3 Tips for Immigrants to Build Credit in the U.S.

Immigrating to a new country brings with it a slew of challenges, many of which are related to your finances. Newcomers to the United States will quickly find that much of our financial system is based around credit – and building credit is key to accessing all the financial tools and opportunities you’ll need to start a new life in the U.S.

Why Credit Is Important

Your credit is essentially a personal profile of your behavior with money. Credit bureaus – namely Experian, Equifax and TransUnion – track your borrowing and spending, documenting factors like length of your credit history and percentage of on-time payments in credit reports.[1] The bureaus will then use this information to calculate a credit score, which is a numerical representation of the health of your credit. The higher your credit score, the more trustworthy you are in the eyes of lenders.

That means in order to get a credit card, car loan, mortgage – even an apartment or cell phone – you need to build and maintain good credit.

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How to Build Credit

Unfortunately, your credit history won’t travel with you.[2] You’ll have to start from scratch.

The good news is there are a handful of ways you can build credit from the ground up. It’s best to use a combination of strategies rather than relying on just one; building credit takes time and the more positive activity on your credit profile, the better your chances of qualifying for loans, credit cards and more.[3]

1. Take advantage of a family member’s good credit. If you have family who already live in the United States, you might be able to leverage their good credit to help build your own. Being added as an authorized user on someone else’s credit card or having them co-sign a loan for you will begin generating credit activity.[4]

Keep in mind, however, that your actions will affect their credit, too. So if you miss a payment, for example, your credit – and your family member’s credit – will take a hit. Using another person’s credit requires a high level of trust and accountability, so be sure your finances are stable before taking this step.

2. Open a checking account. A checking account is a basic bank account that will help you establish your credit with financial institutions and manage day to day transactions. Checking accounts allow you to keep your money safe in a bank, where deposits are insured by the federal government up to $250,000 per depositor.[5] They often also offer benefits like interest on balances, free online banking and even rewards to help make the most of your money.

Some banks require you have good credit in order to open an account. If you run into trouble qualifying for an account with a national or online bank, try walking into a community bank or credit union branch to speak with a representative in person.

3. Apply for a secured card. Many financial transactions, such as renting a car, booking a hotel and shopping online, require a credit card. However, you can’t open a traditional credit card without a strong credit history. Luckily, a secured card can help bridge the gap and build your credit at the same time.

A secured card functions as a hybrid between a debit card and credit card: You pay a deposit up front, which serves as your “line of credit.” Charge expenses to this card, pay your balance on time each month and your activity will be reported to the credit bureaus. [6] Within several months, you will have the foundations of a credit history. In fact, secured card issuers might periodically review your account and see if you qualify to receive your security deposit back, ultimately transitioning into a traditional credit card with the ability to increase your line of credit.

One important consideration when opening a secured card is the size of your deposit. Though it is easier to qualify for a lower limit, be sure you deposit enough up front so that you don’t have to make multiple payments a month. To maximize the impact on your credit score, make sure to pay off as much as you can of your monthly balance and always pay on time.

Remember, credit is a tool that can help you achieve financial goals – it shouldn’t be used to purchase things you really can’t afford. Building credit from scratch requires diligence and patience, so once you’ve achieved good credit, take care to maintain it.

[1] http://www.thesimpledollar.com/how-to-build-credit/

[2] http://www.creditcards.com/credit-card-news/9-credit-building-tips-for-us-immigrants-1270.php

[3] https://www.creditkarma.com/article/age-of-credit-history

[4] http://www.creditcards.com/credit-card-news/cosign-guarantor-joint-account-differences-1267.php

[5] http://www.thesimpledollar.com/personal-finance-101-what-does-fdic-insurance-really-mean/

[6] http://www.wisebread.com/what-are-secured-credit-cards

Legal Disclaimer: The articles and information provided herein are for informational purposes only and are not intended as a substitute for professional advice. 

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