How to build US credit as a new immigrant – is one of the biggest challenges new comers face in the US.
Before addressing the credit question, here are a few other resources that might come in handy if new, depending on your personal situation.
So lets break down what US credit score is, what it’s used for, how to start building it with zero credit history, and finally how to improve it, once under way.
What is a US Credit Score?
A credit score determines your likelihood of paying debt back. It predicts how good you are at managing debt (borrowing and paying back money). It’s calculated using information in your credit report. There are different types of scoring, which I’ll address later in this post.
The credit score is critical in the US as it’s heavily relied on by just about everybody to judge you financially. The question is how does one go about building it as a new comer.
Third party lenders will use it to assess the risk of lending you money. Some of these lenders includes banks, credit card companies, car dealers, mortgage lenders etc.
They use the score to determine what type of interest rate to give you. Apartment owners rely heavily on the credit scores to determine if you are worthy of becoming their renter.
The same scores are also used to determine prices for auto and homeowners’ insurance. They will also determine the size of an initial deposit required to obtain a smart phone, cable service or utilities.
Employers will sometime check your credit report not your credit score as part of the due diligence for hiring. They are looking for signs of irresponsibility and negligence, and to get a general sense of your decision-making skills and judgement
How Your Credit Score is Calculated
There are three major credit reporting agencies in the U.S. (Experian, Equifax and Transunion). Their job is to gather and collect your credit information and typically sell it to creditors for a fee.
Since the info they gather about you may be a little different, the score from each of them can also be a little different.
Your overall score is calculated based on the following factors
- Payment history – 35%
- Total amount owned (includes credit utilization) – 30%
- Length of credit history – 15%
- Type of credit – 10%
- New credit (includes credit inquiries) – 10%
There are different scores calculations with the most common one being the FICO Score, created by the Fair Isaac Corporation (FICO). It’s used by over 90% of lenders to judge your credit worthiness. It ranges from 300 to 850 and is based on the percentages above. The scores are grouped as follows
- 800 + Exceptional
- 740 – 799 Very Good
- 670 – 739 Good
- 580 – 669 Fair
- < 580 Poor
Another scoring system used to generate a credit score is VantageScore. This was developed by the three main credit bureaus as an alternative to FICO Scores.
FICO scoring is based on each specific agency’s data meaning you could have three different ratings, while VantageScore combines the data from the three agencies for a single score.
The FICO scoring needs credit history of at least 6 months, while VantageScore will work with history less than 6 months.
Immigrants and Credit History
When immigrants first arrive in the US they have no US credit score, since they don’t have any US credit history. They are basically credit invisible.
You could move to this country with thousands of dollars in your bank account, but still struggle to find an apartment to rent based purely on your non-existent US credit history.
How to Start Building US Credit History
Once you arrive in the country, there are a couple things you can use to start building your credit history. This is becomes the basis for building your U.S. credit.
First, apply for a Social Security number or a TaxId Number (ITIN – Individual Taxpayer Identification Number). If you are here on a work visa, then getting the social security number will be relatively easy.
In some cases you can apply for the SSN in your home country when you apply for the immigrant visa.
The following are answers to the question “how to build your US credit as a new immigrant”. Some of them don’t require your SSN but having the number makes things go faster.
Open a Bank Account to Build Your US Credit History
A banking relationship will be very valuable to you as you navigate the US financial landscape. A few local banks and local credit unions may be willing to open an account for you, but a lot of times a bigger bank may prove more beneficial. Most of them will require a visit to a local branch.
A couple other ways to get access to a bank account.
International Bank Accounts. If your home bank has a presence in the US, they may be willing to open a US account for you before you get here. Some examples of this banks includes HSBC, Citibank etc. The initial deposit and the monthly fee may be high, but based on the flexibility they are giving you; it may be worth it as you are starting out.
In addition, the same bank may be willing to give you a US credit card.
Partner Bank. Check with your home bank and confirm who their partner bank in the US While still in your home country, they may be willing to help you open the US bank account to be ready for you when you land.
Apply for an Unsecured Loan to Build US Credit History
Stilt is a fintech company started by immigrants to provide loans to other immigrants to address the lack of US credit history. You can borrow an unsecured personal loan for up to $35k on day 1 of your arrival in the US. According to the founder Rohit Mital,
The company reports your payment history to the credit bureaus which starts building your credit history.
The company does not need a SSN to apply for credit, although they report on the website that having one makes the process go a lot faster.
