Building Credit History as an Immigrant or International Student

By Steven Shaw on 5/5/2018

 

Renting an apartment. Buying a house or car. Getting a cellphone. These are all things you’ll need to do as an immigrant or international student in the United States … and they all revolve around credit history.


It can be a tricky situation — you need a credit history to get a credit account, but you need the credit account to build your credit history. And if you’re new the U.S., this can be even more of a hurdle since you’re starting at square one, even if you had good credit in your country.

One thing that surprised WenFang Bruchett, founder of BlissFinance.com, when she immigrated from Taiwan is that you must owe money to earn credit in the U.S.

“I broke my apartment lease and ruined my credit for the next seven years since I did not know how serious credit can impact my financial life,” Bruchett said.

Now, older and smarter, Bruchett has built a business around teaching others how to understand credit and achieve financial freedom.

Building your credit history as an immigrant or international student isn’t impossible, though. It won’t happen overnight, but there are steps you can take to start establishing U.S. credit.

What is credit?

Credit is a measure of trust. When you have good credit, there’s a higher level of trust that you’ll pay for any debt at a later date or over time. Your creditworthiness is based on your credit report (a history of all credit transactions for several years) and expressed as a three-digit number ranging from 300 to 900. The higher the number, the better your credit.

What is a FICO® score and how is it measured?

Your FICO® score is one of several different credit scoring models that is used by roughly 90% of top lenders. Your score is made up of five components:

  • 35% - Payment history
  • 30% - Amounts owed
  • 15% - Length of credit history
  • 10% - Credit mix
  • 10% - New credit

How to build credit

As you’ve probably experienced, most financial transactions in the U.S. are based on credit. With a higher credit score, you can usually expect more favorable terms and rates. That’s why having good credit is so important!

“The issue of poor or no credit can be fixed,” advises Brandon Yahn of tudent Loans Guy. When an immigrant or international student moves to the U.S. and gets their first financial product, he says they’ll probably have either no file or a thin credit report file, which does not include a credit score.

“After they receive their first credit card or loan and start making on-time payments, they’ll begin the process of building their credit score,” Yahn said.

Here are some options to help you build credit as an immigrant or international student:

  • No credit check loan: If you have no or low credit, then one option may be a no credit check loan. With these loans, lenders do no review your credit report before approvals. Instead, lenders look at alternative criteria, such as income or collateral, to determine whether or not to lend. Some no credit check loans can be predatory and often come with extremely high rates. Be sure to do your research in advance and follow our tips below!
  • Secured personal loan: If you have assets that could be used as collateral — such as real estate, cash accounts, vehicles, investments, collectibles, and more — you may consider a secured personal loan. Lenders place a lien against your asset until the loan is repaid in full. This means if you fail to repay the loan or meet the agreement terms, you stand to lose the asset. You can get a secured personal loan from a bank or credit union, and they usually have better terms than no credit check loans.
  • Secured credit card: If you’re hesitant about a loan, another option to build credit is a secured credit card. Like a secured personal loan, you’ll need to put down collateral; however, in this case, it’s much smaller — usually starting around $200 as a security deposit. With your card, you’ll want to charge a small amount and pay it off in full each month to start building credit.

How long does it take to build credit?

Building credit doesn’t happen overnight. According to Experian, one of the three major credit reporting bureaus, it can take three to six months before a credit score can be calculated if you’re starting from scratch.

“The sooner an immigrant or (international) student starts establishing their credit, the better,” says Steven Millstein of CreditZeal. “Without a credit history, immigrants will struggle with small everyday tasks like signing up for a cellphone plan, renting an apartment, or setting up accounts with utility companies.”

Why won’t a student loan work?

If you’re a student who has taken out student loans, then you might think they can help you build credit. They will, but not immediately. While taking out a student loan will show up immediately on your credit report, most student loan payments aren’t due until six months after you graduate. There are some unsubsidized student loans that let you make payments while still in school, but usually this is only applied to the interest, not the principal.

Personal loans 101

Before you take out a personal loan, you may have a few questions. Here are some answers to basic questions:

What can I use my personal loan for?

The best part of a personal loan is that it can be used for any personal living expenses, such as:

  • Paying for immigration fees
  • Covering the costs of lawyer fees
  • Financing your living expenses
  • Funding your new move
  • Paying off uninsured medical care
  • Buying new furniture after a move
What documents do I need to apply for a personal loan?

As an immigrant or international student, you may need to bring a valid visa (either E1, E2, H1B, H2A, H2B, L1, G series or 0-1) and/or employment authorization form I-765, I-766 or 1-797A. Check with the lender to see if they require any other documents, such as pay stubs, proof of residence, and more.

How do I choose the right loan?

When evaluating personal loan options, especially no credit check loans, you’ll want to do your research. Here are some things to consider:

  • Is the website secure?
  • Do they have a physical address?
  • Is the lender registered in your state?
  • Do they disclose fees clearly and prominently?
  • Are they willing to meet in person?

If you answer no to any of these questions, that may be a red flag of a predatory lender.

What terms or rates should I be looking at?

Before signing for your personal loan, make sure you fully understand all of the terms and rates. Some that may apply include:

  • Annual percentage rate (APR)
  • Application fee
  • Check processing fee
  • Credit insurance
  • Interest rate
  • Late payment fee
  • Loan amount
  • Loan term length
  • Origination fee
  • Prepayment fee
  • Processing fee
By the Numbers: Personal vs. Student LoansPersonal LoanStudent Loan
Average loan amount$7,576$37,172*
Average monthly payment$330$351
Average interest rate4.29% to 25%4.45% to 7.00%

*Average student loan debt for all school years for the class of 2016
Sources: Bankrate.com, FinderStudent Loan Hero

By the Numbers: Personal vs. Student Loans
What are some best practices to build credit?

Getting a loan is only step one in building a good credit score. You have to actively be using credit in order to build and maintain your score. Here are some credit building tips:

  • Do make payments on time and in full
  • Don’t spend your entire credit limit
  • Do keep existing accounts open
  • Don’t open too many accounts at once
  • Do check your credit report regularly

Building your credit history

Credit is an important part of the American financial institution and therefore an important part of the American dream. If you have no credit as an immigrant or international student, know that you do have options to help you build your credit history in a responsible manner.