I was 41, when we immigrated and, after seeing the ‘joys’ of being in debt at 30 (when I got an expensive car loan), I started hating debt. My husband, who was 52, when we arrived here in the US, NEVER had any type of debt and he gets sick to his stomach only thinking about it.
But, when we did start our life as new Americans, it dawned to us, without a decent credit score, we’ll not even be able to rent a place to live in, lest get a mortgage few years from now on.
He got a Chase bank credit card, while I chose a secured Capital One credit card (he had a job, I couldn’t show a constant income, as my web design business is still slow).
How Long Does It Take to Build Credit? – Our Experience
It took us few weeks to get everything set up. In my case, to activate my Capital One credit card was a quest itself, but finally we were both set. He got a 900 dollar credit limit, while I got 517 dollars (500 that I deposited, so the bank trusted me enough to credit me with 17 bucks) 😀
Having a first time credit card, no credit history was clearly not funny, as we had to rent a place in the following months. Fortunately for us, as we are 2 families renting a house, our friend used her credit history and got the lease under her name.
Our friends told us to try a Macy’s Credit card or anything similar, as the stores are giving out credit cards like candy. Well, if this worked 20 or 10 years ago for them, now it’s not working anymore, the stores are not accepting people without credit history, like we were.
So, in my husband’s case getting a job was the right thing, he got accepted for his credit card after one month since receiving his paycheck, and I got accepted after I paid the 500 dollar deposit. You can start a secured credit card with way less, but I wanted to start with a more decent credit limit and drastically improve my credit score.
In our case the credit score started improving from month 2 and then, in about 6 months we both passed 720.
FICO Credit Scores:
- 300 to 579 is considered poor credit – with such a credit score you are seen as a liability by any lender, so getting a loan is close to impossible. The best way to start improving your credit score is to get a secured credit card. You pay a deposit (I paid $500) and the bank will maybe put few bucks more for your credit limit, in my case $17 more. This will be your initial credit limit to use, then it will slowly grow from there. I am getting close to $1,000 after less than a year.
- 580 to 699 is considered fair credit score – most Americans fall into this range.
- 670 to 739 is considered good credit – you shouldn’t have problems getting a loan, even if not at the best terms.
- 740 – 799Â us considered very good credit score – better loan terms, as you show your potential lenders that you are disciplined enough with your loan payments.
- Anything above 800 is considered excellent credit – you’re eligible for the best rates on all types of loans
How does credit score improve?
When it comes to improving your credit score, few factors have a bigger impact than the others. While I wasn’t able to control the length of credit history (being a new immigrant meant I had no history at all and only time will modify this in my favor), I could make on-time payments, which amount for 35% of my score.
So, if you want to see a drastic improvement in your credit history, here is what’s important for a FICO score:
- 35% – payment history. Start making on-time payments from now and NEVER miss one.
- 30% – credit use. Don’t use more than 30% of your credit limit. If the bank allows you to borrow $2,000, don’t go over $600. Your credit limit is also important, the more money the bank is willing to lend you, the better your credit score.
- 15 % – length of credit history. Don’t close old accounts, if you have only new ones, just use them responsibly until you get better tenure.
- 10% – types of credit used. Right now I don’t diversify, all I have is my secured credit card. If you have more loans, it’s going to benefit you, but do pay in full as much as possible. And don’t open new credit accounts.
- 10 % – recent searches for credit. Try not to apply for many accounts, each hard inquiry will cost you.
What NOT to Do to Improve Credit Score
Here are few of the things that will make your credit score drop:
- opening too many credit card accounts – don’t overdo this, since it show your potential lenders you cannot manage your debt, so you need more loans to stay afloat.
- closing old accounts – you can pay off your credit cards and still keep the old accounts open. As credit card age is a ranking factor, make sure you don’t close the oldest accounts.
- missing payments – one of the biggest issues when it comes to credit scoring is to miss payments. 35% of your credit score relies on making your payments on time, so be disciplined.
- paying the minimum – if you pay the minimum, you’ll drag your credit forever. See in our video below how many years you’d stay in debt, with a $2,000 credit card loan, if you only make minimum payments:
How Long Does it Take to Build Credit from Zero?
Even if you are new to this country, like I am, you don’t start from zero. My first credit score was 665 and I started seeing improvements in under 2-3 months. In less than a year you should see huge improvements on your score and get to a very good credit score.
If you have bad credit, making all the changes to improve your credit card use will show you great improvements in months. Start paying off all your debt (or at least not miss payments anymore and choose one credit card to pay in full, while paying minimum on the others, then tackling the second credit card and so on), not going overboard with your credit limit and keeping your old accounts in place, should give you an excellent boost.
The biggest change should be in your spending habits. Keep under 30% of your credit limit (do not lower this credit limit, as it is a huge ranking factor), pay your bills and get back on track with your debt payment. These will improve your financial life and also help you drastically improve credit score within months.
