New US resident must rebuild credit
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Dear Opening Credits,
I am a permanent U.S. resident with a Social Security number, but no credit. How can I start or build credit? All my life I built credit in the country in which I was born (Brazil), but here I don't have credit yet. Thanks for your attention. -- Claudio
It's a shame that the positive credit reputation you developed in Brazil won't be recognized here in the U.S. However, although U.S.-based card issuers won't be privy to the fine way you borrowed and repaid, the knowledge and life experience you gleaned will remain useful to the person who matters most: you.
Just as a young adult must start building credit, you have to as well. But because you've already cut your teeth on credit products -- and I presume paid on time and kept yourself out of debt -- you're far ahead of most youngsters in levels of aptitude and comfort.
So here's how to begin.
Because you have a Social Society number, you're ready to apply for a type of credit card that is perfect for newbies. It's a secured credit card. With it, you would give the card issuer a cash deposit -- usually a few hundred dollars -- that it will hold in a separate account. Those funds act as collateral against the possibility of you charging up the card but not paying. If that happens, the issuer can simply use the deposit to pay the delinquent debt. Not that you would mishandle the account, but they don't know that. The security deposit reduces the issuer's risk in doing business with an unknown entity.
Compared to an unsecured credit card, secured cards are easy to qualify for. You'll usually just need an income to show that you can handle the payments. The credit line may be the same amount of the deposit or a bit more, but is rarely in the thousands. Since your intention is to build a reputation, though, it's the perfect vehicle to get the job done.
Look through the secured card options under the "Card Type" tab on this page and identify the account that most appeals to you. Many have annual fees and most have high APRs. If you won't be keeping a balance by paying it off every month, the interest rate won't matter.
Don't be offended if the "credit needed" section on most of the offers reads "bad." It's not because you've misbehaved. It's because to card issuers, giving a card to someone with no credit history is as risky as giving one to someone who has abused credit in the past. Don't worry. With excellent use, you can quickly change all that.
Once you make a card selection and before you apply, call the issuer to verify that all payment activety will be reported to the three credit bureaus -- Equifax, Experian and TransUnion. If it will be, then go ahead and apply. When you get the card, use it to your scoring advantage. Charge a little, but pay it all and always (always!) on time. All your activity with it should then appear on your consumer credit reports, and that information feeds into credit scoring models.
In the beginning, your scores will be low. FICO is the most commonly used scoring system, and the numbers start out at 300 then peak at 850. Payment history comprises 35 percent of that score and credit utilization is 30 percent -- that's the amount you owe in relation to the amount you can borrow. Charge regularly while keeping the balance to zero and you'll do great. The rest of the score is based on the length of your credit history, types of credit in use and pursuit of new credit (the fewer applications the better).
A couple of months after using the card, buy one of your scores from myFICO.com for about $20. Don't be alarmed to see that it may be at the very low end of the scale. Just stick with my instructions and then check again in about a year. I promise that this simple strategy will result in a vastly higher score. Your ultimate aim should be digits in the mid-700s and higher. Scores like that will be a clear indication that you've graduated to ultra-low risk status!
And once you hit the mid-700s, you can apply for a regular unsecured card with a better interest rate and no deposit required. If you cancel the secured card, don't forget to get your deposit back. Good luck!
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