In the US, building a credit history can save you thousands of dollars in rental security deposits and high-interest rates on loans and other credit. Lenders like cell phone providers and utility companies have no way to determine your reliability in paying your bills on time and, as a result, may charge higher fees.
You may have a perfect credit history in your home country, but unfortunately, many US-based lending institutions won’t consider your history unless your credit is filed with at least one of the three major US credit bureaus.
To begin building credit, you may need a Social Security number, a US-based bank account, and a history of paying on a US credit card or loan. The journey then continues with managing your credit responsibly and monitoring your credit reports and scores.
The basics of US credit
Newcomers to the United States are often considered “credit invisible” without a US-based credit report. The lack of established credit in the United States makes it difficult to get approved for loans, rent property, obtain a US cell phone, or purchase a car.
Credit bureaus collect and maintain information for your credit report and credit scores, which lenders use to decide if they’ll approve you for credit or a loan. A credit score is issued as three-digit numbers, typically between 300 and 850. It can affect the size of a loan you qualify for, the interest rate you pay on a loan or credit card, and sometimes your options for rental and employment. Once your credit file is created with one of the US credit bureaus, it can take up to six months of payment history before a credit score can be calculated. However, some newer credit scoring systems may need as little as one month of history.
A social security number is often required to open a line of credit and is available to immigrants who are authorized to work. However, if you don’t have a social security number, many card issuers accept an Individual Taxpayer Identification Number, which is issued to immigrants who don’t qualify for a social security number but work in the US and pay taxes. The IRS website has more information on obtaining an ITIN.
Four ways to build your credit history in the United States
- Transfer your credit score to the United States
If you have a customer relationship with an international bank, you may be able to leverage your international credit history and transfer it to their US-based credit services. For example, international banks such as Citibank and Barclays provide US credit cards to their customers moving to the United States.
Nova Credit, a financial institution, partners with the top global consumer credit bureaus in countries such as Mexico, India, Australia, and the United Kingdom, which allows some customers to transfer their credit history from their previous country of residence to the United States.
If you’re an American Express customer in your home country, their Global Transfer program uses your existing American Express account as a basis for your credit application in the United States.
- Apply for a US credit card
Getting a credit card is one of the best ways to establish and build your credit history in the United States. You may need to start with a credit card geared to individuals with little or no US credit history. Another option is to apply for a secured credit card. Secured credit cards require a cash deposit and typically have low credit limits. Secured credit cards are often easier to obtain with limited credit history than traditional unsecured cards.
Before applying, ensure that the secured credit card issuer reports your purchase and payment activity to the US credit bureaus, as this is critical for establishing payment history. When applying, you will most likely need a US bank account, which will require a social security number. However, some banks, such as Wells Fargo, will accept an ITIN.
- Become an authorized user
An authorized user is a person added to a credit card account by the primary account holder. If you have a trusted friend or relative in the US who is willing to add you as an authorized user to their account, you will have permission to use their credit card, but the responsibility of making the payments fall on the primary account holder.
As an authorized user, the credit card is reflected on your credit report and can help you make progress towards building credit history in the United States. However, if the primary cardholder fails to make timely payments on the account, it will negatively impact your credit score. If this option makes the most sense in your situation, be sure that the credit card issuer reports authorized user activity to the credit bureaus.
- Get approved for a loan
Credit-builder loans provide newcomers a way to develop a positive credit history. Unlike traditional loans, where you receive funds immediately once approved, with a credit-builder loan, the lender puts the loan amount into a savings account. Depending on the loan term, you’ll make payments to the lender for six to 24 months. Once the loan term is up, the full amount of the loan is disbursed to you to use as you wish.
Credit builder loans are usually available through credit unions and community banks. Before applying for a credit-builder loan, make sure the financial institution reports your payments to the credit bureaus.
Otherwise known as crowdlending, peer-to-peer lending loans money to individuals through online services that match the borrower with lenders. Lenders set interest rates based on a percentage of the amount lent. With peer-to-peer lending, the interest rate is calculated either by a reverse auction model or based on the borrower’s credit analysis. As a result, these types of loans can often have lower rates than other lending options.
A few online services that will match you with a lender include LendingClub, Peerform, and Prosper. Peer-to-peer lenders report payment information to credit bureaus, and timely payments on your loan will improve your credit score over time.
