How much did we know about credit card or credit history before coming to the United States? In early nineties, when I came to the country, there was very little on Russian television and papers to learn about it, not to say things like credit score or credit bureau. Well, now we bravely wave the credit card in front of the store clerk, but still, not everybody tries to learn more about finances and knows where to get a few safety tips. Really, establishing and maintaining a good credit history and habits is crucial not only to new immigrants, but everybody (if only my son knew...)

Why do you need a good credit history?

From my personal immigration experience I know that making first financial decisions may be very tough and confusing. Here you are, new in the country, with no credit history, a proud owner of a newly opened bank account, living in an almost empty apartment (well, this squeaky couch and old-fashioned dresser with a cracked mirror don't count much, do they?) You need a lot: a car, a microwave, a decent bedroom set, maybe even a new VCR. Yes, you've heard how easy it is to use credit cards or borrow money from the banks, but it will cost you a lot in interest, and who will give you a loan to start with? Luckily, you have some money saved and you may decide to go ahead and buy this old Buick for "cash". It seams smart: no hassle with the loan (especially, with my English?..), no interest, and you owe the car the very moment you drive it off the dealer's parking lot, right? Not that simple! You hurt yourself by not starting building your credit history from the very first days.

Life of a typical American citizen is revolving around using credits. Practically, all cars, houses, appliances and other "big ticket items" are bought with borrowed money. Using credit cards in the everyday life is very convenient. It would be silly not to take advantage of it.

The other thing is that without it your life may get very difficult. You need a good credit history to buy a first house (unless you want to pay cash), expensive car or a boat. They will ask you to show the credit car at the hotel or car rental. So, regardless of what you think, you will need it. And the best time to start building your credit history is NOW.

What is a credit history?

If you want to use credit, you must show that you qualify. Creditors will consider the following when you apply for credit:

You do not need to be a United States citizen to receive credit, but a creditor will look for ties to your community, including a job and a local credit history, before granting you credit.

Your credit history is the record of how you have borrowed and repaid debts. It also records the number of times you applied for a credit (credit cards applications, for example. Excessively frequent credit applications may raise questions and hurt your credit history.) It is one of the most important factors that creditors consider before granting people credit.

Banks and other lenders pay credit bureaus (also called credit reporting agencies) to gather and report information on peoples' credit histories (credit reports). Most major banks, stores and other credit granting companies check with central credit bureaus to figure out if you are a good credit risk. They also cooperate by sending both good and bad credit information to the same bureaus. Your credit report states how much credit you have used, whether you have repaid your credit on time, and how you have managed your credit. The credit report also includes other private information, such as your Social Security Number and employment history. Sometimes the information is wrong, but there are straightforward ways to get it corrected, and many national laws protect your rights as a credit consumer.

To figure out consumer's creditworthiness, credit bureaus use credit score. To calculate a score, numerical weights are placed on different aspects of your credit report and a mathematical formula is used to arrive at a final credit score based on many factors of your credit history and payment behavior. These many factors may include, but are not limited to:

If you are turned down for a loan or credit card based on a negative credit report, the credit bureau must give you a free copy of your credit report within 60 days, if you request it. In other cases, you must pay a small fee to receive a copy of the report.

There are three major credit bureaus in the country:

You can find an organization or a lawyer, who, for a small fee, will perform credit analysis or file a credit dispute or complaint. If you need help finding them, please contact me. For one of the Internet credit-related sites click here.

How to start building the credit history?

1. You'll have to start small. You will need to open bank accounts, preferably both savings and checking. Wherever you apply for credit, the lender will want to know where you live, work and bank. The longer you have lived or worked in the same place, the better.

2. Don't apply for a major national credit card like Visa or MasterCard without first building up a good credit rating by getting "easier" forms of credit and paying off the bills on time for at least a year. Easier forms of credit for the beginner are accounts at local department stores and accounts at certain mail order companies. You will buy products at a particular store with a credit card good only at that store, and then you will be sent a bill. You will have the option of paying the whole amount off within a few weeks and be charged no interest, or of paying a minimum payment for that particular month (a percentage of the balance). You will then be charged monthly interest on the balance you have not yet paid off. If you pay the minimum payment every month, after a few months your credit rating will show a good payment record. But make sure you don't miss a month. You could end up getting a computerized indication on the credit rating that you are a slow payer.

3. Use Secured Borrowing. Auto and some other loans are usually given on a secured basis. If the bank can seize your car if you don't make payments, they decrease their risk and will be more likely to give you credit without an extensive credit history if all the other information like residence and employment is in order.

