Summary

This video is a presentation by Advancial Credit Union about an expatriate's guide to US credit. It addresses individuals new to the United States and explains how their credit history from their home country doesn't transfer, and they start with a blank credit page in the US. The presentation aims to educate on the US credit system, credit reports, and credit scores. It covers the components of a credit report, credit score factors, and the importance of maintaining good credit. The speaker discusses the impact of credit scores on various aspects of life, including loans, renting, insurance, employment, and utility services. The presentation concludes with information about maintaining good credit and provides resources for further information.

Transcript

Hello, and welcome to Advancial's presentation today: An Expatriate's Guide to US Credit.

Are you new to the United States, or maybe you'll be moving here soon. Although you'll probably be bringing a ton of things with you as you relocate, maybe clothes, keepsakes, kids, even your beloved pet. But when you get here, I'm sure you'll have a list of other things ready for you to do as you settle into this wild new adventure, but there's one thing that you have to leave behind. Something that can't be brought with you to the states. And that is your credit history. So when you arrive here to the US, unfortunately, your credit starts over, a completely blank page.

Which is where Advancial comes into play today. Our goal for this presentation is to help you understand what the US credit system looks like, how to navigate it correctly, how to reestablish your credit history, and how to apply these concepts to your own financial foundation.

Today's webinar format is for informational purposes only, so if you have specific questions about your personal financial situation, please reach out to a local Advancial representative.

Today, we'll discuss the difference in a credit report and a credit score. And once we lay that foundation, we'll also break down what those components look like. We'll discuss the credit score ranges and we'll wrap up with a few frequently asked questions.

This entire goal for today is to leave you feeling more confident and equally equipped for all things US credit related.

First step is separating the terms credit report and credit score. What are they? What do they do? And what do they mean?

To help you better understand where these 2 concepts fall into place, I wanna give you an analogy, a comparison of sorts.

Let's compare your medical record to your medical diagnosis.

Now keep with me here. It'll make sense soon, I promise.

A medical record lists facts about your medical history. Things like your symptoms, test results, past surgeries, any prior medical issues.

And the information found inside of that medical record is what ultimately leads the doctors to that medical diagnosis that they give you.

So let's compare that analogy, if you will, to a credit report and the credit score.

If a medical record gives you a medical diagnosis, then your credit history, or your credit report, will give you your credit score.

Let's look at who records the items that are found inside that credit report.

Well, just like the doctors record things in your medical history, the "doctors" behind your credit history, or your credit report, they're known as the 3 reporting bureaus, also known as the big 3 or the credit reporting agencies.

You have Equifax, Transunion, and Experian.

These 3 credit bureaus collect information about how you handle your financial obligations, and they report it through your credit report and ultimately reflecting in your credit score. It's also important to know the Fair Credit Reporting Act, or the FCRA, is the primary law here in the states that regulates the credit bureaus, telling them what they can and cannot do as they collect, compile and share your credit information.

This particular law is designed to protect you from unfair credit reporting practices.

Let's dive into the credit report first. The picture shown here is the image of a credit report. But depending on which system you're viewing it from, the screen might differ just a little. There are 4 main components to your overall credit report. First, you have personal identifiable information. Then you have credit accounts, credit inquiries, and public records.

We'll take a look at each component today so you can see what all is involved with each portion of your credit.

The first of the 4 components is the personal identifiable information.

We call it the PII.

Under this section of your credit report, you'll find your basic information such as your name, your current and previous addresses, your date of birth, telephone number, social, driver's license number, and even your employer's name.

The second of the 4 credit report components is credit accounts.

You might also hear it called the account summary section.

This area is the most critical information.

This is where your loans can be found showing when they were opened or closed and the balance on them and your payment.

Under credit accounts, you'll also find the late payment history, the yellow rectangular section. You'll see a column for 30, 60, and 90 plus days of late payments under each loan type. We'll look at another example on the next slide where this will change slightly due to late payments.

Before we leave this particular credit example, I want you to take notice of their credit score.

