The United States is supposed to be the land of opportunity, but there's a big obstacle for newcomers: establishing credit.
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Many new immigrants quickly learn they can't easily rent an apartment, get a credit card or buy a car because they have no U.S. credit history.
"Your credit report is specific to the national boundaries in which you live" says Rod Griffin, director of public education for Experian. That's due to differences in cultures, national laws and how information is collected and stored. "All those things make it difficult, if not impossible, to transfer credit information across national boundaries."
When you move to America, "You start from scratch in building a credit history."
New to the US with no credit
Right after Mariia Les arrived from Ukraine to study at a university in Missouri, she got a crash course in how U.S. credit works when she went to sign up for a cellphone plan.
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"They told me I didn't have any credit history," says Les, who now works as a marketing analyst in Chicago. "I was a little bit shocked." That's because the concept of a credit file was a new to Les: She remembers once forgetting for months about a Ukrainian account that was $20 in the negative, then simply paying it with no late fee or black mark on her record.
After leaving the cellphone store with no phone, Les immediately began working to build her credit. She got a job on campus and, with it, a Social Security number. You don't need a Social Security number to have a credit history, but it does help identify your credit file, Griffin says: "It's the only identifier unique to the individual."
Les then applied for a store credit card, but got turned down. A few months later, she tried again and got an Express card with a $100 limit. "I started with small purchases," she says. For example, she'd buy a shirt or skirt for $30 or $50 and pay it off right away. Then she charged a dress for $100 and paid it off over a few months. Soon after, she got a Macy's card.
At that point, she decided to try for a bank credit card. "That was the hardest to get," she says. She went to the bank near campus where she had an account, and her first application was rejected. A few months later, she tried again and got approved for a card with a $300 limit.
Because Les had been researching how to build U.S. credit, she knew it was important not to max out her card. She kept her credit utilization ratio -- the amount of available credit being used -- at less than 50%. She'd make small purchases, such as birthday presents for friends.
"I just kept using the card and paying it off," she says.
Credit 101 for newcomers
In the United States, anyone who is considering extending credit to you, from cellphone providers to banks that issue credit cards and make auto loans, will check your credit history.
If you're brand new to the country and a lender tries to pull your credit file, "It simply doesn't exist," says Meredith Griffanti, senior director of public relations for Equifax.
It's only when you apply for and get credit, and the lender starts reporting information about your account, that you get a credit file with each of the three major U.S. credit bureaus -- Equifax, Experian and TransUnion. These files show which accounts you have, how much you owe and whether you pay your bills on time.
Being from another country has no bearing on the way your credit is reported, Griffin says. "There's no reference at all to immigration status, nationality or anything like that," he says.
When deciding whether you're likely to repay a loan, lenders use both the detailed information in your credit reports and its distilled product, a credit score. "It's a tool used to analyze the information in a credit report at a moment in time," Griffin says. You get a FICO score, which is one of the main credit scores used by U.S. lenders, after you have had an account open and active for six months, says Anthony Sprauve, senior consumer credit specialist for myFICO.com. A FICO score can range from a terrible 300 to a pristine 850.
It is possible for an immigrant with no credit history or score to build credit fairly quickly with the addition of one positive account to their file, says Tara Robinson, communications director for the Mission Asset Fund, a California-based nonprofit organization that helps consumers build credit through social lending.
With the Mission Asset Fund, participants lend small amounts of money to each other with zero interest and no fees. The nonprofit services and guarantees the loans, and it reports payment history to the credit bureaus, she says. "We have people come together to lend and borrow money on the books."
One single mom from Guatemala, Helen Ochoa, was working as a part-time receptionist and had no credit history or score when she joined a lending circle through Mission Asset Fund, Robinson says, noting that Ochoa reached a score of about 650 in less than a year.
"It was high enough to get her approved for an apartment," Robinson says. "She no longer had to rent a room in a boarding house with a bunch of other folks."
Be smart about building US credit
While going from nothing to good credit takes time, these nine tips can help speed the process:
- Start with one account. "Start small and be targeted -- don't apply for 10 things at once," Griffanti says. You might start out by going to a credit union or local bank and applying for a secured credit card -- one that is backed by funds you put in an account, Griffanti says. That's how Jim Dailakis, a comedian who moved from Australia to New York to do a stand-up tour, first got credit. After five months of using and paying his secured card on time, his bank offered him a regular credit card with a $5,000 limit. "I was meticulous," Dailakis says. "I wouldn't just pay the minimum amount. I would pay the entire amount, to the penny."
- Make it automatic. Consider setting up automatic payments through your bank to make absolutely sure all of your bills, from utilities to loans, get paid on time, recommends Kenneth MacKinnon, who moved from Scotland to the United States six years ago after he met and fell in love with an American woman at a party while on a work trip to Los Angeles. "That way, there's no chance of missing a deadline," he says.
- Lean on your spouse. If you relocated for love and your spouse has good credit, you might be able to "piggyback" on their good credit by becoming an authorized user on a spouse's credit card or by jointly applying for a loan, MacKinnon says. When MacKinnon first arrived on U.S. soil, he had excellent credit and owned his own business in the United Kingdom, but couldn't get a U.S. credit card. He used his U.K. credit cards and paid hefty fees. "It was a hassle," he says. But then the couple bought a car together, with both names on the loan. "My credit rating went up to top notch."
- Leverage a current credit card if you can. If you have a credit card in your home country from an international issuer, you might be able to call the financial institution and get them to issue you a U.S. credit card based on your past relationship, Griffin says.
- Try to make your rent count. If you find a place to rent, you can try to get your rent payments reported to Experian, which now includes rent payments in credit reports, Griffin says. If your landlord does not already report to the bureau, you and your landlord can sign up for electronic rent payments, which will be automatically reported to Experian's RentBureau. "Whether you live in a house or an apartment building with 1,000 units, it's a great way to begin to build a credit history if you're paying your rent on time," Griffin says.
- Meet with a lender in person. "It might make sense to go face-to-face to a bank and explain your situation instead of applying for a credit card or loan online," Griffanti says. That's what Les did, going into the branch of a bank near her university to apply for a bank credit card. "That's the only way I knew," Les says. "In Ukraine, you always go in and talk to people." One suggestion: Print out a hard copy of your credit history from home and take it in with you to show the lender. "It may help," Griffin says.
- Network with other new arrivals. One thing that helped Les learn about U.S. credit was talking to other international students about their credit experiences. MacKinnon's wife, Sallie Olmsted-MacKinnon, says a newsletter called "Brits in L.A." helped connect other expats the couple knows with car sales reps, real estate agents and other professionals who are flexible and willing to work with immigrants starting from zero.
- Consider alternative credit. Social lending is an option for immigrants building credit, though it's not available to everyone, Robinson says. Mission Asset Fund works with nonprofits in six states, and is hoping to double that number by next year, she says. When a consumer from outside California asks to participate in a lending circle, the group will refer them to a nonprofit partner if there is one in that consumer's state.
- Guard your personal information. One mistake Les made when she was building credit was that she didn't keep her personal information under wraps. She added her roommate, also an international student, to her cellphone plan and gave the woman her Social Security number in case she needed to call the provider about the account. Months later, Les learned her roommate had used the number to open a cellphone account for her sister, who racked up a bill and left the country. That caused Les's hard-earned credit score to dip, and she had to work hard to build it back up.
Once you do have a credit file, it's crucial to keep close tabs on it to look out for mistakes and watch your progress. "Monitor it from the very first day," Les says. "You never know what's going to affect your credit score."