New immigrant credit rules of the road

By Erica Sandberg

Opening Credits

Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com. Ask a question. 'Opening Credits' stories

Dear Opening Credits,
I'm thinking of applying for my first credit card. I just graduated and got a job. I don't have any credit yet. The short-term purpose of this first credit card is to help me build credit. Before I do that that, I have some questions. I entered the U.S. a year ago as an international student. I got my Social Security number in March 2012. About six months before that, I applied for Macy's credit card and was declined. A week ago, I applied for another retail card four times and was declined. I didn't know anything about the U.S. credit system at that time, so I didn't know that those each time I applied, my credit was pulled. Now, as I'm thinking of applying for a credit card from a bank, I learned a little bit and began to realize that something is not right. I was told by a bank's credit card representative that the failed inquiries will have negative influence on my credit scores and will stay at my record FOREVER! My questions are:

1. When do credit bureaus begin to record a person's credit -- from entry date into the U.S. or from the SSN effective date?

2. Will the failed inquiries really stay in my record forever? Some people online say that they will not appear on my credit record after two years.

3. Since I didn't have and still don't have any credit score, how would the failed inquiries negatively affect anything?

4. Now I want to build my credit by applying for a bank's credit card. Which card do you recommend? I want to make sure that I can get approved. I don't want to have a failed record of credit card applications anymore.

5. What should I do to maximize my credit score after I get the credit card?

Dear Lydia,
Boy, if I had a dollar for every myth about credit reports and scoring, I'd would be a gazillionaire by now! Sadly, though, no one is willing to pay me for such crimes of hype and hysteria.

I am glad that you are questioning the "facts." They don't make much sense, do they? Here are the real answers.

The real scoop on inquiries
There are two types of inquiries that appear on a consumer's credit report. One is a "soft pull" and the other is a "hard pull." The soft kind is nothing more than a company doing its research about you. Anyone with a legitimate business purpose may check your credit to see if you're eligible for their product. You'll see who has been peeking because it will be listed on the reports. These soft inquiries are not factored into credit scores at all.

Hard pulls, on the other hand, are when you actively apply for credit. Each time you try, the bank or business will access your credit report and scores to see if you qualify. These hard pulls will show up for just up to two years -- certainly not indefinitely! And while the notation will be factored into your credit score, they are a minor category -- just 10 percent of your FICO score (the score developed by the company FICO, which is the most common model in use).

According to FICO, one inquiry will shave fewer than five points off the average person's score. However, since you don't have other positive information listed on your reports -- such as a long, healthy history of charging and repaying on time and in full -- the impact will be greater. When there's little else on the report to cancel them out, many inquiries in a short span of time can stand out in an unflattering way.

When bureaus record credit activity
There are three major credit bureaus in the United States: TransUnion, Experian and Equifax. Their job is to compile the data that subscribers (lenders and other businesses) send them into readable reports. Then they sell them back to those companies and individuals who need to know a person's complete and accurate credit patterns.

Your credit history really begins when you borrow and repay money from a financial institution. The bank or credit union will add the date you opened an account or got the loan, your balance and credit limit and a detailed description of your payment pattern.

Other sections will show your personal identification, any judgments you may have against you (if you were sued for a debt, for example) and, of course, those inquiries.

So to be clear, your credit history doesn't start when you enter the country or get a Social Security number, but when you begin a relationship with lenders.

How to obtain a credit card without a credit history
Ask and you shall receive credit! OK, it's not that easy, but close. Many issuers offer accounts to people who are new to the world of credit. Typically, these are secured credit cards and to qualify all you have to do is put a cash deposit down with the bank. They place it in a special account and issue you a card with a credit limit similar to that sum. If you fail to pay, they can take the money from the funds they're holding.

Compare your choices carefully. CreditCards.com has a section on "Credit cards for people with limited or no credit," as do plenty of other comparison websites. Read all the information, then apply to the one that suits your needs and situation.  Make sure that card reports to the credit bureaus before you apply, so that you build a credit history and score that other lenders will find attractive.

When you have the card, use it just as you would an unsecured one: Charge your purposes want and pay on time and in full. Once you establish a regular pattern of charging and paying on time, within a year or so you can then try to apply for an unsecured card.

And that's the scoop, Lydia. Thanks for asking! 

See related: FICO's 5 factors: The components of a FICO credit score

Erica Sandberg's articles and insight are featured in such publications as the Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSNMoney.com, and Smartmoney.com. An active television and radio commentator, Erica is the credit and money management expert for San Francisco’s KRON-TV, a frequent guest on Forbes Video Network, Fox Business News, Businessweek-TV, and all Bay Area networks. Prior to launching her own reporting and consulting business, she was affiliated with Consumer Credit Counseling Services of San Francisco where she counseled individuals, conducted educational workshops, and led the media relations department. Erica is a member of the Society of American Business Editors and Writers, and on the advisory committee for Project Money.

Send your question to Erica.

Published: September 5, 2012

	Three most recent Opening Credits stories: Credit-building tips for new US citizen – He opened a U.S. card with a passport and business account. Now that he's moved here and has an SSN, he wants to know how to build a good credit score ... Does canceling an unactivated card hurt credit scores? – She applied for a low-limit, high annual fee card and never activated it. Now she wants to cancel it. How will that impact her credit score? ... Will paying off a bad loan early boost credit score? – If you can afford to pay off a high-cost loan, do it. Don't stick with a bad loan in the false belief that it will help build your credit score ...

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