Building a Credit History - One Step Towards Stability When Living in the United States of America

A credit history represents the fulfillment of your obligations to banks and other lenders regarding loans, credits, bank loans, payment obligations, and credit card debts that have a payment deferment.

It's no secret that the average adult resident of the States is "in debt as if in silk" throughout their life. This is a completely "normal," stable, and, it must be said, comfortable state for anyone living in or especially born in the USA. 

Loans for purchasing real estate, education, and consumer financing are standard expenses for Americans. 

There is a rather interesting paradox in the banking system (and the States are certainly no exception): those individuals who have enough money without loans have an impeccable credit history, while those citizens who are willing to and often do take loans at truly "usurious rates" have a credit history that needs "correction." 

This is in terms of individuals. When it comes to companies, especially developing ones, an excellent credit history is much more important for them than for an individual. After all, in the case of denial, a person may simply risk not being able to purchase, for example, the latest model smartphone, whereas for a company, credit funds are sometimes the only means that help it "stay afloat" and avoid bankruptcy.  

For this reason, one must treat the process of building a good credit history with the necessary level of seriousness. It is your path to solving many tasks both as an individual and as a company. With an impeccable credit history, you can conduct business in the USA without having to attract your own capital, which, believe me, is invaluable. By the way, when it comes to Americans, you will hardly find one whose history isn't slightly "tainted" by the age of 30. However, in this review, we will focus more on people who have not lived in the States before. Let's delve into the concept of "credit history" in more detail.

What is a Credit History

A credit history is, simply put, information about all your loans and payments that is collected and stored in a special "database" - the Credit Bureau. The main information stored there is about the punctuality of your payments and your credit load. It is updated regularly, typically once a month. Upon request from lending institutions (banks), this information is provided to them for a fee. This information can include absolutely everything, not just your obligations to banks: it can involve the payment of phone bills (whether you paid for phone calls on time or not), current payments on credit cards, timely or untimely closure of consumer loans, etc. Usually, the storage period for data at the credit bureau is from 7 years and more (depending on the type of loan). Thus, a credit history represents a kind of credit reputation of an individual or legal entity. It is a special disciplining mechanism, the violation of which can lead to either being completely denied credit or receiving it, but at very high interest rates and for a relatively short term. 

The Credit Bureau exists in the market either as a "standalone player" - an organization independent of anyone, or as part of separate banking (credit) structures (most often several). But usually, it is a completely independent organization that receives money from banks for information about borrowers.

The mechanism for receiving information at the Bureau is usually as follows: data about loans, credit cards, and loans comes directly from banking structures—this information is then compared with already existing data (which can include information from courts (if available), government registration and tax authorities, etc.)—and a file is created for each borrower.

Lenders, if necessary, also regularly receive information about new loans from the Bureau. This creates a kind of "circulation of information" between financial institutions.

All financial institutions in America take the Credit Bureau very seriously. Without information from this source, you will not be granted any loans, not even a "simple consumer credit," and no loans will be issued without first verifying your reliability and responsibility.

Features of Identifying You and Your Credit History - A Reliable Mechanism to Avoid Errors and Complications 

To have a chance of obtaining a loan in the States, you must go through the appropriate identification procedure. For this, the United States has a system of identification by individual Social Security numbers (Social Security Number). The first thing you need to do is to obtain this number. It is assigned by the Social Security Administration only to citizens or permanent residents of the USA. 

We will gladly provide comprehensive consultation on all your questions and, of course, make every effort to ensure that you are assigned your Social Security Number. To obtain it, you also need to have a valid work or student visa or be a permanent resident of the United States (having a green card). As for companies - legal entities, they have their own number, the Employer Identification Number (EIN). It is issued when a company is registered with the IRS.

Moreover, not having this number will not only exclude your ability to obtain any loan, including consumer credit, not to mention a loan for business development, but can also lead to being listed in a special registry—this situation is extremely complicated. For a company, this would exclude opening a corporate bank account altogether.

Now let's touch on perhaps one of the most important points: how to "earn" a successful credit history while living in the States.

