Strategies for Credit Newcomers to Build Credit History
Published on Feb 13, 2015 11:20 am
Whether someone was born here or has emigrated to the U.S., achieving the American dream takes hard work – and good credit! It’s often a prerequisite for many of the things commonly associated with the American ideal – such as buying a home, buying a car and pursuing higher education.
For young people starting out in life and also newcomers to the land of opportunity, it’s important to establish a credit history as soon as possible. Because children have no credit history, and credit history from a foreign country doesn’t follow you to the U.S., building credit can be a challenge; creditors may see little or no credit history as a risk and hesitate to extend credit to you. The good news is, however, that you can take steps to establish your credit. Like any good investment, the payoff won’t happen right away but the end result is well worth the effort.
Here are some strategies to consider for building your credit history:
Open a checking account and obtain a secured credit card. Because these cards are backed by the money you’ve deposited with the bank, it’s easier to get a secured card. Use the card for small purchases and pay off the balance each month. The on-time payments will show up on your credit report, and payment history is often an important factor in determining your credit scores. Once you’ve demonstrated your ability to use credit responsibly, you can ask the bank to increase your credit limit.
Consider leasing a car, rather than buying. Generally, payments are lower for leased vehicles. Plus, the money you have to put down on the lease will demonstrate to lenders that you’re able to save toward a goal. The lease – and your record of good payment – will appear on your credit report.
Keep an eye on your credit report. When you’re trying to establish credit, it’s a good idea to request a copy of your credit report for review. If you’re a young person starting out, or a newcomer to this country, your report should be “clean” – with nothing on it. Check your report for any signs of identity theft; a 2012 study by Javelin Strategy and Research found that 2.5 percent of American households with children younger than 18 experienced child identity fraud.
Use credit wisely. When working to establish credit, the purpose of using credit is to build a positive credit history – not to purchase everything you dream about but can’t necessarily afford. Keep credit purchases manageable and sensible. For example, do use your credit card to buy the laptop you need for work – because credit cards offer consumer purchasing protections that cash doesn’t. But pay off your credit card balance as soon as the statement arrives.
Establishing good credit early on in your pursuit of the American dream can help show potential lenders that you know how to use credit wisely. And having access to the credit you want when you need it most can make achieving your financial goals a little easier.