Steps to build credit as a permanent resident

Opening Credits columnist Eric Sandberg
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

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Question Dear Opening Credits,
I am a permanent resident and would like to build my credit. For now I have a low income. I wanted to use a credit card only to build my score as I don't have one. Is it a good idea to apply for a credit card or do I have to wait? Being a permanent resident, it seems like banks don't trust me (which is understandable). However, I should have the chance to build my credit score. What are my options? -- Emilie


Dear Emilie,
Creating a strong credit history is a great goal, whether you emigrated to the U.S. or were born within its borders. By charging the right way with a starter card, your credit scores (which are developed from the information listed on consumer credit reports) will steadily rise.

So, how to get started? More good news: You don't need to be a U.S. citizen or have an especially large income.

You see, there are two basic types of credit cards on the market. One is unsecured, which means it is granted based on an applicant's credit rating and income. There is no collateral involved, so if the person doesn't pay the bill, the issuer only has two options for recourse. One is to recoup a portion of the balance by selling it to a collection agency at a loss. The second is to sue for the amount owed. However, even if the issuer wins the case, the debtor may have no assets to claim. For this reason, issuers must be careful about who they accept as unsecured customers.

A far less risky credit card type is a secured account. Cash is put down as collateral, which is often equal to the amount of credit extended to the customer. If the cardholder racks up a balance and then walks away without paying, the issuer can take the deposit money and apply it to the debt.

For this reason, a secured card is ideal for anyone in your position: no credit history yet to assess and at least a little money coming in. Your income just needs to be enough for you to handle the payments you make on the card, but that's rarely a hurdle. The credit limits on secured cards are typically low, often around $500. Even if you ran the account up to the maximum, the minimum payments would be small.

To get one of these cards, look at the secured card choices listed on this site.  When searching for a secured card, look for two things:

  1. The card should have minimal fees.
  2. The card issuer should report your on-time payments to the credit bureaus. This is a must for credit-building.

Once you find a good one, apply and, if approved, you can begin to charge right away. In six months you'll have a credit score. If you send all payments by the due date and keep the debt to zero by paying the balance in full, your credit rating will be on its way to excellence.

Another card-shopping option is to visit local banks and credit unions that serve immigrant communities. Most offer credit cards, both secured and unsecured, and the financial institution's employees can help guide you to the correct product.

In as little as a year, your credit rating should be high enough to qualify you for an unsecured card and you can add that to your plastic portfolio, which will also help your scores rise (as long as you continue to pay on time and in full).     

See related: Tips to rebuild credit after living abroad, New arrivals to U.S. need to rebuild credit history

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Updated: 01-21-2019