Sunday, July 21, 2013

How I got started on a Credit Score

I came to US a year ago and I immediately wanted to get started on getting all the credit cards out there, that would give me all the miles and points I needed to go for that ever elusive trip and also travel in style, while I am at it. Oh was I na├»ve.. I soon realized that you need a Social Security Number to apply for any credit card or any credit application – including a postpaid mobile connection. That social security number would in turn be associated with my credit score. Banks would use that credit score to determine if I am worthy enough to get their privileged credit card. This was required even for the most basic credit card, notwithstanding its paltry $300 limit and no benefits or points whatsoever, leave alone the miles and points credit card that I actually wanted.

Once the realization dawned, I applied for a social security number (SSN) immediately. In case you don’t have one, you should get one, or this is game over for you before it begins. The struggle doesn’t end here, but actually begins with the SSN. A fresh social security number also means a blank credit score. One needs to start building his score from scratch and that’s what I set out to do. I soon realized that building a credit score is a catch-22 situation. You need a credit card or some form of credit to start building the score. You need a credit score to get the credit in the first place. What came first, the hen or the chicken?

The solution lied in simple patience. I started with a simple checking account. Most decent banks would let you open a checking account without a credit score. Infact most banks offer a good bonus, for opening a checking account with them. I got a $200 bonus from Chase when I opened mine. I got another $200 bonus from Capital One for opening a checking account with them. Make sure you maintain it. In case you can’t get any of the regular banks to open an account with, try American Express Bluebird. It will give you the checking accounts benefits and also help you when you need to meet the minimum spend requirements later. 

Once my account was about 4-6 months old, I was ready to risk a credit card account application. However, by then I had made the rookie mistake of applying for 2 store cards and 2 cell phone postpaid connections. All credit applications involved credit score pull on my credit account and each pull is a drop in credit score. That ensured that my credit score had started dropping even before I had the chance to build it up. Oh, and if you must know, I got rejected on all 4 counts.

Once I had waited it out for 6 months, I decided to apply for the Bank of American secured credit card. I would have to deposit $300 and there was an annual fee involved, but I would have a credit card and would start building on my credit score. However, I got lucky. A friend gave me a pre approved Capital One application ( thank you Jay). It was in my friends name but I still decided to try it. Applied online and voila I had a credit card. And so began the process of slowly but steadily building my credit score. I spent a decent amount of time on Transunion, Experian and Equifax website to understand what are the components of a credit score and what boxes I need to hit for my score to go up and what needs to be avoided to make sure the score doesn’t go down. I also opened an account on Credit Karma and Credit Sesame to monitor my score. Based on the feedback on the blogosphere world, I understand that they are not cent percent accurate, but they give you a good idea of where you are and they are FREE. Most importantly, I realized there were some serious mistakes in my credit report. I called Transunion and got those rectified.  I also got my annual free credit report from Experian to ensure that all my data is correct. Once all was in order, I set out to build my credit report.

Credit Score Components (Image courtesy: myfico.com)
2 months of spending a little amount on my credit card and paying it on time ensured that the scores were headed north. After 2-3 payments had hit my account, I ventured out and applied for the Discover card and the Barclays NFL card. Got approved for both. Now I had 3 cards that were helping me build my score. The good thing about these cards is that they are free of annual charge. So I am never going to cancel them. NEVER. This will ensure that my credit history has age on its side. They are the backbone of my credit history and score and they shall remain so.

Another 2-3 months of using all cards, keeping my spends below 20% of my credit limit and paying the bills on time ensured that my credit score was gaining speed. The only box that wasn’t gaining speed was average age, but then something’s can only be changed with time.

One year of time invested and some research on which cards are the best one out there at the given moment, I went for my A-o-R and boy was it fun.

The A-o-R has resulted in some fluctuation in my credit score. It’s dropped a few points because of the credit pull, picked up a little after a few weeks of no activity and dropped sharply after 3 of the credit cards showed up on the account with huge outstanding balances. But I am not worried. It will smoothen out in a few weeks when the payments post and they are always on time. I did go overboard in meeting the spending requirement and so I ignored the percentage of my total credit outstanding that I am utilizing – another rookie mistake. But it’s just been a month and I have the option of correcting it shortly. And so I shall. Time to keep building that credit score and meet those minimum spend requirements to get those big fat bonuses.


What are you upto ???

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