Pei's Short Guide to Credit

for International Students

OK So I'm not an expert or anything, but I've been reading a lot and are getting some ideas, most of these are copied from elsewhere, but I just kept the information that are relevant to people like us. So if you find something wrong with this please email me.

Note: This page is for mostly international students with Admission and Financial aid. so about ~50k annual income.

Index:

• What is Credit?
• What types of Credit are there?
• Why use Credit?
• How to get Started with Credit? 10 steps to a decent credit history.
• How to improve Credit?

 

What is Credit?

You've just arrived in the US, so what next? Among other things, you need to get prepared for the future. In the US almost everything involves your credit. So what is Credit? Credit is a record of most of your payment history. Included in there are things like your salary, address, how have you paid your credit cards, loans, and bills in general.

Your credit is kept by three national companies. To take into account all your credit information there is the credit score or FICO score, developed by Fair, Isaac (the pioneer in credit scoring). It is a number between 300 and 850 that lenders use to determine your credit rating. A FICO score is a snapshot of your credit rating at a particular point in time. The higher your credit score the more likely you are to be approved for loans and receive favorable rates. It's a lot easier to take into account this number than reading your three copies of credit history your self.

More than 70% of the 100 largest financial institutions use FICO scores to make billions of credit decisions each year, including more than 75 percent of mortgage loan originations.

What is it used for? It's used everywhere. You want to rent a place. Some times the lender would want to check your credit history. If you want to get a car loan, they'll check your credit. Buying a house? unless you're using cash, they'll want your credit history. My high school teacher, Ms. Smith, can't get a loan to buy a house because she didn't have credit history!! It is used by everyone everywhere, so it's never too early to try to establish yourself as a reliable person with a good credit history. This way when you want to buy a car, you'll be charged the 2%-8% interest instead of the 18% interest. If you are buying a car you should definitely read everything on www.carbuyingtips.com , to learn how not to get ripped off by the dealer.

What types are there?

Debit card - allows you to access funds in your checking or savings account. It is accepted wherever the logo on the card is displayed. This is not a loan and using it does not establish a credit history.
 

Credit card (revolving account) - allows you to make purchases or take cash advances and pay back a portion of the balance you owe each month with interest. The minimum payment due is usually a percentage of the outstanding balance, typically 2 ?3%.Most credit cards charge other fees (i.e. cash advance fee, late payment fee, annual fee) in addition to interest.
 

Charge card (open-ended account) - allows you to purchase items or take cash advances and requires you to pay the entire balance in full each month. No interest will accrue if the balance is paid as agreed, but there is often an annual fee. Other fees may also apply (late fees, cash advance fees, etc.).
 

Installment Loan (close-ended account) - allows you to borrow the money you need up front (usually for a specific purchase such as a car, education, home, etc.) and then repay it over a specified period of time with interest. The payment is usually the same amount every month.

Why use credit?
 

The good

• Allows you to purchase needed products and services now and pay for them over time (i.e. higher education, car, home).

• More convenient than cash for some reservations (i.e. airline, hotel, car rental) and purchases.
Safer than carrying cash.

• Useful in case of short-term emergencies (i.e. car repair).

• May provide you with desirable benefits (purchase protection, travel insurance, frequent flier miles, cash back bonuses, etc.)

• Helps establish a credit history.

The bad

• Interest and fees can be considerable.

• Easy access to money presents a temptation to overspend & abuse your credit privilege; thereby, committing too much future income to credit payments.

• If credit card accounts are not paid as agreed, then your credit history will be negatively impacted for a number of years after the event. This could affect your future applications for mortgages, other installment loans, or other credit related applications.

• Available credit may offer a false sense of security and may be thought of as emergency "savings" or a source of income.

• Expense of using credit may outweigh the perks (i.e. purchase protection, travel insurance, frequent flier miles, cash back bonuses, etc.).

 

How to get Started with Credit? 10 steps to a decent credit history.

Note: below is just a suggestion, your result may vary.

1. Just off the plane? well you got no credit history and you're dangerous, in the eye of the lender that is. So better get your gears working.

3. As soon as you get here you should get your Social Security number. No one will give you anything without it.

5. As soon as you get the SS#, you should get a checking account and a savings account. It's just done. It'll will start a record under your name.

7. After that then you should get a Credit Card from your school. in this case, Caltech or Princeton. The Caltech Credit Union offers a VISA Credit Card, get that first. If at Princeton then I think they have a VISA card for Princeton people... I'm not positive but I'll know when I get there. Don't get a Check card!!! They are just an ATM card with a VISA logo and does nothing for your credit account.

9. Pay all your bills on time, or at least no longer than 30 days late. 30 days late might stay on your report for like 3 years or more... just don't let that happen!! Don't charge too much on your CC. Stay below the 50% mark. having too much on your card will decrease your score. Don't carry a balance. Debt is going to be repaid, so you'd rather pay loans with low 2-8% interest instead of like 20% interest of the CC.

11. Patience little grass hopper, we're just getting started. Now wait 6 month. Keep paying on time. You may be able to get away with it by applying an CC from the bank you opened your checking account with, but it might look bad on your credit report if you're unlucky enough to get rejected. So on the safe side wait. Why 6 month? that is how long the previous credit checks stay on your record.

13. Now that at least 6 month passed you can call your bank and demand a student credit card, actually beg for one. Make sure you tell them you have an account with them. If they won't give you a unsecured credit card as a last resort settle for a secured one. Keep in mind that most banks "says" they don't give CC to international students, but in fact they do. Just conveniently forget to mention it and kinda mumble yes when they ask "are you a citizen or a permanent resident?" "kum.. yes.. kum ya..."

15. So, if you were able to get a CC from your bank wait at least another 6 month for that credit check to go away. If you got the secured one wait one year. Keep paying on time and stuff. Or you can consider store CCs.

17. Now that some more time has passed you should be comfortable with credit now.... you can apply for a real student credit card. I really like Blue from American express... It looks cool and have a lot of benefits. Capital one is ugly, they often offer people "deals" I usually tell people "don't walk away from the deals, but run as fast as you can from them" can you tell I don't like them? If you get rejected don't keep applying wait 6 month. or it's going to look like you're desperate for credit so don't do it!!!

19. keep doing this until you're up to like 4 card or so... wait 3 years before going after the big fish. like car loans and stuff to get the best loans. Don't buy one 2 years and 11 month waiting one more month won't kill you. Don't get too many cards because that looks bad. Don't have a limit that's too high(See comment below). Because you have the potential to spend more than you can afford, if they give you 1,000,000 credit line ask them to reduce it! or you may have trouble buying that dream car of yours. If all goes well you should have a good history. Check your actual credit report and score. Make sure they don't have any errors or anything. Since 2001 congress has said we have the right to get our report. And if you live in NJ and some other states you can get one for free every year. Sorry California :( You can also get one for free when you get rejected for credit.

How to improve Credit?

Well most of it is covered above, but I'll reiterate.

• Don't spend too much.
• Do Pay on time every time and in full
• Don't have too high of a credit limit (See comment below)
• Do keep a few accounts. One is not enough
• Don't apply for 10 cards together, even if you're approved it looks bad for a year or so.
• Do keep your original accounts, increase your credit score.
• Don't get a card with no grace period and annual fee.
• Do plan before a big loan