How to build credit with a credit card for non-U.S. citizens
Building your credit is an essential step in establishing healthy personal finances in the U.S. You need a credit file and credit score for everything from renting an apartment to being hired for some jobs to buying a home or an automobile.
One of the best ways to build credit is with a credit card. And contrary to popular belief, you don’t need to be a U.S. citizen or have a Social Security number to be approved for a credit card. Being approved for a credit card is just the first step in establishing credit. We’ll explain how to build your credit with a credit card, including a secured credit card, what to buy with a credit card to build credit, how to build good credit, and how to build a credit rating that will get you the best interest rates on loans, so you pay less interest.
How to build credit with a credit card
A credit card helps you build credit because it is one way to open a credit file, something those new to the U.S. or young people don’t have. A credit file contains information about your financial history, things like what kind of credit you have, including credit cards, student loans, personal loans, home, and auto loans, if you pay bills on time, if you’ve defaulted on debts, or been evicted for non-payment.
Credit bureaus collect this information and use it to create a credit score, a number typically from 300-850. The higher the number, the better your credit. The bureaus provide this information to potential lenders, including landlords, to help them decide whether or not to extend credit or rent to you.
When you’re approved for a credit card, the issuer sends information about your credit limit, balance, and payment history to the credit bureaus.
How to build credit with a secured credit card
How to build your credit with a credit card is easy if you are approved. But for those with little credit history, it can be a challenge to get that approval. If you can’t get a traditional card, you may be able to build credit with a secured credit card.
You provide a deposit, and that amount is your credit limit. Each month you make your payments, and the information is reported to the credit bureaus just as those for a traditional card would be. Should you default, the company has your deposit, so they face no risk. Sable is a secured credit card that doesn’t require a Social Security number or a credit check.
How to use a credit card to build credit
Establishing credit with a credit card only works if the issuer reports your activity to the credit bureaus. Some credit cards aimed at immigrants and others with no U.S. credit history don’t report or don’t report to all three main bureaus, TransUnion, Equifax, and Experian.
If your activity isn’t reported, you aren’t building credit. Both Sable and Petal report to the big three credit bureaus.
What to buy with a credit card to build credit
It doesn’t matter what you buy with a credit card in terms of building credit. As long as the activity is reported, that card is helping build credit. An excellent way to responsibly use your card is to use it for a recurring monthly payment like Netflix or a gym membership and set the card to be automatically paid if that is an option for that card or through your bank account. A recurring payment ensures your card won’t be closed due to lack of activity and that you never make a late payment-two things that hurt your credit.
How to build good credit
Your credit score is made up of five factors:
Payment history 35%
Amount owed: 30%
Length of credit history: 15%
New credit opened: 10%
Type of credit: 10%
As you can see, paying on time and keeping balances low are the most critical factors for good credit. Always pay your bills on time! And keep your utilization (how much credit you’re using versus how much you have) below 30%, ideally even lower.
How to build a credit rating
There is more to building a credit rating than having a credit card. Part of your credit score is length of credit, how long you’ve had credit. That means the sooner you start building credit, the better your credit score will be. Don’t wait until you “need” credit to get started.
“New credit opened” means how often and how recently you’ve applied for a new credit account. This goes on your credit score even if you’re not approved. Too many applications are a red flag to lenders. It can be a sign of financial difficulty. That’s why it’s important to only apply for credit you have a good chance of approval for.
Upwardli can help you there! We direct you to partners who understand the specific needs of new immigrants and use different variables for approval than those who primarily work with citizens who have established credit.
The type of credit matters for your credit score. Credit cards, no matter how many you have, only represent a single form of credit. Things like personal loans, credit builder loans, student loans, home and auto loans can help build your credit rating.
Upwardli can help build your credit quickly and safely with partners you can trust. Building credit takes time, but with good financial habits, you can do it!
