Plan to remain in the US after getting your international master’s degree from an American university?
You’re going to need to build your credit score in the USA.
Whether you’re after a few years of work experience on the OPT extension of your F-1 visa or you’re hoping to secure a Green Card after working on your H-1B visa, building a credit score in the USA is going to go a long way in helping you.
Even better, you can save money on the total cost of your international student loan while building credit fast. It’s a win all around, isn’t it?
Wondering how to get a good credit score in the USA without a credit history? Not sure if you need an SSN to get started? Do student loans build credit? Whatever your credit question, we’re here to help you understand how to build your credit history fast as an international student or graduate.
The importance of building credit
Why is credit so important for foreign students? Having a good credit score in the USA can go a long way. Without a credit history in the US, you’ll find it exceptionally difficult to rent an apartment, buy a car – and in some cases, even get the job you want. You need to build credit in the US to live a comfortable life.
And because credit scoring and history are bound to geography, the progress you made in your home country means nothing once you cross international borders.
You’ll need to build your credit score in the USA from scratch. And, it’s never too early to get started.
From how to get credit to understanding what’s included in your credit score, you’ll learn everything you need to know here.
When can student visa-holders start building credit?
The best time to start building your US credit profile as an international student or graduate is always as soon as possible.
This is because the length of your overall credit history is a primary factor for getting a higher credit score.
It takes a while to build credit and achieve a score over 700, so you want to get going quickly. Building credit, for international students, reaps enormous benefits in the long run.
TIP: You don’t need a social security number (SSN) to have a credit history in the USA, but it does make it easier. If you have authorisation to work in the US, temporary or permanent, you’ll be issued your SSN. Until then, don’t stop positive credit-building activities – they’ll still make a difference to your credit score. Building a credit history without SSN is slightly tougher, but there are still steps you can take to improve your credit history.
Remember, just because you have an account reporting to the credit bureaus, you won’t necessarily have a credit score in USA. VantageScore tends to be quicker than FICO Score (the latter requires six months of reporting prior to your first score), but both require some level of history for data to mean anything. Now let’s take a look at how to start credit building.
How to build credit as an international student
Looking for help to build your credit history in the USA as an international student or graduate? Wondering how to start credit building activities? Let’s get started.
More than anything else, it takes time to establish credit in the US as an international student or working graduate. But, of course, it also requires having some finances to manage. And, there are some specific, generally recommended steps to take to help you build a great credit score and your financial future in the States.
For example, you can pay off your Prodigy Finance loan. How do student loans build credit? We report loan repayments to Experian in the United States and TransUnion in the United Kingdom.
Learn about how to build a credit history in the US. Here are 6 steps to build great credit in the US for H-1B and F-1 visa holders:
1. Open a bank account
A local bank account is critical to establishing your credit profile in the US and how to start building credit – even if your transactions aren’t reported to the credit bureaus.
Opening and maintaining an account will demonstrate a financial history with that bank in the future and that bank is more likely than another to offer you credit if you’ve been a loyal customer (and they can see your income and typical transactions).
TIP: If you’ve taken an education loan that transfers the funds – including living expenses - directly to your university (like a loan from Prodigy Finance), you will need a local bank account to receive your living expenses from your university. Spend some time researching banks in the area before picking one as you should be prepared to maintain the relationship with this bank for several years.
Check out this guide on how to open a US bank account for international students.
2. Make sure your rent is reported
How to build credit without a credit card? Report on your rent. In the US, rent is not automatically reported on your credit report because the information isn't directly handled by credit bureaus. However, Experian is now accepting rent reports and you’ll want to register with their RentBureau to make your off-campus housing costs count towards your credit score in the USA.
You’ll need to chat with your landlord and set up electronic payments to make it happen, but this can boost your credit score in the USA if you’re making payments on time every month - and is one of the easy ways on how to build credit quickly.
3. Think about getting a store card
Americans love shopping and there are plenty of stores that make it easier to do it with in-store credit accounts. You’ll find store cards are available at many national retailers and these are typically easier to get than general credit cards - plus it’s one of the ways to build credit fast.
While the credit limits are unlikely to be high, carrying low balances and making payments on these accounts will do wonders for your credit history and credit score in USA.