Use Your Foreign (International) Credit Report to Apply for a US Credit Card
Nova Credit is a cross-border credit bureau. The fintech company partners with credit bureaus in other countries, like Canada, India, Nigeria, South Korea etc. With your permission, they’ll share your foreign credit history (translated to US equivalent score) with US lenders to judge your credit worthiness.
If your country is included on their growing list, you can apply for US credit cards like American Express and Citi and start creating your US credit history right away.
Some of these cards don’t need SSN or ITIN number, but always good to check with the card issuers.
Nova Credit has also partnered with other business entities, that will allow you to get auto loans, student loans as well as apartment rentals.
The company was started by immigrants, so they understand the pain of being new to the US credit invisible.
Apply for a Secured Credit Card
You apply for a credit card and put down a certain amount as a security deposit. This amount becomes your credit limit. For example, if you put down $500 dollars, you can borrow up to $500 on this card.
The deposit is not to pay down the monthly charges and interest, so ensure you are paying those on time.
You’ll need a US bank account for the security deposit and a US identification number (SSN or ITIN). Check with the issuer on what their requirements are.
There is no difference in how the cards activity is reported to the credit bureaus, which makes them ideal if you are starting from scratch.
Most of this tend to have a high interest rate, since the creditor believes they are taking a risk with you. But you can shop around for one with no annual fee, reports to all the three agencies, and has a grace period. This gives you a little time to pay the monthly charge.
Finally on top of paying the bill on time, keep the credit utilization low, about 10% to 30%. Over time you can apply for an unsecured credit card and in some cases the credit issuer will offer you the new card unsolicited based on your payment history sometimes as an upgrade. At that point they may give you your security deposit back.
Apply for Credit Cards that Use Other Factors Besides Credit History
These credit cards will use other factors like income, employment history, banking history (cash flow), to determine your credit worthiness. Two examples in this category are
Petal Credit Cards
If you are immigrant without a SSN, but have an ITIN number the Petal credit card might be for you. The application process calls for giving Petal access to your banking info through a third-party provider.
The access allows them to consider factors such as your cash flow to determine if you can be trusted with credit.
The company can also use major international banks like HSBC and Deutsche bank to get your banking information if you don’t have a local bank. The card has no annual fee and includes features that help you manage money responsibly.
Some of these includes defaulting to making the full payment, showing you how much interest, you are paying if you don’t pay in full, cash back etc.
Jasper Credit Card
On their website, they state that they don’t need a SSN to apply. Specifically for those new to the country on a work visa, all you need is your income.
Apply for a US Credit Card With a Co-signer Or Become an Authorized User
This allows you to benefit from somebody who already has good credit history. The co-signer needs to understand that they are on the hook for the balance if you ever fail to pay.
When you become an authorized user on somebody’s else card, you get your own credit card linked to the primary holder’s account. Similar to co-signing, the primary holder is responsible if you don’t pay your bills on time.
Most major credit issuers allow for this arrangement but check with them on what the credit reporting requirements are.
Have your Foreign Credit Card Transferred to the US
The American Express Global Transfer Program will let you use your American Express account history from your home country to apply for a US credit card. You can apply for different credit cards, but the typical response is to give you the same card as what you already have in your home country.
Other Non-Credit Cards Ways of building Credit history
Foreign Executive Lease Program
The program gives international employees relocating to the US on a temporary work basis (non-immigrant), the ability to lease a new Ford or Lincoln vehicle at a Tier 1 Rate Cap. A lot of work visas that qualify are L-1, H-1B, TN, E-3 (Australia). The two that don’t are the E-1 and E-2 visas.
On Time Payments
If you have an apartment, a cell phone, or another utility where you are making payments on regular basis, put the payments on automatic. The smooth payment history will help build your credit.
Maintaining and Improving Your Credit Score
- Pay your bills on time and in full.
- Keep an eye on your credit report. You can get an annual free report from each bureau giving you 3 reports per year
- Keep your credit utilization low
- As you get more credit cards, refrain from closing old ones, but if you do, have a plan in place to avoid a hit on your score
- Keep the accounts active even it’s just charging one small item every couple month.
- Be patient, it will take some time. Treat any services that offer to help you raise your scores with some suspicion.
With the steps above, over a couple months, you’ll be on your way to building US credit allowing you to become credit visible.
Happy to discuss the above topic. Click here if you’d like to chat about financial issues that affect foreign-born families in the US.
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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, investment advisory services or legal advice. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Jane Mepham and all rights are reserved. Read the full disclaimer here.