Financial Education Series - Part 2

Pretty much everyone knows that you’re supposed to pay your bills on time and the impact it could have if you don’t. But other information about building credit history and navigating the financial system is more obscure. Some of this information could be very helpful for people, especially those who are new to the United States or are building credit for the first time. Below are some frequently asked questions about credit scores, which people aren’t always able to find a clear answer to. This information is based on seven years of experience as a bilingual loan officer prior to becoming a translator.

Q: I’m new to the US. What can I do to get a credit score?

A: Open a small credit card with a local credit union to build some history. Make one purchase a month and pay it off every month. You may need to open a “secured” cared, which means you put a deposit with the bank to issue the card. In six months, you should have a decent score and request to qualify for a regular credit card to get your deposit back.

Q: I’ve always saved up and bought everything with cash, that means I’ve never needed credit because I’m responsible, so I should have a good credit score, right?

A: This would be a good indicator that the person knows how to manage their money. However, a credit score is really an indicator of how you manage other peoples’ money. Try opening a small credit card (see the answer above).

Q: I have a credit card, why don’t I have a score?

A: It takes at least 6 months of credit history to have a score. That means the past 6 months, not 6 months of credit history 3 years ago, but from 6 months ago until today.

Q: Can I get a credit score without having a social security number?

A: Yes, but it takes a bit more effort. Credit reporting data is generally based on a person’s social security number (or equivalent in other countries). However, if you’ve applied for credit using an ITIN (Individual Taxpayer Identification Number) and there’s enough other consistent data the agencies index such as name, address, date of birth, or driver license number, you may have a credit history and thus a score. Longevity counts here. So if you’ve been in the US for awhile (years) and have opened utilities and other accounts in  your name, you may already have a credit score. I think TransUnion discards non-SSNs (EIN, ITIN) but Experian does consider them. Ultimately, it will depend on the lender. Sometimes lenders or creditors will accept ITINs to extend credit but not all of them do.

Q: Why is the score I got myself online so different from what lenders get?

A: There are tons of different “scoring models”, or ways that the credit score is calculated. For example, mortgage lenders will use a scoring model that places more emphasis on the previous mortgage loans a person had. Or an auto dealer might use a scoring model that weighs more heavily on previous auto loans. Each credit bureau has dozens of different scoring models. Take the ones you get yourself as an estimate but don’t count on others getting the exact figure.

Q:  The stuff on my credit report is all wrong! I should have great credit! Why is there all this fake information on my credit history?

A: In this case, I’d recommend filing a dispute. You can do so for free at www.annualcreditreport.com. The dispute process takes about 45 days. First download your credit report and click “file a dispute” for any of the erroneous accounts or information. There is a drop–down menu of the different dispute reasons. You can also add your own comments. The credit bureau will then contact the creditor and present them with your side of the story. If the creditor agrees, or doesn’t respond, the information is updated accordingly or deleted. If the creditor disagrees, the info stays on the credit report and is noted as being disputed. Alternatively, you may need to file a police report before contacting creditors if there are accounts opened that you don’t recognize as this could indicate identity theft.

Q: Is it better to keep a small amount charged on a credit card or keep it at $0 and pay off any purchase immediately?

A: It’s better to pay them off if you can. That way you won’t be paying any interest. The only reason to charge a small amount is to ensure there’s activity on the card so they don’t close it for being dormant. Otherwise, pay off the balance to increase your credit capacity and thus your score (and save on interest).

Q: If a car dealership or lender runs a credit check, how long is that good for?

A: Generally, credit reports are good for 30-45 days, depending on the financial institution. So if you want to buy a house or car, apply and that same credit report will be valid for about a month. Despite what they tell you, you don’t have to make a decision that same day based on the credit report expiring.

Q: Why doesn’t the credit report show my current balances?

A: It’s probably because all the information on your credit report is from last month. At the end of every cycle, the month-end data is sent to all 3 credit bureaus. So your credit report pulled in April will likely show your credit history as of the last day of March.

Thank you for reading! Please leave a comment if you have any questions or found this information helpful.