Saturday, July 13, 2013

Credit history - Guidelines

To be able to have a flourishing house hold, it is important to have a good credit history.

If you are student, coming to US on F-1 visa for the first time, it is very important to understand that credit history is an important element of your economy here. I am from India, and in India there is nothing like credit history being recorded for anyone. Anyways, this philosophy of credit history was not much useful to the US to stop the 2008 economic crash nonsense. Still they stick to it.
In India, the payoff capability for a credit is measured by the earning capacity of the individual. This is NOT how it works in the  US. I earn more than 100K in the US, but I did not have a credit of more than a 1000$ for a long time. Disgusting? In India, I had a credit 5- 7 times my monthly salary. Not only that, I was not allowed to have more than one credit card on account of a bad credit history. I could not take car loans and blah blah.

Here is what I would suggest to a student, especially, Indian students, who have been exposed to an economy completely different than that in the US.

  • Open a bank account with a credit union,  rather than going with names like Wells Fargo and Bank Of America. The reason is that they are not well suited for your needs yet. Once you start earning, go ahead and open accounts with them. 
  • The big banks are more hesitant in lending you a credit card. Credit unions are not. In fact, they lend you a good credit. Banks like Wells Fargo would offer you a secured credit card which they give you against a collateral. Any purchase would build a credit history for you. They say it is a good starter: But there is a catch. It is good only when you have a larger collateral, say 1500-2000. I started of with $300 which was bad because I thought I would just be able to spend that much for the month. I was wrong.
  • Do not spend more than 10% of your credit limit, ie. keep your debt to credit ration as low as 0.1 . Keep spending with your debit card as much as you can for the first year. This is going to build you good credit points. I would spend almost every of the $300 and would refill it at times in the middle of the credit cycle. BAD. 
  • It is good to have on of the utility bills or the gas bills on your name. If you are sharing apartment, have one of the bills on your name. These amenities bills also are counted as credit since they are giving you all this assuming you would pay back at the end of the month. This is important, don't forget.
  • Time to buy a new car - Yes, you started earning and you want a car. You go for a 8000 used car - all good and nice. You don't want to spend much on a car and that 8000$ is what you saved for a car in the whole of last year. Great. Now DON'T buy the car with a 100% cash payment. I know its cool and sexy and whatever..but you are loosing a chance to build a credit history. If you don't finance this car, no future creditor is going to have a chance to look at your credit performance. You need to do good at 10000 before you could play for a 500000 housing loan. Got it? So, finance the car and pay some interest for next 3-5 years but earn the credit point. They are important.
These few essentials are definitely going to help you maintain a good credit score - > 730 within a year of your entry into the US and in years after that.

Wells Fargo Secured Credit Card

As a student entering for the first time into the United States, little was I aware of the consequences of a wells fargo secured credit card. A secured credit card is a credit card given to an individual against a collateral upto $10000.
I started with $300. As a student, this was all I had. I needed to build my credit history to be able to survive in the US. So true.
Anyways, these are the mistakes that I did and I have learnt from them. Newbies should get some wisdom out of this. One should be careful to avoid these for a better credit score.

1. Wells Fargo reports all transactions as "Secured Credit Card" to the credit bureaus. And not as "credit card" . It seems all my other credit card transactions go as credit card in the credit report. It seems like other banks like Chase and Bank Of America, report secure credit card transactions as credit card. In any case, both BoA and Chase seem to give you a real credit card with a low credit limit, say 500-1000 bucks at the starting which completely avoids the secured credit card. Avoid WELLS FARGO when you enter the US and want to open a bank account.

2. Wells Fargo accounts are good for green card holders and US citizens. For everytime you go and ask for credit, they want you to be atleast a permanent resident of the US. They say the rules have tighten after the 2008 economy crash. Anyways, no other nationalized bank seems to be having the problems.

3. The interest rates are not at all competent unless you have ~20K or so in your account. Other banks, especially credit unions and have a relatively higher interest rates and uniform and fair across all accounts. Therefore, I recommend Credit Unions.

In all, I would say, AVOID WELLS FARGO as your first account as your experience might not be as good as it could be. 

Wednesday, June 26, 2013

Simplicity and Smaller Footprint

We all come across phases in life. One such chronic phase for me is when I find my house cluttered with all those electronic gadgets and toys and stuff just lying around to be thrown out. Things that I bought less than a year ago were rendered useless by me. And this made me think - Do I lack this foresight? Is is compulsive to buy these new gadgets? Was this desktop really necessary? Does a wireless mouse really solve my problem? This new floor lamp, is it really what I needed? This new drawer chest, is it serving its purpose? My study desk, it is optimal solution the problem I had in hand? These piling receipts and mails and paper, did this new drawer I bought good enough?
Many a times I go from one solution to another for the same problem. For example, I bought a larger chest throwing off a smaller one. I got two floor lamps when one wasn't enough for the room.

And on top of all these there is a day when you have to move to a new location. All you do is to dump every loose document or item or wires or screens in a carton and transport it over. You are 6 months into this new house and you haven't touch that carton yet. That big carton of all the stuff you thought you need and you bought was not touched for 6 months. This is a little disturbing for me. To me it is like a memory leak in a computer program - you forgot to delete the memory after allocation. Being a computer programmer, when I write a program, I try and aim smallest possible footprint on the ecosystem in question. In case of a program, it is the cpu cores, the network bandwidth, the memory, the disk and others. In case of our day to day life, it is the space, the real estate and the volume that it creates that one lives in, the money that one earns, the electrical power that we consume, and most important of all - the precious time that we have. All these resources follow the zero sum rule - you save one, you spend the other. Its you who has to decide which one to save and which to spend. I call this philosophy - smaller footprint.

Smaller footprint urges to solve problems in hand with as few resources as possible - resources that actually matter. Make choices that seem to result in less number of stuff. For example, Alice has a shabby laptop. She saw this new iPad and is crazy about it. She thinks its perfect for her. It gives her flexibility of moving around within the house and not having to carry this heavy laptop. She figured out that all she does is browsing internet, checking mails and watching videos. She decides to buy the iPad. This defies the smaller footprint. Bob, who lives with the smaller footprint mindset suggests Alice to reconsider her decision. He puts forth the following option: Why not wait for a year until the laptop is at the end of its life so that it can be thrown away and buy a lighter laptop, because this seems to be what Alice wants. With iPad she wouldn't get the storage she needs. May be she should go for a chrome book instead if she wants to live on the web. Alice should explore her options, there are options in the market, but probably not easily accessible to Alice. She should consult her developer friends. So rather investing money on ipad and not using for as long as 6 months and in the end using the shabby laptop, invest on a smaller footprint - the solution that you really need.

There is another dimension to smaller footprint philosophy. When I get a problem in hand, the solution to it might not exist or it might not be accessible easily to me. If the problem in hand is genuinely common, a solution to it has a wider impact. Most of the new computer architectures and hardware innovations came across as a result of this. 

Why Smaller footprint? For me - its the satisfaction that I get. It pushes my mind to think about better solutions, cleaner solutions and sometimes optimal solutions.