Immigrants to the United States face a tricky financial situation. Without U.S. credit scores, it can be difficult to qualify for a mortgage or car loan. Setting up the basics, such as a cell phone plan or the utility bill, can also be a hassle without U.S. credit scores.
Even if you have sparkling credit scores from another country, they won't count in the United States. Move to the U.S. and you have to start from scratch building out your credit reports, which hold the information that is used to calculate U.S. credit scores. (See also: What's Included in a Credit Report)
Here are six steps you can take to start building your credit score in the States:
1. Get a U.S. credit card ASAP
Using a U.S. credit card and making on-time payments is one of the best ways to build credit.
2. Check if your bank "at home" operates in the U.S.
Some international banks, such as Citibank or Barclays, may issue a U.S. credit card for clients moving to the U.S.
3. Apply for a U.S. credit card
A Social Security number is the most common form of identification card issuers ask for on applications. Generally only non-citizens with a work permit will be able to get a Social Security number. But a Social Security number is not your only I.D. option when applying for credit. An Individual Taxpayer Identification Number (ITIN), issued by the Internal Revenue Service, is another form of identification that many card issuers will accept.
4. Get a cosigner
If you are turned down for a credit card on your own, you may have better luck if your application includes another person with a solid income and credit scores. A cosigner becomes responsible for paying your debts if you don't stay on top of your bills. Your track record paying the bill will also impact your cosigner's credit scores. That's asking a lot of someone; only go this route if you are confident you will be able to pay your bills on time.
A cosigner is a better option than asking to be added as an "authorized user" on someone's existing card account since not all credit card issuers report authorized users to the credit bureaus. Moreover, there are different formulas used to calculate credit scores, and some scoring models don't heavily weight the track record of authorized users.
5. Start with a secured credit card
If you aren't able to quality for a regular credit card on your own, a secured card can be a smart option to start building credit scores. A secured card requires that you keep money on deposit—that's what "secured" refers to—at a bank or credit union. Your spending limit using that card will not exceed the amount on deposit. The credit limit is revolving, meaning it will be replenished as you pay your bills. For instance, if you have a $500 credit limit and charge $150, you will have $350 left that you can charge. Pay your $150 bill and your credit limit will be set back to $500.
Tip: Confirm with the issuer of a secured card that it will report your payment history to at least one of the three credit bureaus. That's the key to building your U.S credit scores.
If you have yet to set up a bank account, don't presume it is going to be too difficult. A Social Security number is not required. An ITIN works at most banks. And some banks will also accept other forms of identification, such as a valid passport, a state-issued photo I.D such as a driver's license, or a work I.D. You may need to shop around a bit to find a bank or credit union that is flexible on the documentation it asks immigrants to provide. Stopping by a local branch and explaining your situation can be more effective than trying to apply online. Find secured cards here.
6. Get credit for paying the rent
Having your on-time rent payments reported to a credit bureau becomes valuable information in your credit report that will help you establish credit scores. Ask your landlord or property management company if it reports your rental payments to a credit bureau. If not, you might want to check out services that automate your rental payments and report your on-time bill payments to the credit bureaus. (See also: Build Credit History By Paying Your Rent On Time)
Having strong U.S. credit scores will help you qualify for the best financial deals. The sooner you begin to take steps to have your financial moves reported to credit bureaus, such as on-time credit card payments, the sooner you will be on your way to building solid credit scores.