When it comes to credit, many foreigners struggle to find the right avenue to build this. They make mistakes that hinder their credit further causing more problems in the future. Credit is an important aspect for anyone living in the U.S. as it can hinder receiving loans, a home, items, or renting property. 

Understanding how to build your credit properly can save you a lot of time and stress. Building your credit up to a high number doesn't have to be a challenge. Let’s look deeper into why your credit is so important and how you can raise it to an optimal level. 

What is Credit?

Credit can have a lot of meanings when it comes to finances, and it’s easy to get lost in the murky waters of what credit is exactly. But credit can be simplified to refer to an agreement where someone borrows money or receives something valuable and promises to pay it back later, often with an extra amount called interest. When borrowing credit, at the end of each month your bank or lender will report your credit history to independent credit bureaus.

A person's credit history and overall credit score serve as indicators of their past borrowing experiences, aiding lenders in assessing a candidate's suitability for new loans or purchases that involve financial installments.

Types of Credit

Credit comes in many different forms, and knowing these distinctions is important for wise financial choices. There are two main types to understand: revolving and installment credit. In the banking world, lines of credit are sometimes called “trade lines”. Here are examples of various trade lines:

• Credit Cards

• Lines of Credit

• Car Loans

• Student Loans

• Mortgages

• Boat Loans

• Phone Financing

• Furniture Financing

• Revolving Lines of Credit

• SBA Loans

• Fixed-Term Bank Loans for personal or business needs

In this context, "trade lines" refer to specific accounts or credit relationships that fall under the broader categories of revolving and installment credit. They encompass various financial products like credit cards, loans, and lines of credit, each with distinct terms and payment structures. Now let’s look at the two types of credit you can receive; installment or revolving. 

Instalment Credit

Installment credit involves borrowing a fixed sum of money, which is then repaid in regular, predetermined installments over a set period. This type of credit is often used for specific purchases like homes, cars, or personal loans, providing a structured and predictable repayment schedule.

Revolving Credit

Revolving credit is a type of credit that allows borrowers to repeatedly access a predetermined credit limit, repay a portion or all of the borrowed amount, and then use it again. It's commonly associated with credit cards and lines of credit, offering flexibility in borrowing and repayment.

Why Does Credit Matter?

Credit matters because it affects your financial options, costs, and opportunities in various aspects of life, from securing loans and housing to employment and insurance rates. Building and maintaining good credit is essential for a solid financial foundation. Here are some reasons why credit is vital to one’s financial well-being and life:

1. Access to Financing: Good credit enables you to secure loans and credit cards with favorable terms. It's important for significant purchases like homes or cars and can help cover unexpected expenses.

2. Interest Rates: A strong credit history often results in lower interest rates, saving you money over time. Conversely, poor credit may lead to higher interest rates, costing you more.

3. Employment Opportunities: Some employers check credit reports during the hiring process, particularly for positions involving financial responsibilities. Good credit can enhance your job prospects.

4. Housing: Landlords may review your credit when renting a property. A positive credit history makes it easier to secure a desirable rental.

5. Insurance Premiums: Credit scores can influence insurance premiums. Lower scores may lead to higher rates for auto or homeowner's insurance.

6. Utilities and Services: Utility companies and service providers may require a credit check. Good credit can help you avoid security deposits or upfront fees.

7. Financial Security: Building credit responsibly can provide a safety net during emergencies and pave the way for financial stability and future opportunities.

How Can I Build My Credit Score?

Now that you understand why credit is so important, it’s time to look at building credit. The type of credit you’ll want to build will depend on what your goals are. The two types of credit we’ll focus on building are personal and business credit. 

Building Personal Credit 

Personal credit refers to an individual's financial track record, including their borrowing history and payment behavior. It's assessed by credit bureaus like Experian, TransUnion, and Equifax. Credit scores, such as FICO scores, gauge creditworthiness and influence loan eligibility, interest rates, and credit limits for personal financial products like loans and credit cards.

Building personal credit first requires you to do something a bit challenging— opening a line of credit. If you're starting with no credit history or have a low score, here's a proactive plan:

1. Secure a Secured Credit Card: Approach your bank for a secured credit card by depositing a sum of money, ensuring approval without impacting your credit report. We suggest a deposit of $1,500 or more.

2. Explore a Secured Line of Credit: Similarly, consider securing a line of credit with a deposit, with a recommended amount of $1,000 or higher.

If you're looking for an easier route starting out with help from the best, Capital MBS specializes in helping individuals navigate this credit-building journey effectively. 

Now, it's crucial to use your newfound credit responsibly. But when it comes to dealing with secured credit lines, aim to pay off your balance each month to avoid interest charges. Occasionally, paying around 90% of the balance while incurring a small interest fee can demonstrate responsible credit usage. This strategy may encourage your bank to offer an unsecured credit limit or raise your credit line.

Building Business Credit

Business credit focuses on a company's financial history and creditworthiness, separate from personal credit. Credit reporting agencies like Dun & Bradstreet, Experian Business, and Equifax Business monitor it, assessing payment history and financial stability. Business credit scores, like PAYDEX, help lenders, suppliers, and vendors decide on credit terms and financial transactions with the business.

Setting up business credit correctly is vital from the outset. It's crucial to choose the right IRS and industry activity code when forming your new LLC or Corporation, especially since some industries are deemed high-risk by banks. 

This is where we, at Capital MBS can help. Contact us for more information about your new business’s credit. The advantage of business credit is that the more you have and utilize responsibly, the more you can access it. We specialize in securing 0% APR credit lines, up to $150,000 for personal use and $200,000 for business use. Please note that 0% APR Credit Lines require a personal credit score of over 700 FICO 2.

It's worth noting that many new business owners face challenges when trying to establish business credit through traditional banking channels. Banks can be hesitant to extend credit to newly formed businesses. That's where credit agencies like Capital MBS come into play. We specialize in assisting entrepreneurs in building their business credit profiles effectively. We understand that banks may deny credit to new applicants, and we offer tailored solutions to navigate this hurdle. Our expertise can help you establish a strong business credit foundation, allowing you to access the financial resources your business needs to thrive.

Protecting Your Credit

Protecting your credit is paramount. Identity theft occurs frequently, with fraudsters applying for credit cards in your name. Safeguard against this by utilizing a Credit Monitoring service, available for a nominal fee. This service alerts you when your credit is accessed and by which financial institution, allowing you to act swiftly if it's unauthorized. For just $1, you can check both your personal and business credit using this recommended link.

Shielding your credit from fraud is imperative as it ensures financial security by preventing unauthorized transactions and potential losses. Additionally, it safeguards your credit score from damage and potential legal repercussions. By protecting your personal information, you maintain control over your financial identity, offering peace of mind and financial stability.