What are the ways in which a new immigrant can begin building credit history in the United States of America ?
It is possible to build a reasonable credit history and score in about six months, but you have to be careful what you do.
If you do all of that, you should have a decent score after about 6 months. At that stage you may consider applying for unsecured credit cards.
Even if you are able to get one or more unsecured credit cards later on, it may not be a bad idea to hang on to it for at least six months. Although FICO sources claim that a closed account still counts to determine your credit history length, there's conflicting information on the different credit bureau websites. Even if it doesn't influence your credit history length, keeping the account open does help to keep your total available credit at a higher level, decreasing your credit utilization and so it helps your score.
|show 7 more comments|
I moved to the USA in the middle of the 2008 credit crisis, so this issue hit me hard. There are a multitude of things that you can do to build up a credit history.
I've recently started building a credit history in Canada, and I think it's the same.
The solution I have chosen is to take a secured credit-card. Through my financial institution (a credit union), I have fixed 500$ on a savings account. I need to fix these 500$ for one year, and during this year, these 500$ will be my credit limit. During this year, I shall use my credit card, pay my credit card bills, and thus build up a credit record. After one year of correct use, I will have a credit history and I will be able to apply for an unsecured credit card.
(very long answer) The easiest method to build credit in the United States is to have someone with good credit co-sign a loan or credit card for you. If you do not have that option, the fastest way to build credit for yourself in the United States is through secured credit. Using this method you will find that it's actually quite easy to quickly build a strong credit history.
The more money you have to work with, the faster you can build credit.
To start with, Banks and Creditors are risk averse. By limiting their exposure to risk before you apply, you significantly increase the likelihood of receiving credit from them.
In the example of a bank, you'll be placing your money into a secure deposit account, and then using that account as a security to obtain a commercial or personal loan. In this case, you can add additional securities to sweeten the deal for the bank, such as the purchase of a car, where you pay 60% to 80% of the car's value, financing the rest. Alternatively you can request a smaller amount $500 to $2,000 towards the purchase of a computer, letting them know that you're interested in building your credit.
This is the best method, but it takes work, and a bit of creativity.
The next best thing you can do is to obtain a secured credit card. Use Capital One for this (absolutely do not use any other company - Capital One is the number one poor credit provider in the United States, and historically is rated higher than any other company in this area). Their expertise increases your chances of being approved, and also will allow you to establish a relationship with a company that can later offer you lower rate unsecured cards.
Note: There are companies other than Capital One that have been mentioned here. While they are not bad companies, the long term impact to your finances will be negative. That is why I recommend Capital One. Other companies, such as First Premier, will give you cards that cost hundreds of dollars per year. If you close that card as soon as you get a better card, then you lost the credit history (it is no longer current), and you will have paid absurd fees for nothing. Worse, some of these companies will damage your credit by crediting payments late or worse when you try to cancel the cards.
Just avoid them. Go with Capital One, get a secured card, and in six months that card will be unsecured, and likely also have a reasonable rate. After a year, you can always call in and lower the rate even further. This way you can keep the card and the history you built with it, and not lose your money in the process. Capital One is also a bank, so you can open deposit accounts with them.
This is the second best method, and usually takes very little work. All you need is a bank account and internet access.
Next, you can visit gas stations - like Chevron, Exxon, Mobile, Shell, or others (some are joint - like Exxon/Mobile - so do some homework and only visit one at a time). Here, you can get store credit, for example, to purchase gas. With this card you can fill up your own car as you need, which will slowly build your credit, or you can use the 'student method' to quickly build credit.
The student method is to also fill up your friend's cars (they pay you cash on the spot, and you fill up their car - immediately depositing the money in your bank, and paying down the card each time). This is because you are only likely to receive approval of $50 for your first card, or another small amount. By using the card to buy gas, but also things like chips, sodas, or whatever other snacks you might want, you are using the card a lot (by the way, snacks are a bad investment, but you're building credit, so you need to spend money).