So at the top of this example, you'll see that they have what's called a FICO score of 825 and they have an auto score of 852. To the right of these 2 scores, you'll see that color scale, and ideally, the higher you are on that scale, or the more in the green, the better your credit.

You'll notice there's 2 different scores mentioned. You have a FICO score and an auto score.

This particular credit was ran for someone looking to get financing for an automobile. And a lot of times financial institutions, including Advancial, will look a little further into your history for whatever credit line you're trying to open. In this case, it was an auto.

Basically, it looked at all of the areas of this person's credit, which gave them the FICO score of 825, but they specifically honed in on how they've handled their auto financing obligations, which gave them that auto score of 852.

In comparison to this really good credit report, let's hop over and look at a not so pretty example.

Now, here we are still on that second of the 4 credit components.

This is still the credit account summary section.

But this time, we're taking a look at the right side of this credit report at that color scale. You see this example has a much lower score. And is closer on the red end of the scale versus the previous example in the green. This person has a FICO score of 597, which we'll learn the rating of shortly.

This account summary shows 7 installment loans and 4 revolving credit accounts. And looking at the late payment history section, you'll see that although they haven't had a ton of late payments, they have had a few. They've gotten behind on their installment loan 3 different times. One was 30 days late, one was 60, and one was 90 or more days late.

What's really bringing this example's credit down is the fact that they've had a bankruptcy.

Which leads us into the third component, public records.

Now the public records area of your report, and this is shown in 2 different views here. It's gonna show the viewer if there have been any bankruptcies, any foreclosures, or repossessions on your credit history. And if so, it lists the date that it was reported and its current status.

Foreclosures and repossessions happen when you don't pay on your financial obligations for an extended amount of time, and the lender takes them back, and you file bankruptcy because your obligations became too significant to try to continue to pay on. If you ever have to declare bankruptcy, that negative impact will remain on your credit report between 7 and 10 years depending on the type of bankruptcy you filed.

If you ever have a foreclosure on your home or a repossession of your property such as a vehicle, then your credit will carry that negative impact for 7 years, generally speaking.

So all this is to say when you don't pay your bills sufficiently and in a timely manner, your credit will pay for it. The better your credit is, the better that you look in the eyes of lenders for future borrowing. And the worse your credit, the less likely you are to find lending resources for any of your borrowing needs.

Lastly, there's 1 more component to your credit history. That fourth component is called inquiry history. Sometimes you'll hear it called credit pulls. Either way, this is when a creditor needs to see what your credit worthiness is when it comes to you borrowing money. This image was taken from the bad credit example we review just a few slides ago. In this section of the credit report, it tells how many people have pulled your credit in the last 3 months, 6 months and 12 months.

This person has had quite a few.

It's important to know that there are 2 different types of credit inquiries. You have soft and you have hard.

Some primary examples of soft inquiries include requests that you make to the credit bureau for copies of your own credit report or score, pulls from lenders you are already financed with for account review purposes, and by various lenders for those pre approved offers you see so many times in the mail.

And then there's the hard inquiries. They are initiated by you filling out a credit application usually when you're applying for a loan. But be careful too many of these credit pools can negatively affect your score.

The exception to this concept would be multiple inquiries within a small time frame, usually 14 days or so, that are of the same type of line of credit. Meaning, if you are shopping for a car and 3 different car lots, pull your credit within that short timeframe for that vehicle, then it generally only counts as 1 credit pull.

So now that we've talked through your credit history or your medical report from the analogy, let's take a look into the "medical diagnosis", your credit score.

Remember this is the result from your credit history.

A person's credit score is made up of 5 different factors. They have payment history, which accounts for the largest portion of your credit score at 35% percent.

There's amounts owed, which is the second largest accounting for 30% of your score.

The next is length of credit history, making up 15%. And the last 2 pieces each accounting for 10% each is type of credit in use and new credit.

We'll start with payment history. It's important to remember that your credit score indicates your behaviors when it comes to taking care of your financial responsibilities.

So it only makes sense that the payment history portion constitutes the largest percentage of your score. Making all of your payments on time has the greatest impact on this component. So if you miss a payment or are severely late, again, your score will pay for it.

