After I wrote a few articles about building credit scores for expats in the US, a few people reached out to me to share that they wished they had read my article before arriving in the US. Now that they are here, they can not follow some of the advice. If you are in this situation, this article is for you.
The crux of my previous tips to achieve a credit score of 720+ after five months is about leveraging City national bank credit card immediately after arrival, together with an American Express card. The issue with this approach is that:
- City National Bank is not well known overseas so most of you probably haven’t heard about this bank. While they allow you to apply for a US unsecured credit card even before you land and receive it within one week of arrival, many of you didn’t know about this option. Of course, you need to have the right paperwork and the right type of work visa.
- Many of you don’t have a personal American Express credit card in your home country; hence you can not immediately apply for a personal American Express credit card in the US.
So here are what you can do
1. Set up a few bank accounts during the first week after arrival
Set up saving or checking accounts with at least one bank within one week after arrival. Depending on each state but likely, you don’t need a lot of paperwork to open a savings or checking bank account. If you want to open a Chase checking account, here is my referral link.
The benefits of doing this are:
- You can start receiving salary via direct deposit from your company vs having to cash a check each time
- You start to establish the credit history with the bank
2. Apply for a secured credit card as soon as you can
Check with the bank; they can roughly tell you how soon you can apply for a secured credit card. The main difference between a normal credit card and a secured credit card is that you have to pay a deposit to get a secured card. And your credit line likely equals the cash deposit. The logic is that since the bank/financial institution doesn’t have any information about you (as you are new to the country), they can’t extend credit to you. But they still want your business because credit card usage means revenue to the bank, so they give you secured credit cards.
As you start using the secured credit card, the bank starts to report your activities to the three credit bureaus as normal. Your credit history will start once the bank starts reporting.
The next few tips are the same as in my previous article
3. Set up automatic payments to ensure paying your bills on time
Given that payment history is the most important factor impacting credit score (about 35% contribution), making sure you don’t miss a single payment is important. One of the best ways to do that is to set up automatic payments for as many financial obligations as you can, from rent, utility bills, phone bills to credit card bills, etc…
You can set up automatic payments online using their websites or apps for most services.
4. Keep the credit utilization rate below 10% (or lower)
The credit utilization rate (or the amount owed) is the second most important factor impacting your credit score. If your total revolving credit limit (aka available credit limit) is $10,000 across all your credit cards, and you have an outstanding balance of $3,000, the utilization rate is 30%. Keeping this rate as low as possible, like below 10% or even 5%.
One trick is to know which day of the month your monthly credit card statement is released (aka statement closing date) and preemptively pay as much as you can to lower the statement balance.
A credit card statement closing date is typically the last day of your monthly billing cycle. Purchases made after your statement closing date will be reflected on the next month’s statement. The bank will report your credit utilization rate after the statement closing date.
For example, if you recently made a purchase of $5,000 and your total credit limit is $10,000. You intend to pay off the $5,000 completely in the normal billing cycle. After the statement closing date, the bank will report your credit utilization rate of 50%, which is bad for your credit score. Hence the above recommendation of paying as much as you can before the statement closing date so that your reported utilization rate is lower.
5. Monitor your credit score by signing up on all three credit bureaus
(For easy reference, I copy and paste the same content here from the previous post)
- Sign up for free accounts with all three of them: Experian, Equifax, and TransUnion
- This will enable you to monitor your credit scores across all three bureaus free of charge.
- You can check your credit scores every other week or every month to see how they change, depending on each credit bureau.
- Don’t worry if you see your score jumps up and down (between 15 – 20 points/month) in the first few months. I guess it is normal because of the lack of credit history, so the system needs time to monitor and adjust.
- If you want to explore more, you can sign up for a free account with credit karma as well.
- You can see both your TransUnion and Equifax credit scores in one place. And Credit Karma can help to estimate your chance of getting approval for different financial products.
- After signing up with the three credit bureaus, you should freeze your credit reports. Freezing your credit report will not affect your credit score. You will need to freeze your report individually for each credit bureau, though so in total three times.
- I write more about why every expat should freeze their credit reports here.
6. Don’t close your oldest account
Length of credit history is another factor in the credit score (about 15% importance). And since you just relocate to the US, your length of credit score is very short. Nothing can be done here. Don’t close your oldest account, even though you don’t see much value in it. Since it is your oldest account, it marks the start of your credit history in the US.
7. Think about your credit utilization rate before closing any account
For example, you have two credit cards, each with $2500 credit limit. Your total credit limit is $5,000. Normally, you carry a total balance of $1,000 between two cards so your credit utilization rate is 20%.
For whatever reason, if you decide to close one credit card, your new credit limit becomes $2,500. With the same balance, your new credit utilization is now 40% ($1,000/$2,500), which is not good. So think carefully before deciding to close any account. This is why I haven’t closed one of my credit cards yet, even though I hardly use it now, given that its benefits are so limited.
8. Ask the landlord to report your rent payment to the credit bureaus
By saying this, I assume you don’t own a property but rent somewhere. Renting helps your payment history become stronger and more consistent when it is reported to the credit bureaus. Many real estate management companies do this as part of their regular service/contract, so just check with yours.
9. Don’t rush to open too many credit cards, or apply for auto loan in the first few months
New credit (about 10% importance): according to FICO “Research shows that opening several credit accounts in a short amount of time represents a greater risk, especially for people who don’t have a long credit history.” So trying to apply for too many credit cards or auto loan, or other types of loan in the first few months will negatively impact your credit score.
You can read more about FICO credit scores here.
Last but not least, I recently created a group on Facebook called Asian Expats in the US so that we can share/discuss more tips directly. Feel free to join.