Tips for immigrants building a U.S. credit history

Without a credit card, it’s hard to build a credit history. Without a credit history, it’s hard to qualify for a credit card. So how does someone start from scratch to build a credit score? Answer: By starting at the bottom and beginning the long upward climb.

Who Needs to Build Credit?

Anybody without a history of using credit needs to build credit. You never know when the need for a loan will arise, and it is a lot easier to get money with a solid credit history. Young adults who are just setting off on their own typically need to build credit, and new arrivals to the U.S. are also unlikely to have a credit history. Sometimes people have built credit in the past, but they lose it because they stop using it.

Understand what factors influence your credit score

Recent history is given more weight.

Amounts Owed: Your debts account for 30% of your credit score. Credit bureaus look at both your total debt and your debt-to-credit-limit ratio. Not all debts are bad, but loads of credit card debt is definitely frowned upon.

Length of Credit History: How much history you’ve already established accounts for 15% of your credit score. This can make it difficult for folks just starting out.

New Credit: Recent credit acquisitions account for 10% of your credit score. New accounts are handled with suspicion.

Types of credit used: The types of credit utilized account for 10% of your credit score. It’s helpful to diversify.

If you've gotten your feet wet with a secured credit card or retailer card and have proven that you can pay your monthly balance on time, it's time to take the plunge. Responsible credit card use is one of the quickest and most effective ways to build a solid credit history.

An unsecured credit card is a "revolving" line of credit. This means that the lender sets a credit limit and allows you to continuously borrow and pay back your balance as long as you stay under that limit. Every month, you're required to make a minimum payment. Any balance that you carry from month to month will be charged interest.

To build healthy credit with a credit card, you must follow one simple rule: Always pay your monthly bill on time. If possible, pay the balance in full every month. If not, at least make the minimum payment.

Make payments on time

Stay well under your credit limit. You’ll be scored favorably if you keep below 30% of your total credit limit. To raise your limit, consider a no fee credit card.

If possible, diversify the types of credit you utilize. Paying through installment loans will raise your score. Stay away from prepaid debit cards. They don’t improve your credit.

Check your progress by checking your credit report and score.

After six months of timely credit card payments, check your status by viewing your credit report and score. Pay special attention to what is on your credit report and any positive or negative factors listed, so you have a better idea of what you need to work on next. Also make sure to take a look at your credit score – it will help you make sense of your credit report and give you an idea of how well you’re doing.

After a year, apply for an unsecured credit card.

Twelve months of timely payments should be enough to show your credit card company that you can responsibly manage debt. Now’s the time to give your creditor a call to see if you can make the switch from a secured credit card to an unsecured credit card. An unsecured card frees you from your security deposit obligation, will likely carry a higher credit limit and may offer useful perks like reward points.

The key to building credit is patience. Remember that having a good credit score is like having the world’s best coupon book for all the biggest financial transactions in your life. It may take time to establish good credit, but once you do, you’ll reap the benefits of big savings.

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