Today I will explain to you what a credit score is. What the heck is a Credit Score? First of all, if you live in the USA you are immediately confronted with it. A credit score is a number between 300 and 850. Great, now what does that tell me?
Very easily! If I go to the bank and say: „I would like to have a credit card“ because in the USA everything is paid for by credit card, then the bank employee says: „Hmm, you don’t have a credit score – no credit card!“ Bad luck – no master card, no Visa card.
If you want to buy a car, for example, and you want it financed, then the car salesman looks at: Credit Score? No Credit Score, No Financing!
Last but not least, if you live in the US, you naturally want a cell phone. A mobile phone contract without a credit score – no mobile phone contract. At the latest then you ask yourself: „What is a credit score and why do I need it?“. Actually it’s something very simple.
Every American, every resident of the US has what is called a credit score.
This shows how creditworthy a person actually is. If you have a high credit score, such as 800 or 850, that means: „He ’s great!“ – you don’t need to do any further research. You get this loan and you also get mobile phone contracts and everything you want in terms of financing.
Even a house can easily be bought with a high credit score. When you’re brand new to the US, like as a student to work or just to live, it becomes very difficult to achieve those things because you don’t have a credit score here to begin with. First the good: If you have a credit score of only 300, it means that you are very bad. If you have a credit score of „Zero“, then that means: „Hmm, he must be brand new here“.
So it’s not that bad.
Well, how does the credit score even come about? In the USA, everything is done via the so-called social security number. Well, every American or resident knows their own social security number. Do you know your social security number by heart? So I have no idea.
I think I scanned my social security number somewhere. But the Social Security Number in the US is a piece of identification for all Americans and residents of the US. Yes, I know mine too. And the Social Security Number, abbreviated SSN, is asked for everywhere: when you buy a car, when you get a driver’s license or change, when you work, when you study..
.
The Social Security Number is always asked for. Of course, as a tourist you don’t have a Social Security Number, you don’t need a loan, and you don’t get one either. Why all this credit score thing? Very easily!
If I go into a bank and say „I want a loan“, for example 10,000 US dollars, because the bank would normally come up to me and say: „Yeah okay, then show me how much you earn, how much Do you have any money at all, do you have any guarantees? A lot of paperwork! But if you gave all that paperwork to that bank clerk right now, she’d be busy going through the whole thing for a while and then deciding if you’re even creditworthy In the USA one thought to oneself: „You know what, we take all this work away from the bank clerk …
And in general in the car dealership: how should he be able to decide – a car salesman – whether you are creditworthy or not, based on any documents , which you then bring. So they got rid of this whole thing! Basically, there is this proof that you don’t have to show anyone whether you have a guarantee or a car or income, for example. Instead, a single digit is enough! For the economists among you: This is also called a so-called KPI (Key Performance Indicators).
But away with it! Basically, the best thing is that the work and the skills are no longer required of the people in the institute, because in the end they only have to look at a single number.
Oh great, now I ‚m new to the US and I don’t have a credit score. How the hell do I get a credit score? First of all, I have to understand how the credit score comes about.
Every time I borrow from more banks , my credit score goes up if I pay my loan on time. Every time my loan is paid off on time, I get more points. This also happens with cellphones. Even with my cell phone, I only pay at the end of the month, for example.
By then I had made a lot of phone calls, so I had so-called credit.
Basically, the telephone company pays in advance … it’s the same in Germany ..
. and only then do I pay what I owe the communication company, for example . In the US it’s all called credit. Whether it’s a smartphone, whether it’s a phone contract, the Internet, whether it’s a loan or a credit card – all of these are loans. And every time I pay that off at the end of the month, my credit score goes up .
If I default on payment, my credit score will drop again. And based on my history of how many things I ‚ve paid for, paid on time, I’m sort of good or bad on the credit score. Why did I mention the Social Security Number? Because everything I do is through this single number. When I get a cell phone contract, I give my Social Security number.
I take out a loan from the bank, Social Security Number! Do I take a credit card , Social Security Number! That does n’t mean I can’t just open an account. Very well! I just can’t get a credit card.
And in part 2 of my video I will explain how you even get a credit score in order to live sensibly here and get hold of things !
Read More: How Are Credit Scores Calculated?
