How to Build Credit as a New Immigrant to the United States
Why Newcomers Should Focus on Building Credit Fast
Immigrating to the United States comes with many challenges, one of which is learning to navigate the US financial service system. New immigrants quickly realize that their lack of US credit history will be a barrier and begin wondering how to build credit as a new immigrant to the United States.
Many settle for using cash, but we encourage you to think long-term. Starting to build credit now will lay the foundation for many goals you may have in the future, like owning a home, buying a car, or taking out a business loan. Building credit as a new immigrant isn’t so hard, and we at Upwardli are here to help.
What is a Credit Score?
First things first, you need to understand what a credit score is and how it’s calculated. A credit score is a number between 300–850 that tells banks how trustworthy you are. The higher the score, the better you look to lenders. A credit score reflects all of your financial decisions, such as paying your bills on time each month.
The calculation is actually pretty complicated, but the main thing you need to know is that there are five factors that affect your score:
Payment History. Payment history is the most important element of your credit score. It tells lenders whether or not you pay your bills and loans on time. If you don’t, they will likely assume you won’t pay them on time, either!
Credit Utilization Ratio. This ratio is calculated by comparing the amount of credit you have available to how much you are using. It tells lenders if you are overly dependent on non-cash funds. You can improve your ratio by paying off your credit card bill on time each month and asking your bank if you are eligible for a higher credit limit (if you know you can trust yourself to use it responsibly, of course).
Credit Mix. Your credit mix describes how many credit accounts of different types you carry, such as credit cards, car loans, student loans, etc.. Having different types of credit tells lenders that you’ve been good at managing multiple financial responsibilities.
New Credit. The number of credit accounts you’ve recently opened and any hard inquiries (also called “hard credit checks”) lenders make when you apply for credit can affect your score temporarily. Opening too many accounts at once might make lenders think you need credit fast, which makes you riskier to them.
Credit History Length. This element of the equation is tricky for new immigrants trying to build credit because you simply haven’t been in the United States long enough to have a long credit history. Don’t worry! This number only makes up 15% of your overall score. As long as you keep working on the other areas, your credit history length will improve over time.
How to Begin Building Credit as a New Immigrant
Now that you know how credit scores work, it’s time to think about the steps you can take to start building your credit. It may sound overwhelming, but each action is an important step in the right direction.
The first challenge most immigrants run into when trying to build credit is that they can’t even get a credit card to begin with. Ironically, many banks want you to have a credit score before they will offer you a credit card! Fortunately, you have some options.
Get a secured credit card. A secured credit card can be used just like a regular credit card, but it requires a security deposit. Typically the deposit is equal to the amount of your credit limit. It’s ok to start with a relatively low credit limit until you qualify for a higher limit and feel confident that you will pay it off on time each month. It’s a good idea to establish a relationship with a bank and open a checking account as soon as you can. If the bank already knows your information, it will be easier to get a secured credit card with that same bank.
Become an authorized user on someone else’s card. If you don’t qualify for a secured card, you can also build credit by becoming an authorized user on a family member or trusted friend’s credit card. It’s important to note that if either you or the cardholder fail to make payments on time, both of your credit scores will be negatively affected. You’ll also need to confirm with the bank that they report authorized user transactions to credit bureaus because some have an age limit or do not report authorized user transactions at all. Be careful when taking this route!
Use an international bank account. If you have an existing bank account with an international bank from your home country, they may be able to issue you a card in the United States, too. This may be an easier strategy than applying for a new bank, because your current bank has a record of your financial history.
Student credit cards. Students on a visa may be able to qualify for a student credit card with certain major banks.
We hope this information is helpful as you take the first steps to secure your financial future as a new resident of the United States! We plan to continue providing helpful tips and insights, so please check back for more valuable information.
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