Why You Need a Credit History

5 Opportunities to Take Advantage of a Credit History

International students on F1 visas know that a credit card is a way to manage daily expenses and build a credit history in the U.S. But they don’t always know what a credit history is or why it’s useful — in fact, many of their American peers don’t know, either. Let’s explain.

What Is A Credit History?
Consumer.gov explains, “Your credit history describes how you use money.”1 Think of your credit score like your financial GPA and your credit history as your education history — the where, when, and why of your financial past. You review your credit history in the form of a credit report from one of the 3 major credit bureaus, Experian, Equifax, and TransUnion. This report includes:

  • Credit cards, loans, or other line of credit you’ve opened
  • Current and former addresses
  • Major financial events like buying a home or declaring bankruptcy
  • Your FICO credit score

Like your educational history, not everyone needs to see your credit history. But having one is an advantage if you have any plans to stay in the U.S. Here are five situations when you may be asked to share your credit history:

1. Applying for a Job
A recent survey by the Society for Human Resources Management (SHRM) found that almost half of employers check an employee’s credit history when hiring.2 Having a history of financial responsibility that’s ready to share can only help you when you’re looking for a job.

2. Renting An Apartment
Nearly half of landlords perform a credit check or review a credit report from potential renters.3 If you don’t have a credit history or if you have experienced major financial challenges in your past (bankruptcies or foreclosures), they may choose not to rent to you or they may request an incredibly high security deposit, such as several months’ rent paid in advance.

3. Buying a Car
New and used car owners make monthly payments instead of paying tens of thousands of dollars in cash. You may also choose to “borrow” your car by opening a lease plan for a fixed period of time. Just as your landlord needs to know if you can afford your rent payments, a car dealer reviews your credit history to confirm you can manage your monthly vehicle payments.

4. Applying for a Loan
If you need to borrow a large sum of money for establishing a small business or making a down payment on a home, you will likely need to apply for a loan. Your bank or your lender will not only review your credit history when deciding whether or not to lend you the money, they can also set your interest rate higher or lower based on how financially responsible you have been. According to a report by the Annie E. Casey Foundation, borrowers with a good credit history may save up to $250,000 in interest in other fees over their lifetimes.4

5. Buying a House
When you apply to buy a home, you will be competing against other applicants. Presenting a credit report that demonstrates at least one year of financial responsibility can help you stand out from other applicants. The longer your history of credit use, the better. You will also need a credit history when you look for financing. According to the Federal Housing Association, a credit score over 580 significantly reduces your down payment when applying for a mortgage loan.5

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1 Consumer.gov: Your Credit History
2 SHRM Survey Findings: “Background Checking – The Use of Credit Background Checks in Hiring Decisions”
3 TransUnion Reveals Almost Half of Landlords Consider Renters’ Credit Health as a Key Factor in Leasing Decision
4 Equifax: Three Reasons You Need a Good Credit Score
5 Credit Requirements for an FHA Loan