How to build credit without a credit card for immigrants
For immigrants new to the U.S. financial system, how to build credit without a credit card can feel like a riddle. You need a good credit score to get a credit card, but you need to have had credit cards to build a good credit score. So, what should you do first?
If you can’t open a credit card — or simply don’t want one — don’t worry. There’s a simpler answer to building credit: Use the money, debts and bills you already have in a smarter way.
Instead of scrambling to get a first-time credit card, consider how you might already be building a financial history in the United States. There are a growing number of services that will let you take the money you have and use it as if it were a loan or credit — building a payment history in the process.
And some credit agencies will allow you to add regular payments like internet and rent to your credit report, proving your ability to pay monthly bills. By tracking what you’re already doing and taking advantage of products meant to help newcomers build credit in the U.S. quickly, you can create the financial foundation you’ll need for a prosperous life.
The Problem: How to build credit when you have no credit
While many people build credit by opening a credit card, it’s not the right first step for everyone. If you don’t believe you’ll be able to make monthly payments on a credit card, or if you’re worried about getting one with affordable terms and rates, opening a credit card might actually do more to hurt your credit score in the long run.
Opening a credit card with no credit history usually means paying a premium — and missing out on many of the points and benefits cards can offer. By working to establish a little bit of a credit history first, you’ll be able to get a credit card that works better for you. That may mean a lower interest rate, more travel perks, a higher credit limit, or something else you may need. Whatever the benefit, getting the right kind of credit card increases your likelihood of being able to pay it back efficiently.
The Basics: How to establish first-time credit when you’re new to the U.S.
In the U.S. financial system, credit scores started as a way to quickly show how likely you were to pay back your debts. Today, they’re used for much more than that, including by some to represent how trustworthy or responsible someone is -- and are now used in everything from employer screenings to renting an apartment. For good or for bad, your credit score matters in the U.S. -- and probably matters more than you would expect.
Unfortunately — or fortunately depending on your history — the money you’ve borrowed and payments you’ve made back home won’t transfer with you to the United States. Everyone gets a fresh start when they come to America, and everyone has to put the same effort into building up a credit history before they’ll be easily able to borrow money at good rates.
Start building your credit score right away
The most powerful part of your credit report is the one you can’t rush: Time. The earlier you establish a credit history, the better your credit score will be — provided you’re following the steps below.
As soon as you know you’ll be moving to the United States, even if it’s only temporary, start looking for a way you can build your credit history by establishing a pattern of regularly making payments. When you can show that you’ve made every payment on time for an extended period, more and more lenders will be more likely to take a chance on you.
Pay your debts on time
Consistency matters when it comes to credit. You can pay back your entire student loan, for example, but if you skip every other payment to do it, your credit score may be just as bad as it was when you started, or worse. The single biggest thing you can do to build your credit is always make sure you make your payments on time.
Whatever debts you do choose to take on, make sure you can make the minimum payments on them before they are due! Sometimes this looks like setting up autopay to seamlessly transfer your money without requiring you to remember to pay on a specific date. Other times it may be as easy as setting regular calendar reminders to check your balance and pay that balance off on time.
Balance your debt-to-credit ratio
This standard of personal finance advice — not using all of the credit your lenders offer — applies mostly to credit cards. If you do carry a credit card, the general rule is to leave 70% of your available credit unused, making sure your debt never exceeds 30% of the card’s limit.
It’s good advice not to take out all the credit lenders offer. Doing so can make you look overleveraged, which can then negatively impact your credit score and make lenders wary. It’s also a good idea not to open more than one or two lines of credit at a time — multiple checks on your credit in the same year can negatively impact your credit score.
Spread out your efforts to build your credit history quickly
You may not be able to go back in time and open lines of credit, but you can do everything possible today to make sure your accounts are chosen strategically and counted properly.
At Upwardli, we help newcomers get ahead in the U.S. by finding the right mix of accounts to establish themselves and build their score using the best combination of services. A well-rounded approach to improving your credit takes advantage of every opportunity at once to establish your U.S. credit score faster.
How to build credit without a credit card using bank loans, secured accounts and more
The rules above will help you build your credit over time, but if you’re looking to establish a credit score quickly, you may want to consider using one of the financial products created explicitly for that purpose.
Turn your cash into “debt” with credit builder loans, secured credit cards and more
If you have access to money in the form of savings or earnings and just need to build a history of actively managing it, you can consider a credit builder loan.
Credit builder services can work in several different ways, but the most common ones establish a regular recurring payment to a savings account in your name. Each month you make a contribution that builds up until you’ve hit a certain threshold. Each time you make a payment on your plan, you build history with one or more of the credit bureaus. It’s low-risk for the lender — you can’t access the money until you’ve paid the loan back — and allows you to build credit with the money you might be putting into a savings account anyway.
