How to Build a Credit History in the US as an International Student

If you are planning to stay back in the US after getting your degree, you need to build your credit score in the US. Even if you had a stellar credit record in India, you still have to start building your financial life from scratch in the US. As an international student in the US, earning approval for a credit card can help you establish a US credit score. This may allow you to apply for loans and financing. Additionally, credit history can also improve your qualifications for renting a home and applying for a job. Learn how to build a credit history in the US as a foreign student.

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Why do you need to build a credit history in the US?

While you can usually use credit cards issued in your native country that allow purchases in the US, your credit use on those cards will not contribute to your credit score. Your credit history cannot be reported until you open a credit account in the States. You may also be subject to international transaction fees when you use a foreign credit card in the US.

Credit scores in the US are a completely different ballgame. You need a good credit score for basic things like getting a mobile phone plan, renting a house, getting insurance, buying a car, and sometimes even applying for a job!

As an international student without a U.S. credit score, you may have to end up having to pay very high security deposits for things like renting a home or getting a credit card.

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Why is Building Credit History as an International Student Important?

Credit building may not seem like a top priority when you first arrive in the US, but the sooner you start establishing credit the better. In the long run, you will need a credit history to prove that you are a reliable borrower.

Lenders will need reassurance that you will pay back the money you owe on time each month, and a strong credit score can provide them with the reassurance they need.

Without a credit history, you won’t be able to do certain things (or will have a difficult time doing them) like buy a house, buy a car, get good rates on home and auto insurance, rent an apartment, have access to low-interest rates on loans, etc.

What is a credit score?

A credit score is a number from 300 to 850 that rates a consumer’s creditworthiness. The higher the score, the better a borrower looks to potential lenders.

A credit score is based on credit history: number of open accounts, total levels of debt, repayment history, and other factors. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner.

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Factors affecting credit score

  1. Payment history (35%) – This represents whether you’ve made repayments for past and current credit products on time
  2. Amounts owed (30%) – This represents whether you are using a high percentage of the credit limit available to you across your credit products. If let’s say your credit limit on your credit card is $2,000/ month and you use $1,500 every month, it implies that you are overextended and contributes negatively towards your score
  3. Length of credit history (15%) – This represents how long you have had credit products, and in general, a longer credit history improves your score
  4. Credit mix (10%) – This represents the mix of credit products you have – e.g. credit cards, loan installments, mortgages, etc. Usually, the better you manage different types of credit products, the better your score will be
  5. New credit (10%) – If you open several credit products in a short time frame or even apply for several products rapidly, your score is usually negatively affected

What’s the difference between credit score and credit history?

Your credit history is like your financial CV – and it’s different from your credit score, which is simply a number.

If you’re looking for help building your credit history, you’ll need to understand the differences between your credit history and credit score.

It may help to think of your credit history as a complete list of all the credit payments you’ve made for the past couple of years.

Your credit score is like the mark you get for performing well on an exam.

Why is Building Credit History in the US a Tricky Process?

Usually, you should have a credit product like a loan or a credit card, to start building your credit score.

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However, to get a loan or a credit card, financial companies first need you to have a credit score. So, it’s a classic ‘chicken-or-the-egg’ problem!

Steps of Building Credit History in the US as an International Student

Basics

  • Opening of Bank Account
  • Payment of Utility Bills
  • Store Credits
  • Auto-payments / Recurring Payments

Can an international student get a credit card in the US?

Here are your options for getting a credit card during your time abroad:

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  • Use your SSN/ITIN to apply for a US student credit card.
  • Apply for US student credit cards that only require your passport.
  • Act as an authorized user on an existing US credit account.
  • Apply for secured credit cards or secured loans (such as credit-builder loans) to establish and build your credit history.
  • See if you can get a part-time job on campus to increase your income and qualify for better credit card terms and rewards programs.

How to get a credit card with a Social Security Number or ITIN

If you already have a Social Security Number or an Individual Taxpayer Identification Number, you should be able to apply for most credit cards. Simply include your number with your application to apply.

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As with any credit card application, your credit history, income, and other factors will be used to evaluate your application for approval.

How to get a credit card without a Social Security Number or ITIN

Most credit cards have requirements for their applications that include submitting a Social Security Number or Individual Taxpayer Identification Number (ITIN).

