Author Topic: Just immigrated to the US - how do I build my credit score?  (Read 1081 times)

Aardvark

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Hi all,
Last year I immigrated to the US. I recently received a Social Security Number, and I am now trying to understand how best to go about the task of building a good credit score (with the main intention of getting a good mortgage rate in a few years time). Any advice would be much appreciated, but here is what I have found so far:

1 - Having a credit card seems to be a good starting point, but I am not clear on whether it needs to be used to any specific extent in order to contribute to my credit score? In other words, would it be beneficial to use as much as possible of my line of credit each month? Or does having a credit card in itself count for something?

2 - I have come across something called "Credit-builder loans", "Fresh Start Loans" or "Starting Over Loans"... But these seem to be aimed at people who are starting from a bad score rather than from no score at all. Any comments on this would be great.

3 - In my home country having a contract with a cell phone provider, or paying for items in installments contribute to your credit score... Bot sure whether that's the case in the US. Again - any help/insights would be great.

Aardvark

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Re: Just immigrated to the US - how do I build my credit score?
« Reply #1 on: July 22, 2021, 03:49:47 PM »
It seems that being listed as an authorized co-signatory on my wife's credit card will also help my score.

mckaylabaloney

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Re: Just immigrated to the US - how do I build my credit score?
« Reply #2 on: July 22, 2021, 04:14:34 PM »
The tricky thing about not having a credit card is that it's difficult to get approved for a credit card because you don't have credit history. Real chicken and egg situation. It's correct that being an authorized user on your wife's card should help your score.

You can also try to get a secured credit card if you have a hard time getting approved for standard cards due to lack of credit history. Here is one example: https://www.discover.com/credit-cards/secured/. Assuming all goes well with a secured card, it should start building your credit history and making it easier to get approved for other types of cards as well (and those cards, in turn, will help you get approved for loans). I know people who have done this successfully when starting from a place of no credit history.

Having credit cards does, in itself, build your credit history and raise your credit score, assuming you demonstrate creditworthy habits like always paying on time. There is a common misconception that you need to carry a balance in order to build your credit score. This is not correct: you can (and should) pay off your credit card statement in full every month. Indeed, it's a good idea to keep the outstanding balance on a credit card statement low because part of your credit score is your credit utilization ratio. This basically just means: how much of your available credit are you actually using? A lower number is good, because it indicates that you're keeping your spending in check and not just maxing out your total credit.

So, for example: let's say you get a credit card with a $10,000 credit limit. You don't want to try to run up your balance so that the credit card company reports a $9000 balance on a statement (even if you plan to pay off that balance immediately and on time!), because that's a very high (90%) credit utilization ratio. Note that credit reporting agencies (who calculate your credit score) typically only know what's on your credit card statement -- they don't know how much you've spent over the month in total, if you've paid off those purchases along the way (prior to your statement date). Sometimes, if I have a large purchase I need to put on a credit card, I'll pay it off as soon as it hits my credit card account (rather than waiting for it to show up on my next credit card statement) so my credit utilization ratio stays low.

For this reason, getting more credit cards can actually boost your credit score (especially in the long run): you lower your credit utilization ratio by increasing the amount of credit that's available to you.

Dave1442397

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Re: Just immigrated to the US - how do I build my credit score?
« Reply #3 on: July 22, 2021, 04:18:58 PM »
Sign up at www.creditkarma.com

They give you an accurate view of your current credit profile, and have plenty of info on what affects your score.

They have a tool where you can try different scenarios to see how they'll affect your score: https://www.creditkarma.com/tools/credit-score-simulator


s0198362

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Re: Just immigrated to the US - how do I build my credit score?
« Reply #4 on: July 22, 2021, 04:36:03 PM »
as you said, become a card holder on a family members credit card.

also, if you have had a relationship with American Express in your home country for over a year, you can request that they take that into account when applying for a card.  it wonít give you immediate credit history, but it can help give a higher credit limit authorization, which is a key credit score parameter.

Loren Ver

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Re: Just immigrated to the US - how do I build my credit score?
« Reply #5 on: July 22, 2021, 05:29:13 PM »
Hi all,
Last year I immigrated to the US. I recently received a Social Security Number, and I am now trying to understand how best to go about the task of building a good credit score (with the main intention of getting a good mortgage rate in a few years time). Any advice would be much appreciated, but here is what I have found so far:

1 - Having a credit card seems to be a good starting point, but I am not clear on whether it needs to be used to any specific extent in order to contribute to my credit score? In other words, would it be beneficial to use as much as possible of my line of credit each month? Or does having a credit card in itself count for something?

2 - I have come across something called "Credit-builder loans", "Fresh Start Loans" or "Starting Over Loans"... But these seem to be aimed at people who are starting from a bad score rather than from no score at all. Any comments on this would be great.

3 - In my home country having a contract with a cell phone provider, or paying for items in installments contribute to your credit score... Bot sure whether that's the case in the US. Again - any help/insights would be great.

Hello and welcome!

Here is a link to what is used to calculate your FICO score https://www.myfico.com/credit-education/whats-in-your-credit-score.  There are others ways this is done (with slightly different percents, but I'm going to use this one.  The overall ideas are the same  FICO is your credit score. 