Payday and title loans
Payday loans and title loans are a way to obtain fast cash, but do not report to credit bureaus and offer no benefit to building your credit history. Often referred to as “predatory lenders,” these loans are short-term with a very high cost for repayment, often trapping their borrowers in a never-ending repayment cycle. Payday loans are typically for a small amount of money, generally under $500, and are due in one lump sum by your next payday.
Title loans work similarly to payday loans as they are short-term loans with high-interest rates. Like payday loans, title loans are popular because an applicant’s credit rating is not considered, and the loan can be approved quickly. The most common form of a title loan is a car title loan, in which the borrower is required to own their car and use it as a form of collateral in case of a payment default.
Banking in the United States
A bank account likely will not affect your credit score or appear on your credit report. However, many credit card issuers or lenders may require you to have a bank account.
Federal law does not require banks to check immigration status or ask for a social security number. However, while not required, many financial institutions may ask for a social security number or an ITIN in compliance with their own rules and regulations. At the minimum, you will be required to provide some basic information when opening up a new bank account, such as:
- Proof of your name and date of birth, typically through documents such as a passport, a government-issued driver’s license, consular ID, or birth certificate
- Proof of address from a utility bill, lease agreement, or driver’s license
- Identification number from either your social security number, ITIN, USCIS number, passport, or a government-issued driver’s license
What you need to know about credit scores
A credit score tells a lender the likelihood of your ability to pay back loaned money on time. Without a credit score, the lender cannot accurately access their risk to take you on as a customer. Your credit score is typically based on the following factors:
- Your history of on-time payments
- The amount of credit extended to you that is used
- The length of your credit history
- Your debt-to-income ratio which compares the amount you owe versus how much you earn
- Different types of credit, such as loans, credit cards, and mortgages
- The number of new credit accounts
According to Equifax, “generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good, and 800 and up are considered excellent. Higher credit scores mean you have demonstrated responsible credit behavior in the past, which may make potential lenders and creditors more confident when evaluating a credit request. Lenders generally see those with credit scores 670 and up as acceptable or lower-risk borrowers.”
Three ways to positively impact your credit score include:
- Paying your bills on time. Late payments negatively affect your score.
- Keeping your credit card balances low. Your credit utilization ratio, how much of your credit limit is used each month, is an important factor in your credit score. Many credit experts recommend using no more than 30% of your balance at any time.
- Sparingly applying for credit. Applying for too many accounts at once can negatively impact your credit score. Having a longer credit account is better for your credit score, and each new account lowers your average account age.
How your credit history affects your immigration status
While credit debt is not a reason for deportation, it can affect your application for permanent residence. According to USCIS’s Public Charge policy, your credit history could be used to assess your financial habits and predict whether you’re likely to need government assistance in the future.
If you are concerned about how your credit history may affect your immigration status, we recommend contacting a reputable immigration attorney for the most up-to-date details on the Public Charge rule and sound legal advice on your course of action.
Financial education resources
Perhaps the biggest obstacle for newcomers to the United States is the lack of knowledge about the US credit system. However, many resources, from nonprofits to government programs, are available to help you understand how to build your credit report and improve your credit score.
- Immigrant Finance: This online platform empowers immigrant families with personal finance education, online business development, and community support.
- The Consumer Financial Protection Bureau: This government agency has audio files of its publications on credit, including How to Rebuild Your Credit, in Chinese, Vietnamese, Korean, Tagalog, Russian, Haitian Creole, Spanish, and English. It also has a useful newcomer’s guide to managing money.
- UnidosUS: This Latino civil rights and advocacy organization serves the Hispanic community through its research, policy analysis, and state and national advocacy efforts, so you’ll find plenty of materials on its website tailored to help Latino immigrants.
- Credit Builders Alliance (CBA): CBA is a network of nonprofit organizations, many of which serve immigrants. Their nonprofit lender members have experience in lending money to those who are credit invisible, making this site useful for those with no credit history.
- The Mission Asset Fund (MAF): This nonprofit aims to create a fair financial marketplace for families in need and offers assistance, including loan programs that help you build your credit.
- Immigrants Rising: Immigrants will find numerous resources on this site for building credit individually or as a business.
- Urban Institute: This research organization provides many news stories about the latest credit information and issues that affect immigrants
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