Understanding my credit score: How non-US citizens can get started
As a newcomer in the USA, you’ve probably found a shortage of resources telling how non-US citizens like you can get started understanding your credit score. But it’s vital to master the concept. A strong credit score is one of the most important components of achieving financial success or wellbeing.
Read on for a quick introduction to credit scores, what they mean, and a few options for starting to build your score.
How Do I Check My Credit Score?
A credit score measures the likelihood that you’ll pay back loans or pay bills on time. Most commonly measured with a FICO scale, credit scores range from 300-850. A “good” score is generally considered to be 700 or above.
There are five factors used to calculate your score, each with a different weight:
Payment history: 35%
Credit utilization ratio: 30%
Credit history length: 15%
Number and types of credit: 10%
Account inquiries: 10%
There are two easy ways to check your credit score to see where you stand.
Through a Credit Bureau
There are three credit bureaus in the United States which track credit scores: Experian, TransUnion, and Equifax. You are entitled to one free credit report from each agency every year. You can request your copy by calling 1-877-322-8228 or going to AnnualCreditReport.com.
From Your Financial Institution
Many banks offer an instant credit score checker when you open an account with them. It’s free to use and easy to access through their online system. Some credit card companies also offer this service to their cardholders.
How Can I Raise My Credit Score as an Immigrant?
As a newcomer to the USA, it’s very likely that you have a low credit score or no score at all. But don’t worry. With time, effort, and planning, you can build a strong score. Some tools you can use to raise your score are credit cards, credit builder loans, and rent payment services.
Use Credit Cards the Right Way
An excellent way to raise your credit score is to get a credit card, keep the balance under 10% of your credit limit, and make payments on time. Simply apply online, or apply in person at a bank.
You’ll want to look for credit cards that:
Have low annual fees
Charge low interest rates (The Federal Reserve reports that the average rate is ~16%)
Do not require a social security number (if you do not have one)
Having an existing bank account and steady income from a job will help increase your chances of being approved for a card.
As an immigrant with no credit history, you may need to start out by applying for secured credit cards. Some providers that do not require a social security number include Petal and Sable.
Want a deeper dive on getting a credit card? Read our beginner’s guide, How to Get a Credit Card in the USA for New Immigrants.
Credit Builder Loans
As the name suggests, credit builder loans can help you raise your credit score or establish it if you have none. They establish a no-risk opportunity for a lender to evaluate how reliably you can repay debt.
When you are approved for a credit builder loan, you do not receive any money from the lender. Instead, the loan amount is stored in an account. However, you still pay off the amount of the loan and interest as if you had received the money and were paying it back.
How Credit Builder Loans Work: An Easy Example
As an example, let’s say you get at $1200 credit builder loan for 12 months at 0% APR. (These loans typically have an interest rate of 6-16%, but for the sake of keeping the math simple, we’ll leave it at 0%.)
The $1200 you asked to borrow will be placed in an account that you cannot take money out of. But you will still pay the lender $100 each month for 12 months. At the end of the period, you will be able to access the initial $1200 that was stored away as well as the $1200 you paid during the year, leaving you with $2400 total at your disposal.
Some providers, such as SeedFi, do not require a social security number for credit builder loans.
Looking for more credit builder loan providers who work with immigrants? Download Upwardli’s free app today.
Make Rent, Utilities, and Other Bills Build Your Credit
In general, only your payment history of bills related to debt, such as loans or credit card balances, affect your credit score. Monthly expenses such as your phone, internet, or water bill are not counted.
Fortunately, there are a number of rent payment services you can use to have your rent payment history reported to credit bureaus so your timely payments will help boost your credit score. A few examples are Rental Kharma, RentReporters, RentTrack, and PayYourRent.
Before using any of these services, it is important to note which ones report to which agencies. Some services will only report your payment history to one or two of the three credit bureaus in the USA, not all of them. Additionally, your landlord may have to agree to verify your payment each month.
