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If she were applying for a credit card in her native India, Samata Sirsikar would have won approval easily. She had a good job with an international company and a solid record of responsible credit use. But when Sirsikar moved to the United States in 2015 to pursue a master's degree at San Jose State University, her positive credit history didn't follow her. She was able to open a bank account that had a debit card, but she got turned down for a credit card with the same bank.
Sirsikar couldn't get a credit account in the U.S. because she had no U.S. credit history. But essentially the only way to build a U.S. credit history is to get a credit account here.
If you're an international student or a new immigrant, you may already have encountered this conundrum. Getting a credit card can be more difficult for newcomers to the U.S., but there is a way. Here's what to know about the path to building credit.
The importance of building credit
Your credit history shows how you've handled credit in the past. It forms the basis of your credit score, and lenders use it to gauge how risky it would be to lend you money. If lenders can't check your history with one of the three major U.S. credit bureaus, they'll be reluctant to extend credit to you. If you can manage to build a strong history, though, you'll be able to borrow money when you need to and get good interest rates and favorable terms.
“If lenders can't check your history with one of the three major U.S. credit bureaus, they'll be reluctant to extend credit to you.”
The problem for newcomers is that any credit history they've built in their native country doesn't typically follow them to the United States. Rod Griffin, director of public education at the Experian credit bureau, says financial institutions in other countries don't report information to the U.S.-based bureaus that compile credit reports.
» MORE: What is a FICO score?
"They’d have to comply with all our U.S. credit reporting laws in order to report that information,” he says. But regulations are so different in other countries that it's generally not possible to simply transfer the credit files of new immigrants or international students. That means new arrivals in this country are typically starting from zero when it comes to building credit.
Even if you never plan to borrow any money, building credit is important. Landlords commonly look at credit history when you apply to rent an apartment, so finding housing is much harder if you have no credit history. Employers may use credit checks to determine how reliable you are, and so might insurance companies and utility companies.
Even if you plan to return to your home country when you finish your degree or complete your work contract, it's not a bad idea to build credit now to keep your options open.
Building credit with a secured card
"To establish a credit history, you have to have a credit account opened in your name," Griffin says. "It's really as simple as that."
Simple, but not necessarily easy. Getting that first account can be tough. Americans looking to build credit can use secured credit cards, which require cardholders to pay a security deposit to protect the lender in case of default.
“To establish a credit history, you have to have a credit account opened in your name. It's really as simple as that.”Rod Griffin, Director of public education at Experian
These cards can be a good option for people new to this country as well, but issuers may still want to see a few basic things before they'll allow you to open an account. You may need:
A permanent address. Lenders want to know they'll be able to find you if necessary. Sirsikar says she plans to apply for a credit card again now that she has a permanent address.
A taxpayer ID number. You don't need a Social Security number to get a credit card, but it helps to get an individual taxpayer identification number. This is a federal ID number that takes the place of a Social Security number for people who aren't eligible for Social Security benefits. In general, only U.S. citizens and people authorized to work in the U.S. can get a Social Security number, according to the Social Security Administration. Learn how to get an
A job. Lenders want to see that you have income to pay back money you borrow on your credit card.
A bank account. Even credit card issuers that welcome international students (more on that below) want to know you have a bank account you can use to pay your credit card bills.
If you have all of these things, you may be ready to apply for a secured credit card. NerdWallet's 2020 award winner for Best Secured Credit Card is the $0-annual-fee Discover it® Secured Credit Card. It requires a minimum $200 deposit, but it also offers a possible upgrade path — Discover will automatically beginning reviewing your account after seven months to determine whether you're eligible for an upgrade to a regular unsecured card. On top of that, the card also earns rewards.
But what if you can't afford an upfront security deposit or simply can't get approved for a secured credit card? There are a few other things you can try.
Building credit with an 'alternative' credit card
Even though you can eventually get a security deposit back, it can be difficult to come up with that amount upfront and then have those funds tied up for a period of time. In recent years, though, several startup credit card issuers have begun exploring different approaches.
