply for this straight away though–wait a few months. Every time a financial body runs a credit check on you it lowers your credit rating. That’s right, and let me say that again because it makes NO SENSE: every time a financial body runs a credit check on you it lowers your credit rating. Why? Well the logic is if you need to apply for many different forms of credit you are looking like a credit risk. Might apply if you start your life in American and grow up etc in America but when you come to the country later in life and need to establish yourself as you did back home the system doesn’t account for that: there’s no “click here to explain yourself” button on your credit rating.
Time
Unfortunately the last factor is time. And if you’re like us and you move to the US later in life time will always be your Achilles heel. So stick in there and do as much as you can with the top two points and it will at least help to combat the time factor.
Pay off your bills on or before they’re due
This stands to reason, don’t stuff yourself up in your first year here by missing payments. If you’re slack at paying bills then don’t leave it to chance–take advantage of direct debits and automatic payments and make sure the money is in your account to pay your bills. You’re not in Kansas anymore Toto.
Don’t Do As I Do
Let me share with you why my credit rating has been such a thorn in my side. When I look at why my credit rating isn’t “excellent” it gives me these reasons:
- Payment history (35%)
- Amount we owe (30%)
- Length of credit history (15%)
- New credit opened (10%)
- Types of credit we have (10%).
Time and proportion of balance to credit limits on bank/national revolving or other revolving accounts is too high are the two factors that let me down. I don’t even understand “payment history”–is that time too?
Only use one third of your available credit–always
Here’s my beef with that–and why I’m so stubborn! My theory with credit is it’s there to be used. So let’s say my credit limit is $5000 I’ll use that $5000 and pay it off every two weeks so I’m never a “credit risk”. And, if I have a big bill to pay I’ll make sure I pay that using my card–collecting points–and then pay the card off so I can spend more. Well that might be fine for me, and I might be comfortable doing that but the system as a whole is not having a bar of it. I know this for a fact. It’s true for someone with a bad (OK not bad but not excellent) credit rating I obsess about it. Once uur credit rating was tracking nicely until I booked a holiday. I used our entire credit card limit to pay for the holiday then once it was paid paid the card off so the balance was zero again–didn’t want to default on those automatic payments. The very next month our rating took a dive. Lesson? If you’re going to book a holiday using your credit card pay it off before you book the holiday so you’re using your own funds and not credit but you’re still collecting those points (miles).
Perhaps I should stop being so stubborn and just play the game I hear you say.
Perhaps.
So I get time and amount we owe (I’ll explain in a sec), I don’t get new credit opened. I’m not sure what “new” is but we haven’t applied for any new credit in over a year. And we opened those two credit cards so that we had all this free credit available and could show that we were worthy of a better score. And while that worked at first it always seems to come down to that one credit card that we ride hard.
And while our bank is smart enough to know that giving us a higher credit limit is a good thing because we can and will pay it off, the credit history “team” doesn’t agree.
Get a mortgage
Enter the last bit of advice I got about getting a better credit score: the mortgage is the ultimate form of credit, once you get one your credit rating will be great.
Uh … no. Again not in my case.
We have a mortgage that we pay off every month on time (thank you automatic payments) and have had for more than two years now, but that stellar record has done nothing to bring our credit rating up from good/very good to excellent. Go figure.
So, just the same as the fact that I paid my rent off every month with fail, having an excellent payment history for my mortgage doesn’t seem to have helped. That one credit card we ride hard still seems to be getting in the way.
The moral of the story?
Don’t ride one credit card hard. Stick to a third of your credit. Always. (You got that message yet?). I’m testing out this theory by “doing as I say” and it seems to be working. And open that secured credit card as soon as you possibly can.
Hopefully in a few months time my credit history will be shining bright!
xx It Started in LA xx
Do you have a credit history story to tell? Please do share, I’d love to hear all about it. The good and the bad!
Looking for a couple of posts on the same subject? You may be interested in these too:
Four things to know about building credit in the US
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