So from that chart your FICO credit score is calculated based on:
35% is paying on time
30% amounts owed (credit utilization ratios)
15% length of credit history
10% new credit
10% credit mix

Getting to your questions"
#1 Getting a credit card and using it.  This impacts the: paying on time, amounts owed, length of credit history, and  credit mix.
How?  It gives you an opportunity to show the calculators that you can handle this type of credit responsibly.  It gives you more credit you are responsible for (as another poster mentioned, credit utilization ratios).  Get as much credit as you can, it makes your ratios better.    You start building a credit history, which shows a patter of good and responsible use.  It also changes your mix of types of credit you have. 

You will notice that no where in the percents i listed does it matter how many times you use the credit card.  You need to use it enough to keep it active.  Actually there is some benefit to paying it off twice monthly, since the date the data is reported to the credit bureaus is not necessarily aligned with the date your bill is due, so if you pay the credit card off twice a month (or more) your credit utilization will always be as low as possible, maximizing that 30% of good credit.

#2  I don't know these specific loans, but they most likely play off the issue that people with bad credit or no options can't get credit cards or loans worth having.  They help your credit score for the same reasons as #1.  If a person already has credit cards having a loan does help with credit mix, since a loan is different type of credit, and adds to the mix. 

Could these help you, yes, but I would not recommend taking out a loan you do not need, as this is not a fiscally responsible thing to do in the long run.  Loans = paying interest.  Don't pay interest.

#3  Paying your bills on time counts towards a good credit score, so yes, a cell phone contract or paying for items on contract would count.  Always paying all your bills on time is the best way to get your score up.  Try to have bills in your name, then pay them. 

#4  Yes, being on your wife's card will help you as long as the bill always gets paid. 

Credit score is just linking your name to your credit using financial habits to establish the risks associated with loaning you money.  Lower risk, the more likely they will loan you money at a good rate. 

I didn't talk about the 10% new credit.  Be careful about that.  When you apply for a new credit card they do a hard pull which hurts your credit for a time.  If you get rejected for credit, it increases your chances of getting rejected by others.  At the low end, it can be a bad cycle. 

A secured credit card is not a bad way to start the process and get building. 

Good luck!

Loren

travel2020

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Re: Just immigrated to the US - how do I build my credit score?
« Reply #6 on: July 23, 2021, 01:43:09 AM »
It takes some effort but not too difficult to build it. Someone I know started off by getting himself added as an authorized user to a family members account. After some time, he applied for a credit card at the local bank where he has a checking/savings account is, and now has a couple of cards that are used regularly but paid off promptly to avoid fees, interest etc. His credit score has gone from non-existent to 800+ in 3 years or so.

Here are some approaches you can look into to build credit when start8ng out without a credit history:
- look into getting some store store or gas station credit cards. I donít know if this is still the case but those used to be a lot easier to obtain at one point in time and allowed an easy path to building a credit history
- see if your school/employer has any special arrangements e.g. some local banks and credit unions have special offers for people moving here to work for high tech companies
- some banks let their customers get secured credit cards as a way to build credit history e.g. if you put $500 in an account, they will issue you a credit card with $500 limit that you can use to charge & payoff monthly
- get added as an authorized credit card user on someone elseís account e.g. a close family member or good friend with mutual trust

I donít think you need the credit builder type loans as those seem more aimed at people who have a bad history vs no history.


 

thesis

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Re: Just immigrated to the US - how do I build my credit score?
« Reply #7 on: July 23, 2021, 07:44:38 AM »
Open an account at a bank that you plan to stay with for a long time. I started my adult life with a strong "no credit card" stance, and although this might have been a really great move at first, once I had already built good financial habits I realized that whether I liked the credit score system or not, it was probably smart to at least get started. I had been with my bank for 7 years, so I applied for their most basic card and was very quickly approved.

My paid off student loans may have played into that, but that hadn't seemed to matter for a few other credit cards for which I was declined. I think having a strong history with your bank is a good way to get started.

Not a fast route, but one way to do it.

NumberJohnny5

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Re: Just immigrated to the US - how do I build my credit score?
« Reply #8 on: July 23, 2021, 08:58:07 AM »
Easiest way is to be an Authorized User on someone's card who has good credit history. To be specific, only the credit history on that particular card is relevant, so even if they have horrible credit...if they've had this one card for years, zero missed payments, and low utilization, that's perfect. Once you've been added, wait for their next statement to come out. That's generally when updates are made to the bureaus. Feel free to check your credit now, it should be showing up (the first time you check your credit, you might have to do extra validation; I'd wait until SOMETHING was on the credit report though). Note that this isn't the same as a cosigner; an authorized user is a user who is authorized to make charges to the account, but is not legally liable. Credit history generally doesn't matter for an AU, because they're not responsible for the charges. But it'll report to your credit history and give a big bump. Note that if the actual holder of the account falls behind on their bills and/or charges a lot up and has high utilization, this will be reflected on your report; what I'd recommend doing is having them add you to their card, wait for the changes to show on your credit report, get a card or three of your own with your newfound awesome credit, then have them take you off of their card. Once you're taken off either their history will completely disappear from your credit report, or it'll just stop updating.