The more the company sees you using the card, the more likely they will be to increase your card limits. After a month, having maxxed out and paid off your card several times, you can call them, and explain that your work involves a great deal of travel, and it would be so much easier for you if they would just bump your credit limit up to $150 so you didn't have to constantly pay down the balance to benefit from your card.
This is a very good method for building credit, though it will rarely ever be huge amounts of credit. I think the highest limit I ever had was from Exxon, for about $600 (so I could pay for car repairs once, I believe was the justification I used to bump the limit that high).
Following that, visit department store chains (JC Penny, Macy's, Sears, etc.). Of them, JC Penny has taken a hard hit in recent years, and is desperate to have business. They would likely finance you for something small. To do this, try to buy a pair of shoes, and apply for their store credit at the register. Companies are always more likely to give you credit when you're purchasing something from them with that credit.
This should be your last option. You will need to visit these stores in person, and the credit you receive can only be used outside of the stores. You'll need to use that credit to build credit - which often means purchasing overpriced items.
Keep in mind that you need to use credit in order to benefit from it. This is because your credit report will show your total credit limit, how much you have spent, and how much you could still spend.
If you show up as always at your limit, it indicates to creditors that you're struggling. On the other hand, if you have a lot of credit, but never use it, then creditors will not know if they can trust you. Because of this, when I'm counseling people to build credit, I encourage them to max out a credit card, make the minimum payment for that month that will not cause interest and balance fees to cause them to go over the limit, and then pay the balance off in full the next month. Overall They pay very little interest this way, but show a history of carrying credit. After a few months of this, you'll show a credit history that creditors will just love.
Alternatively, you could just max and may off the cards each month, avoiding the fees - but creditors do not like this as much.
Two other methods - one of which has been mentioned here already, are mortgages and businesses.
In the case of a mortgage, this is the worst advice you could possibly follow. You will be starting off with bad credit, and therefore hit with a very high mortgage rate. That means you will end up paying enormous amounts of interest (mortgage loans front load the interest, so you will only be paying interest for the first few years).
Much better you simply get a car loan, as it's a smaller amount to pay (so less interest overall), and it's a traditional loan, which means you'll be paying down the loan value with every payment.
In the case of a business, you can occasionally 'buy' good business credit through smart investment. I say smart, because you need to be smart about who you are investing in. For example, you could invest in an established business, on condition that you received a business credit card naming you. In this case you would be the authorized user of the card, thought the business would bear ultimate responsibility for paying the credit. You would benefit from being associated with a card that was used for business expenses and such, but tied to your name as the authorized user.
Finally, as I mentioned earlier, the longevity of credit is essential. If you leave America, you can still take your credit cards with you - just tell the company that you're moving with work, or whatever. As long as you pay the balances, you'll keep good credit, and be eligible for increases as well.
Good luck, and welcome to America. :)
Disclaimer: Any advice provided in this forum is just that - advice. It is free, and carries no guarantee or warranty of service. Use it at your own risk, and after applying your own best judgment.
In the event you would like more in depth and legally binding advice, please PM me for details on my company. Note that this is not in any way a solicitation, rather, there is only so much information I can take the time to provide at no cost. I have done my best to provide a thorough, unbiased, and honest description of services and methods. Those requiring more complex structures, such as that of business investment, require much more work. Additionally, they require my lawyer, meaning they're a service can't provide without billing for it.
As @gerrit says, get a secured credit card. As soon as you can, get a regular credit card - you can use websites like creditkarma.com and creditsesame.com to get an idea of what credit cards you can use. Make that that you use the card regularly, and pay it off regularly.
There's a bit of a paradox - when you apply for an account, you take a hit to your credit score, but you need more accounts to have a good credit score. So apply carefully.
If you have an American Express card from another country, you can "transfer" it to the US.
In addition to giving you an (unsecured) credit card in the US with a real credit limit that you can use to then start building your credit, American Express will report the date the account was opened as being when you first became a cardholder elsewhere in the world (presuming you have maintained continuous membership).
This means that you can end up with a credit history that pre-dates your moving to the US.
(In practice, they don't actually "transfer" the card, they just open a new card in the US. You can keep the foreign card or cancel it at your discretion)