Step-by-Step Mechanism for Building a Credit History

So, you have your legal Social Security Number in hand. The next step is to obtain a Secured Credit Card (a banking credit card). For this, you need to fill out an application form.

Again: if you do this on your own or with the "advice" of friends (especially the "weighty" advice from those who have never faced this before), then most likely, after several weeks of reviewing your application, the bank will deny you the issuance of a credit card.

Why such a long review period, and what happens to your application during this time?

The fact is that in the United States, not only does the Credit Bureau operate, but also other organizations that collect and store information about all borrowers. And each of the financial credit organizations must send a report to one of these structures every month. They then exchange data among themselves and provide information about all your inquiries and loans to any bank upon request.

When applying to one of these organizations, the bank found out that you just recently obtained your Social Security Number and nothing else. This means that you have no credit history. Without it, very few credit organizations will want to grant you a loan.

Moreover, the situation we have described is quite standard. You can "try your luck" again and again, but the result will be guaranteed to be disappointing each time. Furthermore, information about your inquiries is also recorded in the database and stored there for several months. In short, repeated attempts will only ruin your yet-to-be-opened credit history.

The Principle of Security Deposit as a Way to Work with "Unreliable" Borrowers

Interestingly, there has been a recent trend in the US of issuing loans to borrowers who have either a completely "zero" credit history or even a negative one.

Why is this happening? The main reason lies in the use of the security deposit principle (Security Deposit) by credit organizations or banks. This principle involves you opening a deposit in one of the state banks at a standard interest rate, which in America is around 1.0%-2.5% per year. You can deposit anywhere from $100 to $1000.

Based on this, the bank offers you a loan ranging from 0.5 to 2 times the amount of the deposit. Most often, the calculation is made according to the formula: 1 Loan = 1 Deposit, depending on the bank's internal rules. You receive a plastic card, either a Secured VISA or Secured MasterCard. This is a regular bank card that you can use for purchases in stores and online, as well as for cash withdrawals.  Moreover, this card can be used not only in the USA but anywhere in the world.

Let’s consider a practical example. Suppose the bank offers you the following option: Loan = 1.5 Deposits. The deposit amount is $3000, thus the bank provided you with a loan of $4500. Over the month, you can either cash this amount or spend it in stores. The important thing is to justify the trust shown to you by the bank, and within a certain period (usually within 30 calendar days), pay off this amount or make interest payments, which typically range from 18-22% per year. As a reminder, you will receive a statement in the mail detailing all your expenses (including date, store name, and amount). 

The credit line in the new month will equal the amount you returned to the card plus any unused credit. You will pay interest on the remaining funds you receive. In principle, this is a similar algorithm for credit card loans in many countries of the former CIS. It is crucial to keep a close eye on both personal and credit fund movements and avoid delays so as not to damage your credit history.

How to Successfully Maintain the Development of Your Credit History

As soon as you receive your Secured Credit Card and make purchases, keep track of your credit card limits and payments. The following rules will help you maintain your credit history and help it grow effectively:

1. Use no more than 30% of your card's limit, or better, up to 10% to avoid unnecessary risks of "overloading" your credit card.
2. Always make payments on time and in full. This is one of the key principles in the States.
3. Regularly check your credit history for errors and discrepancies. It is a good idea to do this every six months, and if errors are found, immediately contact the bank.
4. Limit your inquiries regarding your credit history—this includes avoiding applying for a new loan or credit card too often. If you do this too frequently, the bank may suspect you of trying to hide some negative credit history.
5. When possible, obtain additional credit cards and make purchases with them to improve your credit history even more.

Follow these simple recommendations and, over time, you will build an excellent credit history. It can take about six months to a year to see the results of your efforts.

After that, you will have the opportunity to get a regular credit card with no deposit, lower interest rates, and more favorable loan conditions. This is an important moment, and it is worth approaching it responsibly. By maintaining a good credit history, you will be able to secure loans for larger amounts and under better conditions, including for purchasing real estate and vehicles.

The development of your credit history will continue as long as you actively use your credit cards. If you completely stop using them, your credit history will begin to deteriorate after a certain time, and you will have to start the process of building it anew.

Good luck in this important endeavor!