Often immigrants ask our office about building their credit score. This is often a new thing – especially if they are from a country that operates primarily on cash. There are several steps you can follow to build good credit.
- If you are authorized to work in the U.S., you may be able to obtain a social security number (SSN). You can find the application and the rules that apply to it are here. Having an SSN opens up your credit options significantly.
- Building credit takes time. Authorized immigrants are likely to build credit just by paying essential bills. Payments for rent, utilities and cell phones create records establishing that you are a reliable borrower who pays on time. Credit cards are another way to build credit, particularly if you don’t have other expenses in your name.
U.S. credit card companies are anxious to issue cards, and some may do so even if you do not have a credit history. If you are denied a standard credit card you can apply for a secured card. This simply means you put money in an account the lender can use against your bill if you fail to pay it directly. On a side note, it’s important to understand the terms of all credit cards before obtaining one. If you don’t understand the terms look for another way to build your credit.
- You can apply for a credit builder loan. Like a secured credit card, you will have to deposit some money up front. The money is in your name, and it will be released back to you once you have repaid the loan in full.
- Be careful not to accrue too much credit. Even if you can afford more debt credit scorers look at the total amount of debt you have. It also increases the risk you will overspend or miss payments. That will quickly ruin the credit score you are building.
- Monitor your credit score and credit reports. Credit breaches or scams are a big problem these days. Paying attention to your credit is the best way to combat this. Some lenders offer free copies of your credit report. You can also order it through Order online from annualcreditreport.com or call 1-877-322-8228.
One rule applies to any form of loan you obtain. Make payments on time. Some loans, such as credit cards, may give you the option to pay less than the full amount. If you want to build credit you must pay the minimum amount due every month. If you want to build great credit, pay the full amount every month.
Whether you are an immigrant or not, paying in cash is an option for most day-to-day expenses so it doesn’t require credit. If you expect to make any big purchases in the future, such as a car, house or school tuition, you most likely will need credit. Building it now, the right way, will prepare you for that time.