How to build credit in the U.S. as a new immigrant

Moving to a different country comes with new experiences. For many recent arrivals in the U.S., establishing credit is one of them.

Credit affects so many aspects of life, including buying a home or a car and renting an apartment. Find out some ways you may be able to build credit in the U.S. as a new immigrant.

What you’ll learn:

• Applying for a Social Security number (SSN), opening a bank account and applying for a credit card are possible first steps toward building credit in the U.S.

• Other potential ways to establish credit include becoming an authorized user and taking out a credit-builder loan.

• Practicing good financial habits like paying bills on time and applying only for the credit you need may help you build good credit.

Building credit can be part of setting yourself up for financial success. But it takes time, effort and responsible use. Here are five steps that might help you establish and build credit as a U.S. immigrant:

Credit card issuers and banks often ask for your SSN to verify your identity before approving you for a bank account, credit card or loan. Depending on your immigration status, you might be eligible to apply for an SSN.

An alternative is an Individual Taxpayer Identification Number (ITIN) issued by the Internal Revenue Service. An ITIN is available to certain nonresident and resident aliens, their spouses and their dependents if they don’t qualify for an SSN. Policies for accepting ITINs differ. And some credit card issuers may accept ITINs only for some of their cards.

Checking and savings accounts generally won’t impact your credit. But having a bank account can be a helpful way to establish a relationship with a financial institution. And you may not need an SSN to open an account.

When used responsibly, a credit card can be a good tool for building credit. Secured credit cards are designed with people at the beginning of their credit journey in mind. A secured card is a type of credit card that requires a one-time, refundable security deposit to open an account. Other than the deposit, secured cards work the same as traditional cards. You can use a secured credit card to shop in person and online exactly as you would with an unsecured credit card.

Sometimes, secured card credit limits are the same amount as the security deposit. So a $200 deposit might translate into a $200 credit limit. But that’s not always the case. With the Capital One Platinum Secured card, an initial security deposit of $49, $99 or $200 can open an account with a credit line of at least $200. Platinum Secured also lets cardholders raise their credit limit by depositing more than the minimum.

Secured cards like the Capital One Quicksilver Secured card even offer rewards. 

There are also unsecured cards for people with fair or average credit scores, like the Capital One Platinum card. It has a $0 annual fee, and in as little as six months, you’ll automatically be considered for a credit limit increase. View important rates and disclosures.

Once you’ve opened a credit card account, it’s important to practice good financial habits. Here are some steps you can take to use credit responsibly to help build your credit and improve your credit scores.

• Make payments on time. Payment history represents a large part of your credit scores. Making on-time payments can help build good credit. And late credit card payments can hurt your scores. They can also lead to late fees and higher interest rates. Setting up automatic payments or electronic reminders could help you avoid late payments.

• Keep your credit utilization low. Staying below your credit limit can benefit your credit utilization ratio, which represents how much of your available credit you’re using. The Consumer Financial Protection Bureau (CFPB) recommends keeping your credit utilization ratio below 30%. 

• Be careful with applications. Applying for a new credit account usually triggers a hard inquiry on your credit. Multiple hard inquiries at once may affect your scores. The CFPB recommends only applying for the credit you need. 

• Monitor your credit. As you work to establish and build credit in the U.S., you can track your progress and watch for potential issues. CreditWise from Capital One is one way to monitor your credit report and score. It’s free for everyone, even if you don’t have a Capital One credit card, and won’t hurt your credit scores. You can also get free copies of your credit reports from AnnualCreditReport.com.

A solid history of on-time payments for things like rent and cellphone, internet and electric bills could also help you build credit. But this is only possible if your payments are reported to a credit bureau.

You may be able to use a third-party reporting service to report these payments to the credit bureaus. But before you do, make sure you’re aware of any fees and other terms and conditions.

Falling behind on these payments can lower your credit score even if your bills aren’t being reported regularly. Depending on how far behind payments get, the accounts could be turned over to a collections agency. And the debt collector could make a negative report to the credit bureaus.

If you’re not ready for a credit card or haven’t been approved for one, you may still have other options for building credit.

An authorized user is someone who’s added to an existing credit card account. The account holder is responsible for the bills. And if everyone on the account uses it responsibly, it could help improve both your credit. But negative actions could have the opposite effect. 

The Federal Trade Commission (FTC) warns of a related scam called tradeline renting or credit piggybacking. This is where companies sign you up as an authorized user on a stranger’s credit in exchange for a fee. The FTC says such practices can be illegal and can’t guarantee any benefit to your credit scores.

With a credit-builder loan, you’re required to pay off the amount owed before you’re allowed access to the money. Getting approved for a loan but not having immediate access to your funds may seem strange. But one benefit of this type of loan is that you’re building a payment history when lenders report that information to the credit bureaus. And if you pay on time, you could see a positive impact on your credit scores.

Here are some frequently asked questions about building credit as a newcomer to the U.S.

Credit cards can be helpful tools for building credit in the U.S. But that’s only possible if you’re using credit responsibly by doing things like paying statements on time every month. You can get started by comparing cards from Capital One and finding out whether you’re pre-approved without any harm to your credit scores.