Why Is Credit So Important to a Non-US Citizen?
There is a saying, “Cash it king,” but credit is what matters in the U.S. If you want to rent an apartment, land certain jobs, open a credit card, or borrow money for any reason, you need credit, ideally excellent credit.
We’ll explain why good credit is important, what credit scores and credit reports are, what credit is used for, and how to improve your credit score range.
The importance of a credit score
A credit score is a number, generally ranging from 300-850, that tells potential lenders, landlords, and employers how responsible you are financially. The higher the number, the better.
If they lend you money, will you pay it back? If you are hired for a job that involves working with money, is there a chance you would steal it? And if they rent you an apartment, will you pay the rent?
What is a credit report, and why is it important?
Your credit report is a record of your financial history. If you’ve had loans, have you paid them back on time? If you have credit cards, do you pay them on time, carry a balance or pay them off completely each month? How much available credit do you have compared to your total amount of credit? Have you ever filed for bankruptcy? Do you have judgments against you from unpaid bills? Do you have bills in collection?
This information is reported to credit bureaus. The three main ones are Equifax, TransUnion, and Experian. The bureaus compile this information and, using a proprietary formula, turn it into a number. That number is your credit score.
When you fill out a loan, credit card, or rental application, the potential lender or landlord will pull your credit report and score. Credit history is important because, based on this information, they will decide to approve your application or deny it.
If you’re approved for a loan or credit card, your credit score will help determine the interest rate you’re charged. The better your score, the lower your interest rate. Generally, a score of 760 or higher will get you the best interest rate possible.
Why is this important? Because interest rates are essentially the cost of borrowing money. The lower the rate, the lower your cost. Here’s an example:
Mortgage: $250,000
Interest rate: 4%
Term: 30 years
Total paid: $429,674
Mortgage: $250,000
Interest rate: 5%
Term: 30 years
Total paid: $483,139
When our interest rate was just 1% higher, we paid an additional $53,465 on our mortgage! Which was already close to double the amount we borrowed. It isn’t realistic for most people to buy things like homes or automobiles for cash, so eliminating interest isn’t possible. But keeping it as low as we can by building our credit score can save us a lot of money over time.
Start building credit today
The importance of building credit cannot be overstated. Having a healthy credit score will save you money, lots of it over your lifetime. You can increase your credit score by always paying your bills on time, keeping credit utilization under 30%, and having various kinds of credit.
Many new immigrants are starting from scratch when it comes to building credit in America, but there are ways to start building your credit today.
Immigrants can get credit cards in the U.S. Companies like Petal and Sable understand the needs of non-citizens and offer credit cards without the typical requirements, and both cards will help build your credit. SeedFi specializes in loans that are designed to help build credit.
At Upwardli, we can direct you to the resources you need to start building your credit and the other parts of your American financial life. We partner with financial services providers who understand the unique needs of those new to the U.S.
