Build Credit in USA
Welcome to the US! Now that you’ve moved here, you’ll need to start building your credit score. You can read more about why credit is important, here. Building both your credit score and history are critical to establishing your life in the United States. So, how do you go about building credit as someone who is new to the US?
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Avoid mistakes that can harm your credit score
One of the most important factors in your credit score is your debt utilization - how much debt have you consumed vs. how much debt you’re allowed to access. For example, if you have a credit card with a limit of $5,000 and you use $5,000 - that means you’ve utilized 100% of your limit. To truly increase your credit score, make sure you don’t let your utilization go above 25-30%. This is an extremely important and quick way of boosting your credit score. But remember, your credit utilization isn’t just measured at the end of the month - it's measured consistently. So make sure you’re paying off bills and that your DAILY credit utilization doesn’t ever go past 50% (at the most!).
Paying your bills on time
While this may seem obvious, it's important to note that not paying your bills on time negatively impacts your credit score if the company reports you to a debt collector.
Closing a trade line
It’s important to note that ‘closing a trade line’ i.e. closing a line of credit or debt, is a very important factor that can impact your score negatively. If you have a credit card and ask the bank to close it, this will impact your credit score (one of the things it’ll do is lower your credit limit, which will impact your credit utilization). So be careful when you’re looking at closing a credit card - check that you’re not closing it in the first year (this affects your score negatively).
One overlooked factor that can impact your score is a ‘hard pull’. A hard pull is made when you apply for certain things and the bank or financial institution checks your credit score. Banks will first do a ‘soft pull’ to see if you are eligible, and then a ‘hard pull’ to make a final decision. Too many hard pulls over a short period of time can negatively impact your score - so don’t apply for too many credit cards, loans etc. over a short period.