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How does credit rating work?

Hi,

Few of you might know that I am currently in States. And being new here I often have question about how particular things work here. Earlier I asked about Mail in rebates. This time, it's turn of 'Credit History/Rating'.

I have immediately realized that your life isn't good in US if you don't have good credit history to back you. I am new here and when I apply for credit card they reject it stating that I don't have credit history! Boy, if you don't give me chance of building credit history, how on the earth I will get one??

Anyways, I have started with Secured credit card to take small steps towards decent credit history. I was wondering how credit history is associated with person. Is it stored somewhere in central database by Government? Or is it maintained by some not for profit organization? Say, if I have one card now where I do not have any defaulted payment and another where I have had several defaulted payment, will it affect my overall credit history OR is it that my credit history is as good as the card I use.

Also, any tips for new comer here to build history?? One friend told me simple trick. His idea is that you take loan of say 5000 bucks from bank, and pay same money to bank over year. Yes, you will have to pay interest but it will help you in building credit history! I am not sure if this is right way or not! So if you have any suggestions, please pass them on! :)

Thanks for your time and Happy Independence Day in advance! :)

JD
http://jdk.phpkid.org

JD
Saturday, July 03, 2004

The secured cards are a start. But you need to actually develop a history. So, buy a few small things on the secured cards each month; and pay it off at the end of the month. It's the transaction history that you want to build up.

You can also try to increase your trade lines by applying for "department Store" cards: small and/or national shops found in malls. And again, actually buy something and pay it off on time.

Unfortunately, you need to have at least 2 or 3 years of history to be considered as actually having a history. Otherwise, your application for major items (like a house) will be dismissed.

However, there is a very large portion of the population that get by just fine using debit cards and / or no credit at all. Having a credit history certainly makes it possible to buy a house, but otherwise, you can live just fine without extensive credit.

Credit is one of the biggest traps of American Society. Great care needs to be taken and many people fall into it's trap.
(A former credit manager.)

Bill K Ramsey
Saturday, July 03, 2004

You are taking the right direction. IMO taking a loan just to build credit history is not necessary. Just use the secured card you have every chance, then pay it up on time

The way credit score calculated is based on many factors. However rule is try to create as many good trade records (satisfactory credit transactions) as you can. Also keep the number of credit cards or open loan accounts at about 3 or 4 (optimal number) and don't apply for many credit accounts. After 2 years you will start receiving pre-approved offers.

Minh
Saturday, July 03, 2004

Your credit rating is determined not by the government or some benevolent non-profit, but by one of several major credit report companies. Equifax, Trans-Union, and Experian are the big ones. Various organizations send them your personal data, indexed by your social security number, and they build up a report of good and bad info.

mb
Saturday, July 03, 2004

There are a few blanks.


Saturday, July 03, 2004

Watch the "Suze Orman Show" on MSNBC. She helped develop the FICO score, which is the "credit rating" used the credit agencies.

This may be of help too:
http://www.bankrate.com/brm/fico/calc.asp

Yoey
Saturday, July 03, 2004

I thought terrorists used cash to avoid leaving a trail.

Lou D'Acriss
Saturday, July 03, 2004

"Is it stored somewhere in central database by Government? Or is it maintained by some not for profit organization?"

You are new here.  The information is maintained by profit-at-all-cost corporations with one of the best scams ever.  The 3 big ones are Experian/TRW, Trans Union and Equifax.  They charge you to get your information unless the government has required them to do otherwise, they charge those who check your credit and therefore indirectly you, they charge you to monitor your credit, they make it difficult to correct your credit and they're largely responsible for the lack of progress on resolving issues surrounding idenity theft.  In other words, they suck.

Doug
Saturday, July 03, 2004

That bank rate applet is fun. It says my rating is 770 to 820. I guess that explains why I was able to get a commercial loan on a  large building without even presenting a business plan or nuthin.

Note: I have exactly one credit card and I have never carried a balance from month to month nor ever paid a single payment even a day late.

Original poster, don't do that cash thing that is just silly to carry a balance like that and it will not improve your credit one bit.

To get a good rating you just need to make timely payments over a period of several years.

To get a VISA or Mastercard you do not need any credit history, you just need to show that you have had an actual job for at least 6 months and don't have a bad credit record.

Disclaimer: my ex-wife worked at TRW.

Dennis Atkins
Sunday, July 04, 2004

>>To get a VISA or Mastercard you do not need any credit history, you just need to show that you have had an actual job for at least 6 months and don't have a bad credit record.<<

Try Providian. They approved me for a MasterCard with a $1000 limit last December, and at the time I violated both of those requirements.

And you probably don't have to find them - I'll be surprised if they don't find you. Their marketing is in serious need of flood-checking!

