For immigrants, establishing a strong credit score may prove necessary for more than just qualifying for a mortgage or auto loan. Last year, the Department of Homeland Security (DHS) proposed using a credit score to determine whether an immigrant is “self-sufficient” and admissible.
The Alcorn Immigration Law team only practices U.S. immigration law. Much of the information about building your credit report and credit score comes from the Consumer Financial Protection Agency and Experian, one of the major credit bureaus. The information in this blog post is not intended as legal advice.
Understand the Credit Basics
Your credit report and credit score reflect how well you have managed your financial responsibilities in the U.S. The DHS proposed rule defines a “good” credit score as “near or slightly above the average of U.S. consumers.” The FICO credit score—the most common score—ranges between 300 and 850. U.S. Citizenship and Immigration Services (USCIS), an agency within DHS, would enforce the rule,
The average FICO score in the U.S. is 695. Lenders generally consider a good score as one between 670 and 739.
Your credit report shows current and past credit accounts, how much you owe, and whether you pay your bills on time. A credit report also shows your current and previous residences in the U.S., as well as bankruptcies, liens, and judgments in legal cases. Credit bureaus take information from your credit report to generate a credit score, which provides a way for lenders to assess a borrower’s potential creditworthiness.
Even if you have a stellar credit history in another country, that won’t be factored into your credit score in the U.S. Building credit in the U.S. requires time. Typically, three to six months of regular credit activity yields a credit score.
Get a Social Security or Tax ID Number
You usually need a social security number to apply for a credit card or open a bank account. Generally, non-U.S. citizens can only get a social security number with a work permit.
If you are unable to get a social security number, apply for an Individual Taxpayer Identification Number (ITIN) from the Internal Revenue Service (IRS). Many credit card issuers and banks will also accept an ITIN in lieu of a social security number.
Get a Credit Card
Using a credit card—and paying the balance in full each month—builds your credit report. However, individuals without a credit history in the U.S. can experience challenges getting a credit card. If that’s the case, check if a bank in your home country issues U.S. credit cards.
If credit card issuers turn you down, consider asking someone with a good credit score to co-sign your credit-card application. A cosigner will be responsible for paying your credit card debt if you fail to pay your bill. Getting a cosigner is better than asking to be added as an “authorized user” on someone’s existing credit card, according to Experian. That’s because not all credit card issuers report authorized users to the credit bureaus, so often the track record of authorized credit card users do not factor into credit scores.
A secured credit card offers another alternative. A secured card requires the holder to keep money on deposit to cover credit card charges. Experian suggests confirming with the secured card issuer that it will report your payments to at least one credit bureau. The issuer may be willing to convert the account to a traditional credit card after a certain period of time.
Applying for multiple credit cards within a short period of time could have a negative impact on your credit score.
Monitor Your Ratios
You should keep tabs on two ratios, which can have a significant impact on your credit score.
Your credit utilization ratio is the amount of credit you use divided by the total credit available to you. Also called the balance-to-limit ratio, it shows how much of your available credit you are using. Having a low credit utilization ratio both overall and on each credit card can improve your credit score. Generally, the main credit bureaus recommend maintaining a credit utilization ratio of less than 30 percent.
Your monthly expenses divided by your gross monthly income is your debt-to-income ratio. In general, the Consumer Financial Protection Agency suggests maintaining a debt-to-income ratio of 43 percent or less. Evidence from mortgage loan studies suggests consumers with higher debt-to-income ratios are more likely to have difficulty making monthly payments. A debt-to-income ratio higher than 43 percent may lower your credit score.
Pay Your Bills on Time
Needless to say, paying your bills on time earns you a strong credit history and credit score.
Student loans are reported to the credit bureaus. Make your student loan payments on time every month to build your credit.
Paying your rent on time and getting that reported to a credit bureau will help you establish a credit score. Ask your landlord or property management company if it reports rental payments to a credit bureau. If your landlord or management company do not look for services that automate your rental payments and report bill payments to the credit bureaus.
We Can Help
The Alcorn Immigration Law team knows that immigration leads to innovation. Check back on the Alcorn Blog Page where we post immigration news including updates to the proposed DHS rule. Reach out to us if we can help you with your immigration matter or provide a reference for help with building your credit.
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