Credit cards and credit history

After the subprime crisis, when banks and other financial institutions where giving loans to almost everyone (for extremely high interest) the financial system in the US swung to the other extreme.

To get any kind of loan or a credit a person has to have a proved credit history. A **credit history** is a *personal* record of repayments of debt which demonstrate person's ability to handle debts and loans. A **credit score** is a number 0-800 which measures creditworthiness of a person. It is calculated from the credit history of a person.

You need good a credit score to buy cars, rent homes, take loans and getting credit cards. The main problem is that you start with a blank credit history! So you have to build it.

## Things that affect your credit score

Ordered by their impact:

1. **Payment history**: any late payment highly affects your score. Setup an auto-payment at your bank account.
2. **Card utilization**: Use the credit card between **0-30%** of your credit limit. Anything above that reduces your score!
3. **Age of credit history**: the average age of all your open accounts. It is better to leave old accounts open.
4. **Number of inquires**: number of times you have asked for a loan or a credit card. The more you ask the lower your score.
5. **Number of accounts**: the more accounts you have in good standing the higher is your score.

## First credit card and building your credit score

Getting your first credit card can be tricky but should be done as soon as possible, remember you don't have any credit history. So you have to provide the issuing bank with some documentation:

* You will first have to have a SSN, since every credit card is tied to it.
* Bring foreign bank statement in English.
* Bring your foreign credit card statement in English.
* Show a letter from your adviser stating that you'll have a XX salary and you are in good financial standing.

If all that does not help, get a **secure credit card**. It is not really a credit card, since any transaction is immediately deducted from a predetermined amount of money tied to the card. However unlike debit cards it builds your credit history. To efficiently build your credit history:

* Upgrade to a real 'unsecured' credit card as soon as your credit card allows.
* **Pay the full balance on time!**  this is crucial for your score, so you better set-up an auto-payment.
* Maintain a utilization of less than 30%. If you constantly find yourself utilizing more than that ask your bank to increase your credit line (the request does not affect your score).
* When your credit score reaches Excellent (720-800) upgrade your card to a better one or add another card.
* Having 2-3 credit cards allows to build your score faster (assuming you keep the above points)
* You can check your credit score here for free.
* After some time you’ll start getting a lot of garbage credit card mail. You can opt-out of this promotional junk here.

## Payouts

The credit cards in US pay you back either by:

* **Cash-back**: 1-2% on every purchase. Or up-to 6% in selected categories.
* **Rewards / Points / Miles**. You can exchange those by money or miles, or exercise them into gift cards, flight tickets, hotels etc.
* **Bonuses**. Normally you get it only once when you apply (and get approved) for a credit card.

## Important facts

* A debit card does not build credit history.
* Interest rates are normally quite high (15-20%), so you better pay your balance in **full**!
* The credit cards are **NOT** debit cards. Withdrawing money **can** be done by a credit card. it is called a **cash-advance**, but it carries humongous interests of above 25%. **Therefore you should never withdraw money using a credit card.**
* An even better practice is not to use cash at all! You barely need it in NYC. This will help you research where the money went, and to better manage it.
* Note that the credit score is personal and is tied to ones SSN. Beware of identity thefts (people using your SSN), since they might drastically affect your score, keep your SSN in a safe place!