In the land of financial opportunity, you have more than one option to successfully start your credit history from scratch.
America is a nation built on credit. The country’s economic strength was achieved, to a large extent, thanks to access to loans and the interest paid. Many immigrants come to the United States for the opportunity for financial growth; However, this development goes hand in hand with the credit history, so it becomes essential to build it from scratch to really see the improvement in your pocket and your purchasing power.
The first step, even before you think about applying for a credit card or personal loan, is to establish your financial identity in the United States. As suggested by Chase Bank, you need to open a basic checking and savings account with a strong institution.. Although these accounts do not influence your credit score, they are the basic components of the financial framework that will allow you to move towards building your credit history.
Starting a credit history seems like an endless spiral in which it is difficult to know what the starting point is: without a credit history, you cannot apply for a loan, a credit card or even, in some cities, you cannot apply for a rental if you have no credit history; but you can’t start creating it either if you don’t buy a financial product. The process can look like a mobius strip where you don’t know how to start.
But the United States would not be the country that it is, if you definitely had no alternatives to build your credit. You can start building your history with the following options:
- Secured credit card
- Loan to generate credit or guaranteed loan
- Find a co-signer
- Be an authorized user of a credit card
- Report your utility and rent bills
1. Secured credit card
A secured credit card It is an excellent option to build your credit history, because in addition to the fact that you must make a cash deposit in advance, which acts as your credit limit, any transaction or payment you make is reported to the credit agencies in the United States (Equifax , Experian and TransUnion).
The vast majority of secured credit cards have a minimum deposit of $ 200, which indicates that it is the maximum amount that the issuer is going to lend you. If you pay your balances, the issuer leaves your deposit intact.
This card works and can be used like any other credit card: you can buy things, you will have invoices with an expiration date, you pay before or it generates interest if you do not cover the balance in full.
In accordance with Nerdwallet, you will receive your deposit back when you close the account.
There are some banking institutions, such as Bank of America, that in case of noticing a good performance, then they can offer the user a common credit card.
2. Loan to generate credit or guaranteed loan
A loan to generate credit has a very particular formula. When you apply for any personal loan, the financial institution gives you the cash immediately, in advance and, later, you pay your debt monthly. On the other hand, in a loan to generate credit you request an amount that is deposited directly into a savings account or Certificate of Deposit (CD) which you cannot access until you pay your loan in full. Timely or late payments are reported to the credit bureaus and help you establish your credit score.
One secured loan works in a similar way to a secured credit card, only, instead of making an advance deposit, you have to prove your solvency by linking a bank account or your credit union, a savings account or a certificate of deposit that works of guarantee to the amount you request.
These banking options serve as a guarantee for the payment of your loans: if you do not pay, the lender will be authorized to withdraw funds to settle your debt; If you pay your loan on time, your accounts remain intact.
3. Find a co-signer
One of the easiest and most difficult ways to build credit for the first time is to open a loan account with a co-debtor. We say “easier” because if your co-signer has good credit, you not only start your credit history, but you also get the loan money. “More difficult”, because you must investigate which acquaintance or relative is willing to risk their own score to start yours.
If you are the interested party of the loan and your objective is to start your credit history, the best thing you can do for the good of yourself and your cosigner is to be responsible with your payments. Any step, good or bad, in your loan, be it paying on time or not paying it, would affect the score of the two. Hence it is difficult to convince someone else to put their signature on that loan, even being a close relative.
Money Under 30 It specifies that if you default on the loan, that is, you stop paying in full, your cosigner is legally responsible for paying the debt. You can not only affect your history, but your personal relationships.
4. Be an authorized user of a credit card
Another simple way, but with the respective complexity that you depend on someone else, is to be an authorized user of someone else’s credit card. As explained CNBC SelectAs an authorized user, you can take advantage of the credit of the main account holder and, as a result, establish your own credit history.
Unlike the co-signed loan, in this option if all you want is to generate credit information with your name, you do not acquire any responsibility with the credit card as long as you do not use it, so the risk of affecting the score is lower.
However, the reverse of the loan in which someone else puts their score at risk by building yours, in this one it may be the other way around. If the account holder, acquaintance or relative, misuses their credit card, your score will also be affected. You should make sure that the person who is going to support you has the most impeccable record possible, because if you start an account with debts and a history of late payments, it will not be a good start.
Although you can make free use of the credit card, the most convenient thing is that you do not even use it. If you are going to do it, then pay your bills so as not to affect the Samaritan who supported you.
5. Report your utility and rent bills
Rental Kharma The Rent Reporters Submit your information about your rent payment to the credit reporting agencies. These services require verification with your landlord and charge a registration and monthly fee.
By last, Experian Boost Not only does paying your eligible monthly bills like internet, gas and water count early, but it also added select streaming service options including Netflix, HBO, Hulu, Disney + and Starz.