Planning a move to the US (or even dreaming about it)? This article will explain the most important thing you’ll need to do before you begin your journey… and it’s not too late to start!
One of the most important (and little understood) parts of immigrating to the USA is the importance of having a decent credit score.
This little number can make or break your dreams. Without a decent credit score you won’t be able to buy a car, buy a house, get a credit card, get a loan or even rent an apartment. In America, you credit score is literally the difference between heartbreak and happiness.
And according to most official channels, the day you touch down to start your life in the USA your credit score will be zero. That’s right – you’re 18 again and you have no credit history. But unlike all those years ago, mom and dad won’t be there to bail you out.
However, there are some things you can do to quickly build your credit score, or even have a nice healthy score waiting for you when you arrive permanently – but planning is the key. Got a few months before you move? Well get cracking! You still have time to ensure you can hit the ground running.
But before I begin, I should point out that I’m currently based in Australia. I’ll try and internationalize most of the article, but please be aware that not all of this advice may apply to your country. Also, I’m not a financial planner, so this article is just tips – and shouldn’t be used for financial advice.
Okay, with those formalities out of the way, let’s look at the first thing you need to start building your credit score – the Social Security number (SSN).
This little card is your life blood in the US. Want to work? You’ll need a SSN. Want to open a bank account? You’ll need a SSN. And, most importantly, want to start building your credit score? You definitely need to get your SSN.
The SSN is your identifier for all financial transactions. It tells your employer where to pay your taxes, it tells your bank where to mark your credit history and it allows agencies to collate your credit history so others can determine if they want to lend to you.
And most importantly, without a SSN you can’t start building a credit score. I mean, where will the credit providers tell the world that you’re the best?
If you’re coming to the USA on a diversity visa (that’s how I’m getting there) you will have been asked if you want to apply for an SSN when you filled out your DS-260. You probably ticked yes, and that’s a good thing.
Upon arriving you should have your SSN card delivered to your nominated address within a few weeks. You’ll need it to start setting up your life in the US. While it is possible to rent an apartment and open a bank account without an SSN (not easy, but possible) this is a key first step in living your American dream.
So, until that little card arrives, your life is on hold for a few weeks. Now this is where some run into problems. Remember where you ticked that you wanted an SSN when you filled out your DS-260? Well sometimes that doesn’t work! Bureaucracy not working efficiently? Who would have guessed?
If, after a few weeks your SSN hasn’t arrived, then it’s time to take matters into your own hands. Just march on into a Social Security office and ask if you can have one created. Well, don’t march and don’t demand – be nice about it. And most importantly, don’t do it the day after you land. It can take a few weeks for your arrival to be registered in the social security system.
Okay. So, let’s skip forward to the day you have your SSN in your hands. How do you start building your score?
The first thing you need to do is head into your choice of bank and open a checking account. This won’t affect your credit score, but it will mean you start developing a relationship with a bank (and they will be more amenable to taking a risk on you down the track) – and besides – you’ll need a bank account anyway, so what’s the harm?
Now you’ve opened a checking account, it’s time to turn to building your credit score. To do that you need to understand how credit scores work. Firstly, you need to know there are two ways “marks” can be placed on your credit history.
The first type is when a financial institution adds one to your account. These can be positive or negative. They can show you manage your credit, that you pay your entire balance on time or that you pat out loans early. These are good “marks.”
Negative “marks” can be when you miss payment, default on loans or borrow too much money (I’ll explain later about debt utilization). These are the ones you don’t want.
The other type of “marks” are ones that show when someone accesses your account. They might seem innocuous, but if there is a bunch of them in a row, these “marks” might show a credit provider you’re applying for many loans, or over-extending yourself financially. They also show when you were refused credit applications. These marks are “silent” (in that, you may not know they have been added), but they can have a massive impact on your score.
So, you can see you need to be strategic about building your score. You need to make sure you apply for credit you can manage and that you can have approved. Too many unsuccessful applications and you’ll start getting more refusals. It really is a vicious cycle.
Right, that’s the theory out of the way. I guess you want to know how to start. Well, remember when I said on day one you’ll be an 18-year old again, with no credit history?
That’s a real problem. You can’t just wander into a bank and ask for a credit card. They won’t know if you can pay it off, if you have any bad debts or if you’re a trustworthy person. That’s what a credit score is for… and at this point, you don’t have one.
