Credit Cards & Credit Score
How to build a Credit History from Scratch
If you are new to the US and/or you haven't financed a car loan, a computer, or some other major purchase in the US, how do you begin to establish credit?
Get a Store Credit Card
First, consider applying for a store credit card issued by a local department stores and use it responsibly. Ask if they report to a credit bureau. If they do – and if you pay your bills on time – you’ll establish a good credit history. Don’t overdo it. Just get one or two of these store credit cards, don’t use more than 50% of the credit limit (otherwise it will impact your FICO score), and pay your bills on time.
Get a Secured Credit Card
Second, consider getting a secured credit card. It requires that you open and maintain a bank account or other asset account at a financial institution as security for your line of credit. Your credit line will be a percentage of your deposit, typically between 50 and 100 percent. Application and processing fees are not uncommon for secured credit cards. In addition, secured credit cards usually carry higher interest rates than traditional nonsecured cards.
Get Someone with Good Credit to Co-Sign
Third, consider asking someone with an established credit history -- perhaps a relative -- to co-sign the account if you don't qualify for credit on your own. The co-signer promises to pay your debts if you don't. You'll want to repay any debt promptly so you can build a credit history and apply for credit in the future on your own. Remember – if you don’t pay your debt on time on a co-signed account, that’ll negatively affect not only your credit but also your co-signer’s credit.
A positive credit history is an asset, not only when you apply for a credit card, but also when you apply for a job or insurance, or when you want to finance a car or a home.
Patience is important in this process. It takes time to establish credit and build a record of consistency in making payments to demonstrate your creditworthiness. And it is much better to go slowly and develop a strong credit record than to apply for too many credit cards or a loan that is larger than you can handle.
Start slowly, be cautious, keep track of your overall debt, and pay on time.
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Tip If you recently moved to the US or are about to move to the US, you have another option. If you have a long credit history with an international credit card company (American Express, etc.) in your home country, contact their international division in the US and see if you they are willing to issue you a US credit card based on their experience with you even though you have no credit history in the US. If you have been a good customer with them, they might. It is important however that you speak with the international division of your credit card company in the US. The domestic division will most likely not work. |