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

Moving to a different country comes with new and exciting challenges. For many recent 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. So 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 a credit card once they’ve established credit.

• Applying for a Social Security number (SSN), opening a bank account and applying for a credit card are possible 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 credit can help you build a better future. But it takes time, effort and responsible use. Here are four steps that might help you establish credit as a U.S. immigrant.

Credit card issuers and banks often 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.

An alternative is an Individual Taxpayer Identification Number (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.

Policies for accepting ITINs differ among issuers. And some issuers may only accept ITINs for some of their cards.

A credit card can be a good tool for building credit if it’s used responsibly. A new immigrant without a credit history might find it tough to qualify for some credit cards. But there are options for people at the beginning of their credit journey.

With a secured credit card like Capital One Platinum Secured or Quicksilver Secured, you deposit a certain amount of money to establish a credit limit. The card issuer holds the deposit, which is typically refundable. 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 some cards might provide a credit limit that’s higher than the amount of the security deposit. With the Platinum Secured card, an initial security deposit of $49, $99 or $200 can open an account with a credit line of $200. Platinum Secured also lets cardholders raise their credit limit by depositing more than the minimum.

As you make on-time payments on a secured credit card, you can build a positive credit history. This can lead to you getting your deposit back and switching to an unsecured credit card, which doesn’t require a deposit.

The Platinum Mastercard is a traditional, unsecured credit card designed for people with fair or average credit scores. It has a $0 annual fee. View important rates and disclosures. And in as little as six months, you’ll automatically be considered for a credit limit increase.

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 to build your credit.

• Make payments on time. Payment history represents a large part of your credit scores. Making timely payments can help build credit. But late credit card payments can hurt your credit scores. They can also lead to late fees and higher interest rates. Setting up automatic payments or electronic reminders could help you avoid late payments.

• Avoid maxing out your card. Staying below your credit limit can benefit your credit utilization ratio, which represents how much of your available credit you’re using. The Consumer Financial Protection Bureau (CFPB) recommends keeping your credit utilization ratio 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. Multiple hard inquiries at once can affect your scores. 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 the activity is reported to a credit bureau and if a credit-scoring company includes these bill payments in its calculations.

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. And 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.

As an authorized user on a trusted friend or relative’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. If the card issuer reports the information to the credit bureaus, using the account responsibly can positively impact both your credit. But negative actions could harm both your credit.

The FTC warns of a related scam called tradeline renting or credit piggybacking. This is where companies sign you up as an authorized user on a stranger’s credit in exchange for a fee. The FTC says such practices can be illegal and can’t guarantee any benefit to your credit scores.

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 strange. But one benefit of this type of loan is that you’re building a payment history when 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.

Here are some frequently asked questions about newcomers to the U.S. and building credit.

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. You can get started by comparing cards from Capital One. Plus, you can find out if you’re pre-approved without any harm to your credit scores.