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Probably a fairly generic question, but here it is. First, a very small background:

I recently graduated in Europe and found a job in the US. I got the visa and everything, so now I finally moved here to start. I am in the process of renting an apartment and apparently the lack of a credit score is creating all sorts of issues (like my SSN not being recognized when applying for services such as PG&E).

For my entire adult life (granted, not very long, I moved out from my parent's place and have being fully independent economically for only 4 years) I never used credit. That is, I always used a debit card and never spent more than I had, never borrowed money for anything.

Here in the US, I have a bank account and a debit card associated with it, no credit card.

So, to my question: I have been reading about credit score and I think I have a general understanding of the concept (a number that tells people how punctual you are in paying off your debts), but I don't exactly understand a few things.

  • I tried to check my credit score online and I don't have one associated with my SSN, which is not a surprise. To start one, do I really need to get a credit card and start using it? Or is it possible to register somewhere and say "Hey I never used credit, dear PG&E this is my checking account feel free to bill me"?
  • To get a credit score and rise it (since if I understand correctly you need to cultivate it, like reddit karma wasn't enough to keep you busy :) ), do I need to be actually using credit (e.g. credit card? If so, why would I want to use credit (on which I would be paying interests, right?) when I have a debit card and can use that? Or are there "bonus points" for having the possibility of using credit but not doing so?

Right now I' quite confused about this matter (as you most certainly figure out from my post), so any input will be greatly appreciated!

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You don't need to use credit in order to establish a credit profile.

You do, however, need to have open credit lines and use them 'responsibly'.

This can be as simple as opening a credit line and never using it.

Credit line being a Credit card, personal / unsecured line of credit (much harder to find / get but more convenient because you can withdraw cash), etc. Or a loan.

For a utility company, you should not be required to have a credit profile in order to obtain service.

However, without established credit, you'll likely be asked to pay a large deposit, as there's more risk with low / no credit that you may miss payments.

After a bankruptcy, a relative of mine was once asked to fork over a $600 deposit for their electric bill after they moved.

Essentially, your credit will boil down to:

  • Number of credit accounts you have - Open and closed
  • Payment history on all accounts
  • (Small impact) Number of inquiries (Requests for credit / people looking at your credit profile in past 2 years)
  • Utilization - For credit cards / revolving credit lines, the percentage of your credit that you use. Anything over 30% will have serious negative impacts on your credit, with a small, graduate decline in your score as you rise from 10-30% utilization.
  • Average age of accounts - If you've just opened 10 accounts, you don't magically have good credit. If you've had 10 accounts open for 10 years, you're a much lower risk, because you've made good payments and have kept a good track record. They'll average out all of your account ages for this - So when you open new accounts later on, you'll see your score dip temporarily both because of the new inquiry to your credit, but also for a while because of the dip in average account age.

Anyways, best way to establish a credit profile: Find a "Student" or fair-credit / sub-prime credit card, keep it open and don't use it.

You can use it, and if you do use it they'll likely even raise your credit limit after timely payments, but you don't need to use it in order to establish credit, just have the account(s) open and if you have a balance, pay it.

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    Also - Don't get carried away with credit. They will make as much of it available to you as they think they can reasonably risk giving to you. If you screw up and end up getting behind on paying it off, and incurring interest... It's revenue for them. I've seen a lot of people with fairly basic credit profiles getting total credit limits across all of their many cards totalling more than their yearly salary. – schizoid04 Jul 6 '18 at 2:54
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    It should be important to add that using a credit card does not automatically mean you will be paying interest. If you pay off the statement balance each month (and therefore do not "carry a balance" from month-to-month) then you will never pay interest. – Nosjack Jul 6 '18 at 13:42

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