And then also it's important to note that most negative information, like I mentioned earlier, will remain on your credit report, for 7 years.

The second largest component of your score is the amounts owed, or how much debt you carry in total. This accounts for 30% of your score. Credit utilization is a keyword in this component, meaning how much credit you have and how much you've actually used. This calculation needs to look at your overall revolving credit.

So let's take a look at a quick example. If you have 3 credit cards with a total available credit of $18,000, and you've used only maybe about $1,500 on one card, maybe a $1,000 on one, and $1,200 on another totaling about $3,700, well, then by calculation, you have a credit utilization of 20%. That's taking the amount of revolving credit that you're currently using and dividing it by the total amount of available credit.

A super important note here is that it's recommended that the balance of debt to available credit should be no more than 30%.

Next is length of credit history, and just like a fine wine, most credit histories only get better with age. If you're mindful and careful with it, of course.

Although this factor only accounts for 15% of your score, it's still a very important influence.

The age of the oldest account, the age of the newest account, and the average age of all of your credit accounts are factored in. Generally speaking, the longer your credit history, the higher your score.

Next is types of credit used. This credit mix is determined by how many different types of revolving and installment credit accounts you have. It accounts for 10% of your credit score. But it makes sense though, doesn't it?

Maintaining a mix of credit demonstrates that you can handle multiple types of loans. Multiple types of obligations. Loans that always have the same payment each month. Maybe loans that have varying payments monthly and loans that you can pay a minimum on.

To differentiate between the 2 main types credit mixes. You have installment and you have revolving.

Installment credit has a fixed end date with a series of payments due every month. If you think about your own personal loans that would fall into this category, your mortgage, if you have student loans, auto loans, or personal loans.

Revolving credit on the other hand doesn't have a specific end date or a set balance. Instead of spacing out the balance equally over a certain length of time, a minimum payment is due each month. The most common type of revolving credit is a credit card. Also under this category is the home equity lines of credit, or HELOCs.

Last but not least is new credit coming in at 10% accountability.

New credit refers to the credit accounts you've recently opened, and the types of inquiries made to your credit. If you think back a little earlier in this presentation, we discussed hard credit pulls and soft credit pulls. Remember creditors don't like to see a lot of hard credit pulls or hard inquiries because it makes that consumer look desperate for a loan.

Now let's take a look at what happens when your credit score is laid out on a scale.

There are a variety of scoring methods available when it comes to your credit score. But when applying for credit, most US financial institutions use what's called a FICO score and you've heard me mention that several times throughout the presentation today FICO stands for Fair Isaac Corporation.

And it just refers to the 2 people who invented the algorithm used to calculate the score.

Simply put a loan applicant or borrower is deemed either low risk, moderate risk, or high risk when it comes to credit worthiness.

The range of 300 to 579 is considered poor credit.

580 to 669 is considered a fair score.

670 to 739 would be considered good credit.

740 to 799 lands you in the very good credit rank.

And then coming in at the exceptional tier, you have 800 and up.

So now that you understand the basic dynamics of credit, let's look at a few sources where you really see the impact and the importance.

The people who actually look at your credit.

Financial institutions, creditors, and lenders will check your credit to decide whether to give you a loan or whether to keep your loan. Businesses who already do credit with you don't need your express permission to check your credit report again.

The terms of your credit card or your loan likely already include language letting you know that the creditor can and will check your credit history periodically.

There's also potential landlords. They can check your credit report as part of the rental application process to determine if you're capable of paying your bills on time. And ultimately, they can determine if they need to enter a rental agreement with you or not. If you have recent delinquencies, foreclosures, or evictions on your credit report, your rental application could very well be denied or come with a hefty down payment.

Insurance companies, they also can check your credit to decide whether they should insure you. And depending on your history, It can also determine what rate you're given. Late payments and collection accounts could ultimately raise your insurance premiums.

A prospective employer also has the ability to use your credit report as they make a hiring decision. Bankruptcy, account delinquencies and high debt levels could keep you from getting a job, especially in the finance world.

