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.
Dear Opening Credits,
Hello, Erica. I am a permanent resident, with a Social Security number but no credit. How can I start or build credit? — Mario
Almost everyone has to jump over a hurdle or two to get their very first unsecured credit card. Issuers are sensible for being discriminating — wouldn’t you be? Imagine letting a person you don’t know borrow money from you. If he or she doesn’t securitize the loan with some cash or property and doesn’t have a traceable, positive history of repaying loans from a variety of sources, you’re taking a mighty big risk. Sure, you can take legal action if the person fails to pay up, but that’s kind of a pain in the neck.
So that’s their position — now for yours. You want to establish credit, but how can you do that when you have neither a proven past with using credit, nor U.S.citizenship? I talked with Jesse Torres, president and CEO of the Los Angeles-based Pan American Bank about your situation.
Torres does confirm that some banks hesitate before making loans to borrowers who either have no residency rights or have only short-term residency rights. The reasoning behind their skittishness is that they fear such individuals may leave the country without notice, without fulfilling their repayment obligations.
However, because you are a permanent resident, your position is quite different. And in fact, some financial institutions are focused on helping people in your circumstances jump into the system, so look to those that are there to help.
“Community banks and credit unions, particularly those with a focus and expertise in serving immigrant communities, are the best bet for potential borrowers without citizenship but with permanent residency and a Social Security number,” says Torres. “From a credit-risk perspective, this type of borrower is, for the most part, no different from a U.S. citizen, as the risk of flight or deportation is extremely low.” The assumption is that these people intend to remain in the U.S. indefinitely — not dash when times get tough.
Therefore, my initial advice for you is to seek out a bank or credit union that caters to the immigrant community and that also issues credit cards. Open a checking and savings account with them, then apply for one of their credit accounts. Many also offer secured credit cards, which are a great way to get started. You put down a small amount of money as collateral (which reduces lending risk) and they provide you with a credit line.
Once you have a card, make a commitment to using it well so you can build a credit history that will impress all sorts of lenders. Just charge a few times a month and always pay the entire amount of the bill by or before the due date. Mind that everything you do with that card will be recorded on consumer credit reports, so you want to make sure that what is written about you is glowing.
Finally, be aware that keeping credit card debt to zero can sound easy, but challenges abound. There may be times when you run short on funds and want to charge expenses that you can’t afford. Resist! Pretend the card doesn’t exist and find another way to deal with the gap. Trust me on this, Mario. Millions of Americans live in a state of perpetual and expensive debt — you don’t want to be among them.
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