Are you ready to start your new life in the United States? A very important thing to do as soon as possible is to build your credit history. Without a credit history, it might be tough to rent a home, take a loan or even get a phone. Now you wonder “How do I get a credit history??”
Shortly after your arrival in America you will notice that setting up your life without a credit history is nearly impossible and you will need lots of patience to do so. Trying to rent an apartment? The landlord will perform a credit check to see if you’re likely to pay your rent. Trying to buy a car? The dealership will check your credit to find out if you’re likely to pay off your loan. This list goes on and on.
So, what exactly is a credit history?
Your credit history is a record of your payment behavior. It is documented by three big credit bureaus on a scale of 300 to 850, where 300 means poor credit and 850 is an excellent credit score.
The credit bureaus are Equifax, Experian and TransUnion. As a number one form of identification you will use your social security number, which will be linked to all credit cards, loans and any other financial business under your name.
When you get started, your credit score will probably be pretty low, as the length of your credit history is a big part of how creditworthy you are for lenders. Once you have established a little bit of a credit, you can check your score online and for free at creditkarma.com, credit.com, etc. Usually your bank or credit card issuer will be able to inform you about your score as well.
Why do I need a credit score and history?
Your credit score will be an easy way for lenders and landlords to check if you’re trustworthy when it comes to making payments. Even phone and utility companies check your credit score before going into business with you. Unfortunately there’s no way around building your credit score if you want to set up your life in the US successfully. It’s probably not impossible, but very, very hard.
How to build your Credit History in America
There are several things that you can do that have a big impact on building your credit score.
Get a secured credit card
When you first arrive to America, you probably won’t be able to get a normal credit card. Apply for a secured credit card instead! This means that you will have to pay a deposit to the bank when you open your credit card and they will use this amount as your spending limit. The bank will report your use of this credit card to the credit bureaus. Make sure to always pay off the total amount here. Any missed payment will show negative in your credit report. If available, set up automatic payments, so you never forget to pay.
Become an authorized user on someone else’s credit card
If you have a trusted person like a spouse, a very good friend or family in America, ask them if you can become an authorized user of their credit card. This is a great way of building your credit, if the credit card owner pays their card off every month. Make sure you know if the person has a good credit score and good spending and paying habits, before you get added. Any negative behavior of the credit card owner will affect your credit history in a negative way as well.
Get a store card
Companies in America want you to buy, buy and buy! Therefore it’s fairly easy to get a store card with a low spending limit. You can try to get a store credit card from your favorite clothing brand or stores like Target or Walmart. You will usually be asked if you would like to apply at the cash register. If you prefer to shop online, Amazon has a store card as well.
Always pay your bills on time
This should be a no-brainer. If you don’t pay your bills, it will eventually be reported to the credit bureaus and your hard earned credit points will go down. Set up automated payment whenever possible, so you don’t even have a chance to get behind on your bills!
Take out a small loan and pay it off monthly
If you make a bigger purchase like furniture or electronic items, stores usually offer loans, so you can pay it off monthly. You should definitely take advantage of this, as it will show up in your credit report and help your credit score to rise, if you settle your payments in a timely manner.
Never overdraw your bank account
Overdrawing a bank account in the US will result in high fees. This will not affect your credit score immediately, but eventually it will, if you don’t take care of it. Once your bank turns the bill over to a collection agency, is will be reported to the credit bureaus.
When you start applying for a credit card, make sure to apply for just one card at a time. Too many applications will have a negative impact on your credit score. For each application you will lose a few credit points, but in most cases you will gain them back within 6 months. When you apply for several credit cards at a time this might cause your credit score to drop significantly – it indicates that you are a risky borrower.
Your credit score is supposed to reflect how dependable you are with borrowed money. If you show any behavior that is connected to mismanaging money, your score will drop.
When you start to settle in America and apply for some of the above mentioned cards, please don’t get discouraged if some institutions deny your application. I promise, you’ll find another credit company or bank that gives you a chance.
Here’s what I did to build my credit history:
My own bank denied me a secured credit card when I first arrived, so I thought it would be impossible for me to get a credit card. I researched many kinds of credit cards and successfully applied for the Capital One unsecured credit card that was intended for immigrants to build a credit score. This was years ago, and the offer doesn’t seem to be available anymore. I’m sure other banks might have a similar offer though.
Also, I wanted to buy a DSLR camera a little later. I thought that was a good time to apply for the Amazon store card, which also got approved.
You see, one door closes, but several others will open!
I wish you all the best setting up your life and building a credit score successfully. It will probably take you a few years to build a decent credit score. Be patient and make sure to handle your money responsibly – you will be able to reach your goals eventually!
Do you have any further tips for getting a great credit score? Please let me know in the comments below.
Wondering what else to do after your move to America? Read this article to find out!