An overview of the importance of a strong credit history in the U.S.
“You can’t take it with you,” is an American saying that means money and material things are left behind when you pass away — they don’t follow you in death. Sadly but less morbidly, the same often applies to your credit score and history when you move to the U.S.
For decades, newcomers to the states have learned this the hard way: arriving with virtually no financial history, it can be next to impossible to get a credit card, a lease on an apartment, a house, or car. When you don’t have a credit history, (or have a low credit score) you’ll potentially pay thousands of extra dollars in security deposits and interest rates, since lenders (as well as cell phone providers, and gas and electricity companies) have no way of knowing how financially stable and trustworthy you may be. This can be especially frustrating if you come to America with an excellent credit history back home!
What can newcomers do to overcome this?
If you are new to the U.S. and want to apply for credit, you may be able to transfer your credit history from your previous country of residence using a service like the one offered by Nova Credit. As of June 2019, it is available for newcomers from Canada, Australia, Brazil, Korea, India, Mexico, the U.K. and soon China and Nigeria.
However, this is not a shortcut to building credit history in the United States, as your credit history only gets transferred to the lender you’re applying to. You typically build credit history with the standard large U.S. credit bureaus of Transunion, Equifax and Experian – and it typically takes multiple years to build a good credit score.
How to Build Credit in the U.S.
Getting a good score requires persistence and patience. It is absolutely possible though a few behavioral changes. One of the most important behaviors might sound simple, but is very important: pay your bills on time. Having a long history of on-time payments is good for your credit score. A single late payment won’t destroy your chances of a good score, but can take months to recover from.
Another important behavior is to keep your credit balances low. For example, if you have a new credit card with a $1,000 limit and you make $500 worth of purchases, you’ll have a 50% utilization rate on that card. Your overall utilization rate on your revolving credit accounts (such as credit cards and lines of credit) is an important scoring factor. Keeping your utilization rate as low as possible, while still using your accounts, is best for your scores.
Closing accounts can decrease your available credit, which may increase your utilization rate and hurt your scores, so keep your credit cards and accounts open. Unless you’re constantly overspending, try not to close your accounts.
Although getting a good credit score is very much possible, it often takes years to establish credit history in the U.S., and building an excellent score that gets you the best interest rates isn’t easy. The average FICO score (Fair Isaac Corporation, a popular model for credit scoring) in the U.S. in 2017 was 700 — that ranks as “good” by FICO’s standards, below “Very Good” and “Exceptional.”
Credit history will continue to be important in America For better or worse, credit will continue to be very important in the U.S.A. This is sometimes surprising to newcomers, but it has a direct impact on the types of products that you can access, on the apartment that you live in, and even on your ability to get certain jobs. Most directly, good credit can save you a lot of money over your lifetime! Whether you build your credit history over time or use your international credit profile, it is vital to pay attention to your credit profile in America.