Building Credit as a New US Citizen
Building credit as a new US citizen can be a daunting task. Many high-net-worth clients, despite being successful and financially stable in their home country, arrive in the United States and are unable to easily secure loans, mortgages, and other financial services because they don’t have established credit in the United States. LCR Wealth has prepared a US credit overview and some tips to make either the transition or establishment of US credit a bit easier.
Credit scores or credit ratings—measures of how likely you are to repay your loans—are calculated differently around the world. Some countries have different rating systems depending on whether they employ “positive” or “negative” credit bureaus. The United States has a “positive” credit bureau model, which factors in healthy credit behavior (such as paying your bills on time) to boost your score as well as poor credit behavior (such as paying bills late or defaulting on loans), which lowers it. In the United States, your credit score is a three-digit number, ranging from 300 to 850. That score results from an analysis of your credit file, including your bill-paying record, how long you have had a credit record, and how much of your available credit you are using (that is, whether your unpaid debt is approaching your credit limit). According to the news agency CNBC, “Lenders use your credit score to judge your potential credit risk and ability to repay loans. Credit score ranges vary based on the model used (FICO versus VantageScore) and the credit bureau (Experian, Equifax, and TransUnion) that pulls the score. FICO scores are used in 90% of lending decisions.”
A good credit rating is key to accessing a higher standard of living. Your credit score will be the strongest factor used to determine the interest rate granted when you purchase a car, a home, and other items that require financing. A good credit score sets the foundation for your ability to borrow money.
Transferring Your Credit Score
If you had a strong credit rating in your previous country of residence, it may be in your best interest to inquire with your bank if you can transfer your credit rating to the United States. You will most likely need to partner with a global credit scoring bureau to do this. Transferring a credit rating to a new country can be very difficult and in some countries is not allowed. However, the work and diligence used to gain a strong credit rating in your home country do not have to go to waste.
If you already have a good credit history in a different country, consider working with a partner like Nova Credit. Nova Credit assists clients to qualify for credit products in the United States with your credit score from your home country or last country of residence. Nova Credit translates international credit data from various countries into an equivalent US score that newcomers can share with certain companies when they apply for US credit related products.
By using the services of a company like Nova Credit, you can acquire a credit-builder loan from a US bank to help fast-track your journey to a healthy credit score. As its name implies, a credit-builder loan is a loan you take on for the purpose of building credit. The bank issues you a small loan with the intention that you will make regular payments on it to steadily increase your credit score over the terms of the agreement.
Outside of transferring credit scores from your home country, it is important to begin building US-based credit as soon as you enter the United States. Start early. International student can begin their credit journey by accessing US-based lenders, such as MPOWER Financing or Tala. These firms will grant loans to international students without requiring collateral, a cosigner, or a US credit history. All payments made on these loans are reported to the US credit bureau and go toward the goal of building US-based credit while still in school.
To Build Credit There Are Three Important Steps To Take.
The first is to apply for a Social Security number (SSN) through the Social Security Administration. SSNs are important, because credit card issuers and banks frequently ask for this number when you apply for a credit card or a loan. For noncitizens, you must be authorized to work in the United States in order to qualify for a SSN.
The second step is to apply for a credit card. While the absence of a US credit history may make it difficult to qualify for a traditional unsecured credit card, you may be able to get a secured credit card. According to the credit card company Capital One, “With a secured card, you deposit a certain amount of money in order to set up the account. The card issuer holds this security deposit, as it’s called, as long as the account is active. A $200 deposit might translate into a $200 credit limit.”2
The third important step is to open a US bank account. The bank account itself will not affect your credit score, but many credit card issuers require an applicant to have a bank account, especially when you apply for a secured credit card. Having a bank account also shows to those you wish to approach for a loan that you have a US-based account, which allows them to move forward past the initial stages of a review.
By employing these financial steps you can drastically decrease your time to build a solid US-based credit rating. Having a US-based credit rating effectively allows you and your family to access a higher standard of living and reduce financial stress. At LCR, we are dedicated to helping you build a life here with a strong foundation to last for generations to come.