A complete guide to learn how to build, repair or improve it.
How to manage your credit in the United States
By Carolina Freedman, Director of Communications and Events CASA
The immigrant faces significant challenges daily in this country and one of them is undoubtedly the need to know and maintain a good credit score because it depends largely on financial success that can be achieved after the search for the “American dream”. This concept is not widely used in South American countries and from there stems the ignorance that a newcomer can have when they arrive in the United States. Understanding and managing it intelligently is one of the best decisions you can take because credit simply represents large sums of money. For example, financing a purchase of a car or a home with a low credit score means paying much more than the individual who has a solid credit and a high score. Achieving strong credit requires perseverance, commitment, but above all knowledge; which is why we have conducted an investigation with respect to using credit wisely because this can become in a very short amount of time a nightmare that is very difficult to wake up from.
Not having can credit, in many respects, can be equal to having a bad credit and although many are reluctant to take credit cards or to borrow money, the truth is that credit is a necessary evil because most people cannot effectively pay cash purchases in a large sum and that is where credit becomes your ally or your worst enemy. The first step is to build your credit history and is where the first challenge arises because having no record applications for a credit card are in most cases rejected. In this regard, Giovanna Gillioti,Specialist Community Relations of ClearPoint,
a nonprofit organization where they offer free advice on proper use of credit, recommends it as one of the alternatives to apply for a covered credit card where the person (after depositing $ 300 or $ 500) has the opportunity to access a credit card deposit of the same value. “This is a better option because often the department stores do not offer grants, or do so with very high interest” mentions this community counselor.
Another way to start credit for those who have recently arrived in the country is to have a familiar that includes it as authorized credit card user. A legitimate and quick form but not one that everyone can aspire to. Also, some small business owners also have many problems to start or credit restructurings because many are denied bank loans due to financial problems in the past. Their credit is very low making it difficult for banks to believe in them again. For those entrepreneurs there are also special alternatives that allow one to rebuild their credit in order to strengthen their small business. One of those alternatives is s ACCION USA, organización sin ánimo de lucro que ofrece préstamos asegurados a comerciantes. Conversé con Fabiana Estrada, Directora de ACCION USA Florida who said the organization currently has two special programs targeted for this abused audience in the traditional market. The first is a secured loan where the employer provides a certified check or money order in the amount of the loan. “When the person pays the loan in full, we will refund your deposit and we report that to the credit bureaus which helps you increase your score; however, if the person does not pay the loan, the deposit is used as collateral “says Fabiana Estrada. The second program called “Promise” also allows you to improve your credit and helps entrepreneurs expand their business. With a score of 525, the person may qualify for a loan of $ 500 to $ 2,500 without the need for a co-signer or collateral.
Once you have covered or paid off loan for the construction credit card, the applicant must wait 6 months to a year to apply to a traditional credit card but very surely they will begin to receive tempting offers at home and that’s where one has to start being very careful in one’s financial decisions. “Every time you apply for a credit card, that implementation is recorded in your credit report would then be harming yourself if you apply for multiple cards hoping to get one” advises HardeKopt Bill, an expert on credit from LowCards.com.
With regard to the number and type of credit cards that a person should have, the advice Jeanine Skowronski of CardRatings.com recommends in his article “4 Essential Credit Card Types” is to have a point card or store sector that regularly purchases are made, i.e., a card that fits your lifestyle. The second card can be the same bank where you have your debit card for associating both accounts, payment of the balance of the credit card can be done daily or weekly. The third card recommended by this expert is one of very low interest rates in order to make very high purchases that you know cannot fully pay but needs funding. Finally, always remember to keep the first card opened because “Cards that are closed for a long time can damage your credit score and may reduce the credit available,” concludes Skowronski.
There are several reasons why a person can hurt your credit score but indisputably gathering knowledge is the first lifeboat to rectify the mistakes and avoid committing them again in the future. Giovanna Gillioti of ClearPoint believes that the most common mistake that users make is that they think that responsibility is not the most important thing when a credit card is acquired and because of it they begin to fall behind on payments. “Another common mistake is to not check the credit report which is very important because it is the opportunity to correct any information. What we in ClearPoint recommend to the community is to check your credit report three times a year through annualcreditreport.com. This website takes you to the three different credit bureaus. “Gillioti says. The Act Fair Credit Reporting requires agencies or credit bureaus (Experian, TransUnion y Equifax) to provide users every 12 months a free copy of your credit report as this is the best way for the consumers to monitor their credit throughout the year.
Si la persona encuentra un error en su reporte, está en el derecho de comunicarse directamente con la agencia correspondiente y exigir que se lo arreglen. El procedimiento para desarrollar este reclamo debe realizarse por escrito y debe incluir copias de las pruebas que respaldan la solicitud, descripción detallada del error y si lo desea puede añadir copia de su informe de crédito resaltando cual concretamente es el error. Por último, se debe enviar estos documentos por correo certificado para tener pruebas de que los recibieron. La Comisión Federal de Comercio (FTC por sus siglas en ingles) ofrece en su página web (www.consumidor.ftc.gov) un modelo de la carta de disputa en español y una explicación muy precisa de todo el procedimiento.
How good or bad is your credit score?
Pay cards or loans is a very important factor as this payment history occupies 35 percent of your score; however, there are other categories that influence these calculations as there are different types of credit that a person can have. “The idea is to have a variety of credits as this represents 10 percent of the score. Among the credits there can be a mortgage, car purchase, student loan, among others, “says Brittney Castro, certified financial adviser. Another factor, occupying 30 percent, is the amount of money owed. Experts’ advice to use up to 30 percent of available credit on a credit card; so remember not to use all your credit the card gives you because this hurts your score. The next factor is the aging of accounts representing 15 percent so it is never recommended to close older cards because that history can increase your credit score. The last factor for this calculation is related to new credit lines occupying a 10 percent score.
All these factors calculate the credit score of a person but what are the qualifications and what do they mean? The classification of FICO,scores, company whose calculations on credit scores are the most consulted by lenders in the United States, sets the following ranges: Bad (300 to 559), Not very bad (from 560-659), Good (of 660 and 724), Very Good (from 725-759) and Excellent (760 to 850).
FINRA, Investor Education Foundation, in partnership with companies like TranUnion, Experian and the Department of Housing of the United States revealed in a statistical study in late 2012, that the national average credit score in the US is 691. Similarly, FICO established an overall average between 690 and 700. In addition, FICO pointed 711 as the median credit score which means that 50 percent of the population is below this score and 50 percent are above this number; i.e. the average score most Americans would qualify this as “good” category although you do have plenty of room to improve. I invite you to be informed to make credit score work for you and your pocketbook consumer. Remember that 760 is the best score for a good loan plus, a 100 point difference in your FICO score could save you up to $40,000 on your mortgage. Manage your finances wisely.