However, some credit card issuers provide cards exclusively for students that will only require your passport to submit an application. This can be an easy option for students that don’t have long-term plans to stay in the US but want to move some expenses to credit.

Act as an authorized user for an existing credit card

If you are unable to get a credit card in the US, you can see if a trusted family member or friend will add you to her/his existing credit card as an authorized user.

A cardholder can add an eligible user with a social security number or ITIN to their credit account as an authorized user, without relying on the authorized user’s credit score.

As an authorized user, you will receive a credit card with your name on it, and any expenses made will be charged to the account owner. Some credit card issuers may report the payment history of the credit card to credit bureaus for both the cardholder and the authorized user. This allows an authorized user to earn payment history for the card’s use and build their credit score with every on-time payment.

While you should be sure to arrange with the cardholder any details about how you will use the card and how you will pay for any charges you make on the card, becoming an authorized user is a simpler way to have access to credit without a Social Security Number, ITIN, or credit score.

How to avoid credit card application rejections as an international student

Even if you have a Social Security Number or ITIN, credit card issuers may use various factors of your credit history to evaluate your application.

If your credit card applications are being declined, you can try applying for secured credit cards or you can take some steps to improve your chances of earning approval by reviewing the reasons you are being denied in your rejection letter.

Using secured credit cards to build credit

Regardless of whether or not you have a Social Security Number or ITIN, your application’s approval will depend on other measures of your credit history.

When you find that your credit applications are declined, you may be able to get a secured credit card that will allow you to build your credit history and credit score. With secured credit cards, your credit limit is determined by a deposit you put down: allowing the card to be secured with your own funds.

Getting a secured credit card is relatively easy because it’s not actually credit. Well, it is and it isn’t.

A secured credit card is a credit card because:

  • It’s used as a credit card with merchants that accept credit cards.
  • Your payments and balances are reported to credit bureaus.
  • You’re responsible for making the monthly minimum payments.
  • You’ll incur interest charges if you don’t pay off your balance monthly.

Secured credit cards aren’t credit cards because:

  • You need to make a cash deposit to get one.
  • Your credit limit is usually the amount you’ve deposited.

Taking Education Loan in USD

If you take an education loan through companies like Prodigy Finance, MPower Financing, or Leap Finance, it can help you build your credit history as well. Read Prodigy vs MPower vs Leap.

Get Premium Credit Cards from Global Banks and Transfer your Credit Score to the US

You can get a premium credit card like your American peers, with rewards and benefits that meet your needs from day one.

Nova Credit works with sophisticated credit card providers to help you use your home country’s credit history (e.g. your Indian CIBIL score) to apply for premium US credit cards. Companies like Nova Credit can be helpful.

Build your credit history and measures of income

Beyond the basic details that your name and Social Security Number/ITIN provide, credit card issuers will look for any credit history in your name while using your income as a measure of your ability to repay your debt or loan.

Building a credit history is essentially showing your ability to pay your bills on time. For people without a high credit score, you can get started by applying for credit-builder loans (also known as starter loans) and secured credit cards.

Otherwise, increasing your income can give credit card issuers assurance that you can pay your bills: so working a part-time, on-campus job as a student can also improve your chances for credit card approval. Check with your advisor to make sure your job won’t conflict with your student status.

Conclusion

By selecting one of these options, you can begin to use a credit card in the United States while building a foundational credit score that can help you as your residency continues.

As you do, be sure to make on-time payments regularly to any credit accounts, as that is one of the largest factors in building a solid credit score.

Related Articles:

Best Credit Cards for International Students in the USA

How to invest in the US Stock Market as an International Student?

Featured Image Source: Times Higher Education

Sources: 1, 2, 3, 4, 5, 6.

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Yuri Punj
Yuri Punj is the Co-founder & President of Stoodnt, Inc. He has an MBA from Harvard Business School and a BA Summa Cum Laude in Economics and Political Science from Colgate University. He has more than 25 years of experience in the financial services industries working for UBS Investment Bank, JP Morgan Chase, Schroders, and M&T Bank. He has been an equity analyst (Media & Internet sector) for a top-ranked Institutional Investor team.
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