These so-called "alternative" credit cards don't require a security deposit, nor do they rely on the traditional FICO-based method of credit evaluation. Instead of pulling your credit history, they can use their own proprietary underwriting models to determine your creditworthiness, taking into account things like your school or employer, your income, or your bank account information. And some of them specifically target international applicants.
For example, the Deserve® EDU Mastercard for Students is NerdWallet's Best Credit Card for International Students for 2020. It doesn't require international students to have either a Social Security number or a U.S. credit history. The issuer can evaluate applicants through its own underwriting process and algorithm, which looks at factors such as your school and major, your likelihood of graduating and becoming employed, and the balance in your bank account. The annual fee is $0, and the card even earns rewards.
Alternatives to getting a credit card
There are a few other avenues you can explore if you're having trouble getting approved for a credit card in the U.S.
Use a credit card from back home
If you don't need a credit card for day-to-day spending, you may be able to use a card from your home country just for emergencies. That's what Mexican citizen Gerardo Cedillo does. Cedillo is an undergraduate at the University of Pennsylvania in Philadelphia, studying materials engineering and chemistry. He opened an American bank account with a debit card, but he uses a credit card linked to his parents' account as a fallback. He doesn't like to use it regularly, since the card offers a poor exchange rate between dollars and pesos, but his debit card works for routine spending.
Take advantage of a relationship with an international bank
If you or your family have accounts with an international bank in your home country, you may be able to open an account with the same bank here in the United States. Such a bank may be more willing to extend credit to you, since you've proved yourself as a customer already. For example, Citibank offers special accounts for customers who are moving to the U.S. from elsewhere.
Stick with a debit card
"Pretty much every international student gets a debit card," Cedillo says. Debit cards don't build your credit history, but they are generally accepted at any store that takes credit cards. Some transactions, like renting a car, can be more difficult with a debit card, but it's better than having no plastic.
Get a co-signer
This may be challenging if you're new to the country and don't have much of a support system. But if you do have a relative or close friend who has been in the U.S. longer than you have, it may be possible to get that person to co-sign for a credit card. A co-signer is someone who agrees to be responsible for the debt if you don't pay it. Check out our list of credit card issuers that allow co-signers.
Build credit through renting first
If you rent an apartment or a house, you're making one very important payment every month. Some landlords report tenants' payment history to the credit bureaus. The credit bureaus will in turn create a file to document your rent payments, which is half the battle when you're starting with no credit history. Even the credit bureaus are excited about the idea of using rent payments to build credit. "We think it’s a very important tool," says Experian's Griffin. "In terms of real impact, rent is proving to be very, very effective.”
Making the most of your first credit card
Your first card should help you move forward on your credit-building path without draining your bank account with excess fees. Among the questions you should ask of any card you're considering:
Does it report account activity to the credit bureaus?
This is the most important thing to ask any credit card company that offers to give you an account. Your main goal at this time should be to get a credit file in this country so you can begin adding positive history to that file. If you get a loan or a credit card and the issuer doesn't report to the credit bureaus, your responsible use of that credit doesn't count in your favor.
Are the fees reasonable?
Unfortunately, some companies prey on vulnerable new immigrants and others with no credit by charging exorbitant fees for their products. Annual fees, balance transfer fees and foreign transaction fees, while not fun to pay, are normal, as long as they're reasonable. What's reasonable? No more than $40 for an annual fee, 3% to 5% for balance transfers and 3% for foreign transactions. Avoid products that charge steep "activation" fees just to open the account.
When will you be able to move to a traditional credit card?
If you select a credit card that requires a security deposit, try to find one that will allow you to transition to an unsecured product in the future without opening a new account. Every new account you open could lower your credit score temporarily, so keeping your original account open is better when you're just starting to gain ground in the American credit system.
Once you do get your first credit card, using it wisely to build credit is up to you. The formula is simple: Use the card regularly to make small purchases, keep your balance low relative to your available credit, and never, ever pay late. Do that over time, and your American credit history will be just as strong as the one you left behind when you moved here.