When Alex Gerard immigrated to the United States from Russia in 2010, he encountered a problem he had not anticipated. Though he had an excellent financial portfolio back in Russia, he had no credit history in the U.S., which made it very difficult to obtain a credit card.
“I did some research online and everything I came across made it sound like this was going to be a big problem, but I came to realize my situation was definitely not as bad as many articles indicated,” says Gerard, CEO and founder of the credit card advisory service CardsMix.com. “With no credit, I realized my chances of getting a credit card were similar to someone with an average or fair credit score, and they were much better than if I had bad credit here in the U.S. I just had to make a plan.”
Gerard cobbled together a modest but successful credit-building strategy for him and his wife, and within one year, they both had multiple credit cards and scores north of 720.
“Unfortunately a lot of immigrants don’t pay attention to this or think about it as a problem,” says Gerard. “But when you come to the U.S. you really need to start paying attention and building credit right away. And the good news is it’s not that difficult.”
If you are a recent immigrant, these expert tips will help you build credit and increase your borrowing power as a new U.S. consumer.
Starting from zero
Regardless of your pre-immigration financial standing, you’ll arrive in the United States with a virtually blank financial slate, and that’s because foreign financial institutions don’t report to any of the U.S. credit bureaus responsible for maintaining credit reports.
“It doesn’t matter if you’re a Russian billionaire or coming from relative poverty. When you come to the U.S. you’re not going to have any credit history at all,” says Jonathan Garvey, CEO of the credit building startup SelfLender.com, which caters to consumers who either have bad credit or no credit at all, including U.S. immigrants. “The bottom line is that you need to have an active, revolving line of credit to start building a history.”
It’s a similar quandary faced by young Americans who find that the absence of credit makes building positive credit a challenge—with one key difference.
“If you’re 18 and were born in the U.S. you probably have a support network of friends and family who can add you as an authorized user on an existing card to help build your score and history,” says Garvey. “Someone new to this country may not have that assistance to call upon.”
Get a secured credit card and pay some bills
One of the simplest and most effective ways to build credit without a credit history is to call a local bank or credit union and apply for a secured credit card, which requires a modest deposit to protect against default.
For instance, the Capital One Secured MasterCard has no annual fee, requires a security deposit of as low as $49 and offers a starting credit line of $200. Deposit more money and the credit line will increase.
Or, consider the Discover it Secured Card, which requires a $200 deposit, has no annual fee, and even gives 2 percent back on restaurant and gas purchases and 1 percent back on everything else.
It’s critical, says Gerard, to make sure you are using this secured card frequently and responsibly, sticking to small purchases you pay off right away.
“I can tell you from my experience that your first line of credit may look like a joke, but consider it a training and credit-building tool,” he says. “Use the card, always pay on time, pay your balance in full each month, and make sure you’re not using more than 30 percent of your available credit at any given time.”
It’s also a good idea to build a history of financial responsibility in other arenas, says Jennifer McDermott, consumer advocate for the personal finance site Finder.com and a recent U.S. immigrant from Australia.
“To help move the credit-building process along you should consider getting on a lease, registering with utilities and obtaining a cell phone plan,” says McDermott.
To be clear, timely payments on utilities and cell phone plans do not help your credit score in current scoring models, but McDermott says they did help her become more vigilant in her budgeting. What’s more, landlords are not required to report timely rent payments to the major credit bureaus. However, if you’re interested in using this as a potential credit-building strategy, ask your landlord to use a site like RentTrack.com, which allows you to pay your rent through the site. RentTrack and services like it report timely payments to credit bureaus, helping you build credit history and grow your score.
Seek out alterative financial services
It’s becoming increasingly easy for new immigrants to find professional resources to assist them in building credit from scratch.
For instance, SelfLender.com offers new immigrants a “credit builder account,” which is a small 12-month loan provided by one of their partnering banks. It’s FDIC insured, earns 0.10 percent APY, and is kept in the individual’s name for the year. As users make payments each month, that history is reported to the credit bureaus, and when all is said and done the loan is paid off, the CD has matured and the user now has a documented payment history to help them establish even more credit.
Another option might be Mission Asset Fund (MAF), a San Francisco-based nonprofit that offers socially networked lending options for new immigrants looking to increase savings and build credit. In partnering with the Levi Strauss Foundation, MAF currently partners with multiple nonprofit finance organizations in 11 states.
“There really are more options out there than ever before to help new immigrants establish a valuable credit history,” says Garvey.
Be ready to upgrade
Establishing credit in the U.S. doesn’t stop with a small line of secured credit, and you need to know what to do after that first step.
First, Garvey says most secured credit cards will have built-in graduation, meaning that once you’ve had the card for anywhere from 6 to 12 months and your credit score climbs above 650, the bank will offer you an unsecured card with a higher credit limit and a lower APR.
“That’s the whole goal, right? You want to keep expanding your available credit to have as much financial independence as possible,” says Garvey. “If you don’t get an offer to graduate from your secured card provider after 18 months, get out into the market and start applying for unsecured cards.”
Secondly, Gerard suggests adding a few modest loans from a local credit union once you’ve had your secured card more than six months. It adds to your overall available credit and continues to add positive history to your budding U.S. credit report.
“Most importantly, don’t put it off,” says Gerard. “It may seem tedious an inconvenient, but building credit is an important process. And if you plan to live in the U.S. you need to start that process as soon as possible.”