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Why Credit Scores Matter


A good credit score category is around 660 to 670 on a range of 300 to 850 in the United States. An even better credit score starts at 750. But it takes time, especially if you just moved to the U.S. — but it’s not impossible.

Having a good credit score can be important for many reasons and the difference between having a poor credit score and good credit score can be thousands (sometimes hundreds of thousands) of dollars over your lifetime.

A higher score helps with better rates and offers on credit cards, a better line of credit, and loans. Having good credit can help you qualify for a lower interest rate, fewer fees, higher loan amount, and more favorable repayment terms.

In most states, your credit history can impact your insurance rates and having poor credit can lead to paying higher auto and homeowners insurance premiums. Additionally, your credit may be a factor when you're applying for a job, want to rent a home, setting up a new account with a utility or cell phone provider.

You might have trouble getting certain types of job or getting approved for a rental home if you have a bad credit history. Even if you get approved, you may have to pay a larger down payment and also pay a security deposit before you can turn on utilities, internet, or television service for your home.

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Who Creates Credit Reports?

Many credit scores are based entirely on the information in one of your credit reports.

There are three nationwide consumer reporting agencies (CRAs) in the United States that create consumer credit reports: Equifax, Experian, and TransUnion. They are sent information from creditors and collects information on millions of residents to create credit reports.  

For example, if you apply for a credit card and get approved, the credit card issuer may send information about your account to 1-3 of the major CRAs. If this is the first time you've had an account reported to the CRAs, it will be the only account (aka "tradeline") in your credit report.

The credit card company may report your personal information such as name, address, date of birth, Social Security number (if you have one), and phone number from your application to the CRAs. It can also report your account information, such as when you opened the credit card and your credit limit. From there, each month it will send an update to the CRA to report your card's balance, your payment amount, and your payment timeliness.

Most of the information on your credit report comes from data furnishers reporting your account information to the CRAs. The major credit bureaus may collect some types of public records from the U.S. court system too and add this to your credit reports.

Who Determines Your Credit Scores?

Your credit report and credit score are separate but related. So-called “generic” credit scores are generally based entirely on the information in one of your credit reports, and each credit score model is created with a specific intent in mind.

FICO and VantageScore are the main two companies that create and sell generic credit scores—scores that multiple lenders and creditors can use. There are some creditors that create custom credit scores that they use as a supplement or in place of a generic score, and each of the CRAs offers credit scores along with credit reports.

Both FICO and VantageScore offer base generic scores, ranging from 300 to 850, that aim to predict the likelihood that a person will fall 90 or more days behind on a bill in the next 24 months. FICO also creates industry-specific credit scoring models for auto loan and bankcard companies that have a larger credit score range of 250 to 900. With all these models, a lower score indicates someone is more likely to miss a payment, and informs creditors what actions they should take to mitigate this.

FICO and VantageScore periodically update their scoring models, and thus, there are multiple versions of each scoring model using slightly different weighting or criteria to determine your credit score.

How to Check Your Credit Score

You can get one free copy of your credit reports from all three bureaus at AnnualCreditReport.com once every 12 months, but they don't come with a credit score. You would either need to pay for your scores or sign up for a service that gives you a free credit score.

Many banks, credit unions, lenders, nonprofit credit or financial counseling organizations, and credit card issuers offer free FICO scores to current customers. FICO maintains a list of some of the companies that offer free FICO scores to customers.

There are also companies like Credit Karma and Credit Sesame that give you free credit reports along with scores based on those reports. They offer VantageScore 3.0 credit scores for free without having to open a new account or credit card. They may also offer free credit monitoring which alerts you if there's a change in one of your credit reports. You can find a list of free options on the VantageScore website.

What Factors Impact Your Credit Score?

The factors that impact your credit scores and their relative importance will depend on the type of credit score, but generally there are similar criteria. Even FICO's industry-specific scores are built on top of the base scores and consider the same main factors, but give extra weighting to your history of repaying a car loan or credit card for the auto and bankcard scores, respectively.

Some of these credit scoring factors include:

  • Your payment history
  • Your credit utilization ratio
  • Whether you've declared bankruptcy
  • How many credit accounts you have
  • Whether you have experience managing different types of accounts
  • How many new accounts you've applied for recently
  • If you've recently opened new credit accounts
  • The length of credit history, including your average age of accounts and the age of your oldest and newest account

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How to Get a Good Credit Score

Even if you work on your credit history for years, you may never reach the highest possible score, but typically you can still get the best financing offers at a score of 800 or higher. Here are some tips to reach that goal:

Pay your bills on time. Having a long history of on-time payments with your accounts is good. One way you can prevent accidentally missing a payment is by setting up automatic payments for at least your minimum amount due.

Keep your credit card balances low. Credit scoring models determine your utilization by comparing your reported credit card balances to the cards' credit limit. If you want to use your credit card, making early payments to lower your balance before the end of your statement period could help lower your utilization rate.

Keep credit cards open. Closing an account can decrease your available credit, which may increase your utilization rate and hurt your scores.

Strategically apply for new accounts. Submitting new credit applicants can lead to hard inquiries, which may temporarily hurt your credit scores. Generally, it’s best to only apply for a new account if you have a specific reason for taking out a loan or getting a new credit card.

Related Article | An Immigrant’s Guide To Building A US Credit Score

How to Transfer Your Credit Score

If you're moving to the U.S., you'll likely want to bring your credit with you. Unfortunately, the major credit bureaus can't import this information and you may have to start building credit by taking out new loans or credit cards. Even then, you may have to wait at least six months before you can qualify for a FICO score and one month before you can qualify for a VantageScore credit score. ‍

Fortunately, Nova Credit developed technology that connects with global consumer credit bureaus to help people to take their credit with them when they move. Based on your credit history from your home country, Nova builds a Credit Passport® and creates a credit score that aligns with the standard U.S. score range. The information in your Credit Passport® doesn't get copied into your U.S. credit reports, but creditors can use it to evaluate your creditworthiness when you apply for a new account. Once approved, your new account can help you build your credit history in the U.S.

MYRA provides personal finances for international and multicultural families in the United States. Our services include financial planning, investment management, and tax preparation.

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