If you live in USA, you know about a very important measurement of the quality of your personal finance, Its Majesty, the Credit Score (everybody stands up and bows very low).

Are You “Trustable”?

The idea of the credit score was invented to measure “how trustable” a person is based on the previous lending behavior, and if a financial bureau can safely lend money to such person. It’s very controversial, discriminating and abused idea over years.

Recently, I was talking a person, whose parents never had a credit card, and decided to get a loan for a new car. Those old folks have plenty of money, they were never late with any payment, and always were paying with cash (they are from a small town). They are the best customers any business could dream of! Guess what, they were denied by the bank, because they do not have a credit score! Duh!

What if you are a citizen of another country and come to work to US, but you have enough money to pay mortgage or car loan? Forget about your dream house or a new car - without a credit score you are nothing…

But there is hope, you still can build decent credit score or improve it (depends on the amount of debt you currently have).

What is the credit score in a very simple way? It’s a ration between your debt and ability to pay that debt. For example, your debt (credit card bill) is $2000 and you pay it in the same month you used it, your credit score will be high; if your credit debt is $60,000 and you can only pay a minimum installments every month, your credit score will be low. That’s common sense, right?

They say that the process of gaining a credit score is very slow and takes a lot. Not very true.

A Little Experiment

Here is a short but efficient way. I have a friend who came over to US from Eastern Europe, and he obviously had no credit score (actually, I never forget his facial expression when he learned about Its Majesty The Credit Score before buying a car ). Well, I decided to help him and conduct a little experiment. We went to his US bank and asked what kind of credit cards he can apply for, the manager blinked her eyes and told us that he cannot apply for any without decent credit score. A magic circle! To build a credit score, you need a credit card history, you cannot have a credit card without a credit score… Duh!

“Let’s try another bank”, I told him. Then we went to another bank, and a manager told us that they can give him a credit card, BUT with some restrictions: he has to lend them $300, his maximum balance will be $300, he will have 20% APR (oh, my…). We agreed.

He started to use that card on daily basis and pay his credit card bill every month. After 6 month, we checked his credit score, it was 720! Woo-Hoo! We called our experiment a success.

You Can Do It

Well, if your credit score is absent or needs a little bit of medical attention, you can follow this small tip and get that highly restrictive credit card to build up your credit history. But there is one “but”. You have to pay all your bills on time every month (I mean ALL of them), otherwise your credit score will not improve.

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