You'll hear people say that it's imperative to carry a balance, and others say the opposite. There's truth to both, and I'll explain it now. Yes, it IS important to carry a balance on at least one card, but that doesn't mean you have to pay interest. What I mean by that is, don't pay the card to $0 just before the statement ends, with the idea that the lower the credit utilization the better, right? Well yes, as long as it's not literally 0%. Seriously, carry a balance of at least $1 (any lower and the credit card may just report $0, or try to be helpful and wipe out the $0.15 balance). Personally, I will either: make two payments a month (one just before the statement ends, making sure I leave a small balance; if it's a week or so out and there are pending charges, I'll go ahead and pay it in full), and again after the statement generates, again paying in full. This ensures that I never pay interest AND utilization is near, but not exactly, zero; OR: not care about utilization and just pay the statement balance once the bill comes out. The latter is what most people refer to when they say to not carry a balance.

Stay away from loans that are for those with bad credit. You don't have bad credit, you have no credit. Different scenario, different solution. There's some overlap but...just stay away from those.

A secured card would be a good way to go. It should have little to no annual fee (I'd be ok with $50 or under). Capital One would likely be a good choice.

Utilities and such will report to your credit report IF you don't pay. Make payments on time, they won't show up. Miss a payment, you have a negative mark on your report now.

ChickenStash

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Re: Just immigrated to the US - how do I build my credit score?
« Reply #9 on: July 23, 2021, 10:16:58 AM »
In my opinion and based on what I see happen with my own score over the years the best advice it to just get a card and use it. When the statement comes in the mail/email, pay it off. Wash, rinse repeat for a few years. If you can be placed as an authorized user on an existing account in good standing, great. Just make sure to pay on time. There will be many suggestions for fancy ways to build it faster but I'm not a fan of complexity when a simple solution will get to the same place with only a little extra time and less risk.

Use places like Credit karma or your bank to keep an eye on your credit score - they will probably be different numbers since there are many "credit scores" depending on who is looking and for what purpose but they should reflect the same relative position in the rankings.

Overall, just make use of credit/loans reasonably and pay the statements on time - even if it's only the minimum on a bad month. A lot of "good months" can be erased with a single missed payment.

Telecaster

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Re: Just immigrated to the US - how do I build my credit score?
« Reply #10 on: July 23, 2021, 02:49:57 PM »
Overall, just make use of credit/loans reasonably and pay the statements on time - even if it's only the minimum on a bad month. A lot of "good months" can be erased with a single missed payment.

I take this a step farther and pay off everything at least every two weeks.  I never want to be late for anything, ever.  Sometimes payment dates will change (looking at you Bank of America!) or you just miss one.  It also adds to peace of mind because you are much less likely to be surprised when it comes time to pay bills. 

Aardvark

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Re: Just immigrated to the US - how do I build my credit score?
« Reply #11 on: July 23, 2021, 03:17:09 PM »
Thanks everybody - these responses are extremely useful! I really appreciate the input.

@NumberJohnny5  thanks for the input - can you confirm that it is better to be listed as an Authorized User rather than a cosigner on my wife's credit card?

NumberJohnny5

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Re: Just immigrated to the US - how do I build my credit score?
« Reply #12 on: July 23, 2021, 03:32:20 PM »
Thanks everybody - these responses are extremely useful! I really appreciate the input.

@NumberJohnny5  thanks for the input - can you confirm that it is better to be listed as an Authorized User rather than a cosigner on my wife's credit card?

Better? Depends. Easier? Definitely.

If it's a joint account, they have to check both of your credit reports. Will they be more leery to give a card to a couple where one has good credit and the other has none? Maybe? But if she already has a card and is simply adding you as an Authorized User, they don't care what your credit is, because they're not extending any credit to you. Plus, if this is just a temporary thing to boost your credit score so you can get some credit of your own, it's extremely easy to take an Authorized User off the account (quick phone call, say that she wants to remove the Authorized User "John Doe", and that's it). It'll be anywhere from a hassle to outright impossible to remove one person from a joint account (because the account is joint...hence they may insist on closing the account entirely and opening a completely new one in the sole person's name).

ChickenStash

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Re: Just immigrated to the US - how do I build my credit score?
« Reply #13 on: July 23, 2021, 04:54:30 PM »
Overall, just make use of credit/loans reasonably and pay the statements on time - even if it's only the minimum on a bad month. A lot of "good months" can be erased with a single missed payment.

I take this a step farther and pay off everything at least every two weeks.  I never want to be late for anything, ever.  Sometimes payment dates will change (looking at you Bank of America!) or you just miss one.  It also adds to peace of mind because you are much less likely to be surprised when it comes time to pay bills.

That's a good strategy, particularly at the start of the journey.

I found as time goes on a late or missed payment every once and awhile isn't a big deal. Whenever I screw up and miss a due date I just call up customer service, plead stupidity on my part (it's true), and they usually clear the "naughty flag" and nothing changes. As long as it doesn't become a frequent problem, of course.