Building a Credit History when You're New to the United States

It's one of the most difficult concepts to get one's mind around - if I don't have a credit history, I can't get credit and if I can't get credit, I can't build a credit history.

The reasons for wanting to build a credit history are as varied as the reasons people come to the United States. For people entering the US on limited term visas, it's important to build a history as quickly and as positively as possible.

For instance, if you're in the United States on a Exchange Visitor Visa (or "J" visa), you will have a limited amount of time in the US in which to rent an apartment, get a car, or obtain any other host of items. Getting an apartment, for instance, will sometimes require a credit check by the landlord. Often times an absence of credit history could be just as bad or worse than having a bad credit history: when and if credit gets issued, it will be more expensive.

Your first lesson, though, is not to apply "willy nilly" for credit - each time you apply for credit, a note is made on your now blank slate credit file. Too many inquiries lowers your credit score and makes it less likely you will get credit elsewhere. A vicious cycle for sure.

YOUR FINANCIAL INSTITUTION & MAJOR CREDIT CARDS

If you have not chosen a bank yet, one recommendation would be to join a credit union. A credit union is like a bank, but depositors in a credit union are actually the owners of the credit union. It is a cooperative organization where the members control the decision making of the financial institution though votes of the membership. Given this, one can usually expect somewhat easier terms of credit, more favorable rates, and are generally more interested in each individual "investor/member" than for-profit banks.

Larger, National banks will commonly have larger fees and less personal service, BUT will commonly have specialized programs due to their larger size for first time credit seekers and may also be more inclined and more able to offer first time credit seekers unsecured credit cards.

Opening an account at a bank or credit union is one step in a relationship with that institution - who may or may not be able to offer you credit - but other sources of credit may want to know if you have an account and if so for how long. Please note though that opening an account will not be considered in your credit score. However such a banking institution would be a logical first step in applying for credit.

Your bank will look toward such criteria as whether or not you have bounced a check recently and if you're currently employed. If you meet some minimum requirements, they may offer you a low line of credit, but even a low line is a good starting point.

Also, most banks will now issue you ATM/DEBIT cards that carry a major credit card logo on them. This will be most beneficial to you when trying to purchase goods online or even renting cars.

BUY A CAR

Surprisingly, buying an automobile without a credit history is not as difficult as you might imagine. You will likely pay a higher interest rate, and it's important not to outstrip your ability to pay for the car - after all, if you're going to be in the US only for a limited time, it would serve you well not to tie up your finances in a very expensive car or a car that would be difficult to resell once you're leaving the country.

However, auto companies and auto dealerships are in the business of selling cars, and as such they have a vested interest in getting you credit to buy their car. Some car companies have their own financing companies - GMAC, Ford Motor Credit, for instance - designed to help people buy their cars.

This is a secured loan - meaning the car you have just purchased is collateral in the event you fail to make payments - but it is a great way to gain access to building a credit history if you need a car.

STORE CREDIT/GASOLINE STATION CREDIT CARDS

A second means by which to begin building credit history quickly is by applying for store credit cards and gasoline cards. They will generally offer easier credit, although their interest rates will generally be higher than a major card.

Which ever choices you make around building your credit history, make sure the credit bureaus will receive a report - if your bank, credit union, or store does not report to the credit rating agencies, getting a credit card with them will not help your cause.

SECURED CREDIT CARD

One way to build a credit history is to get a secured credit card from your bank. This is a credit card where you secure a credit line by putting money into a special account. The bank will issue you a credit card with a credit limit up to that amount which you have secured. Sometimes the issuing bank will increase your line with a repeated history of paying in a timely manner without asking you to increase your deposit.

Given that a sizable number of credit unions will offer secured cards, an account with a credit union may make sense for a new resident of the US. The credit union is more likely to waive fees and have lower interest rates for these secured cards, and less likely to have high, hidden fees associated with the card.

Of course, a very good way to keep yourself out of credit trouble while trying to build credit history is to pay off your balance on a monthly basis and therefore avoid the cost of high interest rates to begin with. This is not a long term credit option as there are real fees associated with them, they tie up your initial deposit, and your interest rate is usually higher as well. The average time between getting a secured card and being offered an unsecured card is generally about a year, but that will depend on the issuing company and your own history, among other factors.

A secured card is the quickest but perhaps least desirable way to obtain credit, because of the way it can be reported to credit agencies - a notation the card is "Secured" can be a red flag in some instances, because people with bad credit will have them as well. You may be painted with the same brush as someone who consistently bounces checks or makes payments late.

OTHER NOTES

If you're still new to the US, don't be swayed by all the credit offers you'll likely begin receiving in the mail. First, if you don't need the credit don't apply for it simply for the lure of easy credit. Second, those solicitations may or may not be what they seem - there's no easy way to tell what is actually being offered you.

Once you've gained credit, your job is to maintain a good credit history by paying on time, not over extending your ability to pay, and keeping your credit accounts active while keeping your credit application activity LOW. These are all factors in building your credit history while in the United States.

REFERENCE:

Wikipedia, "Credit Unions" URL: http://en.wikipedia.org/wiki/Credit_Unions

"10 Questions to ask before getting a secured credit card," Bankrate.com, URL: http://www.bankrate.com/brm/news/cc/19990823.asp

"How to Establish Credit," About.com, URL: http://financialplan.about.com/od/creditdebtmanagement/a/nocredit.htm

"Your First Credit Card," Kiplinger, URL: http://www.kiplinger.com/basics/managing/cash/firstcc.htm