Build Credit Fast ??

“Since you don’t have credit in this country….”

The leasing office lady went on..

“We asked you to keep a deposit based on….”

Read a letter from AT & T, the telecom giant

Since I have a commerce background too, the term credit is in my blood. That is how it is with anybody who was/is into accounting. There is no accounting without debits and credits. But what is this credit they are talking about?

Back in India, people hardly knew that there exists a credit bureau in our country. I had no idea that having a ‘credit’ has this importance here in U.S. till I actually faced the realities.

Here in the U.S., having a good credit has a lot to do with lots of things. I happened to see some ads by some people and firms who offer service to improve our credit. And some people gave some tips on building the credit. But to what extend these are true and how long will it take to build a good credit score?

What is a credit score, by the way? This is a three digit number, ranging from 300 to 850, arrived after doing some statistical analysis on our credit report; where a credit report is a report that shows the history of our past borrowings, repayment etc. There are bodies called credit bureaus who prepare these credit reports. U.S has three major bodies – Equifax, Experian and TransUnion. These organizations collect the information using many sources and tag this to a person’s Social Security Number. Since they collect information from different sources at different time, these reports may not show same score on a particular day.

The statistical method they use was originally developed by Bill Fair and Earl Isaac who then found the FICO (Fair Isaac Corporation). Some say there are other methods too, which I am not sure of. In fact, who knows how the data is analyzed and what formula they apply? At least I don’t know.

So, what is the fast and easy way to build a good credit history if we are new to this country? People might give many suggestions and we might find many people offering their service in this regard, but the reality is there is no easy way. Ask anybody here and the first thing they say is:

“Pay your bills on time”

What are the bills then? Rent, electricity, telephone bills, credit card bills…

To pay rent, we need to get a house for rent and for that we need a credit history (rent can be paid by cash or money orders too. So, in reality, if I am not wrong, rent and utility payments are not directly tracked by major bureaus, unless it’s not getting reported to other agencies like PRBC.). If there is no house to live in, from where does the electricity bill come from? We won’t get a post-paid mobile connection if we do not have a good credit history or else we need to keep a decent deposit varying from 500-1000 dollars depending on the type of phone and plan. None of the credit bureau bothers about the prepaid phones and the top ups we make. So what bill to pay?

So, is it all over?

Look at the entry gates to U.S or the Visas types . Tourists do not need any credit history. Those who are on business Visa are not eligible for Social Security and hence they are ruled out. Then what are left are these H-1B (work permit) holders, long term visa holders and students. H-1B holders already have a sponsor. If somebody can afford education here, they sure can afford some deposits and many a times they might even have some contacts here. Long term people already have their colleagues here. And from this environment arises our savior in the form of a ‘co-signer’.

Getting a co-signer with excellent credit history helps us jump those hurdles with ease. So, it’s not a big deal to start with. Then what are those fast track credit building methods?. Many of them are scams. Look at one scenario. Somebody suggested going for loans and repaying it. If we do not have good credit, first of all, the rate of interest would be high. Taking multiple loans and keeping the EMI small and extending the term might help us create more bills and easy payments. But if somebody thinks we can fool them that way, they are wrong. What are the factors they (credit bureaus) consider while calculating the score? Look at the weightage:

35%- payment history
30%- total debt outstanding
15%- length of time you've had credit
10%- types of credit
10%- new credit

Plus, one major criterion is our income. If we have a big pay check, we build the history fast. There is no fooling around here. Many a times it takes about 90 days for these agencies to track and update our payment history. So, is there any faster way for a good credit, without blocking our money?

Nope.

When AT&T asked for deposit, I felt like insulted coz I never was a defaulter in my life so far. But I know they did not mean to insult and that’s why they sent a personal letter telling that they got my credit info from so and so bureau and I can write to them. It takes some time and it all depends on our income, expenditure and repayment. It is said that it might take 6 months to 1 year to build a good credit.

All we need to do is to understand that this is how it works in this country and have some patience.