Building Credit When You�re New to the United States

When Gabriela moved to Texas, she wrote a letter to FICO, a data analytics company focused on credit scoring services. “In Mexico,” she writes, “I have a perfect credit history that I’ve built over the last 15 years. I would like to maintain my credit status when I move to the U.S. Am I able to send my credit history to the U.S. credit bureaus?”

Unfortunately, FICO’s experts responded, the answer is no. Credit doesn’t transfer from one country to the next for legal and technical reasons. The years Gabriela spent paying her bills on time would be wiped away as soon as she moved, and she would have to start from scratch.

Sometimes when people move, they don’t realize the importance of starting to build credit as soon as they get settled. A good credit score is important for major purchases like a car or a home, but it matters for small things too. And it takes months to build a solid credit score that shows lenders you’re a responsible borrower.

Some people say they have a great paying job and money in the bank, so they don’t need a credit card. But credit is about more than just plastic. Lenders use it to evaluate how you handle money on a typical basis.

If you don’t establish credit, they don’t have anything to go by. Your income and money in the bank won’t count toward proving how you handle your financial obligations.

Credit card usage is just part of your credit score. Here are just a few of the ways establishing a good credit score helps when you’re new to the U.S.

• Lower interest rates – When you have good credit, you pay less interest on everything from credit card balances to car loans to a home mortgage.
• Loan approval – If you have good credit, you’re more likely to be approved any time you want to borrow money.
• Cheaper car insurance – Insurance companies run your credit and reason if you’re responsible with money, you’re probably also a responsible driver. Your premiums go down.
• More job opportunities – Some employers run your credit and base part of their hiring decisions on what they discover.
• Better rental opportunities – Landlords typically run credit when they evaluate potential tenants.
• Cheaper cell phone contracts – Without established credit, your only option might be pay-as-you-go plans, which typically cost more and come with fewer options.
• Higher security deposits – When you go to have utilities turned on at your new residence, utility companies use your credit to decide how much of a deposit to charge. If they see you typically pay your bills, you might not have to pay a deposit at all. If, however, you have poor credit or no credit, they’ll charge more.

So even if you’re not thinking about applying for a home loan or a car loan any time in the near future, make building credit a high priority. Since it takes time to establish, immigrants can’t start too soon.

To start building credit, you need a credit account open in your name. It sounds simple enough, but it isn’t always. Lenders want to see established credit before they offer a loan. You need to get a loan to establish credit.

It can start to make you feel like you’re going in very frustrating circles. It’s only after you apply for and receive approval for a loan that lenders start reporting to the major U.S. credit bureaus what you owe and whether or not you pay on time.

If your bank operates in both the United States and the country you’re coming from, check with them first to see if they offer credit cards for customers just moving to the U.S. If that’s not an option, apply for a secured credit card.

A secured credit card requires you to put down a cash deposit. For example, a bank or other lender might ask you to deposit $200, then they’ll approve you to borrow that amount. Here’s what you’ll need when you apply:

• Your permanent, U.S.-based address
• A taxpayer ID number or social security number
• A job with evidence of regular income
• A bank account out of which you can pay your bills

If you don’t have the cash to get a secured credit card, you may also be able to get approved if you have a co-signer. If a friend or family member already has established credit and is willing to vouch for you, it can help.

Selena moved across the border to go to school, and she was frustrated when she got turned down for a cell phone. She got a secured credit card and started using it for small purchases, paying the balance off immediately every time.

One month she used her credit card to buy a $30 skirt, and right away she used her bank account to pay off the entire amount. The next month she charged a $50 textbook and again paid it off before the due date. She kept charging small amounts and paying them in full.

In a few months, she was able to get approved for a department store charge card. She handled it the same way, making small purchases she paid off immediately. She applied again for a cell phone, and this time the provider approved her application. Five months later when she needed to buy a car, the dealership happily approved her for a loan.

After you move to the U.S., once you have your first credit card, use it regularly and pay it off just as regularly. Don’t borrow the whole amount, just make small purchases you can pay off before the due date.

Make at least one purchase a month using your card. Never, ever pay late. After a few months, apply for a second type of loan.

It seems counter-intuitive. People ask why more debt signals financial responsibility. It seems like people who have money in the bank and just pay cash show they’re financially responsible, but that’s not how lenders see things.

Banks and financial institutions like to see individuals responsibly handling different kinds of debt, not just putting money in the bank. Getting approved for more than one type of loan will improve your credit score. Gas station cards and store credit cards usually are easier to qualify for. Also, a student loan or installment loan gives you a better mix.

It takes months to build a good credit score, and only minutes to demolish it. If you had great credit in the country you’re coming from, you might be frustrated. But try to think of it as starting with a clean slate.

The same good habits that worked in your favor in your home country will help you in the U.S. Protect what you’re building by following these rules to build good credit fast.

• Start small – Only apply for one card to begin with. Don’t apply for store credit, a furniture loan, a gas station loan and a credit card all at once.
• Apply in person – It sounds easier to apply for credit online, but if you go to a local bank and talk face-to-face to a person, they can help you. Plus, that way you start establishing a relationship, so you have somewhere to go if you need a different type of loan later. If you have a copy of your credit history from your home country, print it and take it with you, it may help.
• Keep your credit utilization ratio as low as possible – Your credit utilization ratio compares the total amount of money you could borrow from any source to the amount you’ve already borrowed. Try to keep that number well under 30 percent. Just make small purchases. It’s tempting, but don’t charge anywhere close to your available balance.
• Always pay off your balance – If you do it right away, you’re less likely to have something come up or to spend that money on something else.
• Always pay on time – Set your account up to pay automatically on or before the due date so there’s no chance you’ll forget.
• Guard your credit – Make sure no one who isn’t authorized can access your account. Don’t co-sign for friends and family members unless you’re positive they’ll be financially responsible.

Credit cards carry the most weight with lenders because they’re unsecured loans. However, there are other ways to demonstrate you’re good at managing money.

If you pay rent, put it to work in your favor. Start by talking to your landlord. He or she might already report how you pay to credit bureaus. If not, sign up with a rent reporting service like Rental Kharma or RentTrack.

Experian Boost is a relatively new tool you can use for free. It allows you to have your cell phone or utility bill count toward building credit. When you make those payments on time, you work toward building credit in the United States.

As you add new accounts or apply for additional forms of credit, keep old accounts active. For example, once you get approved for a traditional credit card, don’t close your department store card account unless you have a specific reason for doing so. The age of your credit matters, and closing your oldest accounts can reduce that number.

Check your credit score at least once a year. It’s good to know where you stand, and also to monitor for errors.

Often people start looking into building good credit because they’re interested in buying a home. WestWind Homes works with buyers to establish good credit or repair bad credit so they can achieve their home buying goals. Get in touch to find out more about becoming a member of our Home Buyer’s Club and making your home ownership dreams come true.