OK – you just arrived in the USA and maybe you are already learning that your “credit rating” is very important here in the USA.
Almost every adult legally residing in the USA has a Social Security Number (SSN), or tax ID. Your SSN is issued to you one time and never changes. Employers report your earnings and taxes against that number, which is a legitimate use of the number and credit history companies track your history against the number also. However, you will be asked for the number as a personal identifier in all sorts of situations where it really isn’t a legitimate use of the number – but Americans seem to hand it out freely. You will also need to provide the number to open a bank account (normally), for a driving license (in most states) and so on.
Getting the SSN
So – the SSN is a BIG DEAL. If you are a DV lottery winner you probably checked (ticked) the box to have USCIS request a number on your behalf. Unfortunately that doesn’t always work well. So – I would suggest a visit to the SSA office – you can find a location here. The SSA staff will sometimes say it takes a few days after you enter the US to be searchable in their system. They will need to search you to confirm your immigration status. However, you will certainly want to do this fairly soon because you will very soon realize that not having an SSN is a big nuisance.
OK – got the SSN – what next?
OK – so now you have your SSN. You won’t appear on credit agency files yet, so you need to do a few things to get a credit file as soon as possible. A “credit history” is maintained by a small number of bureaus (Equifax, Experian, Transunion) that gather and sell financial information about you. Various companies that lend money will report information information about how you pay your bills to these three agencies. Then when any other lender is deciding whether to give you credit, they can “pull” your credit file and see that you pay your bills on time and so on. This doesn’t just affect credit, it can affect your ability or costs to rent a home, get car insurance, get a mobile phone contract and so on. Really – this is part of your daily life – so it is worth taking seriously.
In the beginning you will have a “thin file” meaning they recognize you (your SSN) but you have little or no financial information. The trick is to do things that start to build your file and make sure you build a good credit score as soon as possible.
Tips to build good credit history
The following things are good to do to get started and to build a good credit history.
- Open a bank account (do that for you and your spouse). This won’t get reported to your credit report, but you will need an account anyway and if you sit down with an account representative they are usually very helpful and keen to help you (hoping you will stay with them). I would recommend sticking with a large bank – ideally one that does “secured credit cards”).
- Ask the bank to approve you for a debit card as a minimum and ask if they have any other offers to help you start building your credit history.
- If you have a close relative (already in the US) who already has a good credit history, see if they will get some credit in your name. They can open a credit card with you as a named user, and that will get reported against your credit report.
- If you previously had an American EXpress card in your home country, you hopefully asked them to do a “global transfer”. THis can start you off with an Amex card in the States much faster than normal. If you did that, make sure you contact them and report your SSN to them as soon as possible so they start reporting to the credit agencies.
- Open a secured credit card account. These credit cards are useful to build your credit history, and useful because there are many things you cannot do without a credit card. The basic concept is that you deposit an amount of money with a bank/lender and they give you a credit card with that amount as a credit limit. So – deposit $500, and you get a credit limit of $500. Deposit $2000 and get a $2000 limit. Yes – you are borrowing against your own money (and you don’t get your deposit back for at least 6 months, maybe longer). This is VERY worthwhile and probably one of the best things you can do to start building credit.
- For any credit cards you have, try to not use more than 25% of the credit limit at any time. If necessary, pay money off your credit card account every few days as you use the card just to make sure you keep the credit amount down. You want to have your monthly bill show more than $0 but less than 25% of the max limit. After a couple of months that activity will appear on your credit report and you will be building your credit file.
- Approach a Credit Union. These are similar to banks, but are typically able to offer better deals for loans. By opening an account with them you begin to build a history with them and that may help when you want car loans etc.
- Do not apply for lots of credit cards or loans. Each time someone does a “hard” pull of your credit file the agencies make a note. If you are running around applying for credit every few days your credit score will go down because it looks like you are desperate to get credit. So – for the first 30 to 60 days don’t apply for anything other than the secured credit card. Applying when you know you’ll be declined is a bad idea!
- After about 2 to 4 weeks of having your SSN open an account (this is free) with CreditKarma. This site will let you see your credit history as you build it – and you begin to understand how lenders see you. There are credit offers on the site and you will find you will be able to get some decent offers through the site. There are also good tools to predict what impact you will experience from doing things like applying for a new credit card.
- You can also get “free” credit reports from the big three credit agencies – but each one will want you to take a “trial” of their credit monitoring service. So – in general – don’t do it – because “free” invariably ends up costing you money and you can get the same info from CreditKarma.
- After 2 or 3 months you might be able to get a car loan. If you do get a loan that early, the rates you are offered won’t be that good. You need “good credit” to get “cheap credit”. So – if you do get a car loan, keep it “modest” – the Ferrari can wait for now. Ideally put down a good deposit and negotiate a better interest rate by increasing your deposit. I actually took a small loan on a motorbike where I said to the dealer I would only buy the motorbike if they would arrange a small loan. I had enough money to buy the bike with cash, but I wanted the loan to show on my credit score – so I borrowed about $5k and immediately paid off about $3k of that loan. That means I will only pay interest on $2k, but my credit score shows that I have only $2k left (less now) on a $5k loan – so it shows that I can handle repayments. Car and motorbike loans are a different category of credit so it helps to have a combination of types of loans.
- After 6 to 12 months you should be able to get your secured credit card deposit back (so the card converts to an unsecured credit card), you will also be getting credit offers and you can increase your credit limit – again – a high limit with low utilization is best.
- Also after about 9 to 12 months you may be able to qualify for a mortgage to buy a home (if you want to do so – and I highly recommend you do). Being a “homeowner” will make you very creditworthy and there are knock on impacts in many aspects of your life – plus it is better than paying landlords! Again, having a deposit will be a big factor in securing a good mortagge rate – so balance when to apply for the mortgage so you benefit from fair market rates.
- Check your credit report each year. You are entitled to a free copy of your credit report from each agency once every 12 months and you can do that through this site which provides the report from all three companies. Also – if you are declined credit because of an adverse report by one of these companies, then that particular company will provide a free credit report within 60 days of the adverse report. That is worth doing to make sure nothing “inaccurate and bad” is reported on your file. Mistakes can happen and also someone could try and steal your identity and obtain credit in your name (which is a good reason to protect personal information such as your SSN).
- Each agency has their own way of scoring people and so the actual scores can vary. One of the most important credit scores is the FICO score – that is the most commonly used one. It is a score based on information from all three agencies – and because of this it may take several months before you will have that score. A FICO score of 720+ is considered good – good enough to get standard interest rates if you need credit. Some credit cards are providing access to your FICO score which is a very useful way to keep an eye on your situation. You can also pay to see your scores at www.myfico.com
- If you do make a mistake by paying a bill late or notice something reported on your credit report – then you should always try and correct the issue and dispute it (if unjustified). Making mistakes is human, ignoring them and pretending they will not be noticed will only make things worse.
Okay – hope that helps. Again – I’m happy to get feedback or questions on the form below or feel free to email me to ask if anything is unclear!