I have a friend who recently moved to America and have told me about his problems, here is a short write up concatenating all his interesting findings!
Fun facts about American credit scores, also known as "Catch-22":
- When you move to the US, you will find that you are unable to get any kind of loan (except a car loan, because USA), not even a credit card, since you do not have a credit history.
- Before you can say "chicken and egg", you are offered the way to build credit from scratch: a "secured credit card", a scheme in which you give money to the bank, which will hold it in a locked account and give you a credit card with that amount as the credit limit - and if you miss a payment, they will kindly charge you interest for letting you borrow your own money.
- After one year of making payments on time, you have proven yourself worthy of an actual credit card! However, you are dismayed to see that your credit rating is at best average. Oh, they forgot to tell you that it's not good to spend more than 1/3 of your credit limit each month, even if you pay all of it by the due date (meaning that if you simply had given them more money to begin with, you could have had the exact same spending pattern and gotten a better score).
- Digging deeper into this reveals that, the banker who was in charge of this case, said that, "the best thing is to have a lot of credit but not needing it". Some fun credit score rules follow:
- You need to actually make payments (and therefore to actually use your card so that there will be something to pay down) in order to build the credit history; the more payments, the better. However, this is being countered by the penalties you get for having debt; the closer you are to the credit limit, the worse your score gets.
- The more accounts/cards you have, the better. However, the act of getting a new credit card involves a credit check, which is recorded on your credit history as a negative event which reduces your score; it also lowers your average account age, which is bad.
- The longer your credit history, the better. Solution: travel back in time. (So when you leave the US, you ought to keep your cards open in case you'll ever return - but you need to actually keep using them too, since having a credit card without using it is also bad...)
Conclusion: (╯°□°）╯︵ ┻━┻
(In spite of this, he finally did succeed in getting a decent credit card that gives him 1-2% cashback on everything he buy - which felt great until he realized that all prices in general are several percents higher than they would have needed to be because of the fees that the credit card companies charge...)