What is a Credit Score and Do International Students Need it?

You might have heard the terms credit and debit before but don’t really know what it means. Here, we’ll go through what it means to have good credit in the US and why international students might need it. 

What is credit?

Credit is an important part of your financial power. It allows you to borrow money and pay for it later, often with interest. Your access to credit can be defined through your credit report and credit score. There are two main types of credit: revolving and installment credit. Revolving credit is issued in the form of a credit card, on which users are given a credit limit but they can choose to spend as much or as little of it as they would like. The amount used should be paid off in full at the end of each month in order to increase your credit score. However, if you choose to pay in part at the end of the month then the remaining balance will be carried over and interest will be added. Installment credit is usually a form of loan that you can pay back in steady increments. 

What is a credit report?

Your credit report shows your past financial behaviors as it contains your payment history, including late or missed payments, the number of accounts you have opened along with the current balances, the number of loans you have taken out as well as the remaining balances, and any financial disruptions such as bankruptcy and foreclosure. Keeping track of your credit report is crucial as you can see how you can improve your financial behaviors and dispute any errors with the credit bureau. 

What is a credit score?

Your credit score is a three-digit number, usually ranging from 300 to 850, and it is calculated through a valuation of your credit history and report. It is a distilled version of your credit report and history.

Why is a credit score important?

A better credit score means more financial power as it indicates to financial institutes that you are reliable in repaying your debts, allowing you to borrow more money for larger purchases like cars and houses. The most common credit score system that lenders use is called the Fair Isaac Corporation or FICO score. FICO evaluates scores according to a rubric: 35% payment history, 30% amount owed, 15% length of credit history, 10% types of credit in use, and 10% account inquiries.

Do international students need a good credit score?

If you want to stay in the US long term then you should start establishing good credit as soon as possible. Without a credit history and good credit, you might not be able to get loans, rent apartments, or make large purchases like a car or house. So, if you are planning to live in the US after college then you should start building good credit now!

How can international students build credit?

One of the easiest ways that you can build credit is by getting a credit card, using it, and paying your loans in full every month. A rule of thumb to follow is to only spend what you have to spend, but instead of charging it to your debit card use your credit card. You will most likely have to get a social security number before you can apply for a credit card in the US (click here to find out how to get a social security number). Another way to build credit overtime is by paying your monthly bills (if you have any), for rent, utilities, and electricity, on time. Many credit providers are now accepting utility bills as evidence for your timely payment history.

How can you check your credit score?

Checking your actual credit score can be harmful toward your credit score as it decreases it every time you check. However, you can request one free copy of your credit report per year from three major credit reporting agencies: Equifax, Experian, and TransUnion. 

How can you improve your credit score?

Credit is something that you can build over time, so the earlier you start the better your score will be. One of the best ways to improve your credit score is by getting loans and paying it back on time. This can be as easy as applying for a credit card, using it, and paying the bills for it on a monthly basis. 

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