How to Build Credit in the USA as an Immigrant

Moving to any new country comes with a slew of challenges. One of those challenges can be the need to build a credit score from scratch. In the United States, new immigrants are ‘credit invisible’ until they get a U.S. based credit report. Without a credit score, it can feel nearly impossible to make large purchases, apply for jobs, and even settle down. The absence of a credit score can also make it harder to obtain a cellphone or utility services. 

For immigrants, the credit-building journey begins with tasks like getting a social security number, opening a U.S. bank account, and applying for a credit card. Next comes the close monitoring of your credit card to maintain your credit reports and credit scores. 

If you are new in the United States and looking to build credit in the USA as an immigrant, this guide is for you. In this guide, we will list down the five practical steps upon which you can build your credit score fast. We will also cover tips to maintain your credit report once you start building it. But, let’s first start with why it is important to build credit in the USA as an immigrant.

Why Is It Important For Immigrants to Build Credit in the United States?

Credit building is important in all aspects of our lives. Establishing a credit history can help you buy a home, purchase a car, rent an apartment and register for utility services. A good credit score also helps set the foundation of your ability to borrow money from any financial institution. 

Your credit score is the first thing lenders see to know how likely you are to pay back the money on time. For a general understanding, a good or excellent credit score is above 670, and a poor credit score is below 580. 

It is important to mention that you can have multiple credit scores based on the different credit bureaus. Credit bureas take your credit report information and apply a mathematical formula to generate your credit score. The most common credit bureaus in the United States are Equifax, Experian, and TransUnion.

5 Steps to Build Credit in the USA as an Immigrant

Just like building a house, building credit takes time and effort. However, to make the process smooth and quick, we have prepared a list of 5 practical steps to help build your credit score efficiently. 

Apply for Social Security Number

A social security number (SSN) is essential in building credit in the USA. Credit card issuers and banks often ask for this number when applying for a credit card or a loan. If you have just moved, you must be authorized to work in the U.S. to get your SSN number. 

If, in any case, you are unable to get a social security number, then as an alternative, you can look for your individual taxpayer identification number (ITIN). This is issued by the Internal Revenue Services (IRS). An ITIN is available only to certain nonresident and resident aliens, their spouses and dependents if they do not qualify for a social security number. 

Open a Bank Account in the U.S

Although a bank will not appear on your credit report, it is required by credit card issuers in some cases. Luckily, you can open a U.S. bank account with a bank account you do business in your home country. There are a number of banks that are operating in the U.S. as well as around all different countries. 

Apply For a Credit Card

Applying for a credit card is a significant and official first step to begin building a credit score. You may find it tough to qualify for a traditional unsecured credit card, but you can easily get a secured credit card.

With a secured card, you will deposit a certain amount of money to set up your account. The card issuers will hold this as a security deposit, as long as your account is active. Once you start making on-time payments on a secured credit card, you build a positive credit history. This history can then help you graduate to an unsecured credit card, which does not require any deposit. 

Avoid Debt and Late Payments

If you want to pace up your credit building process, try to avoid debt and late payments. Don’t let a lot of debt pile up, as it will negatively impact your credit report. If you avoid debt, you will help maintain a low credit utilization ratio, which will improve your credit score. 

Additionally, avoid too much or risky types of debt like payday loans. The reason is that these types of loans are often not reported to credit bureaus and won’t help you improve your credit score. Also, their interest rates are extremely high – generally up to 400%. If you fall into the payday loan trap, you will end up in a vicious debt cycle. 

Pay Rent and Utilities on Time

Paying rent and utilities on time can put your credit building in a fast lane. If you have a solid history of on-time payments for things like rent, phone, internet, electric and other utility bills, you have a better chance of qualifying for credit cards on loans. Paying bills on time is reported to the credit bureaus and reflects positively on your credit history. 

Likewise, if you are behind on your bill payments, it can lower your credit score even if the bills are not reported regularly. 

How Long Does it Take to Build Credit in the USA?

Although there is no magical formula to calculate how long it takes to build credit in the USA, a credit score can be typically be obtained within six months of opening an account that reports to credit bureaus. 

But know that credit scores and reports are based on your history with credit, so it takes time to build a record of that. Once you have opened a credit card account or secured a loan, here are a few tips to help you build your credit in a reasonable amount of time. 

• Keep your credit utilization below 30% of your available credit
• Consider keeping your accounts open to having an older history 
• Only apply for the credit card you need, as applying for a credit card comes with a hard inquiry about your credit
• Monitor your credit reports regularly, and if you find any incorrect information, report it to your creditor

If you want to build your credit in the USA as an immigrant, then know that it will be a lengthy process that will require patience. But, there are also several services available that can make this process easier and a bit quicker. 

As you move toward building your credit score, keep a close eye on your credit report and credit score through available online tools.