And of you can establish utilities at a new house or apartment, the power company or the phone company can check your credit. Which oftentimes might lead to a higher security deposit if there's information on your credit report that makes you seem like a risky customer.

This category could include gas, power, water, phones, internet, and even cable. So again, super important to keep a good, healthy credit balance, and a positive credit history. As you can see here, it affects many avenues supply.

I wanna answer a couple of questions we hear a lot when it comes to credit. One of those most popular ones is why is there 3 different scores?

But let's go back to the 3 credit bureaus for just a minute.

One reason for the variation could be potential references in the data that actually makes up each report.

If you follow that chain reaction with me, your credit score comes from your credit report and that information in your credit report comes from where? Comes from the creditors.

So if all of the creditors are not recording the same things, then you can see these numbers differ. Creditors are not required to report information to the credit bureaus. And while many creditors do choose to report, some may send your account information to only 1 or 2 of the main bureaus instead of all 3.

Another reasons has to do with errors on your report. So if errors only appear on one bureau's report, then your credit score from that report might differ from another that has no errors, which might just be something as simple as the delay reporting.

And lastly, credit scoring models come into play with this multi-scored model. Remember, the main reporting score is the FICO model, but there are also other models as well using your own formulas to weigh those factors, therefore creating different scores. But again, the US primarily uses the FICO model to score credit.

Let's fast forward to the part where you've been here for awhile. You've established your credit and you're feeling good financially. This is the part where we talk about maintaining your good credit. Number 1 is to try hard not to open multiple new accounts within a short period of time. New accounts will lower your average account age, which will in turn have a larger impact on your score. Also rapid account build up can look a little risky to a lender.

Number 2 is rate shopping. Credit scores distinguish between a search for a single loan and a search for many new credit lines in part by the length of time over which you make your inquiries.

So in a nutshell, if you're searching for a car or a mortgage, try to do that within a focused short timeframe so those credit pulls are all right around the same time, which ultimately will decrease the damage done to your credit report.

And number 3, be mindful of your credit history. Opening new accounts responsibly and paying them off on time will only help your credit continue to move in the right direction.

Number 4. Request and check your credit report as often as you can within financial reason. Remember, this is considered a soft hit on your credit unlike a hard hit that affects your score. As long as you order your credit report directly from the credit reporting agency, or through an organization authorized to provide credit reports to consumers such as annualcreditreport.com.

Number 5, make sure those credit cards are maintained responsibly and ensure those payments are made on time to help maintain your credit.

And number 6, a closed account will still show up on your credit report and may be considered when calculating your credit score. If possible, keep it open and keep it active with small purchases that you turn right back around to pay off.

Winding down now. I know we've shared a lot of information in a very short period of time, but there are many helpful resources available to you concerning the topics discussed today. The Consumer Financial Protection Bureau offers a variety of resource including links to other non profit agencies that can help. The FTC, or the Federal Trade Commission Consumer information site is super helpful in navigating all things credit. You also see annualcreditreport.com which is a reputable site that you can order your credit report from. You're entitled to a free credit report every 12 months from each of the 3 major bureaus.

MyFICO.com is another great resource.

And many credit card companies, the credit bureaus themselves, and numerous blogs can also offer information and resources, but make sure to check the credibility of any of these websites that you use and always note the date of publication. Things are changing quickly, so you wanna make sure that you're looking at the most current information.

And of course, last, but certainly not least, financial institutions, including Advancial offer many resources.

Check out our website at advancial.org to learn more about our efforts to meet your needs during this time. We also offer a fantastic knowledge center with articles, calculators, and educational materials to help you make the best financial decisions possible.

If you would like to learn more about your credit union benefit, please visit advancial.org/passportUSA or you can scan the QR code with your mobile device and click on request information.

Once you've clicked that request information button in the middle of the page, it will direct you to an information card that looks like this one. Please fill this information out and a member representative will be in contact with you shortly.

For any questions you may have, please reach out via the information on your screen. Have a great day.