When I moved to the U.S. from my hometown, Hangzhou, an eastern Chinese city, in 2012 to pursue my undergraduate degree, the thought of establishing a credit history wasn’t even on my radar. I was, after all, an international student from China, where day-to-day credit card use has only recently caught on.
It wasn’t until I returned to the U.S. a few years later to pursue my master’s in Chicago that I realized I’d need to establish credit if I planned to launch my career in the States.
It’s been only a year since I opened my first card last September, and I already have a solid FICO score – 720, the last time I checked. That’s not a perfect score by any means, but it lands me safely in the “good” credit range , meaning I probably won’t have trouble getting approved for new credit in the future. I still have work to do if I want to get into the “very good” credit category, which starts at 740, according to MyFICO, but for a credit card newbie I’m not disappointed in my progress so far.
Here’s how I did it:
I selected the right card for my needs
I wish I could say I diligently researched credit cards to choose the best offer and best terms, but honestly, I just got lucky:
Shortly before graduate school started, I visited friends in Iowa. When we were about to split the bill after dinner at a Japanese restaurant, I noticed that all my friends had a Discover card with a shimmering pink or blue cover. The Discover it for Students card was known for its high approval rate for student applicants, and had been popular among international students.
I thought, “Oh, maybe I should get this one, too.”
One of the friends sent me a referral link that very night. I applied and got approved quickly. We both received a $50 cash-back bonus after I made my first purchase — an iPhone — using the card through Discover’s special rewards program. I even received 5 percent cash back from the purchase.
Besides imposing no annual fee, the card has other perks, like rewarding me with a $20 cash-back bonus when I reported a good GPA, letting me earn 5 percent cash back on purchases in rotating categories, and matching the cash-back bonus I earned over the first 12 months with my account. For me, it was a great starter card, but there are plenty of other options out there.
Check out our guide on the best credit cards for students.
I also could have explored other options of establishing credit, like opening a secured card , for example, which would have been a smart option if I hadn’t been able to qualify for the Discover it student card.
I never missed a payment
Despite my very limited financial literacy at the time, I attribute my current stellar credit score to the old, deeply ingrained Chinese mentality about saving and not owing.
I never missed payments, and I always paid off my balance in full each month, instead of just making the $35 minimum payment. I didn’t want to pay a penny of interest.
Credit cards carry high interest rates across the board, but student credit cards generally have some of the highest APRs. This is because lenders see students like me — consumers without much credit history — to be risky borrowers, and they charge a higher interest rate to offset that risk.
Best Student Credit Cards October 2017
It wasn’t until much later when I learned that payment history is critical to credit establishment. In fact, it is the biggest factor there is. It accounts for as much as 35 percent of my FICO score. Naturally, I felt like I dodged a bullet!
A Guide to Getting Your Free Credit Score
I was careful not to use too much of my available credit
My friends with more experience advised me to use as little of my available credit as possible. They warned me that overuse had hurt their credit scores in the past. This didn’t much sense to me, but I followed their advice, for the most part diligently..
I later learned this is almost as important as paying bills on time each month. Your utilization rate is another 30 percent of the FICO score. Credit experts urge cardholders to keep their credit utilization ratio below 30 percent.
That means if you have three credit cards with a total available limit of $10,000, you should try never to carry a total balance exceeding about $3,000.
A Guide to Build and Maintain Healthy Credit
I beefed up my score with on-time rent payment s
Keeping in mind the importance of not maxing out my credit card, I never considered paying my rent with the card. In fact, some landlords charge credit card fees for tenants who try to pay with plastic.
But I did find a way to establish credit by paying rent using my checking account.
I paid rent to my Chicago landlord through RentPayment , an online service. RentPayment gave me the option of having my payments reported to TransUnion, one of the three major credit-reporting agencies. Because I knew I’d always pay bills on time, I signed up for the program.
This likely helped me improve my credit mix , another key factor influencing one’s credit score. The more types of accounts you show on your report, the better your score can be — providing you make all your payments on time.
Yes, I made mistakes. This was my biggest one.
My first foray into the world of credit wasn’t completely blip-free.
The only thing that hurt my credit, besides my short credit history, was that I had tried signing up for a Chase credit card and other ways to finance my iPhone just a few days before I applied for my Discover card.
None of the other banks approved my applications, and my score went down from the very beginning due to the number of “hard inquiries” against my report. Hard inquiries occur when lenders check your credit report before they make lending decisions, and having too many inquiries in a short period of time can result in several dings to your credit score.
I’ve learned my lesson, though. And I haven’t applied for a new credit card since. Today, as I said, my FICO score is a healthy 720, and I am on the lookout for a second credit card now that I’ve graduated and gotten a job.
The post I Got My First Credit Card One Year Ago – Here’s How I Already Have a Good FICO Score appeared first on MagnifyMoney .