Lisa
Sunday, July 04, 2004

My favourate story was that of 'The Guardian' correspondent in the States, Martin Walker I think, who never ever bought anything on credit on principle. When he wanted to get a mortgage he found that nobody would give him one because he had no credit rating.

He ended up using a broker and paying a premium.

Stephen Jones
Sunday, July 04, 2004

I believe it was that way in the past, but currently when it comes to buying houses they'll give mortgages to anyone no matter what their credit, qualifications or ability to pay.

Dennis Atkins
Sunday, July 04, 2004

Someone else mentioned the department store cards as being a good way to build up credit, and I just wanted to mention that gas station cards will do the same thing for you, plus (if you own/use a car) it's something that you'll buy anyway.


Sunday, July 04, 2004

Thanks guys for the responses.

The reason I am bugged is that I want credit card which can help me get insurance on my car rental + help me get cell phone service without paying deposit.

Btw, is it okie to transfer money to secured card thrice in month so as to maintain the same credit limit? Does it affect credit rating? Is it worth buying those credit reports online?? Have you ever got bitten by not having credit rating???

JD

JD
Sunday, July 04, 2004

Get a cell phone with Verizon, pay the bill every month. If verizion asks for a deposit and it is reasonable to you pay it, you get it back within a year and the benfit to your credit can be worth it. Buy a laptop or computer or TV etc on a same as cash deal, and pay it off before the end of the terms. Those are two good ways to quickly, within a year or two, gain some credit respect.

Jeff
Sunday, July 04, 2004

It is a good idea to check your credit at least every year. You may need to wait a few months before you will show up in the database (my bank reports credit quarterly). Look around for a website that will let you check your credit on all three main credit bureaus for $10-$30. (there are lots of "free" credit-checking services on the web but they always require you to subscribe to "credit monitoring" which carries a monthly cost).

Be aware of the difference between real credit cards and "check cards." Most banks will give you a check card with a checking account, but these don't give you the same protections against fraud as a real credit card, and they don't build a credit history.

I initially had some problems because I used a check card throughout college. I never tried to get a credit card until after I graduated, which was a really bad idea. Credit card companies LOVE giving card to students but not self-employed graduates (which probably show up as "unemployed" in their database)!

For US consumer issues check out www.clarkhoward.com

Dan Maas
Sunday, July 04, 2004

One year of using a credit card or paying a car loan is generally enough to establish credit so that they won't see you as having "no credit history". Not enough to be seen as *good* credit, and not enough to get the best interest rates for big loans like mortgages -- but 1 year is good enough for the small stuff like getting a cell phone account without a deposit or an unsecured credit card with a $1000 limit.

T. Norman
Sunday, July 04, 2004

Something about the whole torturous process of running credit checks on people for (relatively) small items like cell phones just annoys me. I realize that unless you buy it outright, you are running around with *their* phone, so I'm not being entirely logical here, but still. As if most people are going to smash the phone or something if it gets shut off for not paying the bill.

And the car rental thing is absurd. Paying for the car rental is of course important, as is some way of knowing who you are and how to find you should you try to disappear into the wilderness with the precious beely. But it seems to be needlessly arbitrary. I mean, who has enough unused credit on their credit card to replace the dang car if they abscond with it? Why won't a picture ID and actual cash suffice, like it does for anything else on earth?

I'm probably missing something perfectly obvious and sensible here. Feel free to holler it at me. :)

Lisa
Sunday, July 04, 2004

Here are some of the things which affect credit rating downward:

- Total amount of credit used vs. available.  If you use more than 50% of your available credit, it's a minus.

- Being late on payments 3 times in a row.

- Being late on payments on more than one account.

- Being at or over the credit limit for an account.

- Having "too many" accounts (credit cards).

- Applying for credit several times within a 6-month period.

- Bankruptcy or other "significant" negative financial failing.

Pretty much the best way I know of to establish a good record is to use a small amount of your available credit on a regular basis and be religious about paying it off.  And it does take a couple years to built up a credit history.

Once something is on your credit report, it stays there for 7 years, although I think bankruptcies stay on your record for 10 years (ouch).

Last but not least, I'll throw in the standard warning about identity theft.  The chance that you will be hit is low -- but if you *are* hit, it will take you years to recover your credit rating, to say nothing of the potential financial costs and time you will spend in re-establishing your identity.  It's well worth the effort to take some steps to protect your financial identity.

And very last, a belated welcome to the United States.

Should be working
Sunday, July 04, 2004

Welcome to the US, JD.

me
Sunday, July 04, 2004

Belated comments:

Yes, welcome to the US.

I second the suggestions to first try to get store credit cards, and to get utilities in your own name as first steps to establishing a credit history.

Almost any regular billing and payment arrangement (like a utility bill) helps with credit.

