The process of moving to a new country is full of difficulties and uncertainties. A lack of US credit history is a great challenge that the majority of expats would have to face. In a lot of cases, without a good credit score, you won’t be able to successfully apply for a mortgage or even rent an apartment.
It is incredibly important to start building your credit history in the United States as soon as possible and getting an installment loan for that matter is one of the things that you might want to consider. A loan can help you diversify your credit mix, build a payment history, and, ultimately, pay any existing debt off faster.
Let’s dive deeper into the topic and find out what the credit score is based on, how you can start building your credit history, and how to improve your score once you have one.
Also known as the ‘FICO score’, your US credit score can be anywhere between 300 and 850.
Fun fact: FICO stands for ‘Fair Isaac Corporation’ – this was the first company that offered a credit score.
The main competitor of the FICO score is the VantageScore. The latter uses the same range and the same data but weighs the information a bit differently. That means that your FICO and VantageScore can be slightly different, but if one of the scores is great, the chances are extremely high that the other is going to be high as well.
There are three credit bureaus that collect credit information in the United States – Equifax, Transunion, and Experian. The bureaus then sell the info to the creditors. Your credit score across all three bureaus might vary a bit, but, in general, is the same.
Creditors can set their own standards of what credit score they are willing to accept. Here are the general guidelines that you can consult:
At the moment, the average FICO score in the US is at its all-time high – 711.
A FICO score considers five different categories from the credit reports (the percentages show the influence of the factor on your overall score).
Whether or not you have paid past credit amounts on time.
Having multiple credit accounts is not necessarily a bad thing. But if you are using too much of your available credit, the banks might consider you as high risk.
The age of your oldest and newest account and the average of all your accounts are considered, as well as how long it has been since you have used some specific accounts.
If you have opened several new accounts in a short period, you might present a greater risk for the lenders.
Though it is not necessary to have one of each, the score considers your mix of credit cards, mortgage loans, retail and finance company accounts, and installment loans.
VantageScore uses similar factors but ranks them by influence.
Having a good credit score can benefit you in a lot of ways.
You will have low interest rates (the amount a lender charges a borrower) on loans and credit cards, a better chance of loan and credit card approval, and you even try applying for higher limits. A high credit score also means better car insurance rates and fewer problems with renting apartments and houses.
Moreover, you’ll be able to avoid dealing with any kind of deposit. For example, when getting a phone on contract.
Finally, a high credit score gives you more bargaining power as you will be able to negotiate a lower interest rate on a loan, for example, and use any attractive offers from other companies as leverage.
Oh, and you can use your high credit score to brag, which is also a plus.
At times, having no credit score is just as bad as having a low one. Thankfully, non-US citizens can start building their credit history as soon as they arrive in the States.
Here are a few things that you can do.
One of the easiest strategies is to find a bank that offers a secured credit card. You would be asked to put a certain amount in a bank account and then the bank will allow you to borrow the same sum that you are already holding in the account.
For example, if you have deposited $200, you will be able to borrow $200.
Usually, to apply for a secured credit card, you are going to need a permanent address (in the States or your home country), a bank account, employment, an ITIN (individual taxpayer identification number), and SSN (social security number).
If you have an account with an international bank that also operates in the USA, you can try asking the bank to transfer your account to the States.
You might even manage to transfer any Membership Awards points to a new card, in case you have them.
If you have a family member or a close friend with a credit-worthy account, you can ask them to become an authorized user of their card.
As a result, you will get a new credit card with your name that will be linked to your friend’s account. Bear in mind that in such a case, you both will be able to impact the credit scores of each other, if one of you decides not to pay the credit on time, for example.
A lot of major credit card companies report authorized user transactions to the credit bureaus. So, it’s a quick way to start your credit journey.
There are even online platforms that will let you become an authorized user of a stranger’s credit card. The strategy is called ‘piggybacking for credit’.
You might be able to get a student credit card. But it will be much easier for the foreign students that are over 21 and have an official source of income.
A lot of credit cards for students require a social security number and can be offered only to those who are at a 4-year university, community college, or other higher education institution.
Here are a few other ways that will help you start building a credit history that doesn’t require a credit card.
This is one of the most important things that you have to do after relocating to the States. At times, you can initiate the process before leaving your home country.
Look for expat-friendly banks that will allow you to open an account with only a letter of verification and confirmation of your income from the employer.
An SSN is a Social Security Number and, once again, you can apply for it before the actual relocation (during the visa application process).
The majority of lenders would require an SSN before processing any applications.