4. An excellent tool to start building the credit history is applying for a secured credit card. A secured credit card is a Visa or MasterCard that requires a savings account as security, similar to the security deposit you pay when you rent an apartment or lease a car. Using the credit card does not access your savings account, thus the money remains untouched in the savings account as long as your secured credit card account is open. Typically, you open a small savings account (from $200 to $1000 and higher) and the bank issues a credit card. There is nothing on the card that indicates it is a secured credit card. It can be used exactly the same as an unsecured credit card. Plus, the card offers all the convenience of any major credit card. You will receive monthly statements showing charges and total balance owing, and you are required to make a minimum payment each month. Your security deposit remains in your savings account and cannot be used to make your monthly payments, but you even earn a small interest on your savings. Your credit limit typically is equal to the amount of your initial security deposit. Your payments will be reported to the major credit bureaus. After a year of a good payment record, you can apply to upgrade your secured Visa or MasterCard to unsecured status. The switch is not automatic, you must ask for it. At this time you can request to close the secured account and the bank will return your deposit plus accumulated interest back to you.

5. Once you built up those first few credit accounts, you are ready to build up really solid credit. The best thing to remember is to always pay at least your minimum payments on time. If you have a problem or grievance with the credit company, try to iron it out without withholding payment. If you maintain a good credit profile, you should be able to get more and more credit cards with higher credit limits as time goes on.

Do you need a co-signer?

When you are new in the country and don't have a good credit history, getting the first loan is very difficult. Finding a co-signer may be a good way to get your loan approved and start building the credit history. A co-signer is a person with a good credit reputation who agreed to share the obligation to re-pay the loan in case the main applicant (you) can not or will not make the payments. The main applicant is still responsible for making loan payments and gets reported to the credit bureaus. From my own experience, it is a very good tool which helps a lot. I was fortunate to have my closest friends co-sign for my car loan and microwave purchase. Obviously, I religiously paid both loans off and since then never had any credit problems.

Layaway and "same-as-cash" plans

Some stores offer Layaway plans, when the entire cost of the purchase is spread over the short period of time, typically a few month. The other way of easing the big item payment is apply for a "same-as-cash" credit. These plans may allow longer re-payment period, sometimes up to 12 month ("twelve-month-same-as cash"). They are offered by some banks or the other lenders and you need to apply for it at the time of purchase in the store. You will need to pay a minimum deposit and borrow the balance. If you pay the entire balance off by the end of the specified period, there will be no interest charged. But if you are just a day late with the last payment, this is it, they back charge you the interest at the very high rate. The trick is to pay it off in time! And again, you will need to prove your credit history to get the plan.

A few safety tips.

1. Before you sign any credit agreement, remember that your signature legally binds you. Do not sign anything until you are sure that you understand the credit terms and can easily pay what you are promising to pay. Always compare credit terms: generally, you should choose the credit with the lowest annual percentage rate. If you cannot understand English, be sure to bring someone you trust to translate.
    

2. Unfortunately, some creditors in this country are not honest. Do not do business with people who do any of the following:

-Approach you on the street, call you on the phone, or come to your home to offer you credit;
-Promise interest rates much lower than other creditors;
-Refuse to tell you in clear language your payment schedule or finance charges.

3. Some creditors lend money with very high finance charges, and then threaten punishment (even physical harm) if the payments are not made on time. These are called loan sharks. Even if you are having trouble establishing credit, and see few other choices, do not use these lenders.
    

4. Credit is easy to use, but it can also lead to trouble. The ease of "paying with plastic" (using credit cards instead of cash) has caused many good people to go into debt and even bankruptcy. Remember these basic tips to avoid problems:

-Plan a monthly budget that includes your regular expenses (food, rent, utilities, etc.) and credit payments, and stick to it;
-Never take out loans or make credit charges that have payments that you cannot meet with your monthly budget;
-Understand the credit terms before you sign anything, and get the lowest rates you can;
-Do not have more credit cards than you need. For example, you might have one bank credit card and credit cards only for the stores where you shop most often;

5. It is your responsibility to protect your credit card from being stolen or used without your permission. Follow these tips to protect your card--and your credit:

-Never lend your card to anyone, and don't give the number out over the telephone unless you are absolutely certain that you are dealing with an honest business;
-Save all your receipts to compare to your monthly statement (the list of your charges and payments that the company mails you). If the statement shows purchases that you did not make (unauthorized charges), call the credit card company right away;
-If your card is stolen or lost, report it right away to the credit card company, or you may have to pay for unauthorized charges;

6. Here is an excellent story I received from one of my friends, read it and learn from his hard lesson:

http://www.lifeintheusa.com/index.html

http://www.consumer-action.org/

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