Credit record is a record of fulfillment by a private individual or by a company of commitments on bank loans, goods credit, and supplies and services with deferring of payment.

The overwhelming majority US citizens live all their adult lives in debt. Education, purchase of expensive things, real estate – all those things bring people to credit institutions.

It was long ago observed, that to those who are in great need of money, and to those who are ready to take loans at high interest rates – the banks are trying not to award the money, motivating it with bad credit record. But those who do not need money (who’s got plenty of their own), naturally, have good credit records.

Earning a credit record is a very important issue for both private individual and for a company. A good credit record opens the doors of the majority of credit institutions and banks, provides opportunities for obtaining goods credits, etc. A person possessing a good credit record has much more financial opportunities than the one with bad record. If such a person sets up a business, he can manage it without involvement of his personal capital. On the other hand the person with bad credit record has to only rely on self-help. (At the same time, we can note that it is almost impossible to find an American who hasn’t spoiled his credit history by about thirty years of age, but that is a different matter).

So, what is a credit record? It is very simple – it is information regularly (once a month) coming to and stored in credit bureaus. A credit bureau issues this information (not free of cost) to those, whom it is allowed to be issued by the law, most often to credit institutions. What kind of information is included? It records how a particular person has been paying his current debts (credit cards, phone bills, etc.). In other words, a credit record is the credit reputation of a person for the last seven years – which long this information is kept for majority of credits types (but not all of them – for some of them longer).

Credit bureaus form a kind of disciplinary mechanism for borrowers. Everyone knows that in case of non-fulfillment of commitments his reputation in the eyes of potential creditors will collapse, cutting him off the loan proceeds or making them much more expensive. This mechanism also increases the borrower’s stimulus for loan return, decreasing the risk of unconscionable behavior.

Credit bureaus act as informational mediators either founded by and belonging to the creditors themselves or acting independently and gaining profit from their activity. Creditors provide bureaus with files of their clients. The bureau compares them with information from other sources (courts, governmental registration and tax authorities, etc) and makes a file for each borrower. Creditors on condition of regularity and reliability of information furnished about their clients can continuously receive reports of credit transactions of prospective borrowers from the bureau.

It is worth mentioning, that the demand for information furnished by the credit bureau is very high. Not a single self-respecting businessman will sign a contract without making sure of the partner’s reliability, his principles of business conduct and reputation. Not a single credit institution will lend a loan without prior inquiry about the return (and the time of return) of the latest or recently issued loan.

For your credit record to begin, you have to identify it with you. There is a system of complete identification of each person by Social Security Number in the USA to avoid confusion and misunderstandings. Without such a number your credit record cannot even start. Therefore, you should get a Social Security Number for a start.

You also have to know that the Social Security Administration is not obliged to assign you a number and to issue a card. More than that, a persistent trend of limiting the issuance of Social Security Numbers to foreigners has been recently observed. There have been cases when some foreigners pushed their luck and applied to Social Security Administration on their own or with the help of their friends. Such experiments, as a rule, do not only finish in failure. Those foreigners are recorded in a special register, and will probably never be able to obtain a SSN.

Actually, to obtain a Social Security Number, you have to either be a permanent resident of the USA, have an employment or at least a student’s visa.

Respectively, for a company – there is what is called an Employer Identification Number (EIN). It is issued at the time of company registration in IRS and without it the company is not entitled to open accounts in the banks of the USA, take loans, etc.

Now the following question is how is the credit record earned?

Secured Credit Card

If you have Social Security Number, you can immediately fill in an application to receive a credit card of any bank. Several weeks later you will get a guaranteed… refusal. What happens within those several weeks and why have you been refused?

Several companies are functioning in the USA engaged in collection and processing of all the information concerning the citizens’ credit records. All the banks, financial and credit institutions monthly forward reports with information on all of their clients to at least one of them. Of course, these companies exchange the collected information among them and furnish it to everyone interested for a certain payment. It is exactly to one of the companies like that the bank you chose sent an inquiry about your credit record. In response, it received information that you have a recently obtained social security number and not a single financial institution has had any credit relations with you. Having received information like that, the bank decided not to take risks and refused you. This is a typical situation. More than that, we are appealing to you not to make experiments like that with yourself. Notice of such a refusal is kept in your credit record for several months. Therefore, the next bank you choose will receive negative information about your having been previously refused. Thus, they will refuse you for the same reason and you will have two refusals in your credit record.

At the same time, the banks in the USA start dealing more and more with the people having bad credit records or not having them at all. Those banks take the risks of communication with unreliable people from the point of view of credit record. But they compensate themselves in other ways. The operation of those banks is based on the principle of a security deposit. Relations with the client are built in the following manner.

You deposit a certain amount on your bank account – a security deposit for the term not less than 12 months with an interest adopted in the USA (approximately 2.5-3.5% per annum). Usually that amount is within the limit of $100 to $5,000. Against security of this deposit you can get a loan in the following amounts:

1. Loan= 0.5 of the deposit (which is humiliating).

2. Loan=Deposit.

3. Loan=1.5 (sometimes 2.0) of the Deposit.

The exact amount of loan is defined by the internal rules of each bank. For convenience of account management you receive a VISA or MasterCard Secured Credit Card, which has no outward difference from debit or normal credit card. With the help of such a card you can purchase or withdraw cash all over the world in those places which accept VISA or MasterCard cards respectively.

Let’s see the example of option “3″ (Loan=1.5 of the Deposit). Suppose you deposited $5,000 to your account and received a credit line for $7,500 with a VISA or MasterCard plastic card. Now you can purchase something in any store for a total cost of $7,500 within one month. Therefore, the bank has already shown its trust to you for $2,500 (it is your turn now – to justify that trust). Further, on expiry of a settlement cycle (approximately 30 calendar days) you will receive a Statement from the bank with the list of all expenses on the account (indicating the date, store name and amount). Now you have a choice: to pay your loan in full (and rehabilitate your credit line) or to take some part of it as a loan (usually at 18-22% per annum). Suppose, you had spent $7,500, and returned only $4,500 to the bank, then your credit line goes down to $4,500. And you will be paying back the amount of $3,000 with the interest (18-22% per annum).

So, you possess an account with a VISA or MasterCard Secured Credit Card. The pledge of your respectability is the Deposit made in the bank. You start using that card (and taking a loan respectively) and then rehabilitating your credit line (returning the loan). Your credit record starts from that particular moment.

Maintaining and Development of Credit Record

Spoiling your credit record is very simple. For that you have to do the following:

• Not to return the loans in time systematically;
• To continuously expend the amounts exceeding your credit line.

Though, it is not that difficult to maintain and improve the positive status of your credit record. For that, it is sufficient to control your purchases and to repay the loans punctually.

A certain period is granted for you to repay the loan: approximately 20 to 50 days, depending upon the date of the latest purchase, which was entered into the settlement cycle. For example, the settlement cycle makes 30 days (from the 28^th of the current month till 28^th of the next month). It means that making a purchase on the 29^th, for repay you have: 30, 31^st days of the current month, plus 1-28^th days of the following month, plus 20 days for repay. I.e. you have 50 days. But if the purchase was made on the 27^th, to repay you have: 28^th plus 20 days for repay, i.e. only 21 days. At the same time you have to understand that some time will be required for posting of the statement from the bank to the client and of the cheque in reverse direction.

Therefore, in the best case you will keep within 18 days and meet the deadline. But you also have high chances to be late and to spoil your relations with the bank, which will negatively reflect on your credit record. If you are regularly late with the payments, your credit record worsens – you have to pay high interest to the bank and you will have to pay a fine for each delay of payments.

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