For new arrivals to the United States, it is crucial to understand the importance of establishing credit and take active steps to build a good credit history as soon as you arrive. Having bad, or no credit at all, makes everything cost more for you - and you don’t want that! The concept of “credit history” (a record over a period of time of a person’s repayments to a borrowed debt, like a loan or credit card purchase) can be confusing, frustrating, and counterintuitive to newcomers to the U.S., since many countries do not track credit history. In the U.S., banks, brokers, and landlords use something called a credit score to determine your trustworthiness to repay a loan, make mortgage payments, or make rent. In the United States, credit history plays a large role in determining your credit score, and having no credit history can be just as bad as having a bad credit history. An expat may arrive with spotless records of mortgage payments and very little debt in their home country, but they start off in the U.S. with a completely blank slate credit wise.
Here are some of the possible consequences of having no U.S. credit:
Difficulty renting an apartment or buying a home
Difficulty buying a car (higher interest rates or denial for a loan)
Extra deposits on utilities, U.S. cell phone contracts, and higher security deposits on rental homes
Higher interest rates on home and auto loans
Difficulty getting a credit card (missing out on credit card perks such as free airline miles, cash rewards etc.)
You get the picture. Having no U.S. credit score will cost you thousands of dollars in extra fees and higher interest rates until you establish yourself as “worthy” of a loan. You can see why it is so important to act fast to establish a good credit score in the U.S.
Your credit history is a history of payments to a lender or credit card and shows whether those payments were on time, missed, or late. Three major credit bureaus in the U.S. track your credit history: Experian, Equifax, and Transunion. These bureaus compile individual credit histories and calculate a credit score based on an algorithm that mostly has to do with these three things: 1) how long an individual has had an open credit account; 2) debt to income ratio; and 3) payment history on credit debt. People who have lived in the U.S. for many years and who have several credit cards or loans are establishing a credit history for better or worse each year, and their score reflects how consistently they make payments on debt.
What is a “good" credit score?
Excellent Credit: 750+
Good Credit: 700-749
Fair Credit: 650-699
Poor Credit: 600-649
Bad Credit: below 600
A credit score (also called a FICO score) ranges between 300 and 850. Over 700 indicates good credit management but for the very best interest rates on loans and higher credit limits a good goal is a credit score of 760 or above.
So, how do you get U.S. credit when some banks won’t even give you a credit card without a good credit score or credit history? Here are some key steps every expat or transferee should do or consider doing in order to establish credit as fast as possible.
1. Apply for your social security number as soon as possible.
Your social security number is used by credit reporting agencies to track your payment history and you cannot build a U.S. credit history without it. It is crucial to give your bank your social security number as soon as you receive it in the mail and apply for a credit card as soon as possible.
2. Choose an expat-friendly bank to open your U.S. bank account and apply for a credit card or secured credit card right away.
There are two banks in the San Francisco Bay Area that work with newcomers to actively help you build your U.S. credit history right away. While other banks will require proof of a U.S. address, a social security number, and other things a new resident does not yet have before even opening a basic bank account, the following banks allow you to open an account with only your visa, passport, and one other form of Identification.
Bank of the West offers extremely personalized service, does not require a social security number, or residence address before opening your account, and will issue you an Expat/U.S. newcomer credit card once you do get a social security number. Bank of the West is a very expat-friendly bank.
Bank of America also will work with expats without prior history. Walk into any branch (there are many!) and ask for an experienced agent to open an account with your visa/passport and one other proof of ID. They do not guarantee an unsecured credit card for expats but they have a secured credit card option and have an application process that takes your employment offer letter into consideration. B of A may have a partnership with your company that helps you secure a credit card quickly. Be sure to ask about this!
3. If you plan to buy a car, take out a small car loan - and pay it off on time.