But there is a simple way to start building that score. They’re called secured credit cards. They are the best way to start getting runs on the board (sorry for the cricket reference there).
Basically, they work by the bank lending you a set figure on credit, offset against money you have in the bank. Each month the bank takes the full payment from your savings, which you then top up to ensure there is enough to continue next month. Think of it as borrowing money against yourself.
By setting up a low balance secured credit card you can start building up your credit history. Paying off the balance in full each month is the first step in boosting your score. The second is “credit utilization”. That basically means only using a small part (usually around 25 per cent) of the balance. So if you have a $1000 card only use $250 a month and pay it off in full. That guarantees you’ll be maximising your credit score building.
After a couple of months of this you might be able to get a car loan. This is another line of credit and can further speed up your credit building. Get a small loan (you don’t need your dream car straight away) and pay it off as quickly as you can (not right away, you want to show some payment history).
Now you might have some savings and think you can afford to buy a car outright – but trust me, it will be better to get a loan, pay a chunk of it off straight away and manage the small loan from there.
The point of this exercise isn’t to have the car outright, but to show you can pay it off. At this stage in your American journey, you need to be showing you can pay off loans. It’ll be worth the small amount of interest for the long-term benefit of having a decent credit score.
A few months after that, you should be able to have your secured credit card transferred to a regular unsecured card. This will further grow your credit score and open up more paths for you.
Hopefully, around the same time you can start looking for a mortgage. Owning your own home is the best way to build your credit score (and you don’t have to pay rent)– and being able to secure a mortgage is a good sign your credit score is excellent.
By now you should have a solid credit score. It’s time to consolidate that score. The “ideal” situation is to have a mortgage, a car loan and a couple of credit cards (it may sound counterintuitive, but having three or four cards will work better for you than one). These cards should be high limit but low utilization. And remember, pay your credit cards off in full EVERY month and make your loan payments (as a MINIMUM).
So, that’s it. The route can take 9-12 months but with carefully planning, and basic financial management (remember to ALWAYS live within your means) you can be on the road to creating a good life for yourself in the USA.
What about my fantastic credit history at home. Won’t that be taken into consideration after I immigrate?
In short – no.
In long form – no. American credit agencies don’t care about your past history… and who are you to argue? You need them, not the other way around.
How do I check my credit score
So, you’re working hard to build your credit score, you know it’s the secret to working towards your dreams in the USA, but how can you tell how you’re going? There’s a free service which can help you in this regard.
It’s called CreditKarma and it can help you see how you’re travelling on your credit journey, as well as help you find some good offers for credit – but don’t apply for too many or you’ll risk damaging your credit score.
Okay, that’s great but you said I could start building my credit score before I arrive in the US
I know, that’s the dream isn’t it? And it’s possible. But there’s a few simple tricks and tips to make it happen.
The first thing to remember is that this is about having a credit limit when you move PERMANENTLY.
In a previous article, I explained how we were going on an “activation” trip for a few weeks before we make the final move. This was done to allow us to look for work, determine where we will live and, most importantly, get our SSN and start building our credit score.
By making a trip early, you can get the SSN in your hands, set up a checking account and get a secured credit card.
After setting up a few regular payments (such as Netflix, LinkedIn and PayPal) on your credit card you can return home to finalise your affairs and when you return to settle permanently, your credit should already be working for us.
But even before that, there a super-secret hack to improve your credit score. Would you like to skip the secured card and go straight to a regular credit card? Well you can, with a bit of planning.
American Express offers something called “global transfer”, which allows you to transfer an Amex card from your previous country to the US when you move. That means you can start working on your credit score with an effective credit card from day one – theoretically building your score quicker.
Of course, you’ll need to have an excellent credit history at home, so follow the rules above for credit utilization and make sure you pay off your balance each month.
So, with these few simple rules, you can land in the US with a credit score already working for you – and it’ll only be a few months before you can start “living the American dream”.
*** As usual, I’m indebted to the wonderful resources britsimonsays.com and the forums at immigration.com for the wealth of knowledge they provide. However, this particular subject was not even on my radar until the collected wisdom of these two sites alerted me to its importance. Special thanks must go to Britsimon, SusieQQQ, Sm1smom and EmilyW for their advice and experiences involving the building of a credit score.