If you are an immigrant, you may find establishing credit in the United States difficult and frustrating. Here we will provide some tips for making the process a little easier.
There are three major credit reporting agencies (CRAs) in the United States: Equifax, Experian and TransUnion. These companies are not government organizations, and they are in competition with each other. That means they do not share information with each other. You can learn the basics of how credit reporting works here.
If you have established credit in your home country, unfortunately, you will not be able to transfer that history to a credit reporting agency in the United States. CRAs in the US cannot accept information from companies overseas, for what they explain as legal/privacy reasons.
That means you’ll have to start from scratch.
Step One: Get a Social Security Number (SSN)
The first thing you’ll likely need in order to establish credit in the U.S. is a Social Security number. In the past an ITIN (international taxpayer identification number) would be sufficient, but those numbers are no longer compatible with the CRAs systems. You will also need an address in the United States to list on credit applications. Learn how to get Social Security number here.
Is a Social Security Number required?
Technically, no. But practically, yes. Credit reporting agencies can create a credit file on a consumer without an SSN by matching other identifying information about you. However, from a practical standpoint, it will be very difficult to get and build credit without one. Most lenders will require a Social Security number in order to check your credit when you apply. And if you do get credit but don’t have a SSN, that reference may not end up in your credit report.
However, you cannot get a SSN solely for credit purposes. The Social Security Administration, which issues SSN’s, states on its website that, “We cannot assign you a Social Security number solely (for) a service that requires a credit check.” It also states that, “Although many companies, such as banks and credit companies, may ask for your Social Security number, you are generally not required to provide one if you don’t have one. “
Step Two: Get Credit
In the U.S., credit reports contain both positive and negative information about how you have handled credit. You officially start building your credit history when you get credit from a lender who reports your account and payment history to one or more of the CRAs. Again, credit files in the U.S. contain both positive and negative information, unlike some countries where only negative information is reported.
There a few ways to get your first credit account. One would be to find out whether or the bank or financial institution where you hold your checking and/or savings account can offer you a secured loan. With a secured loan, you leave money in a deposit account with the financial institution as collateral for your loan. (Your credit line is generally equal to the amount you have on deposit, so this means there is less risk for the financial institution if you don’t pay.) However, this approach will only work if that loan will be reported to the CRAs, so be sure to ask upfront.
A similar option is to get a secured credit card. This is a major credit card that requires a security deposit. Learn how secured cards work here.
Watch Out: Secured cards are different from prepaid cards, which allow you to load money onto the card and spend it. Prepaid cards do not report to the major credit reporting agencies, and do not help you build a credit history.
Tip: In general, when you are first establishing your banking relationship in the US, it makes a lot of sense to shop around first. Talk with the bank and find out what they can do to help you get established in the US.
A third option: If you have a credit card issued by a company that also issues cards in the US, you might try finding out from them whether they can issue you a US-based credit card.
A fourth option: Get a cosigner. If you have a family member who has already established credit in the U.S., you can ask them to cosign on a new loan or account for you. However, do not be offended if they say no, because there are pitfalls. Your cosigner will be liable for this debt if you can’t pay. And if you miss any payments, those late payments will hurt your cosigner’s credit as well as yours. (Late payments can be reported for seven years.) So it’s essential that you pay on time each and every month.
Getting Credit is Just the Beginning
To build strong credit you’ll need to be able to demonstrate a positive payment history over time. It is essential that you use credit if you want to build good credit. In other words, if you get a secured card you will want to use it every month to keep it active. It’s perfectly fine, however, to pay the bill in full to avoid interest charges.
Unfortunately, you can’t build a credit history overnight. It does take time, because one of the factors used to calculate your credit scores is how long you’ve had your credit accounts. All other things being equal, a new credit history is somewhat risky, even if there is no negative information in your file.
The bottom line? Slow and steady will win the race here. Be very careful about getting involved in any kind of credit schemes designed to shortcut the process. You need to go step-by-step: get a Social Security number and a US address; get credit even if it means getting a secured loan or credit card; and pay your bills on time every month. Once you have a credit reference under your belt for at least six months, do it all over again.