SeedFi, for example, offers a Credit Builder Plan, that enables you to contribute between $10 to $80 per month. Each repayment in the plan gets reported to the three credit bureaus. Once you reach $512 in contributions -- $500 in savings plus $12 in applicable fees -- the savings amount of $500 is released back to you. Depending on the resources you have available, this can be a quick way to establish your credit score.
Secured credit cards work on a similar principle — they’re somewhere between a credit card and a debit card. You’re allowed to spend money and build up debt, but usually not more than you already have in assets that you have placed with the bank. The benefit to a secured card is the ability to methodically build up a consistent payment history. The downside to secured cards is that this generally means that you will be faced with a lower overall credit limit, which can have negative credit score implications if not used carefully.
Some secured cards, like the Sable Card, combine a basic debit card with a secured card to give you flexibility in how you use both cards to begin building credit history. Recognizing that immigrants do not always have a social security number when entering the country, the Sable Card also allows visa holders to apply for the card with only a visa or a passport number.
While credit builder products and secured credit card options may be low risk for you and for your lender, they also have a low return. Not every bank will offer these accounts, and not every bank will report your monthly payments through to the three major credit bureaus, so do your research ahead of time.
Take out a personal loan and pay it back
Taking out a personal loan is an effective way to build your credit, but it has a lot of the same drawbacks that come with opening a credit card as an immigrant. Your loans will be reported through to the major credit agencies, allowing you to build the history you need.
International students may have a leg up on other people immigrating to the United States in this area. Student loans are generally easier to come by, and may offer an opportunity to get a line of credit at a better rate than a personal loan. If you have student debt in your home country, for example, you may find that lenders in the U.S. will offer you a better interest rate than you have on your loan back home - allowing you
Stilt Loans, for example, offers loans to immigrants and visa-holders that can be used to repay existing debts, like student loans or existing credit cards. Stilt specifically markets to an immigrant customer base and you can readily check the rate that they would offer without affecting your credit score. When you make repayments on these loans, the repayment history is reported to the credit bureaus, providing more data that you are capable of reliably repaying your loans.
Ask friends and family to co-sign, or add you as an authorized user on an open line of credit
If you already have friends or family living in the United States when you immigrate, you may be able to benefit from the credit they’ve already established, either by having them co-sign on a line of credit for you, or by adding you as an authorized user to their line of credit. While this is an often-cited recommendation, its not a strategy for everyone!
It is a lot to ask - so its not something that most people can count on as a realistic way to build their score - and for good reason. If someone co-signs on your loan or credit card, it means they’re required to pay it back if you don’t make payments. Similarly, if they add you as an authorized user to their credit card, you can incur debt that they’ll be required to pay back, not you. Be careful if you’re entering into a relationship like this — especially if you’re co-signing or adding someone to your account.
Connect your bills to credit reporting
In an effort to make credit more accessible to everyone, including newcomers and non-citizens, some credit bureaus will allow you to add monthly bill payments to your credit history. Only one of the three bureaus has a free way to connect bill pay to your credit report — Experian, with its Experian Boost program. All reporting agencies will accept the data if it’s shared properly, however. While the Experian Boost service is free to use, watch out for the constant upsell attempts!
Check with your mobile phone company to see if your monthly phone bill is reported. The same goes for your landlord — some landlords report rent payments through to the credit bureaus, helping you to establish yourself in the U.S. financial system. If your landlord doesn’t, consider paying for a service that will report your rent payments on their behalf. Just make sure that in both cases, you’re prepared to make the monthly payments, as missed payments can have a negative effect on your credit score.
Be wary of alternatives to credit cards
There are many ways to take on debt, but not all of them will help you improve your financial standing in the long run. Take delayed payment applications like Klarna or Afterpay, which let you break an ecommerce transaction down into a series of smaller payments.
It may seem that this would be a surefire way to build credit — opening what is essentially a small loan with set dates to make payments. Because these lenders don’t work with the credit agencies to report who’s using them, however, they won’t help you to build a credit score. They also won’t require you to have a great credit score, making them a good way for some to bridge the lending gap as you build your credit history.
Some of these services -- such as Affirm -- do report repayment history to the credit bureaus. Affirm, for example, reports certain loans to Experian but not the other two major credit bureaus, TransUnion and Equifax. Like with all things credit, your lack of a credit history in the U.S. can mean that you won’t be approved for the service. Similarly, certain of these services tend to require users to have a social security number in order to be approved for their service. However, if you do have a credit history and an SSN, a “buy now pay later” provider can be a creative credit-building alternative that works for you. Like with other approaches we’ve discussed, the details matter, like whether all loans are reported to the credit bureaus and to which bureaus.
Navigating the world of credit in America can be daunting for someone new to the country, but doing some research and making plans for the future can ensure you build up good credit and avoid surprises. Upwardli can also help guide you through the process — it’s what we do.