But, you’ll want to avoid gathering too many hard inquiries by applying for too many store cards at all your favourite shops, all at once. Try to open one or two, and opt for cards that you can use monthly, for groceries or clothing purchases you would make regularly.
Reminder: If you're still studying and want to start building credit, you should keep in mind that taking on additional debt before your second year could impact second-year loan approval.
4. Open a secured credit card
Getting a secured credit card is relatively easy because it’s not actually credit. Well, it is and it isn’t.
A secured credit card is a credit card because :
- It’s used as a credit card with merchants that accept credit cards.
- Your payments and balances are reported to credit bureaus.
- You’re responsible for making the monthly minimum payments.
- You’ll incur interest charges if you don’t pay off your balance monthly.
Secured credit cards aren’t credit cards because:
- You need to make a cash deposit to get one.
- Your credit limit is usually the amount you’ve deposited.
This form of collateral is why it’s easier to get one of these credit cards – and your first stop when considering your options is the bank you opened your initial account with.
How will a credit card build credit? While you won’t actually be given any credit, your purchasing activity will be reported to the credit bureaus, which can help build your credit history up from nothing – as quickly as possible.
5. Consider a credit-builder loan
Similar to a secured credit card, credit-builder loans aren’t exactly a form of credit, but they’re great for credit reporting and, therefore, building credit. If you’re thinking about how to build credit without a credit card, you’ll want to seriously consider taking a credit-builder loan.
It’s better to think of these loans as a rigid savings plan. You make deposits every month and you receive your loan amount at the end along with some interest (usually 4%-12%) and a healthy credit score – as long as your payments are reported. Make sure you double-check this upfront!
6. Get an unsecured credit card
Even though you’ll start receiving advertisements for unsecured credit cards almost as soon as you move to the United States, it’s unlikely that you will qualify without existing credit history. In fact, without a credit record in the US, you should be cautious about any credit offers from companies other than well-known sources such as banks or retail stores, as they may prove to be very expensive, dishonest, or entirely fraudulent.
You can sometimes get an unsecured credit card with a co-signer or by becoming an authorised user on someone else’s credit card, but you may not know anyone willing to take this leap for you.
But, when your credit is strong enough through store cards and secured credit cards, you’ll want to get an unsecured credit card.
CREDIT-BUILDING TIP: Unless you’re paying unreasonable fees for the accounts you used to build a positive financial history, don’t cancel them all at once. The age of your relationship with lenders can positively or negatively affect your credit score – and longer is better in this case.
What’s a credit score?
International student credit scores in the USA are generated by a number of different companies using the information gathered by the credit bureaus.
While you may think these differences will generate wildly different credit scores, they’re usually quite similar.
The US credit score scale
Whether you’re looking at a FICO Score, a VantageScore, or a credit score determined by a different company, you’ll get a number that falls between 300 and 850. In the US, your starting credit score is usually 300, although it can be lower, depending on the scoring system.
On this scale, 850 is a perfect credit score in USA and 300 is the worst. Typically speaking, anything over 700 is considered a good score. Anything less and banks are unlikely to offer you high credit limits or the most favourable interest rates.
The two most common credit scores are:
- FICO Score
The differences between these scores are:
- The company that generates them.
- The formula used to compile your score.
- Sometimes, the length of credit history needed to develop your credit score in USA (FICO scores require at least six months of credit reporting on a single account before your score can be calculated).
What affects your credit score in the US?
Considering everything that goes into your credit history, it’s worth noting that each element carries a different weight when generating your credit score in USA.
The weight of your payment history on your credit score is likely to be greater than the weight of recent credit inquiries, though how much importance is given to any element is determined by the agency doing it.
If you have questions about how any one of the credit score companies weigh the various elements, you will need to inquire with them directly.
What makes up a credit score?
Payment history: This is the percentage of on-time payments you’ve made that cover the minimum due. The higher the percentage, the better you look to creditors; they’ll see you as reliable and factor this into their credit decision. Late or missed payments are detrimental to your credit score.
Credit usage: This is the amount of available credit you’re using. For example, if you have $1000 available credit, but the balance on your credit cards is $300, your credit usage is 30%. The lower this percentage is, the better.
Hard inquiries: These are reports of new credit applications. The more of these you have in a short period, the more damaging it looks to other potential creditors; it suggests that you’re desperate for funds, which makes your application appear high-risk.
