How To Establish Credit For Immigrants New To The United States
In the United States, if CASH is KING, then CREDIT is QUEEN ! Establishing credit for immigrants can be a confusing process. If you had a good credit rating in another country, unfortunately, that credit rating cannot be transferred to the United States, you have to establish a U.S. Credit Rating and a new credit file.
In the United States, there are three main Credit Reporting Agencies, or CRAs. These agencies maintain your new credit file as reported to them by your creditors. These reports contain both good credit and bad credit. Together, your credit history is evaluated and you are given a Credit Score which is a number that tells other creditors how trustworthy you are in relation to paying your debts. If you have no credit history or bad credit history, it is very difficult to be extended a credit account from any creditor. Here are a few tips to help you get started on establishing a good credit rating in the United States.
Apply for a social security number
Although credit companies cannot require you to have a social security number (SSN), it is a good idea to obtain one. CRAs use your social security number to report your credit activity. So even if the creditor does not require a SSN ( and most of them WILL require some proof of how you have paid your bills in the past) to extend credit to you, you will need a SSN to have your good credit transactions reported to the three major CRAs so you can begin to establish good credit.
Get a secured credit card
To start off, once you have a SSN, you can begin to build your new credit file. A lot of companies and stores will not extend credit to you if you do not have any credit history at all. However, you can obtain a secured loan or credit card account. This is an account that allows you to put down a deposit that will be used as collateral for the account. You then use the loan or credit card like a normal credit line and make payments each month, thus building your credit.
This is just my personal opinion. But a secured credit card is the best means of establishing credit for many reasons:
- You choose your credit limit since the credit line is based on how much of a security deposit you put down
- The interest rates tend to be more reasonable for a secured card vs a card issued by sub prime banks
- With a secured card, after about a year of timely payments, your credit line becomes unsecured and the issuing bank will return your deposit!
- By making sure your secured credit card reports to the credit bureaus monthly, you will not only earn some interest on your money, but you would have built a solid line of credit.
A secured credit account allows you to establish a positive payment history and the secured account will be reported to the Credit Reporting Agencies. Be careful, though. Some companies will try to sell you a prepaid card and that is not the same as a secured credit account. Prepaid cards are rarely (unless they have a feature called credit builders – which some have, but charge a monthly fee for it) reported to CRAs so even if you have a prepaid card for years and establish a good payment history with the prepaid credit card; it will never be reported as a positive account on your credit report.
Take your time
Building a new credit file takes time. I usually advise people to open 2 or 3 credit lines to start off with. It is not something that happens overnight. Do not be tricked by companies who claim to be able to fix or establish your credit in a short time frame if you pay them a fee. Establishing good credit can take a year or more. This may seem like a long time, but if you do it right and create a good credit score, it is well worth the wait.