Credit score tips for new U.S. residents
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
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Dear Opening Credits,
I came to United
States from Bermuda in May 2011, and was able to obtain a credit card with HSBC
with a $10,000 limit as they gave me the benefit of my good credit history with
HSBC Bermuda. When I see my credit report at Credit Karma, I see that though my
score is 731, I am penalized for average age of my credit lines and
numbers/type of credit accounts. If I open new credit accounts, it will improve
my utilization ratio and number of credit lines available. However, it would
decrease my average history and increase the number of hard inquiries. I do not
need to borrow now, but would need a good credit score in a few years to
finance a house. Keeping this in perspective, should I start applying for new
credit/charge cards? -- John
Most American adults would be wise to
make the effort to develop and maintain attractive credit scores, but I fear
that you're overcomplicating the matter. The reason you might be is
understandable. As a relative newcomer, you're dealing with a different credit
reporting and scoring system than you're accustomed to and naturally want to do
all the right things.
Before I go into whether you
should add another card to your wallet, take a moment to be happy that you're
doing remarkably well with the one that you already have. Not only did your foreign
borrowing history translate in a positive way to your U.S. credit issuer (which
makes sense because you're dealing with essentially the same bank), but you
started right in with a substantial credit line.
There are a few important facts to know
about credit scoring, and the first is that there is not just one credit score. There are many in use today. All draw from information on a consumer's credit
report by one or all of the credit bureaus -- TransUnion, Experian and Equifax
-- to generate a score. The most common is the FICO score, which ranges from a
low of 300 to a high of 850. This score are available for purchase on myFICO.com
for about $20. However, you received your score from Credit Karma, which
provides clients with the VantageScore, which ranges from 501 to 990. Credit
Karma also provides another scoring model developed by TransUnion, called the
TransRisk score, which has the same numerical span as FICO.
Now, if you had a 731 FICO score, your credit
rating would be considered excellent. That same number for a VantageScore, however,
is classified as a "C" grade. That's not bad, considering that you've only just
started out. An "A" VantageScore would be at least 901, and to get there you'll
need to do what it takes to achieve any great score: Borrow and repay
responsibly with a number of different types of credit instruments over time.
It seems that you are doing quite well
with what you have, so keep it up. Spend with your current card, always pay on
time and pay off what you charge in full. All scoring models will rate this
behavior strongly and positively. I do recommend getting another account of a
different variety -- such as a charge card -- to bump up your numbers up a tad.
If you aren't carrying a balance from month to month, a second line of credit
won't benefit you by increasing up your debt-to-credit utilization ratio, but
it will help in the " types of credit used" credit scoring factor, which
accounts for 10 percent of your FICO score. Just don't open too many cards at
one time, as multiple hard inquiries will temporarily ding your credit and may
raise some red flags for lenders.
While you're getting free scores from
Credit Karma, it would be worth buying your FICO score from myFICO.com, too,
since most mortgage lenders use that score to make decisions on who qualifies for a loan, and at what rate. In the
meantime, focus on stabilizing your employment and accumulating a down
payment. After all, a lender will be looking at your overall financial
circumstances, not just your score, to determine loan size and to set terms.
See related: Tips for immigrants building a U.S. credit history
Published: April 25, 2012