Money Girl answers your most pressing questions about credit reports and building a good credit score.
Question #3: Can a New U.S. Resident Build Credit?
In the U.S. credit scores are tracked by your Social Security number. That means any resident who qualifies for a Social Security number can build a credit file here.
Lauren asks: I moved to the U.S. from Australia and have been working full time for 7 months. I finally got approved for a credit card with a small credit limit but I still have a low credit score. How can I raise my credit score so I can buy a home soon?
Building credit with a secured or unsecured credit card doesn’t happen overnight. The length of time that you’ve had credit plays a big role in how credit scores are calculated. So if you’re just starting out, simply focus on what you can control:
Monitor your credit report to watch for any errors
Pay all your bills and credit accounts on time
Keep your balances on credit cards below 30% of your available credit limit
Don’t apply for a bunch of new credit accounts too quickly
Question #4: Should I Close My Unused Credit Cards?
Many people mistakenly believe that canceling credit cards will increase their credit score. In fact, you need to be strategic when it comes to closing credit accounts because it can work against you.
J. asks: I have 6 credit cards and always pay them off each month. I want to close 2 of them and get a new card with a better cash back program. Will doing that hurt my credit?
I recommend closing credit cards that you don’t use, or that could get you into financial trouble, except in 3 situations. In Guidelines for Closing a Credit Card I recommend never closing a card that:
has a high credit limit
you’ve had for a long time
would leave you without at least one credit card
Question #5: How Does Co-Signing a Loan Build Credit?
If you have no credit or poor credit, you can ride the coattails of someone with good credit if they’re willing to sign an application with you.
Luke asks: I have good credit and co-signed a car loan with my teenage daughter so she could get a low interest rate. Since I’m going to make the payments on her behalf after she forwards her money to me, will the loan still help her build credit?
When you co-sign for credit, both parties share legal responsibility for the debt. Additionally, the account’s payment history gets reported on both credit files, no matter who actually pays up. So if Luke makes payments on time each month, both he and his daughter will benefit.
But the reverse is also true because co-signing can devastate your finances and credit if you co-sign with someone who can’t or won’t meet their monthly obligation.
Get More Credit Score FAQ!
To get the answers to 20 more frequently asked questions about credit reports and building a good credit score, watch this video.
Then download the Credit Score Survival Kit, a free multimedia resource that includes a video tutorial where I show you step-by-step how to check your credit report. You typically have to pay to get your credit score, but the tutorial also shows you how to get it for free as often as you want, with no strings attached!
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