Initially we talked to our US bank with which we had both, our checking and savings account. Expecting just to fill out the paperwork we were very surprised to hear that our credit card application was DENIED. We then applied for credit cards with several other banks but nothing worked. At this point we did not have any credit history, which is quite odd to bank people and considered worse than having bad credit history.
We got advice from our American friends who introduced us to the strange ways of building a “credit history”. The first thing we learned was that you will only be approved for a credit card if you have credit history. The easiest way to establish this is using a credit card. What? This mind-boggling paradox inspired me to dig deeper into the subject. I discovered much later what builds a credit score wishing I had known earlier about it.
The advice I got most was: get a store or gas credit card to start building credit. So I went to JCPenney and applied for one - it took just a couple of minutes and… it was DENIED. The same happened at Target, Lowes, Home Depot, BP and numerous other stores. Little did I know that each failed application is bad for my credit score.
Another advice we got is to buy a car on credit, and pay the dealership. This was a no-no for us. The interest for these kind of loans was extremely high: ~ 22%. For sure we did not want to pay such high interest rates when we actually could afford to pay for a car in cash.
A bit frustrated but still in good spirit I tackled my next goal - getting a secured credit card. Although meanwhile months passed since we opened our bank accounts and could prove that our accounts were in good standing - we received the standard answer: DENIED.
This did not stop me from pursuing my goal of getting a credit card. I tried several banks and finally was lucky in getting a secured loan. The loan amount was small, $1,500 and had to be secured by an account for the same amount. To offset the loan interest I added a CD as the linked account. The need to put money down only to get a loan for the same amount does not make sense to me, but in our quest for building a credit history, we did it anyway.
A year later the loan was paid off in full and I applied eager for a store credit card. Guess what - the response was: DENIED. Now I was quite upset. All those months I was building credit and it still was insufficient? I could really not understand why I was still being denied. Then one day I heard in a commercial about the web site freecreditreport.com and thought that just for fun I would request my credit report.
What a surprise - I got my credit reports from the three big credit bureaus Equifax, Experian and Transunion. To my big surprise one of the three companies had falsely reported that my loan was not paid back on time. This is obviously very bad for the credit history. Submitting a claim to correct this was eliminating the problem. They changed their records and six weeks later my credit report was changed from being negative to positive. My credit score went up significantly. Now I applied again for a store credit card, and was immediately approved. Using the credit card frequently and paying it full and on time was building my credit history and after half a year my bank issued me a “real” credit card.
Initially we applied for credit cards in the name of my husband. Since they were denied, his credit score went down very badly. Any rejection moves the credit score negativ. To build his credit score, I added him as an authorized user to my credit card and sure enough after a few months he got his own credit card.
Why using a credit card at all? Many rental car companies and some hotels and airlines still don’t accept debit cards. Since my husband travels a lot he needed a credit card. Using the cards from Germany was not a long term option because of the significant exchange fee. Who wants to spent money unnecessarily?
The table below shows the elements that build a credit score. The percentages may be subject to change but the table gives you an idea.
Credit Score Elements Explanation:
• Apply for a store credit card first
• If the store credit card does not work, try to get a secured credit card or a secured loan
• Do not apply more than twice if your credit card application is rejected
• To get your partner also a credit card put him as an authorized user on your credit card
• Paid utility bills do not have any influence on your credit score
• Income does not get considered when calculating your credit score
• Check your credit score frequently
• The highest credit score is 850, a good credit score starts around 620 and higher
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