How to establish credit as an immigrant
This is about establishing credit. I learned it the hard way.
Spring 1997. I had moved from Germany to the USA around Christmas and enjoyed my first Southern Californian year. While I browsed the www, I saw some ads for credit cards, clicked on them and was thrilled by the nice designs. They were issued by First USA and I was given a choice of nice pictures of them. I saw one with a nice winter landscape and wanted to have it.
It was so easy.. type in social security # .. little did I know what I started ...
Nothing happened and a week later I saw a pretty card that featured motives from the business world, looked cool, so applied for that one too.
A few weeks went by and I got two letters saying something like "insufficient credit history".
I did not really need such a card, because I still had a Mastercard issued by my bank in Germany. The inconvenience of that card is that they charge me 1% on all expenses made in a foreign currency and I have to pay it off from my account back in Germany.
After getting those two letters, my sports spirit came out, I went on the web again and had no problem applying again :-)
Another letter came soon.
What had I done wrong? I did not understand it. I had lived in Germany financially stable and was used.. umm.. to be given a chance. I knew someone in San Diego who had never had a job in the entire life but qualified for a card by their bank. I did own a home in Germany with rental income, I never had had any problems with banks before.
So I asked my friend who worked back then in a collecting agency (she has her own finance brokerage business now). She yelled at me 'how could you be so stupid???'.
'In other words', she told me, 'everything is wrong with you. You are bad credit. Yuck, will I catch that over the phone line?'
- I had my address for 3 months only
- I had my job for 3 months only
- there was no record what I had done before and where I lived before
- I had applied for several cards within short time
What is important?
End of story.
- Stability (same job and address over years)
Difficult for immigrants.
- Regular payments towards existing creditors
Well, I had none. My 4 successful phone bill payments did not count. Since nobody would lend me money, I figured, how could I have creditors?
My friend recommended me to get a Target (department store) card and wait before I reapplied for a regular credit card.
I followed her advice and Target indeed qualified me for a $200 line. I forgot about the cards for a few months, since I was doing fine without one. I used my ATM card all the time.. no problems.
More than half a year later I wanted to purchase airline tickets online and was to cheap to give my German bank that 1% fee for currency exchange. So I re-applied... did not work. My friend had not told me that I actually had to use that department store card <grin>. So here comes my big wisdom of 1997:
- You need to BORROW FIRST to be respected by a bank
My friend then told me to get a Secured credit card
I did this with my local credit union. They agreed with my friend's statements that this would help me build credit. I deposited $500 and got a credit line of $500. My friend told me about secured cards that have a 1:2 or a 1:3 ratio. (1:3 means that if you deposit $500, your credit line is $1500.)
I did not really care that much and used the card frequently. Less than a year later, I applied for an unsecured card (www again) and got approved.
Here is some common sense
- do not bounce checks
- do not make late payments (phone, utilities). They will report if you are a bad customer, but they will not report, if you are a good customer.
- do not apply for credit frequently. It makes you look desperate. This includes applications at x.com. Basically everybody who requests your social security number is suspicious.
- do purchase things on payments.
I hate this advice! Upon arrival in California, I had bought a 12-year old car and paid cash. Big mistake. Buying a car is a good way to get a creditor.
- Know that Discover card is useless to build credit.
Like utilities, they will report to the agency only the bad customers but not the good ones.
A list of creditors for the beginner
- secured credit card
worked best for me and it has a real value.
- department store card
no deposit needed, limited use. (I did not visit that store very often)
- gasoline charge cards
easier to get than real credit cards and useful.
- buy your car on payments
I don't know whether that dealer would have sold me on payments, but for immigrants who need a car anyway, it's worth a try.