How to Build a Good Credit History in the USA
No matter what your credit status back home, new arrivals in the US will need to build a good credit rating – this is often essential before renting property and will ensure you get acceptable deals on insurance, bank loans etc. Those with a bad credit rating can end up paying extortionate interest rates and insurance premiums.
There are a handful of credit bureaux and they rate you at a number from 350 to 900 (called a Fico score). A good Fico score is 720 or above. Bizarrely, the only way to build credit is to borrow money, so you can pay it back and get a score. Paying bills on time will not help build any credit, but failure to pay can damage your credit rating. It is worth checking your credit history every so often and making sure that you register with the three credit bureaux to stop unsolicited offers. (Note that you will need a Social Security number in order to have a credit score.)Some expat arrivals to the US have the benefit of having an account with an international bank such as Citi Group, HSBC or American Express, and are therefore able to transfer their credit history.
Most expats, however, are in a catch-22 situation where they have no credit, and therefore no credit score; and without a credit score cannot easily get credit.
In order to build a credit history, residents need to borrow, starting with a revolving loan such as a credit card, then move on to an instalment loan – such loan for a car – and finally a mortgage or real estate loan. This peculiar process will take two to three years, but will build you a decent credit score.
In order to build a credit history, residents need to borrow, starting with a revolving loan such as a credit card, then move on to an instalment loan – such loan for a car – and finally a mortgage or real estate loan. This peculiar process will take two to three years, but will build you a decent credit score.
As soon as you arrive in the US you should open a bank account, and once you have a bank account it should be relatively easy to get a secured card, usually Mastercard or Visa, with a limit of between $300 and $1000. This is not a credit card as the bank will need to hold a deposit equal to your credit limit in a savings account.
In order to start getting a credit history you should get a credit limit of between $500 and $1000, any more is unnecessary. You should try to spend around one third of your limit each month, but don’t spend more than 50% or the system will mark you down as being over-extended. You should use this card for regular purchases but not at hotels or with car rental companies that can often hold a deposit against your account, which may be in excess of your credit limit. Another option is getting a store card or a gas card on the same basis, but you should make sure you do not have multiple cards as this will damage your credit score, and your card must be with a reputable company. When you apply for a credit card make sure you opt out of unsolicited 'convenience checks'.
Once you have had a card for six months or so you will have a Fico score, albeit a low one. Now you can apply for an instalment loan, for a car or furniture. Remember to:
In order to start getting a credit history you should get a credit limit of between $500 and $1000, any more is unnecessary. You should try to spend around one third of your limit each month, but don’t spend more than 50% or the system will mark you down as being over-extended. You should use this card for regular purchases but not at hotels or with car rental companies that can often hold a deposit against your account, which may be in excess of your credit limit. Another option is getting a store card or a gas card on the same basis, but you should make sure you do not have multiple cards as this will damage your credit score, and your card must be with a reputable company. When you apply for a credit card make sure you opt out of unsolicited 'convenience checks'.Once you have had a card for six months or so you will have a Fico score, albeit a low one. Now you can apply for an instalment loan, for a car or furniture. Remember to:
- Borrow money for at least six months, but if you can afford it pay the bulk of the loan back as soon as possible so you avoid the iniquitous interest charges.
- Do your research before applying for a loan as a failed application will damage your credit score and don’t give them your social security number until you are ready to apply as they will run your credit with our without your permission.
- Ensure early repayments are allowed, so once you get the loan you can pay back the bulk of the loan early, paying only a minimum sum for the remaining months.
After having had an instalment loan for six months or more you apply for a proper credit card; aim to get one from decent company such as Amex, Bank One, Bank of America, Chase, Cit Bank, HSBC, MBNA or Wells Fargo. Do your research to ensure competitive interest rates, and not just short-term teaser rates, and make sure you pay on time and do not use more than 50% of the available credit.
The final step in securing a good credit rating can be getting a real estate loan, although most expats are not likely to buy property in the US.
