Moving to the US from a foreign country can be exciting, but this thrilling opportunity also presents a great deal of challenges. Many immigrants are surprised to learn that their credit score cannot always ‘follow them’ to their new country. Upon arrival to the US, immigrants quickly realize the importance of a credit score to secure a mortgage, receive a loan, or obtain auto insurance. This is why it is important to learn how to build credit with no credit history.
Credit overview for immigrants
What is a credit score?
Wondering what a credit score is? In simple terms, credit is an amount of money that banks or lenders are willing to lend you based on the understanding you will pay it back. Examples of credit can include a home mortgage, financing a car, or a personal loan. A credit score is the summary of all your financial activities in the US, and this score is used by banks and some insurance companies to the extent it affects your credit history. Essentially, credit companies, or bureaus are looking to determine if you are fiscally responsible and will repay your loans and/or bills in a timely manner.
How is a credit score determined?
A credit score is determined by several factors which can include:
- Your payment history
- Age of your accounts
- Your total debt
- The different types of credit you have
Credit scores can range from 300 to 850 points, and any score above 700 is considered good. A score below 600 is considered poor.
Why is a credit score important?
A credit score may seem arbitrary, but this number holds great power. A good credit score can give you access to better interest rates for loans, mortgages, and credit card terms. Furthermore, a lack of credit or bad credit can make it more difficult to rent a property or your credit history can affect your ability to obtain a lower auto insurance quote in some states. Since driving is probably part of your new life in the US, it is important to make sure you and your vehicle have the correct coverage. Reach out to a trusted provider, like Infinity Insurance Agency, Inc. (IIA) at 1-855-478-3705 to discuss your options.
Difference between bad credit and immigrants with no credit
In the eyes of the US, there is a difference between immigrants with no credit history and those with bad credit. While both categories are less than ideal, it is typically considered worse to have bad credit. Having bad credit indicates you have missed bill or loan payments or not paid the full amount. This signifies to potential lenders that you have a negative track record. On the other hand, immigrants with no credit do not have enough credit-related activity to generate a score making lenders unsure about their ability to repay debts.
Tips for building credit
New immigrants are often generally referred to as ‘credit invisible’ since they typically lack a US-based credit report. Regardless of whether you arrive in US with bad or no credit, there are ways to build a reputable credit score:
Apply for an ITIN or SSN
Depending on your situation you may be eligible to apply directly for an SSN (Social Security Number). While it is possible to build a credit score without an SSN, many banks and lending institutions will ask for one when applying for a loan, credit card, or opening an account. If you do not meet the requirements for an SSN, an Individual Taxpayer Identification Number or ITIN may be available to you. An ITIN is generally an acceptable substitute for an SSN, and you will be able to generate an ITIN credit score from a major credit bureau.
Apply for a secured credit card or loan
The next step on your credit journey is applying for a secured credit card or loan. As an individual with limited to no credit history, it may be difficult to open a standard line of credit. However, by obtaining a secured credit card you can begin to establish financial responsibility and build credit history. A secured credit card is a special credit card designed for individuals building or rebuilding credit. These credit cards will require an initial deposit, but through on-time payments and paying off your balance in full, they can help you to establish a positive credit history.
Another option is a credit-builder loan which is usually easier to qualify for. These are small loans that are put into a secured savings account on your behalf. You then are responsible for paying off the loan via monthly payments. Once the loan is paid off you can use the money, and you will have helped to establish your credit.
Become an authorized user
Another way to build credit is by becoming an authorized user. If you have a trusted friend or relative in the US with established good credit, you could ask to be added as an authorized user to one of their credit cards. As an authorized user, your friend or family member’s credit card accounts will show up on your reports. If your friend or family member submits payments on time, this can be a great way to help build your credit history. Just be sure to ask the card issuer to directly report your authorized access to the credit bureaus.
Get credit for paying rent and other bills
One of the best and most fiscally responsible ways to build credit is by paying your bills in a timely manner. Simple acts such as paying your cellphone, cable, or even rent on time can have a positive impact on your credit score. Since this information is not usually reported to credit bureaus, you will need to specifically ask to have it provided. You can do this through services such as Azibo or Experian Boost. Make sure to always pay your bills on time as a late or missed payment could be detrimental to your score.
Responsibly manage your credit accounts
Getting a credit card or loan is great, but if you fail to manage your accounts properly it could hurt your score. As previously mentioned, one of the best ways to manage your credit is to pay your bills and loan payments on time. If your payment is later than 30 days, you may be met with a significantly lower score. Aim to keep your credit card balances low, as your credit utilization ratio (how much available credit you are using at any given time) is a factor in determining your score. Individuals with great credit usually keep their rate in the single digits.
Lastly, be cautious about overextending your credit, opening too many credit card accounts at one time can be detrimental to your score. Remember, one of the factors in determining your credit history will be the age of your accounts.
Monitor your credit score and credit report
Knowledge is power, staying on top of your credit score and monitoring your credit report is an important step in building and keeping good credit. Various websites and credit card companies allow you to check your score for free. Always be sure to scan your reports for any errors or discrepancies that could negatively affect your score.
How long it takes for immigrants to build credit
Building credit is a process, but that doesn't mean you'll be stuck with no credit forever. Immigrants with no credit can expect to build credit within as low as several months. Please note that it can take 3-6 months of activity before a credit score can be calculated. After a full year, many immigrants can establish a positive credit history. By making great credit choices and monitoring your activity you can watch your score grow over several years.
How credit history impacts auto insurance
In many, but not all states, auto insurance companies can use your credit history, along with other factors, to provide an insurance quote. These companies will use your credit history to try to predict how likely you are to file an insurance claim, which is one factor used to determine your rate. Generally, individuals with lower credit are seen as less likely to file claims so many times they receive better rates. According to Value Penguin, poor credit can raise your rate to 88%. However, the states of California, Hawaii, Massachusetts, and Michigan have all banned insurance companies from using credit history to determine rates or deny policies.
If you are interested in discussing your auto insurance options, give one of our IIA agents a call at 1-855-478-3705. We have friendly Spanish-speaking bilingual agents available to provide advice specifically tailored to the Hispanic community.
Resources for recent immigrants
It can feel overwhelming to rebuild your entire credit history. Nevertheless, there are organizations such as the International Rescue Committee (IRC), that can provide financial education and assistance to immigrants. If you are interested in securing credit cards for immigrants you can look to banks such as Citi, Capital One, and Discover all of which offer secure credit card options. Depending on where you live you could benefit from a state-wide financial literacy program.
Other resources that are available nationwide online include:
- AmericaSaves
- MyCreditUnion.gov
- MyMoney.gov
If you are immigrating from a specific country such as Australia, Mexico, or Canada it may be possible to translate your home country credit score to a US credit rating through a program like Nova Credit.
A new life in a new country means a fresh start for your credit. Whether you are starting over with bad credit or little to no credit, don’t feel discouraged. There are multiple pathways to establishing a healthy credit history. With time, patience, and a bit of financial education you can set yourself up for credit success.
If you are curious about how your credit or lack thereof could impact your auto insurance premium, don’t hesitate to call IIA, at 1-855-478-3705. Our skilled team can provide you with a free quote today.