Most of you reading this blog will either be international students still at the university or have already started to work. But one common thing, either way, is that if you’re going to live in the U.S., we all need credit cards to make sure you get credit.
We’ve had negative connotations about having a credit card and stuff, but I think a credit card is a part of living in the U.S. and becoming financially independent.
🗣️ Fun fact: Each American household receives approximately six credit card offers every month.
First of all, you need to build a credit history to get approved for different loans and subsequently pay lower interest rates.
Second, a credit card is a safer way to make payments online and gain more excellent discounts/cash backs, which is another added benefit. Last year I received cashback and referrals worth $1000 from a single card.
As international students, we all know that there can be times when we are running out of cash, and for those times, it is helpful to have a credit card.
Getting a credit card and credit history
Let’s talk about credit history. Credit history is a financial record that a lender looks at to determine whether you are a risk or a responsible borrower. A credit score is a number that is based on a credit report information typically sourced from credit bureaus such as trans union Experian and Equifax.
For example, when a student is getting a new apartment, he/she has to go through a credit check so that the apartment complex can determine how much the deposit should be.
Better credit = lower deposit. Insufficient credit/no credit = higher deposit or even getting denied.
Hence, when many of you came to the United States and the housing complexes ask for a huge deposit, you now know why. They didn’t have sufficient evidence to trust you enough.
A Credit Score can lie anywhere between 300-850. The Higher, the better.
For instance, if you had to buy a car once you got a job or even while you are at college, you go to the dealers, and they check the interest rates and monthly payments you’re supposed to make based on their salary and credit scores.
Now, if you had to ask what is a good credit score, Well, to put it in easy terms, a good credit score is the one that helps you get what you need or want, whether it’s access to a new credit card or lower mortgage rates.
It’s a funny system, though. To have a good credit score, you incur a certain amount of debt, and when you pay it off on time, it shows the banks and credit bureau that you can pay off your debt on time with the amount you are making. Thus, a paradox.
I think I have given you enough examples of how it works and why a credit history is so important in the U.S.
Warnings before you dive into the credit card system
These will help you make informed decisions about credit cards and how to use them more efficiently.
- Don’t buy things you can’t afford. Credit cards will give you access to a credit line anywhere from $1,500 to $10,000 if you earn a good salary. But remember, that’s not the money you’ve got, you’re going to have to pay for it. A wild shopping spree might be dangerous.
- Paying off the card. This is something that we have instilled as a habit. To pay off considerable sums as soon as you can.
Usually, if my credit card bill gets to $500, I will pay it off. The credit cards I use
give me access to cash too.
- DO NOT MISS A PAYMENT. I REPEAT, DO NOT MISS A PAYMENT. Set up automatic payments from your debit card. Missing a payment can drop your credit score up to 20-30 points quickly.
- Talking about payments, always remember to pay the debt in full. Credit card companies give you an option to make the minimum monthly payment. You can use it as it helps you keep your score up. But I always recommend paying back the debt as soon as you get the money.
- Do not use credit cards at ATM. Sometimes they can have up to a 5% cash advance fee.
- Do not close a credit card. Usually, a new credit card will have 0 annual fees. Keep them open. Closing the card will reduce your credit line, which in turn will lower your credit score.
- Remember, use only 10-15% of your credit limit. As you can see, two essential things with increasing your scores are the amount of debt and payment history. Remember to focus on these.
That’s it for this blog. To check out our recommendations on the best credit cards and why they are so beneficial, read the blog right here – Benefits of Credit Card.
🗣️Sears introduced Discover Card in 1985. Sears was owned by Dean Witter, who merged with Morgan Stanley in 1997.