Friday, June 3, 2011

Building Your History

When I first came here in the US I didn't know that having no credit history can be a disadvantage in many ways. Back home I have always paid everything in cash. I remember having credit cards when I was working for a big corporation because all managers were required to apply for credit cards backed up by the company. But when I left the corporate world to start my own business, I paid off my credit cards and ever since, have done all my transactions by cash or check. When I want to buy something that was in big amount like car, I would save money until I have enough money in the bank and I could pay it in cash or check secured by my savings. My philosophy then was I didn't want to live on credit. It worked well for me and in fact it was a good thing there if you don't owe anything from anybody.

It was completely a different world when I got here in the US. Here, even if you have money in the bank, you don't run around buying things in cash. It's crazy to pay a $5,000 TV sets in cash. It is perceived that only people who are into illegal activities like drug dealers and bank robbers carry big amount of money and pay cash in big amounts. Everything here is either paid through credit cards or in-house financing.  In order to get the best deal, you've got to have a good credit score otherwise it will cost you financially. You end up paying a much higher interest. For example, on a $20,000, 60-month auto loan, borrowers would usually pay $5,000 more in interest with a bad credit score than with a good credit score. Most people don't know that credit score mainly represents the risk of not repaying a loan. These are the facts that I have to face when I finally decided to settle in the US for good. It was tough but with patience and diligence I was able to start building my credit history. I first applied for credit card designed for somebody like me who has no credit history. I used my credit card to purchase everything instead of using my debit card and I would pay all my balance instead of just paying the minimum amount required before my due date so I didn't have to pay for the high interest rates on balance unpaid after billing cycle. It has been fun and life learning experience while building my credit history. Lately I just bought my new car. After paying only half using the sale from my 3 year old car as down payment and half through financing, I got a 60 month zero interest and a monthly amortization that is worth less than my two days salary. It is really very affordable on my part.

For those who are just starting to make a life in the US and those who are planning to come and live here, this is one of those things that need to be taken care of. After you settled and have a job, start building your credit history even if you have money and can afford to pay cash. Practicality, convenience and safety are some of the reasons to have that plastic in your wallet. After that, you'll be amazed at how the world opens up for you. Words of caution though. Proper management of your finances is very important. And if you're the one who already established a stable history and just curious about your credit score? There are free credit score websites that offer free FICO score estimator. FICO by the way means Fair Isaac Corporation, a public company that provides analytics  and decision making services including credit scoring intended to help financial services and companies make complex, high-volume decisions (source: Wikipedia). It's not a bad thing to have credit, as long as you are responsible. You can use it to your advantage and make your life more flexible and your choices more suited to your financial capacity.

1 comment:

How To Reduce Your Mortgage said...

If you don't check your account regularly, you could certainly be at the risk you outlined since the transaction will have time to post, but I check our accounts almost every day and would notice any improper 'pending' transactions before they were allowed to post. Only after the transaction posts does my actual balance change. I could be mistaken, but I think the bank will keep any disputed transactions in 'pending' state while they investigate, thus protecting your balance.