TIP: Though most loan providers report applications as hard inquiries to the credit bureaus, Prodigy Finance doesn’t. You can apply for a Prodigy Finance loan without your credit taking a knock.
Soft inquiries: These types of inquiries don’t impact your credit score in the USA. Typically, this includes reports and scores generated for yourself, potential employers – and, yes, even Prodigy Finance loans.
What doesn’t affect your credit score in the USA?
There’s a lot of information that doesn’t factor into your credit score or history. Companies and individuals checking your credit score in the USA won’t learn:
- Your age, gender or marital status.
- Your salary or employment history.
- Your race, ethnicity, nationality or religion.
- Your savings or assets.
Most of the time, your debit cards and bank account activity won’t reflect on your credit score either. This information usually isn’t reported to the credit bureaus unless you repeatedly tap into your overdraft. So, it won’t help you get a good credit score in the USA without credit history.
What’s the difference between credit score and credit history?
Your credit history is like your financial CV – and it’s different from your credit score, which is simply a number.
If you’re looking for help building your credit history, you’ll need to understand the differences between your credit history and credit score.
It may help to think of your credit history as a complete list of all the credit payments you've made for the past couple of years.
Your credit score is like the mark you get for performing well on an exam.
How long does it take to build credit in the US?
Learning about how long it takes to build a credit history in the USA can be a daunting task. It usually takes anywhere between 3 and 6 months to build credit.
You can get a credit score of 700 in about 6 months. However, it is important to note that while building credit takes time, your score can drop drastically with just one mistake. You need to be cautious, and ensure that you make all your payments on time.
How to build credit fast
Just having credit and being responsible with it usually leads to good credit, but there are a few tips you don’t want to ignore to make your score the best it can be.
For a start, take a moment to set up automatic bill pay or recurring automatic payments whenever you can. The number one thing that negatively impacts your credit score is late or missing payments according to Experian’s director of consumer education.
Plus, you can build credit by paying off outstanding debt on time and in full.
Important credit-building tips:
TIP: Never use one credit product to pay off another credit product, unless you are consolidating your debt or opting for credit with a more favourable interest rate and other terms to settle your old debt.
Who tracks your credit history in the US?
In the United States, there are three major credit bureaus:
Even if one or more of these agencies operate in your home country, your financial history and credit-building activities won’t reflect on your US credit report.
These bureaus operate under national regulations in every territory they work in and different countries work with different scales for scoring and require different reporting metrics.
In the US, credit bureaus are regulated by the national Fair Credit Reporting Act, but they’re not operated by the government; each one is an independent, for-profit business.
While some creditors (including loan providers, credit card companies, and even your cell phone contract) report to all three major US credit bureaus, others report to just one – or none at all.
Prodigy Finance reports payments made by US residents to Experian and UK residents to TransUnion.
Creditors aren’t required by law to report to the agencies, though most do – especially if you have a poor track record and frequently make late payments or skip them altogether.
Why you should care about credit reporting as an international student?
If you’re actively working to build a positive credit profile in the US, you want all your credit and contract payments to reflect on the reports compiled by one of the major agencies (and preferably all three).
Check with every provider who they’re reporting to and, if you have a choice, you may want to go with the provider that routinely or frequently submits reports.
Your credit history will show:
- How much credit you have available.
- How much credit you’re using.
- How long you’ve had each reporting account.
- How many new creditors you’ve approached recently.
- Your payment history (including skipped payments, late payments and how late you made those payments).
Check your US credit score regularly
All three of the major US credit bureaus provide a free annual report (according to law) so you can check your credit score.
When you apply for your credit report, it’s a soft inquiry, so your score won’t be lowered for doing so. You can check your credit score without a credit card
More importantly, it gives you a chance to look for errors in your reports. Misreporting can affect the credit you qualify for and the interest rates attached to it. Regular reviews help you make sure everything is accurate.
If you do find discrepancies, you’ll also find that your creditors are happy to correct them if you can prove the reported information is inaccurate, because they’re required to correct mistakes in compliance with the Fair Credit Reporting Act.
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This blog is merely informative on how to build credit fast, is not directed at any particular reader, and does not constitute financial or credit-related advice. Readers are encouraged to do their own research on financial and credit products and on the institutions offering these products, and to consult a financial advisor before applying for and taking up credit.