How to build credit in the U.S. as a new immigrant

Moving to a new country comes with new and exciting challenges. For many new arrivals in the U.S., establishing credit is one of them. Credit affects so many aspects of life and financial goals, including buying a home or a car and renting an apartment.

Keep reading to learn how you can build credit in the U.S. as a new immigrant.

What you’ll learn:

• Immigrants in the U.S. may find it easier to get a loan or other financial product once they’ve established credit.

• Applying for a Social Security number, opening a bank account and applying for a credit card are typical first steps toward building credit in the U.S.

• Practicing good financial habits like paying bills on time and applying only for the credit you need can help you build credit.

• You can establish credit without opening a credit card account by doing things like becoming an authorized user or taking out a credit-builder loan.

Building your credit can help you build a better future. But it takes time, effort and responsible use. Here are five steps that might help you establish credit as a U.S. immigrant.

Credit card issuers and banks frequently ask for your SSN to verify your identity before approving you for a credit card or loan. But depending on your immigration status, you might not be eligible for an SSN.

If you’re unable to get an SSN, an alternative is an ITIN issued by the Internal Revenue Service (IRS). An ITIN is available to certain nonresident and resident aliens, their spouses and their dependents if they don’t qualify for an SSN.

A credit card can be a good tool for building credit if it’s used responsibly. It might be tough to qualify for an unsecured credit card without a credit history. But a secured credit card could be an option. 

With a secured card, you deposit a certain amount of money to set up the account. The card issuer holds the deposit as long as the account is active. Sometimes secured card credit limits are the same amount as the security deposit. So a $200 deposit might translate into a $200 credit limit. But at Capital One, cardholders can raise their credit line by depositing more than the minimum.

As you make on-time payments on a secured credit card, you build a positive credit history. You might even eventually switch to an unsecured credit card, which doesn’t require a deposit.

Read more about applying for a credit card as an immigrant.

Once you’ve opened a credit card account, it’s important to practice good financial habits. 

Here are some steps you can take to use credit responsibly and build your credit:

• Make payments on time. Payment history represents a large part of your credit scores. And making timely payments can help build credit. Late credit card payments can stay on your credit report for up to seven years. They can also lead to late fees and higher interest rates. Consider setting up automatic payments or electronic reminders for all of your bills to prevent late payments.

• Avoid maxing out your card. If possible, try to stay well below your credit limit. This can benefit your credit utilization ratio, which shows how much of your available credit you’re using. The lower your credit utilization ratio, the better your credit scores might be. The Consumer Financial Protection Bureau (CFPB) recommends keeping your credit utilization below 30%. Limiting your card’s use to a few specific expenses can help you get started and avoid billing surprises.

• Be careful with applications. Applying for a credit card usually triggers a hard inquiry on your credit. And that can affect your scores. That’s why the CFPB says to apply only for the credit you need, noting: “If you apply for a lot of credit over a short period of time, it may appear to lenders that your economic circumstances have changed negatively.” 

• Monitor your credit. As you work to establish and build credit in the U.S., you can monitor your credit to track progress and watch for potential issues. CreditWise from Capital One is free and won’t hurt your credit. You can also get free copies of your credit reports from AnnualCreditReport.com.

A solid history of on-time payments for things like rent, cell phone, internet and electric bills could also help you build credit. But this is only the case if this activity is reported to a credit bureau and if a credit-scoring company includes these bill payments in its calculations. 

Keep in mind that falling behind on these payments can lower your credit score even if your bills aren’t being reported regularly. Depending on how far behind payments get, the accounts could be turned over to a collections agency. The debt collector could make a negative report to the credit bureaus.

Perhaps you’re not ready for a credit card, or you haven’t been approved for one. You still have ways to build credit. Here are a couple:

• Become an authorized user. As an authorized user on a trusted person’s credit card account, you’d get your own card linked to the primary cardholder’s account without having to apply for your own. The account holder is responsible for the bills. But negative actions could harm both your credit.

• Take out a credit-builder loan. With a credit-builder loan, you’re required to pay off the amount owed before you’re allowed access to the money. Getting approved for a loan but not having immediate access to your funds may seem contradictory. But one benefit of this type of loan is that you’re building a payment history. Lenders report that information to the credit bureaus. And if you’re on time with all your payments, you could see a positive impact on your credit scores.

Like the U.S., other countries have credit scores. But each country has its own credit-scoring systems that aren’t typically compatible with those in the U.S.

Building credit takes time. And there’s no magic formula for how long it takes. That’s because credit scores and reports are based on your history with credit. And it takes time to build a record of that. 

But you can get a FICO score calculated within about six months of opening an account that reports to the credit bureaus. It may take even less time to get a VantageScore.

Credit cards are a tool to build credit in America. But that’s only possible if you’re using credit responsibly by doing things like paying statements on time every month.  If you think you’re ready for your own card, you can get started by comparing cards from Capital One. Plus, you can even find out if you’re pre-approved without any harm to your credit scores.