What Is a Good Loan Rate?
In the United States, the loan rate is used very often, and does affect everyday life. The higher the rate, the more trusting banks, credit organizations and other firms will treat you. With a high credit rating, it will be easier for you to rent a house, issue a mortgage, get a platinum credit card, or insure your car. The amount of interest and commission on transactions will depend on the rating. The potential employer will verify that the loan candidate is not bankrupt.
In the 20th century, the credit bureaus Equifax, TransUnion and Experian were formed, the main occupation of which is collecting and accumulating information about consumers, and calculating a credit rating. They take into account how a person pays debts, how often he uses loans, credit cards, or makes payments on these loans on time. The entire credit history of each person is saved.
These agencies collect information from all companies with which you have had financial relations, and based on this, make their conclusion in the form of your credit rating. Despite the fact that each bureau has its own secret methods, the results are about the same.
There are confirmed facts:
- 800 points and over is an excellent rating for the top 20% of Americans; they will not be denied any loan;
- 740 – 799 points – this is a good rating, fairly good mortgage interest rates and most credit cards;
- 670 – 739 points – it is an average rating, a kind of Zero, roughly corresponding to a person without a rating;
- 669 is a bad rating, there were definitely problems with payments.
Credit bureaus keep your credit history by linking it to your Social Security Number (SSN). This number is unique and is assigned to all US citizens and residents; the name may change, but the SSN may not. From a cell phone store to hospitals and banks, everyone will want to know your SSN, often just to get your credit rating from the bureau. If you are not eligible for an SSN, you can get an Individual Taxpayer Identification Number (ITIN). They work the same way.
Credit bureaus collect information and create a credit history report that includes name, SSN / ITIN, all registered residential addresses and a list of all bank accounts and loan payment history. This includes registered public information such as unpaid bills and fines, lawsuits and tax arrears. The history also includes the so-called hard pulls of the credit report. These requests can be made by various organizations that you have contacted in order to get acquainted with your credit history. Besides you, your credit history will be available:
- banks and creditors;
- insurance companies;
- credit card companies (e.g. shops and airlines);
- organizations considering your application for a government license;
- government agencies to track unpaid alimony;
- state law enforcement agencies;
- other organizations with which you intend to do business or conduct financial transactions.
Every time any of the above organizations asks for your credit report, your rating loses a few points for a couple of years. For example, if you are asked in a shoe store for the SSN number, and you don’t really need their credit card, then it is better not to give the number, because you will lose several credit scores due to such a hard pull.
As a rule, non-governmental organizations ask for your consent in order to make a request, but to be sure, the rule is this: gave an SSN – received a hard pull in history.
If you make a request about your credit history, this does not affect your rating. A free full credit report is available from the AnnualCreditReport once a year. You can also track your credit rating for free on the CreditKarma website.
If you do not have an open bank account, or if you have no credit history, then there is no rating, and lenders will not trust you. Consequently, your chances of getting a loan are very small, and the commission for credit operations will be overstated. This is due to the fact that the bank takes more risk when making a deal with unsecured person than with a verified client.
There is a saying that credit history does not cross borders. Here are some tips for newcomers on how to build ratings and win over lenders. This will not happen in a week or two, but in 6 months you can become quite “attractive” for banks.
First of all, you need a checking account. Open it at any bank, transfer your salary to it, and conduct operations. The lender will always be able to view your account statement and determine the availability of funds on it. If you do not have an SSN, the bank can register you with a foreign passport; not every bank will do this, but usually the big ones like Bank of America or Chase will agree.
You need to prove to the lender that you have sufficient income to pay off the loan amount. In addition to salary and other regular income, a very important point is the availability of accumulated money in the account. It shows you to lenders as an organized person who is able to manage your finances rationally.
If your bank refuses to issue you a basic credit card, you need to open a secured credit card. This is the same credit card, but you protect the bank with the deposit amount.
Deposit/credit cards will be the first step towards obtaining a credit limit. At first, the limit will be ridiculous amounts, about $ 300, but over time they will grow along with the credit rating.
And then, it is not at all difficult to open a deposit with a secured card for $ 300. You will still spend it the same way you would spend cash. But there will be an advantage – credit history.
People with no history can expect a rating of 700 points to appear 6 months after opening an account. Secured cards are even used to restore their reputation after financial failures.
You can also use loans from developers or credit unions to improve your creditworthiness. Such loans, as a rule, are given for small amounts and at low interest rates. However, you need to make sure with these organizations that they share information with the credit bureaus, otherwise these loans will not affect your rating in any way.
Another way to increase your financial attractiveness is to link a loved one to your credit card as an authorized user (cosigner / co-owner), for example, a friend or relative. If he uses your shared credit card responsibly, it can add points to you. But it can also have a negative impact if the cosigner / co-owner uses a credit card irresponsibly and does not repay it on time. In this case, the rating will decrease both for you and for him.
If you rent a house, you pay a decent amount to the landlord in a timely manner. Make sure that this information is not left unused. Check with your landlord if they provide information to the credit bureaus. This service can raise the price of an apartment by a few dollars, but it will give you points pretty quickly.
There is an option for students to open a student credit card. To do this, they need to contact any bank cooperating with the college and confirm their student status. These cards have no annual commission, and some of them even have reward points systems for purchases. It is an excellent start for building your credit history.
Most important is discipline when building your credit rating: pay all bills on time, pay off interest on loans and commissions. Leave a balance of no more than 30% of the credit limit on credit cards.
Credit bureaus record negative information quickly and persist for a long time. Unpaid 50 bucks on time spoils your reputation greatly.
When you pay for purchases or services, you often have a choice – in cash or by card, always choose a card. Cash transactions do not leave a trace, and a card transaction will improve your credit history.
What can be done with a good rating:
- get a credit card with a dozen different bonuses, like a concierge service;
- apply for long-term loans;
- do not leave deposits for the rented car;
- refinance your past loans at favorable rates;
- issue the mortgage loan for 30 years;
- increase the credit limit to $ 30,000 or more for each card.