Credit is an essential part of our economy. Your credit score plays a part in deciding whether you will be able to get a credit card, auto loan, mortgage, or other financing. It also factors into the price you pay for financing – such as the interest rate and down payment – and how much financing you'll receive. Many lenders leverage credit scores, such as the FICO® Score, in their decision-making. Therefore, having a strong credit score is key if you intend to make a large purchase such as a home appliance, car or house.
Minimum Criteria for a FICO® Score
FICO® Scores are calculated from the information on your U.S. credit report from one of the three major credit reporting agencies – Equifax, Experian and TransUnion. Your credit report must contain enough recent information on which to base a score. Generally, that means you need the following information:
- At least one account that has been open for six months or longer.
- At least one account that has been reported by your lender to the credit reporting agency within the last six months.
- No flag on the credit report indicating that you have been reported as deceased by a lender.
Length of Time to Establish a FICO® Score
If you are just starting to build your U.S. credit history, it will take a minimum of six months to establish a FICO® Score. As time passes and you continue to use your credit responsibly, you will see your FICO® Scores rise. As this happens, more credit may become available to you and at better terms.
Building a Credit History
For anyone without a U.S. credit history, a good way to start building credit is to open a new credit account. Several kinds of accounts are available in the market today. These include:
- Credit cards – Once you have started using your credit card, you'll want to keep any balances on the credit card low enough that you can pay off the balance in full each month.
If you are unable to obtain a credit card due to your lack of a U.S. credit history, you might consider applying for a secured credit card. These cards allow you to charge only up to the amount that you have deposited in a savings account from that same lender.
- Installment loans – Common types of installment loans are personal loans, car loans and student loans. To build your credit score, you should pay your installment loan as agreed every month until you've paid off the loan. Consider providing a large down payment to reduce the length of time you will be paying off the loan.
Regardless of the type of credit you obtain, consistently making payments on time is the most important factor in building a solid credit history.
Non-U.S.-Based Credit History
Credit bureaus in most countries do not accept credit reports from other countries. There also may be legal, contractual and technical reasons that prevent a person's credit report from being transferred between countries. If you're a new resident in the U.S. without any U.S. credit history, you should explore approaches to establishing a U.S. credit history.