When you move to a new country, your to-do lists are long. One item is likely to be establishing a credit history, because if you plan to borrow money to buy a home, a car, or anything else, you'll want a solid credit score, which can qualify you for the best interest rates.
You may have a great credit rating in the country you're leaving, but it will be of little value in the U.S., where you'll have to start anew with building a good rating. Credit reports are generally not transferred from other countries to the U.S., and vice versa.
Who Keeps Track of Your Credit History?
In the U.S., there are three major credit reporting agencies: TransUnion, Experian, and Equifax, and you're entitled to request a free copy of your credit report from them each year. (You can do so at www.annualcreditreport.com.) You don't have to sign up with them to have your credit monitored -- they'll do it automatically as you start using credit and paying bills.
Be aware that you may not even have a credit report on file yet, especially if you do not have a credit card in this country. That's OK. You'll begin to establish a credit history as soon as you open your first line of credit.
Also, it helps if you have a Social Security number, both to apply for credit as well as to ensure that your usage is reported to the credit reporting agencies.
Four Ways to Get Credit
Establishing credit when you have none can be tricky. After all, in order to qualify for a credit card, you need to have some kind of credit history. Don't give up. Here are four ways to get credit in your name:
- Get a card or loan from your banking institution: Check with the place where you have your checking or savings account. Many banks issue credit cards. And if you don't yet qualify for that, ask if you can take out a secured loan (a loan against the money you have deposited). That gives the bank something to report to the credit bureaus.
- Get a secured credit card: With a secured card, you leave a sum of money on deposit, and can then charge up to that amount on the card. You then pay your bill and continue charging. The sum you deposited stays in place, guaranteeing your debt. This way, you can build up a history of paying your bills on time.
- Get someone with an established credit history to co-sign for a credit card or loan: This enables you to qualify for credit based on the co-signer's record. There is a danger to doing this: It's not just your good name on the line if something goes wrong. If you are unable to pay your debt, you are both responsible for it. And if you are late making payments, or exceed the line of credit, the bad behavior will be reported on both of your credit reports.
- Ask your existing credit card company: If you have a credit card from your country, ask if they also issue cards in the U.S., and if they can transfer your business to their branches in this country.
How to Establish a Good Credit History
As you build a credit history over time, your credit report can run several pages. Many times, though, all a lender or someone else checking your credit will want to see is your credit score. There are several versions of this, with FICO scores being the most well known. They run from 300 to 850 and are based on the following factors:
- Pay your bills on time: Potential lenders want to see proof that you are a responsible borrower. Paying your bills on time makes a big difference, as it's generally the most influential category.
- Don't max out your lines of credit: If you owe close to the maximum that you can borrow, that's viewed as risky. It's best to not get very close to your credit limit. Some suggest aiming to only use 50% or less of your limit.
- Be patient, and let your history in this country build: How long you've had various credit accounts matters for many people, but those with short histories aren't necessarily penalized too much.
- Use different kinds of credit: It's ideal to have a bit of diversity in your borrowings, such as credit cards, an installment loan, a mortgage, and so on. Even if you have enough money to pay for certain things outright (a car, for example), you might want to take out a loan or two and pay them on time, regularly, to add to and diversify your growing credit history.
- Don't apply for too much new credit: Your score reflects whether you've opened new accounts lately. Of course, if you're new in the country, that's unavoidable, and not a bad thing.
- Pay all of your bills on time: If you have set up utility accounts in your name, such as electricity and water, these bills can also show up on your credit report. Paying them on time will enhance your credit score.
Keep in Mind
Time is essential: It can take about six months to develop a sufficient credit history to even get a credit score. But if you pay your bills on time and use credit responsibly, you'll see your credit score improve dramatically. The sooner you start, the sooner you'll be able to benefit.