As an immigrant, I also went through the process of building US credit from scratch many years ago. Depending on the culture you’re coming from, you may have been raised to think credit (and therefore debt) is bad, and that you should always be debt free. Or you may not have been given any sort of financial education. I’m here to tell you that credit is nothing but a tool that can be used to build wealth. You don’t have to actually carry debt, or pay interest to the banks in order to build a credit history. But you do need to open accounts, and have credit available (which should be used sparingly and wisely).
The information below gives you the shortcuts to a more roundabout journey I personally had. The details I included will guide you through the specifics of living and working in Utah, so that you can easily find the resources you need.
Obtaining a mortgage loan
Lawful permanent and non-permanent residents of the United States can borrow money and obtain mortgages on real estate property under the same terms available to US citizens.
In additional to long term legal status (since mortgages are 10-30 years long commitments), you must have the following 3 things:
- A Social Security Number (SSN)
- Acceptable credit
- A source of income that is likely to continue, as well as a 2 year past work history (either here, or in your home country, or combined – as long as it adds up to a full 2 years worth of employment)
I’ll mostly guide you through building US credit, but if you have any questions on qualifying for a mortgage loan, please feel free to reach out to me by email at [email protected]
If you’ve been in the US for over a year now, and have bills in your name, but have never established a traditional credit history (via accounts reporting to the credit bureaus) – it is possible to use non-traditional credit to qualify. Reach out, and I will walk you through the details.
Building your credit history and score
In order to fully live the American Dream, you have to know how to play the credit game.
There are 3 major credit bureaus that will report a credit score and history for you. Most banks/creditors report both good and bad information about you to at least one of the bureaus. Their names are Experian, Equifax and Transunion. These bureaus are then responsible for each generating a credit score for you, based on the data they receive, and their risk calculating matrix.
There are 2 types of credit you can get to help build a credit history: secured, and non-secured.
Secured credit would be an auto loan, or a mortgage. This means the loan is secured an asset, such as a car or a home. There are also “secured credit cards” – meaning credit cards secured by a deposit you make, and that is held as insurance by the creditor. The deposit you make is generally your credit limit on the credit card.
Unsecured credit comes in the form or most other credit cards, personal loans, student loans and my favorite, overdraft lines of credit.
You won’t be able to get unsecured credit with a brand new social security number, so don’t bother applying – you’ll just get denied because of the lack of credit history.
What you want to do is apply for a secure credit card, and build about 6 to 7 months worth of credit history with it. Charge small things here and there, pay it off in full.
You don’t have to carry a balance and pay interest in order to build credit. You just need to have a card in your name, and you can even use it just every few months. Make sure you have it on auto pay where it’s set up to always make the minimum payment so you don’t forget about it and end up with a late payment on your credit report. Ideally, you want a secure credit card that will convert to an unsecured one after a certain amount of time has passed.
My recommendation is for you to open a free checking account with one of the local credit unions that offer secure credit cards. America First Credit Union is my absolute favorite. They offer free checking and savings accounts without sneaky conditions about maintaining a minimum balance, or having a certain amount of transactions per month, or direct deposit. Ask for the Classic Checking.
They also offer secure credit cards, and my favorite for building credit: overdraft lines of credit.
The overdraft line of credit will be your second account that I recommend getting. You can try getting one when you apply for the secure credit card, but they’ll probably make you wait. Give it about 7 months, and apply for it. The overdraft line of credit will back up your checking account should you ever go in the negative by charging things on your debit card when you don’t have available funds. It’s usually a small amount like a $200 or $500 limit, but it will do wonders for your credit score because it’s an additional type of credit, different from a credit card. You don’t ever have to use it, just having it is great, and adds peace of mind.
Other things that can help: if you know someone here with US credit, they can add you as an authorized user to their credit card. This requires a certain level of trust because a card will be issued in your name, but the account holder can keep it so they have peace of mind that you won’t go on a spending spree with their credit card. Make sure the account you’re being added to has a perfect payment history and low utilization (low balances). Otherwise it will hurt, not help you. This move helps your credit by association.
Once 7 months or so have passed since you opened your first credit account (say, your secured credit card), then you’ll actually generate a credit score that can be used by creditors to extend credit such as an auto loan, or an unsecured credit card.
AFCU is also known for good auto loan rates, so check them out when the time comes for you to buy your own wheels.
As for unsecured credit cards, the store credit cards are a good place to start, as they have a higher rate of approval. Think Target, or Victoria’s Secret, or whatever store you shop at often that offers an in-store credit card.
Don’t go too crazy on this, you don’t want to open too many accounts in a short period of time. Be selective with the credit you open, and strategic.
Here are the things that go into calculating your credit score:
- payment history (no late payment, this is why you should always set up your accounts to auto pay the minimum amount required in case you forget!)
