Establishing credit, represented by the Statue of LibertyImage: Establishing credit, represented by the Statue of Liberty

Credit Karma Guide to Establishing Credit in the U.S.


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Starting a new life in the U.S.? You’ll likely need credit to get a credit card or mortgage, rent an apartment, and, in some cases, even get a job. Here are a few things you should know about building your credit in the U.S., from taking out a secured credit card to becoming an authorized user on someone else’s credit card or having your rent payments reported to the credit bureaus.


If you’re new to the U.S. — whether you’re here permanently or temporarily — it might be a good idea to start establishing a credit history.

Healthy credit can come in handy if you need to take out a loan for a car or house, pay for items with a credit card, or do basic things like open a cellphone or utility account. Some employers may even check your credit before offering a job.

The catch? Typically, you’ll need credit to get credit. Without U.S. credit scores, potential lenders may see your lack of credit history as a risk, and you may have a more difficult time getting approved for loans or credit cards.

“Be prepared to start from scratch building credit when you’re coming to the United States from another country,” says Bruce McClary, spokesperson with the National Foundation for Credit Counseling. “It‘s something that nearly everyone has to go through.”

It may take work, but it is possible to establish credit in the U.S. This guide can help you get started with a few things you should know: how credit works in the U.S., where to find trustworthy information, what you‘ll need before you start and the steps you can take to build credit.


How credit works in the U.S.

You may have had a credit history before moving to the U.S., but most credit doesn’t cross borders — and it can work differently from country to country.

This means that your previous credit history generally won‘t count toward your U.S. credit scores. You should also know that a few things, such as the information that’s reported to the credit bureaus or the way various factors are weighted in the U.S., may be different from how it works in your home country. Or you may come from a country that doesn’t use credit at all.

But there‘s at least one thing that unifies credit around the world.

“In terms of purpose, the purpose of a credit history is the same: Are you a good candidate to apply for credit?” says Rod Griffin, director of public information for Experian, an American credit bureau. “That’s the common thread in terms of credit reporting around the world.”

Before we get into the unique aspects of a U.S. credit report, here’s a quick refresher on credit.

What is credit?

Simply put, credit is a value of money that someone, such as a bank or credit issuer, has loaned you that you’ve promised to pay back, typically with interest.

This could include car loans, mortgages, service agreements like a cellphone account, or a credit line on a credit card.

When you apply for credit, lenders will typically check your credit to help determine your ability to repay the debt.

They’ll do this by reviewing a credit report, which is like a résumé of your past financial behavior. If the lender approves your application for credit, it can then report your account details to any of the three main consumer credit bureaus: TransUnion, Equifax and Experian.

The details on your credit accounts, such as your payment history and balance, can be used to calculate your credit scores. There are many companies that use different formulas for calculating these scores, but the main two are VantageScore Solutions and FICO®. These two companies use scoring models that produce credit scores ranging between 300 and 850.

Scores of about 700 or higher (on a scale of 300–850) are generally considered good scores. Lenders typically look at your scores when deciding whether to give you credit and to help set the terms of your agreement with them, such as how much interest you’ll pay.

Here’s a quick note to keep in mind: Debit cards, prepaid debit cards and payday loans may not help you build credit because the account details are usually not reported to the credit bureaus.

How are U.S. credit reports and scores created?

The credit bureaus gather and store the information about your credit behavior. This information is generally submitted to them by lenders, such as credit card companies. One important thing to know is that these companies aren’t required to report any information to the bureaus.

The bureaus use the data that they collect to create your credit reports, and may also calculate your credit scores. When you’ve applied for a loan, your potential creditor can check your credit reports to help them make a lending decision. You can also request your credit reports from each of the three major consumer credit bureaus for free once a year.

Because lenders use U.S. credit reports to help get a full picture of how you manage money and credit, they may contain both positive and negative information. This is different from the way some other countries approach credit.

To protect consumers, there are laws that say what can influence your scores and what can be included in your credit reports.

For example, your immigration status won’t be included in your credit reports, and lenders can’t discriminate against you based on your status.

