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You’re new to the United States. And you’ve discovered that life here can be challenging if you don’t have enough credit to generate a good credit score.
Today’s lenders, whether they’re passing out mortgage, auto or personal loans, rely on consumers’ three-digit credit scores when determining who deserves loans and who doesn’t. Lenders view those consumers with high credit scores — 740 or above on the popular FICO credit-scoring system — as being the least likely to default on their loans. Because of this, these consumers earn the lowest interest rates and qualify for the best loan products.
Those consumers with lower credit scores Borrowing money, or even qualifying for credit cards, is far from an easy task. Lenders don’t trust borrowers with scores that are in the low 600s on the FICO system. To protect themselves, these lenders will tag such low-credit borrowers with the highest interest rates. And that’s if they deign to loan them money in the first place.
As a new arrival to the United States, you face your own challenge: You haven’t been in the country long enough to build up credit here. Because of this, your three-digit credit score is far too low. You need to boost this score and fast, especially if you have hopes of financing a new car or house in the near future.
Fortunately, building a good credit score is far from an impossible task.
However, most credit card companies offer cards that are designed specifically for borrowers with low or little credit. Citi and Chase, for example, each offer credit cards designed for students who have not yet established a long credit history. You might be able to qualify for such a card.
Don’t expect too much from these credit cards. They usually come with high purchase interest rates. And few feature perks such as rewards programs. However, if you pay your credit-card bills on time every month, you’ll steadily build a credit history, and you’ll be building a good one. Do this for a long enough period of time, and you’ll boost your credit high enough so that you can qualify for a higher-quality card.
Just be careful to pay your credit-card balance in full each month. Because these beginners’ cards come with high interest rates, you run the risk of growing your credit card debt too quickly if you carry a balance from month to month.
Many credit-card providers offer secured credit cards. Again, these are designed for consumers with little or weak credit. These cards come with a credit limit that is set by their owners. For instance, if you deposit $1,000 in your secured credit card, you’ll have a credit limit of $1,000, meaning that you can’t make any purchases with your card that would put you over this limit.
Banks pass these out to consumers with weak credit because if these consumers default on their payments, the banks behind the cards simply take the money they’re owed out of the deposit that consumers have put down.
In addition to paying your bills on time, a low level of debt is also important in keeping your credit score high. Lenders view consumers with high debt levels as being more likely to miss their credit-card payments. That’s because they have so much other debt with which to contend. If you’re new to the country, resist the urge to run up loads of debt. That will do nothing good for your young credit score.