- credit utilization (the percentage of credit you use on a given account vs the account’s limit – the higher the utilization, the more risky you appear to creditors; low balances are key, aim for under 10% of your credit limit)
- account age – this is why I want you to open accounts with a local credit union, and look for those with no annual fees; you want to keep your oldest accounts open as long as possible. If you opt for a credit card with an annual fee, at some point you won’t want to pay it and that account will need to be closed.
- new credit obtained – too many new accounts make you more risky, be selective about what credit you apply for
- credit mix – ideally you want a credit card or two, an overdraft line of credit, and maybe an auto loan. That’s a good mix of different accounts (vs just having credit cards for example) -number of credit inquiries – every time you apply for new credit, a credit Inquery goes on your file and will stay on there for 2 years. If you’re shopping for an auto loan or a mortgage, it’s ok to apply in multiple places in a short period of time (say 14 days). There are different opinions on the timeframe in which you should shop and have those inquiries be looked at as being related, but just play it safe. Don’t apply for credit unless you need it, and don’t keep applying when you get denied (there’s a reason, find out why).
Once you’ve build a good credit history, you’ll see opportunities to apply for credit line increases on existing accounts, or for fancy credit card with cash rewards or travel rewards. Again, do your research, because not every shiny object is worth it.
My personal favorites have good rewards and no annual fees. I have one for traveling, and one that gives me great rewards for groceries, since those are the two places I spend most of my money on.
Circling back to credit utilization, here is a tip not enough people know, and it’s very important.
Your credit score will change multiple times a month depending on how many open credit accounts you have. The credit bureaus don’t know your balance on a day to day basis – they only see what gets reported on your account statement.
So if you max out your credit credit, and the statement shows that, it doesn’t matter that you paid the balance in full the day after (and well before your due date). The bureaus will only see that you maxed it out, and the high utilization will hurt your credit score until the next statement comes out and your balance is hopefully lower.
You can pay the balance on your accounts before the statement comes out (and I recommend it, especially if you’re charging a bunch of things). Just make sure that if there is any balance left, or any charge that posts after, that you still make that minimum payment that is required by your credit card statement. Again, set up autopay and don’t skimp on this. It’s a small enough amount that will save your credit that one time you forget a monthly subscription charge went through (even if you locked your credit card from new purchases!).
Just take my word for it.
You can (and should) get free copies of your credit report once a year by visiting www.annualcreditreport.com and requesting a copy from each credit bureau. This will not give you your credit score, but review your credit report to make Sur everything is good.
I highly recommend signing up for Experian’s free credit monitoring system. No need to upgrade your subscription regardless of how much they pester you every time you log in. This will give you a fairly accurate credit score and a copy of your credit report with Experian once a month. It might even be worth to do a paid subscription for a short period of time where it give you an updated score daily, so you can see how it changes when a statement comes out with a certain balance (the utilization I mentioned above).
Some credit cards will give you free credit scores as well, but they’re not always reliable sources. Credit Karma is one of the worse out there, and the scores provided are usually completely off, but their main goal is to get you to sign up for credit cards that pay them an affiliate (or referal) fee. Don’t bother.
I do recommend you Opt Out of pre-screened credit card offers. It sounds like something that is helping you, but in reality it allows the credit bureaus to sell your information to creditors (ah, Capitalism!). And the creditors that buy this information are generally not nice companies with the best of intents – they’ll likely be predatory credit cards with high fees. If you want new credit, take the time to research or ask friends.
Final words of caution: stay away from co-signing loans for people. As well intended as this is, the debt will affect your ability to qualify for new credit, and even the most honest reliable person can go though hard times and not be able to make their minimum payments. A joint account that goes delinquent will damage your credit history, as well as your relationship, so have healthy boundaries around it. It’s ok to say no.
You can add someone you trust as an authorized user to your account, but you don’t have to also give them the credit card associated with the account. Keep that for yourself in order to avoid charges being made without your knowledge or permission. You’ll be helping, but also taking precautions, and that’s ok too, don’t feel bad about setting this rule up front.
Also be careful with 0% APR offers. Don’t go too crazy charging stuff on credit just because you don’t have to pay interest for a while. It can be the gateway to sliding into credit cards debt, and I’m telling you this from personal experience.
Well, I think that about covers it.
Building a good credit history will impact your ability to secure a mortgage loan, and the better your credit score is, the better the loan terms will be. Anything over a 700 credit score is great, and over 740 is excellent.
If this article was helpful, feel free to send me an email to introduce yourself, and let me know your goals. [email protected]. I will cheer you on, and help you with any advice as you move through your journey. .
Welcome to Utah my friend. It’s a wonderful place to call home!