Getting a personal contract can be challenging, as a lot of phone companies would require you to pay a large security deposit. However, all monthly payments will contribute to your credit history.
It is extremely difficult to lease a car with a zero credit score, but, fortunately, there is such a thing as an ‘international executive lease’. Some European car manufacturers offer such an option.
These special programs are aimed at foreigners. The great news? The monthly payments will help you start building a credit history.
Did you know that an installment loan can help you improve your credit score?
Of course, taking out a loan only for that matter is not the best decision, but if you are looking for an emergency financial solution, then an installment loan might become not only that but also a great way to build credit.
Here are the ways in which a safe and affordable installment loan can help you:
Remember one of the five categories that FICO takes into consideration when coming up with your credit score? A credit mix refers to the various kinds of debt that you owe. If you, for example, already have a mortgage and credit card debt, then an installment loan can diversify your credit mix even more.
The more diverse this category, the higher your overall score.
Tip: you might take a loan to pay off some of your credit card debt but be careful! Installment loans can also add to your total debt load and lower your credit score if you fail to pay them off on time.
If you manage to find an affordable installment loan with low-interest rates, then you can use it to pay off your other debts that have higher interest rates.
This step would require careful calculation and investigation. Found out how much you owe in total (together with the interest rates) and start looking for an installment loan with an equal or lower rate.
The fact that you have managed to pay your other debts off will, of course, be reflected in the credit score.
Whether you’re looking for a way to improve or simply begin your payment history, getting an installment loan might be a great place to start. Ensure that all the monthly payments are made on time and take advantage of the improvement in your credit score.
Warning! Make sure that the lender is reporting all the information to the credit bureaus. Otherwise, all your efforts would go for nothing.
How to choose the best installment loan out there? If you want to start building or improving your credit score, then you have to, ideally, go for a loan that will not simply end up on the credit report.
The installment loan should also be:
Whether you have a non-existent or bad credit score, you should try to find an installment loan that you can take out with your current score.
You have to go for an installment loan that is affordable, otherwise, you might end up only ruining your credit score. Find an option with a great interest rate and affordable monthly payments and origination fee.
You don’t want to take out a loan just for the sake of it, you also want it to be useful. An auto loan, for example, can be used not only to build your credit score but to actually get a new vehicle.
In a nutshell, don’t sacrifice your budget, in order to build credit. Choose a smarter path and go for installment loans that tick all the boxes.
Everybody knows that you should always pay your bills on time. But it’s easier said than done.
Here are a few tips that will help you be at the top of your game:
Remember that payment history has one of the biggest impacts on your credit score, so you should do your best to get a handle on bill payments.
Credit utilization is the portion of your credit limit that you are using at the moment. The best way to make sure your credit utilization is ok is by paying your credit card balances in full every month.
In case you can’t really do that, simply try to keep the total outstanding balance at 30% or less. Getting your credit utilization to 10% will benefit your credit score even more.
Tip: you can also ask for a credit limit increase (just make sure that your balance doesn’t increase as well).
There are two types of inquiries into your credit history.
The so-called ‘soft inquiries’ include checks performed by potential employers, credit card companies, and you yourself. Such inquiries do not affect your score.
Hard inquiries, on the other hand, can affect your credit score (sometimes, for 2 whole years!). These include applications for a new credit card, an auto loan, a mortgage, etc.
An occasional inquiry won’t have an effect. However, multiple hard inquiries can easily damage your score, so try to avoid applying for new credit too often. Otherwise, it might look like you desperately need money due to financial difficulties (therefore, you are a high risk for the banks).
In a nutshell, the older your average credit age, the higher your credit score.
Do you have old accounts that you are not using? Don’t close those down as, in such a case, you are going to lower your available credit and increase the credit utilization ratio.
You have to try to pay your bill in full whenever it is possible. In some cases, an installment loan can help you with that.
If you have a few outstanding debts, it may be beneficial for you (and your credit score) to take out a loan and pay them all off. If you manage to do that, you are going to have only one payment to deal with.
Get a copy of your credit report from all credit bureaus and carefully review it. This will help you know exactly what is helping and what is hurting your credit score and you’ll be able to work on any improvements more efficiently.
Of course, you shouldn't forget to keep track of your progress.
Immigrating to a new country is always a tough job. Thankfully, there are a few things that will make your life a lot easier. And a high credit score is certainly one of them.
Starting building your credit history doesn’t necessarily have to be challenging. Apply for a secured credit card, open a bank account, get an SSN, consider getting an installment loan – and your credit score will start improving in no time.