But keep this in mind: When you apply for loans or credit cards, a lender can ask about this detail. The lender may decide not to grant you credit if it thinks you won’t be in the country long enough to repay your debts.

QUICK GUIDE

Where do I find trustworthy financial information?

Unfortunately, scams are prevalent in the U.S., and newcomers or people who may not speak English well may be more likely to fall prey to scams. You may also be unfamiliar with how money works in your new home. Finding trustworthy financial information can be a challenge for an immigrant, but it’s extremely important.

“I would advise immigrants to be very careful of where they’re getting the information that they’re looking for,” McClary says. “A lot of times you’ll get financial tips from a friend, a neighbor, a person at the grocery store or somebody you randomly ran into. And it may not be well-informed advice.”

McClary advises checking out these resources.

What you’ll need to get started

You probably want to get started on building that good credit as soon as possible. But there are things you may need to do to set the groundwork.

First off, you typically must be at least 18 years old to take out credit. Here are a few other things you might need beforehand.

  • A Social Security number or individual taxpayer identification number
  • A bank account
  • Income from a job or other source (like savings or investments)

1. Apply for an SSN or ITIN

When you apply for credit, issuers may ask for your Social Security number, also called an SSN, so they can check your credit.

An SSN is a unique number assigned to each U.S. citizen and people authorized to work in the U.S. It’s the easiest way for the credit bureaus to gather your financial information, but the bureaus technically don’t need it. They can also compile information about you based on other factors like your name, birth date and address.

If you don’t qualify for an SSN, you might be able to get an individual taxpayer identification number, or ITIN. You may be able to use an ITIN to apply for a credit card without an SSN.

QUICK GUIDE

How do I get an ITIN or SSN?

An individual taxpayer identification number is a nine-digit number you use to file a federal tax return if you’re earning money in the U.S. but don’t have an SSN.

ITINs are available to …

  • Foreign nationals who don’t qualify for a Social Security number but file a federal tax return
  • Nonresident and resident aliens who file U.S. tax returns
  • Spouses and dependents of resident aliens or nonresident alien visa holders

To apply for an ITIN:

  • Complete IRS Form W-7
  • Verify your identity
  • Provide a copy of your federal tax return

You can contact the IRS toll-free at 800-829-1040 for help.

Keep this in mind: An ITIN doesn’t make you eligible to work in the U.S. or entitle you to retirement Social Security benefits in the future.

Social Security numbers are also nine-digit numbers, and they’re used to report your wages and determine your eligibility for social security benefits. They’re available to ...

  • People authorized to work in the U.S. by the Department of Homeland Security
  • U.S. citizens

To apply for an SSN, you’ll need to ...

  • Verify your identity
  • Provide a valid document from the Department of Homeland Security that shows your immigration status. This can include Forms I-551, I-94 or I-766.

International students or exchange visitors may need to provide additional documents, such as Form I-20, DS-2019, or a letter authorizing employment from your school and employer (F-1) or sponsor (J-1).

You can find more information at ssa.gov.

2. Open a bank account

You may need a checking or savings account before you apply for credit cards or other loans. That’s because the lender may want to view your bank statements to verify you have a source of money to make payments.

To open a checking or savings account, you’ll need to provide your …

  • Name
  • Address
  • ID number (you can use your ITIN or SSN as your ID number, if you received one)
  • Date of birth

For those without an SSN or ITIN, your bank or credit union may also accept a passport number and country of issuance, an alien identification card number or other government-issued ID number.

3. Prove you have an income

It may seem personal, but lenders will likely ask about your income because they are required to assess your ability to repay what you borrow.

On many credit card applications, you‘ll need to state your annual income, which typically can be from sources like a job, savings, retirement income or investments. Lenders can use this information to help determine your credit limit and interest rate.

Take note here: Fibbing on a credit application is against the law, so be sure to fill it out truthfully.

How to build credit in the U.S.

Once you understand how credit works in the U.S. and have the tools you need, you can start to establish your credit. The options below may be a good place to start.

Apply for a secured credit card

Secured credit cards are similar to a regular credit card, but they‘re backed by a deposit that helps protect the credit card issuer. The deposit is used to “secure” the amount you borrow.

