How to build credit when moving to the US

Nov 11, 2021

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There are many things that are uniquely a part of the American experience. Much like cheeseburgers and college football, having access to credit is one of the most foundational aspects of living in the U.S.

If you’re making the move to the U.S., one of your top priorities should be to build your credit. That’s because you’ll likely need credit to apply for an apartment, mortgage or car loan and secure the lowest interest rates possible.

And eventually, if you’re interested in opening a travel credit card to earn and redeem points and miles, you’ll need to establish good credit to qualify for any of the top cards.

In this guide, we’ll explain how to build credit when moving to the U.S., as well as delve into the fundamentals of credit and tell you how to ensure financial success.

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In This Post

How credit works in the U.S.

(Photo by Craig Hudson for The Washington Post via Getty Images)

When you move to the U.S., whether for school, work or other reasons, it can seem intimidating to start from ground level. Fortunately, there’s a strategic approach to building credit that requires time and patience.

Credit involves a lender (typically a bank) and a borrower (you). When you use your credit, you are borrowing money from the lender for goods and services with a vow to pay them back — generally with interest.

As you start to finance big-ticket purchases that cost thousands of dollars, such as a new car or even a mortgage, you’ll need access to credit to prove to lenders that you are reliable and financially able to repay your debt. The better your credit score, the lower the interest rates you’ll likely have since lenders can trust you as a borrower based on your financial history.

There are many ways to start building up your credit portfolio, but perhaps the most accessible way is through opening a credit card. When used correctly, credit cards can be an incredible tool for financial success, since you won’t accrue interest if you pay your balance on time and in full.

If you only use a debit card or cash to pay for everyday expenses, you lose the benefit of building up your credit, since you aren’t building those relationships with credit lenders.

However, know that credit cards are a huge financial responsibility that should not be taken lightly. It’s crucial that you never charge more than you can afford to pay.

What is a credit score?

(Photo by Getty Images)

A credit score is a three-digit number (typically ranging from 300 to 850) and serves as a report card that indicates your creditworthiness as a borrower. Lenders will send details about your credit behavior to three major consumer credit bureaus in the U.S.: Equifax, Experian or TransUnion. 

There are two major credit scoring models: the FICO Score or the Vantage Score. While the scoring methods are slightly different, scores greater than 700 are considered to be good on both models.

(Image courtesy of Experian)

For instance, with FICO, these are the five factors that are taken into consideration to calculate your credit score:

  • Payment history: 35%
  • Amounts owed: 30%
  • Length of credit history: 15%
  • New credit: 10%
  • Credit mix: 10%

As you can see, the two most important factors are payment history and amounts owed — comprising 65% of your total FICO score. It’s absolutely critical to pay your balance on time and in full if you want to increase your score. The other three factors — length of credit history, new credit and credit mix — are still important but are less in your control and will naturally improve with usage over time.

How to build credit in the U.S.

Now that you understand the basics of credit, here’s a step-by-step guide on how you can hit the ground running by opening your first credit card.

Review your credit card options

There’s no shortage of credit card options on the market today. Besides the ability to build credit, you can potentially earn valuable points and miles through rewards credit cards that can be redeemed toward travel, cash back and more.

However, when you’re first starting out in the world of credit cards — or credit in general — you likely won’t qualify for premium cards like The Platinum Card® from American Express or the Chase Sapphire Reserve. These cards are much harder to gain approval for and will usually require good to excellent credit scores.

There are a few options that offer better approval odds for those who have a limited credit history. If you’re a student, consider applying for a student credit card specifically designed for students who don’t have any credit history whatsoever. There are many options, but Capital One has recently launched a pre-approval tool that allows you to see which of its cards you’re eligible for before filling out an official application. The issuer currently offers three student credit cards that enable cardholders to earn and redeem rewards — all for no annual fee.

(Photo by John Gribben for The Points Guy)

Another option is to apply for a secured credit card, which is best for those having a hard time getting approval for other credit cards. To open your account, a secured credit card requires you to put down a fully refundable security deposit that determines your initial credit limit. For instance, if you put down $1,000, your credit limit on your secured card will be $1,000. Depending on your issuer, you may be transitioned into a “normal” credit card after making consistent on-time payments.

The OpenSky® Secured Visa® Credit Card is an ideal option since there’s no credit check involved in the application process. You’ll need to put down a minimum security deposit of $200, but you may be able to secure a credit limit of up to $3,000. Keep in mind that it has a $35 annual fee.

(Photo by John Gribben for The Points Guy)

Understand the credit card application process

Once you parse through all of your credit card options, you’ll want to understand how the application process works. Generally, when applying for a credit card, you’ll need to be at least 18 years old and have these:

  • Social Security number (SSN).
  • Checking or savings account.
  • Source of income.

The biggest roadblock is likely that you don’t have an social security number if you’ve just moved to the U.S. If you don’t qualify for a social security number, you may be able to get an individual taxpayer identification number (ITIN) through the International Revenue Service (IRS) instead and use that on your credit card application. To obtain an ITIN, you’ll need to mail your W-7 form, tax return, proof of identity and foreign status documents to the IRS. For further information on how to obtain an ITIN, read here.

On Chase’s credit card application, you’ll need to provide either an SSN or ITIN. (Screenshot from Chase)

See if you’re eligible to transfer your international credit history to the U.S.

You can also see if you can transfer your credit history from your home country over to the U.S. Nova Credit is a cross-border bureau that allows “newcomers and other global citizens [to] apply for financial services using their international credit history from countries including Australia, Brazil, Canada, India, Mexico, Nigeria, South Korea, and the U.K.” In the future, Nova Credit is working on expanding its services to citizens from China, Jamaica and Kenya.

If you’re moving from any of the countries already on Nova Credit’s list, you’ll be able to use its services to port over your international credit history so that you’re not totally starting from scratch in the U.S. — and you won’t need an SSN or ITIN. On Nova Credit’s website, you’ll answer a few questions to determine your financial eligibility and get personalized recommendations for credit cards based on your existing financial history. If you’re looking for a car, you can also pre-qualify for an auto loan through Nova Credit based on your past credit history.

(Screenshot from Nova Credit)

Credit-building tips you need to know

(Photo by Hero Images/Getty Images)

Once you establish a line of credit, be sure to follow these credit-building tips to improve your score over time.

Check your credit score often

Set up a routine for monitoring your credit score. Depending on your issuer, you may be able to check your score for free. Otherwise, consider using resources like Credit Karma to check your Vantage 3.0 credit score for free by setting up an account.

Access your credit report

You’re legally entitled to obtain a full credit report from the three major credit bureaus once a year for free. Visit annualcreditreport.com to obtain your full credit report to ensure that there are no mistakes.

Request a credit limit increase

As you become a trusted borrower and develop solid credit habits, you may be eligible for a credit limit increase through your issuer. You may be able to request a credit limit increase online or by calling customer service. It’s important to gain a higher credit limit over time, as this will reduce your credit utilization ratio, which is the relationship between your balances and your total available credit limit. The lower your credit utilization ratio, the better, since 30% of your FICO credit score is determined by the “amounts owed.”

Read through TPG’s 10 commandments for credit card rewards

Be sure to review TPG’s 10 commandments for credit card rewards, which is a detailed guide on the best practices for using credit cards. You’ll want to avoid common mistakes like paying foreign transaction fees or letting your rewards accidentally expire.

Bottom line

Here at TPG, we have dozens of free resources available for cardholders to help you understand the foundations of credit and improve your credit score over time. As a newcomer to the U.S., you can form positive credit habits now to ensure financial success later on.

Featured photo by Evgenia Parajanian/Shutterstock.

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