What’s all this talk about Credit?
There are so many things to think about when getting ready to move to the United States: where to live, how to get there, making friends and what you’ll need to buy. Have you thought about how you will get a local cell phone or open up a U.S. bank account? These are just a couple of things that require you to have credit.
When moving to the US, learning about the credit system can eat away at the excitement of your amazing journey. We get it: it’s a boring and confusing topic. While learning how to get credit, you may experience the following side effects: anger, fear, hope, and calm. If it makes you feel better, even many individuals born in the States are still confused about their own system.
What is Credit?
Your Credit Score is a statistical tool to predict the likelihood of you defaulting on your credit obligation. There are a dozen different Credit Scores built with algorithms to predict the likelihood of default on a particular type of credit (credit card, car loan, car lease, etcetera). The Credit Score is a tool to allow increased retail consumption.
It allows you to rent an apartment, get credit cards, and purchase a mobile phone by showing that you’ve borrowed before and paid it back consistently. A Credit Score (also known as FICO or VantageScore) is a score on your trustworthiness to repay borrowed money. The score ranges from 300 on the low end to 850 at the high end. Anything over 700 qualifies as good credit and a score of more than 750 is considered great. But don’t worry too much about this number, it can take time to build and I know many people with sub-700 scores who used prepaid accounts and co-signers on leases to show creditworthiness. Experian has a good article on ways to improve a bad credit score. The tricky part is that in order to build credit you sometimes need to prove you have credit, but credit from one country does NOT follow you to a new country. Each country evaluates credit differently making it difficult to take with you. It’s very important to remember this! Therefore, before you move, be prepared and make sure you have all the necessary documents that will allow you to bypass having credit.
A few key points:
- When you apply for a for visas the US Department of Homeland Security can use your financial history to further evaluate you.
- It’s estimated that after you get a credit card or loan, it takes about 3 months of fulfilled payments for your credit history to start showing and about 9-12 months for a Credit Score to approach the 700 mark. https://www.movebayarea.com/single-post/2017/02/07/Expats-Why-You-Need-to-Create-US-Credit-History-Fast-Because-You-Need-It
How to Build Credit:
There are no U.S. based companies that will allow you to bypass having credit. Good ways to start building credit are with credit cards and even leasing or making payments on a vehicle. The catch is that these can be difficult without established credit.
Many times, you will be asked for a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). If you didn’t receive an SSN from the Department of Homeland of Security, apply for an ITIN here: https://www.irs.gov/individuals/individual-taxpayer-identification-number-itin Individual Taxpayer Identification Number, a tax-processing ID number assigned to individuals by the Internal Revenue Service. Depending on the bank or credit card company, you can sometimes use an ITIN instead of a Social Security number when applying for a credit card.
There are a few easy ways to apply for an ITIN.
- By mail.
- Through an IRS-authorized certified acceptance agent in the U.S. or abroad.
- At a designated IRS taxpayer assistance center.
After applying, sit tight. You should hear back from the IRS within seven weeks if you qualify and your application is complete.“ – Credit Karma Let’s walk through a few of these to simplify the process.
It’s important to note that applying for an ITIN isn’t helpful in regards to building credit and requires a valid reason to get, which assumes the lack of a work visa. Having a work visa always allow holders to secure an SSN.
Getting a Bank Account:
If you are relocating to the US with a job, then simply ask your employer for a letter of employment verification and income. This will allow you to open up a bank account. Citibank is just one example where you can do this. If you don’t have a job, then you will need an SSN or ITIN. There are a few expat-friendly banks that don’t require an SSN: Bank of the West, and Capital One. Giving a local branch a call or visit is always a good place to start.
Getting a Mobile Phone:
One quick and easy way to get a mobile phone without credit is by using prepaid cards and prepaid contracts. You will just need to have the funds available up front instead of on “credit.” Just keep in mind that prepaid phone plans do not go towards building your personal credit.
Without an SSN, you may be able to lock down a mobile phone by paying an extra security deposit and showing your employment status and bank account. Companies like AT&T may charge upwards of $1000 in order to secure a phone without an SSN or credit history.
Getting a Credit Card:
When applying for a credit card be sure to list your U.S. social security number. Again, every person in the U.S. on a work visa is given an SSN. If you use any other number like an ITIN, then you will not be building credit history. It’s possible to obtain a corporate card without either an ITIN or an SSN, but corporate cards do not build personal credit history either as they are tied to the business tax ID.
Ask your bank for a cash secured credit card with the highest credit line you can afford (think $3-$5,000 or more rather than $3-$500, which will have very little effect). This will allow you to start making purchases using the card and building trust but by using your own money instead of the banks.
When acquiring said credit card, spend only up to 50% of the available credit line each month and pay it off in full (preferably automatically, so it is done on time) at the end of each billing cycle (which may not coincide with your paycheck cycles nor with the end of the month). Despite what Americans will tell you, making a large credit card purchase and paying off your credit card bill over time will NOT help build your Credit Score faster, but it will end up costing you more than 20% in interest.
Be sure to set credit card payments to automatically be deducted from either checking or savings. This will ensure timely payments. Check back with your bank often to ensure there are no problems such as overdrafts, unanticipated fees, or that you haven’t missed any communication from your bank. If an account goes unattended due to travel or inattentiveness, it may go into overdraft and be charged off in as little as 2-3 months and create a seriously bad mark on your credit history.
A few other tips:
- Most European carmakers (NOT Jaguar & Land Rover), including Volvo, BMW, & Mercedes have international executive lease programs that require no prior credit history to qualify for (and thus are often easier to secure than an actual loan). On-time monthly payments will help build credit.
- Make sure to use current contact information, including both a U.S. cell phone (and allow text messages for contact purpose) and an email that is checked often.
- Check your credit history every 4 months using the free annual credit reports from each of the 3 major credit reporting bureaus one at a time.
- If you need a vehicle, check out the expat-friendly sites International Auto Source or Expat Ride. They might be able to help you secure a loan on a car.
- Consider looking into Experian (a credit reporting company) to help get your rent reported to RentBureau. This will allow you to start building credit history every time you pay rent.
- Ask your landlord if they would consider taking rent payments through sites like Cozy or RentTrack. This will allow you to use your rent to start building credit history. Check out Experian for a good article detailing this.
By following this guide your transition from home to the United States will be a smoother one. Consider reading our U.S. City Guides for more information. Good luck and press on!
Big thank you to Thomas Riebs for his contributions and expertise in researching and curating this article. You can read about him and all the ways he helps expats at Axel.