6 ways immigrants can build credit
By Matt Alderton
March 28, 2016
A credit score often is needed to start a business, buy a car, purchase or rent a home, acquire insurance and sometimes even secure a job. For immigrants to the United States who are starting with a clean credit slate, establishing and building credit can be especially difficult.
For instance, banks typically require a credit history and a Social Security number before applicants can open an account, and many immigrants lack one or both of these. That makes it hard to access even basic financial services.
“Having good credit gives you access to the goods and services you will need to live in this country,” says Alejandro Aguilar, CEO of Miami Business Consulting, a small business consultancy. Aguilar moved to the U.S. from Venezuela in 2010. “It is an intricate part of many different aspects of our daily life.”
Of the nearly 320 million people who live in the United States in 2013, approximately 41 million, or 13.1 percent, are foreign-born, according to the Pew Research Center’s analysis of U.S. Census Bureau data. Most are naturalized citizens.
For all the new and recent arrivals to the U.S., here are six ways immigrants can establish and build credit:
1. Secured cards
Matthew Coan, founder of Casavvy.com, recommends starting with a secured card, which is a card that requires a cash deposit as collateral. For example, if you deposit $1,000, the bank will give you a $1,000 credit line.
Qualification requires a steady income, and some secured cards have annual fees. And though most secured cards report card activity to the three big credit bureaus (Equifax, Experian and TransUnion), it’s always wise to double-check with the issuer before you apply for the card.
“You can use a secured card as you would any other credit card and it reports your progress to all of the major credit bureaus. Therefore it can help elevate your credit score as any other credit card would,” says Coan.
After about a year with a secured card — making payments in full and on time — you will have established a credit history to help you qualify for unsecured credit cards, which don’t require a deposit.
Coan likes the Discover it Secured Credit Card. After a year, Discover reviews the account monthly “to see if you can be moved up to an unsecured card,” he says. “You also earn cash back on the money you use it to spend with — a rarity with secured credit cards.”
When Aguilar relocated to the United States, his first card was a secured card.
2. Retail cards
Retail credit cards — including gas cards — typically are easier to qualify for. Indeed, Aguilar added a Best Buy card to his wallet three months after his arrival in America.
“Store cards like Macy’s, Best Buy, Wal-Mart, etc., are cards that will help you establish your first credit score,” he says.
And store cards, which often include sign-up bonuses such as a percentage-off purchases, can come in handy when furnishing a new home or outfitting children for school. Note, though, that these cards tend to have higher interest rates, making carrying a balance expensive. Also, a store card often is good only for purchases at that specific retailer.
“You can use a secured card as you would any other credit card and it reports your progress to all of the major credit bureaus. Therefore it can help elevate your credit score as any other credit card would.”
— Matthew Coan,
founder of Casavvy.com
3. Credit builder loans
An alternative to a credit card is a starter loan, says Jim Wang, founder of the personal finance blog Wallet Hacks.
“A loan may be easier to get, especially smaller ones. The goal is to start the credit history, however you can, and demonstrate good behavior,” he says.
Also known as a credit builder loan, a starter loan “is almost like a secured card,” says personal finance writer Louis DeNicola, head of content at Saveful.com. “You’ll put $500 in a savings account, then the bank will lend you $500 and you’ll make payments to the bank for at least six months to build credit,” he says.
“Once you finish paying the $500 loan, they’ll give you your $500 back. It’s a way to show you can make payments to a credit line without the issuer taking a big risk.”
Community banks and credit unions typically are the best source of credit builder loans, DeNicola says. About one in five credit unions offer this type of loan, according to the Credit Union National Association, and the average balance is $1,146.
Things to check: Do you need a co-signer? Also ask about the interest rate and repayment terms. Typically, you’ll pay a higher interest rate than someone with good credit.
And as with credit and secured cards, make loan payments on time every time or you’ll ruin your chances of building a good credit score.
4. Card transfer programs
Immigrants who’ve established credit in their home country may be able to take advantage of a credit transfer program, using credit history in one’s home country as the basis for extending credit in this country, DeNicola says.
One such program is American Express’ Global Card Transfer program. “If you’ve already built credit with American Express wherever you’re from, you can use that existing relationship to qualify for U.S.-based products,” he says.
Just apply for a new U.S.-based AmEx card and include your current AmEx card account number from your home country. Additional documents may be needed to verify identification and address. And while your rewards points can be transferred to your new card, the balance on an existing card won’t move to the new card.
Citibank offers a similar service for customers who have its Citigold checking account, DeNicola says.
5. Build credit as an authorized user
If you can’t qualify for your own line of credit, try leveraging someone else’s.
“If you have a family member or trusted friend who already has a credit card, you can be added as an authorized user and ‘piggyback’ on that line of credit.”
— Jim Wang,
founder of Wallet Hacks
“If you have a family member or trusted friend who already has a credit card, you can be added as an authorized user and ‘piggyback’ on that line of credit,” Wang says. You will then have access to that line of credit via a card with your name on it.
Here’s what you need to know: In order for an authorized user to build credit by being a guest on another person’s card account, that credit activity must be reported to the credit reporting agencies. Note that any positive behavior on the account will benefit both the primary account holder and the authorized user credit history, but the same goes for any negative information on the account. So as with any card, pay on time and pay in full. Also know that an authorized user is not responsible for paying the bill, so payment arrangements must be made through the primary account holder.
6. Open a credit account with an ITIN
What if you don’t have a Social Security number, and because of your legal status aren’t eligible to receive one? To make financial services accessible to more immigrants, a growing number of banks are accepting an Individual Taxpayer Identification Number (ITIN) instead of a Social Security number.
ITINs are issued by the IRS to noncitizens who are working in the U.S.. Banks that accept ITINs are able to verify credit applicants’ identities irrespective of their immigration status.
“You may need to go into a physical bank branch and provide some additional documentation, but you don’t need a Social Security number,” says DeNicola, who adds Bank of America, American Express and Citi are among a handful of card issuers that allow credit applicants to use an ITIN.
One immigrant’s advice: Be patient
Getting that first card definitely is tougher for immigrants. Be patient, Aguilar says, and eventually your efforts to establish credit will pay off.
“When you’re starting fresh, having little credit history paints you as risky until you prove you are serious about your debt,” he says.
For example, when Aguilar bought his first used car in this country, the APR on the loan was “a whopping 23 percent,” he says. “The dealer couldn’t believe I took it, but I explained it was the price to get an auto loan record on my credit.”
It took him two years for Aguilar to establish a strong credit score in the U.S.
His current car loan’s APR? It’s 3.41 percent, he says.