Discover (credit) cards used to be noted for being fairly easy to get - not terribly stringent/anal credit standards. This would be my first choice for a 'major' credit card.

Bored Bystander
Monday, July 05, 2004

I (in Canada) have a VISA card from my bank (which they'll give me because they know my credit better than anyone else). I've given my VISA number to all my utilities providers (electricity, cable), so they deduct automatically from my VISA (so I'm never late with those payments). And I've told my bank to pay off my VISA from my bank account every month (so I'm never late with that payment either).

Christopher Wells
Monday, July 05, 2004


And now: over to Healthcare.

A Pterodactylus Ate My Baby
Monday, July 05, 2004

One other thing --
Read the fine print on any credit offer very carefully.

If you go the "interest free for a year" store credit-card route, you must make damned sure you pay it off within the year (11 months would be best).  The fine print on such contracts usually say that if you don't, the accrued interest becomes due immediately (in other words, they track the interest from day 1, not from the end of the offer's year).

Those are actually a good way to build credit -- you get a year's worth of free money, a credit history, and a really nice TV or other appliance.  You just have to make sure you divide the total amount by 11 and make sure you pay that amount each month.  Whether or not you close the account at the end of the year is up to you, but you should know that the "available credit" (the amount you can charge up to) is tracked across all your credit cards.

BTW, if you screw up, there are minimal goverment protection or laws to protect you.  It sounds like you came from a country where the goverment holds your hand in all matters.  That is not the case here -- you're on your own.

A friend says that credit cards are like a loaded gun -- you should treat them with respect, and use them only when you really really have to.

example
Monday, July 05, 2004

<<And the car rental thing is absurd.>>
Lisa,
  I think the point is more about identity. The car rental place figures it this way, people with credit are "known" and people without credit are "unknown". This is important to banks, etc. too.
  If you want me to lend money (or whatever) to you, I am more likely to if I know who you are, and more importantly, I can find you if you don't pay.

Bill K Ramsey
Monday, July 05, 2004

On credit checks for cell phones/rental cars:

It's not the cell phone they care about. It's the monthly bill. Same with a land-line phone.

With both phone service and rental cars, you can often use a cash deposit for the same amount (something like 2x estimated phone bill or several hundred dollars).

mb
Monday, July 05, 2004

I was in the same situation after moving to New Mexico from the Scotland 3 years ago. I established credit by getting store cards from places like Dillards, Macys, GAP, etc. and just buying random junk. A few of the stores rejected me as I didn't have a history, but some of them accepted me - that was how I built my credit. IAfter 2 years, I had a better score than most Americans I know :-)

Lee Reilly
Tuesday, July 06, 2004

Here's the way I improved my credit rating:

Step 1: Buy a nice (slightly used) car, with a high resale value, on a 5 year loan.
Step 2: Make sure you have good comprehensive insurance coverage with a low deductible.
Step 3: Drive your new car for a year or so.
Step 4: On a dark and stormy winter night, lose control of your car on a freeway overpass, causing it to flip and roll down the embankment.
Step 5: Use the insurance money to pay off your loan 3 years early.

After successfully completing my simple 5-step plan, you'll have an "excellent" credit rating. Note that it's very important to not be killed during step 4, otherwise your excellent credit rating won't do much good.

Hope this helps,

-Mark
(Yes, I really had this happen to me, and it really improved my credit rating a lot. I don't recommend it to others, though)

Mark Bessey
Tuesday, July 06, 2004

Get a Bank Check Card.

Use it instead of writing a check.

Bam!  Credit history.

-T.J.

T.J.
Tuesday, July 06, 2004

Sorry T.J. it doesn't work that way.

You don't get anypoints fot using a check card. Since your bank is not extending you any credit, it won't even show up on your consumer credit report. They have an agreement with VISA to use the credit card system and thier logo.

If you get a secured card, ask if it reports as a normal credit card on your credit report.

You can also try a student card(technicaly there is no such thing, they are just called that because of the target audience). Since college students don't have credit histories(in thoery), most banks issue credit cards to students with little or no problem. Just stop by a community college and you should see tons of applications at the student hall.

Oh and if you're been turned down, you can request a copy from the three beureaus through the mail for free.

http://www.bankrate.com/brm/news/cc/20010223c.asp

anon-88
Tuesday, July 06, 2004

Newly living in the USA myself, I'm wondering: does anyone have any ideas on how to transfer a credit history from the UK to the USA? I enquired about this a bit, but I didn't get very far.

The other odd thing I have observed is that a $5000 limit on a credit card seems to be considered quite high here. But back in the UK such a limit would be considered rather low by many people. Am I right, or just going on too little evidence?

Ian
Tuesday, July 06, 2004

Helpful article on credit scores:
http://money.howstuffworks.com/credit-score.htm

Yoey
Friday, July 09, 2004

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