Barry Paperno is a freelance writer and credit scoring expert with decades of consumer credit industry experience, serving as consumer affairs manager for FICO (formerly Fair Isaac Corp.) and consumer operations manager for Experian. He writes “Speaking of Credit,” a weekly reader Q&A column about credit scoring and rebuilding credit, for CreditCards.com. His writings about credit scoring have appeared in The Huffington Post, MSN Money, CBS Money Watch and other consumer finance websites.
Dear Speaking of Credit,
My husband is a Canadian citizen and has excellent credit (771), but he will be a U.S. permanent resident this year and we were wondering how that would affect his credit? He was hoping to buy a new semi truck this year and doesn’t know if his credit will carry over to the U.S. or if he would be starting with a clean slate and the need to start his credit history all over again. Thank you for any advice you can give me. – Felicia
Despite your husband’s excellent 771 Canadian credit score, to finance that truck he will now have to restart his credit. He must create an entirely new credit file and score in the U.S. by obtaining credit from U.S. companies that report to U.S. credit bureaus. And he is going to have to act quickly if he wants to buy that truck this year, as a credit file and score won’t appear instantly.
With time being of the essence, any steps he can take to avoid some of the time-and-score-wasting missteps consumers often make when not clearly understanding how the U.S. credit system can work in their favor, will put him ahead of the game. As such, the two of you can begin to help matters by:
- Obtaining his Social Security upon becoming a permanent resident. Most card companies will require one, though some may accept an Individual Taxpayer Identification Number (ITIN) instead.
- Knowing the minimum amount of credit he’ll need to acquire and the length of time needed before a U.S. credit score can be calculated on his new credit bureau file.
- Finding the right kind of credit accounts for this credit-building challenge he now faces.
Knowing the score
There are two main brands of credit scores used in U.S. credit lending, FICO and VantageScore, with FICO being the scores used by 90 percent of lenders. With this greater likelihood that a FICO score will be used by a truck lender, it makes the most sense to focus now on meeting FICO’s minimum scoring criteria, especially since, as you’re about to see, FICO has the stricter requirements – a six-month waiting period following the first new account opening versus VantageScore’s one month. Once he qualifies for a FICO score he will also automatically qualify for both.
To calculate a FICO score, both of the following must be present on a credit report:
- One credit account at least six months old, and
- One credit account (either the same or a different account) that has been reported to the credit bureau within the past six months.
What this means is that all the credit he will need is one active account. But that one account must reach six months old before a FICO score can be calculated for him. The good news is that, if managed properly, that score based on six months of credit history should be sufficient to meet the truck loan credit score requirements.
Opening the right credit account
The best way for most consumers to begin building a credit file and score these days is by opening a secured credit card account. Unlike the unsecured cards most of us use, secured cards require a deposit be placed with the card issuer in the amount of the credit limit as collateral for any debt.
While your husband should expect to find many secured cards that behave just like unsecured cards, there are two essential “must-haves” in a card if it is to lead to a credit score in six months:
- No prior U.S. credit experience or score will be required, and
- The card will be reported to all three major credit bureaus – Equifax, Experian and TransUnion – monthly.
Secured cards can also provide many of the conveniences, money-saving features and positive scoring influences that unsecured cards offer, such that:
- Scoring measurements of how promptly he pays, how much he owes and how long he’s been using the card, will have the same scoring impacts with a secured card as with an unsecured card.
- He should be able to provide as little as a $200 security deposit amount without jeopardizing his future score, since the utilization percentage (balance/credit limit) will be much more important than the dollar amount of the credit limit or balance when the score evaluates his credit usage.
- Many secured cards come with no annual fee, rewards programs and the future option of a higher unsecured credit limit following an introductory period demonstrating good credit management.
- Secured cards can be paid in full each month to avoid finance charges, or a balance can be revolved from month to month with interest and a minimum monthly payment.
- Secured cards can be used anywhere unsecured cards are accepted.
Simply paying a secured card on time each month and keeping utilization low should be all it takes to achieve a good score – and that truck loan – at the end of that first six months.
During that critical initial score-building time, however, it will be vitally important that once he has opened the secured card, he not apply for any other new credit or accept any credit offers received in the mail. Doing so is guaranteed to add hard inquiries to his credit report and put him in a higher credit risk category that could later prevent his score from being as high as it can be.
That’s really all there is to establishing a U.S. credit file and score. After that, he should be able to obtain any further credit he’ll need, as long as he continues to pay on time, keep card debt low, and only open new credit sparingly.
See related: 9 credit-building tips for U.S. immigrants
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