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How to rebuild your credit after living abroad

Erica Sandberg

August 23, 2013

QDear Erica,

I have not been in the United States for more than eight years, so I have not developed credit. I'm coming back soon to get married and live. I am a U.S. citizen. Do I need a credit report? How do I get one fast? — Nicholas

AHi Nicholas,

You can get a credit report in minutes! Just go to AnnualCreditReport.com, enter the required identification data, and wait for it to appear on the screen, ready to download. Every year you can get your credit report for free from each of the three major credit reporting bureaus — TransUnion, Experian and Equifax.Ask Erica

When you get your consumer credit report, you will see that there are four basic sections. It begins with your identity (your name, Social Security number and address). Then there's the meat of the file, which is the trade line section. This is where credit cards, loans and collection accounts will live. The public record section will list any judgments, legal fees, bankruptcies and liens that you may be responsible for. Lastly, the inquiry section will show any credit applications as well as which creditors have checked your credit to see if you might be a good candidate for a specific product. Read over each section carefully to make sure it's all correct.

Chances are you won't see much on your reports right now, though. Because you haven't used a credit card or taken out a loan in so many years, your report will probably be devoid of the type of information creditors are looking for. While positive data from accounts that you may have had long ago may still be evident, it's too old for lenders to make an accurate decision about you.

That's not to say that taking a peek is not a good idea. It is. According to a 2013 Federal Trade Commission study, one in four consumers who checked their reports identified errors that could affect their credit scores. So go ahead and pull your reports so you can check for mistakes and evidence of fraud. It's better to find out early if a scammer has borrowed money in your name. This way you can dispute unauthorized accounts before you're turned down for ones you really want.

Then again, I have a feeling that what you're really asking is if a good credit history — not the credit report itself — is necessary and how you can establish a reputation quickly. If that's your query, the answer is yes, a strong credit rating is beneficial for most people. But no, you can't create it instantaneously. It takes time. How long? At least a year.

A long and positive pattern of borrowing and repaying money responsibly will help you qualify for loans and lines of credit. It will also affect the terms. If you haven't used credit in a while or have but made some mistakes, the interest rates you'll be offered will probably be expensive. For large loans, such as with a mortgage or car loan, the financial difference can be huge.

On the other hand, if lenders see how great you've done over a traceable period of time, they will have confidence that you will treat them well, too, and your loan rates will be better.

Lenders aren't the only ones who pull credit reports — many landlords and employers do as well. So it makes sense to add information to your reports that shows you know how to handle money and credit.

So how, exactly, do you add information to your credit reports? You have to use credit, which means you have to get credit. The best way to begin is with a secured credit card — a type of card that requires you to put money down to secure a credit line. Because a cash deposit guarantees the account, secured cards are relatively easy to obtain. Then, pick one affordable item a month to charge. Repay the balance in its entirety by the due date. Over time, you'll develop what you want: The type of credit that lenders, landlords, employers and, yes, even a future spouse — will find attractive.

Once you've behaved responsibly with your secured card for a year, you can try to apply for a regular, unsecured credit card. Just pull your credit score first (you can get one from each of the three bureaus at MyFICO.com for about $20) to determine what kind of cards you can qualify for. Just don't apply for numerous cards at once as that will ding your credit score. If rejected the first time, wait six months and try again.

Another option to build up a credit history is to have your spouse add you as an authorized user to a card. You only want to do this if your spouse has a great credit record and a solid history of keeping low balances and paying the bills on time. Just call the card issuer and make the request. Then a card will arrive with your name on it. Ultimately, as the sole card owner, your spouse is liable for any debt racked up on the card. You both need to work out how charges you make with the card will be paid.

As an authorized user, all activity on that card will be reported to the credit bureaus. While I'm not a big believer in sharing credit — married or not — this is a good way to get a jump start on building a history. After a year or so of being an authorized user (and having your own secured card) and paying bills on time and in full, you should be well on your way to getting that piece of plastic you desire. Your spouse can remove you as an authorized user on her card account at any time, which is what I would recommend after you've applied for and received your own unsecured card.

Got a question for Erica? Send her an email.