Understanding and Optimizing Your Credit Score in the United States

In the United States, the “credit score” system plays a central role in the financial lives of individuals. Whether you want to buy a house, rent an apartment, get a car loan or even take out insurance, your credit score is often taken into account by lenders, lessors and insurers to assess your creditworthiness and financial reliability. It is therefore essential to understand what the credit score is, how it is calculated and how it can influence your access to credit and other financial opportunities. But as it is not simple, we asked Cédric Galinier-Warrainexpat who arrived in New York with his family to explain to us what it is about.

“Credit score”: what is it?

“In summary, the credit score is a number, which illustrates your “credit quality”, your solvency or ability to repay your debts, calculated from a number of factors

What is the Credit score used for?

For your debtors (bank, “utility provider” like ConEdison, the local EdF, lessor for example) it is a confirmation that you have a serious approach to what a debt is, but even more that you pay them at the time and that in the end you know how to manage your finances.

For you, the implications can be very concrete.

A good score makes it possible, for example, to have a better rate on a mortgage, not to have to provide a guarantor to rent an apartment (can be very expensive, especially given local rents), to have good limits on famous “credit” cards (definition and implications below)

How to get a Credit score?

You have to get into the system.

Most banks will wait a few months before giving you a “credit” card (some will be quicker), but it’s the latter that will help create your score

It is therefore inevitable to tackle the subject!

Credit card “

At this stage it seems useful to define what we are talking about.

In France, we have immediate debit or deferred debit credit cards.

Quite simply, a French credit card with immediate debit is in the US a debit card. It allows you to withdraw tickets from the distributor (then debited instantly from a “checking” account) or to pay your expenses, which are then also instantly debited from the same “checking” account.

An American credit card is comparable to a French deferred debit credit card, with several differences. In France we are debited for our expenses every month. In the US, we have the choice to pay them at the end of the month (or during – which is useful depending on the limit we have – you will understand later), or to go into debt, at attractive rates like 25% (!!!)

You will then tell me why take this risk with the US credit card? For two reasons: you earn “points” and because it helps to create and feed your famous “credit score”

How to optimize your Credit score?

There are several criteria used by credit agencies (Experian, Transunion and Equifax) to calculate (very secret magic formula) your score. We find for example:

• Age of credit cards. It is advisable not to close an account: the greater the seniority, the more it will help your score.
• Forgot to pay. Don’t even think about it! Already we can not forget the 25% and other ancillary costs, but in addition forgetting negatively impacts your score, and a lot.
• Use of global limit. Deceitful! Let’s take an example: a bank will give you a credit card with a limit of $5000. You say to yourself “banco that’s enough”. So already, not necessarily, life is much more expensive than in France. But especially for the credit score, you should not exceed 30% of use of your card. Otherwise your score drops as fast as a skydiver (?!). When you pay your outstanding amount, the score then goes up, but it’s not clean if someone needs to check your score to rent an apartment for example. Hence the need to sometimes pay during the month his or her credit card outstandings so as not to have too high amounts of use at the moment T…
• Number of checks. Each time you apply for a new credit card, or a lease, the banks will ask the agencies for a “Credit check”, which reduces the score by a few points each time. It is therefore necessary to avoid too many “checks”.
• Additional info that was mentioned to me: it is preferable that credit card payment escalations come from several banks, and therefore to have more than one card.

What is the correct “score”?

Most people have 2, 3, sometimes 10+ for optimization kings.

Because in the end, these cards earn points ($1 = 5 points on this card for plane expenses, 3 points for restaurants, 1 point for the rest, but another card will give you 3 points for “groceries” or grocery shopping; these are examples). These points are worth 1 cent or 1.25 see 2 or 3 cents. So $1 spent can earn 6% or more…

Just tell yourself that in addition to the score, you spend that money anyway, so you might as well get points that will pay for your nice hotel or your plane tickets.

My adviser told me (after easily giving me debit cards), never to use them and only use his credit cards… that gives you a clue…

Good luck, and welcome to the US!”

Thanks Cedric!