These are designed for people who are trying to build or rebuild their credit, so it could be a good way to establish credit in the U.S. Just make sure you apply for one that reports your payments to at least one of the three major consumer credit bureaus.

If you‘re approved for a secured card, you‘ll provide a deposit, which is usually equal to your credit line.

If you started with no credit score, it can take at least six months to start building one from the time you open an account. Using the card responsibly — like making small purchases and paying them off right away — can help you build credit.

QUICK GUIDE

How can I work on getting better credit scores?

Focus on some of the factors that the credit-scoring models often take into account.

Making on-time payments and keeping a low balance are typically considered the biggest indicators of responsible credit use. Aim to spend less than 30% of your card’s credit limit. That means if your credit limit is $500, try not to charge more than $150 on it. Then, aim to pay off your credit card bill in full each month. And even if you can’t make the full payment, make sure you at least make the minimum payment on time.

Another factor that impacts your credit scores is the age of your accounts — as in, the older the better. For example, a credit account with years’ worth of on-time payments can demonstrate long-term responsible credit use to lenders. If you start out with a secured credit card, it’s OK to move on to a traditional unsecured card when you’re eligible.

But consider keeping the secured card and the unsecured card open for a long time, if possible, so you can build up your credit with your new unsecured credit card first.

Credit-scoring companies also like to see that you have a mix of credit accounts. This could mean having an auto loan, student loan, and one or two credit cards. Someone new to the U.S. may need to start with just one account and gradually move into other credit options.

Lastly, try not to open too many credit accounts at the same time. Lenders may view this as risky behavior, especially for those who are new to credit. 

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Take out a credit builder loan

These types of loans are made to help people establish or build credit. Unlike a traditional bank loan, you won’t get the money until you’ve made a series of payments to pay off the loan.

They’re typically offered by credit unions for small amounts, anywhere from $500 to $3,000. Interest rates tend to be low, ranging from 4% to 12%. But before you apply for one of these loans, make sure your payments will be reported to at least one of the major consumer credit bureaus to help you build credit.

Get added as an authorized user

Another way to help build credit is to be added to a trusted friend or relative’s credit card account as an authorized user. If your friend uses their card responsibly — like paying the bill on time and keeping the balance low — you could get credit for their healthy credit habits.

But there could be a downside. If your friend doesn’t use the credit card responsibly, any negative information reported on their credit reports for that account may also be reported on your credit reports.

Before entering into any agreements, check these things with the company that issues the credit card.

  • Can you get off the account without needing your friend’s permission?
  • Does the issuer report on authorized users to at least one of the three major credit reporting agencies? (Not all do.)
  • Does the issuer report positive and negative information to the bureaus for authorized users?
  • What happens to your credit after leaving the account?

Have your rent reported

If you rent a home, you’re making a pretty big payment every month.

You can improve your credit with that positive rent history. Services like RentTrack will accept your rent payments and report them to the credit bureaus. These companies will typically add a fee — about 1% to 3% of the rent amount — which either you or the landlord will pay.

With their service reporting to all three major credit bureaus, RentTrack says they have seen credit scores increase 29 points in two months and 132 points in two years on average (based on average data from thousands of financial lenders).


What’s next?

After you’ve built up good credit scores, you can check out any new credit options. You may now qualify for better terms, which could translate into saving money.

There may be a certain type of traditional credit card that’s best for you. Unsecured cards often have better terms than secured cards. You may like the rewards programs, lower APRs or higher credit limits with no security deposit.

If you’ve just graduated from school, you might want to consider refinancing your student loans at a lower interest rate. Or you could check out a mortgage if it’s time to buy a home.

You’ll want to keep that good credit you earned, right? Try to review your credit reports regularly to check your scores and make sure the information on your reports is correct.

The sooner you start building credit, the faster you could be on your way to improving your financial opportunities. Keep reading to learn more.


About the author: Kim Porter is a writer and editor who has written for AARP the Magazine, Credit Karma, Reviewed.com, U.S. News & World Report, and more. Her favorite topics include maximizing credit… Read more.