America is largely a nation of immigrants, and this proud tradition continues today. According to the Migration Policy Institute, over 42 million Americans were born outside the United States and 1.3 million foreign born individual moved to the country in 2014 alone. New arrivals typically face numerous challenges learning our language and culture while navigating our legal and financial systems. And perhaps one of their most difficult tasks in establishing themselves in the United States is building a strong credit history.
Why Credit Is Vital for New Immigrants
A credit report was once just used to establish one's likelihood of repaying a loan, but now it's being used for far more than that. For example, many landlords will not rent an apartment to someone without a credit history, and utilities and insurance companies can base their rates in-part based on an individual's credit score. Therefore, some recent immigrants are unable to rent an apartment, even though they may have sufficient savings to cover several month's rent, or even an entire year. Furthermore, they may have to pay inflated rates for utilities and car insurance until they build sufficient credit. Finally, a recent immigrant without a credit history will not be able to qualify for competitive interest rates for a home or automobile loan. And unfortunately, the credit history established in their home country will not appear on the reports of the major consumer credit bureaus in the United States.
Building a Credit History Quickly
The problem of adults without a credit history is so common that the industry even has a term for it called a "thin file." Thankfully, there are several ways that you can help a recent immigrant to establish a strong credit history as soon as possible. First, you can add an immigrant as an authorized user to one of your credit card accounts. Doing so will allow your payments to help the credit scores of the authorized users, so long as you make on-time payments and carry little debt.
Another way for new immigrants to build a credit history is to open a secured credit card account. While those with a limited credit history will be unable to qualify for a standard account, secured credit card accounts are open to nearly everyone, regardless of their credit history. A secured credit card works much like a standard credit card, but it requires the payment of a refundable security deposit before an account can be opened. Then, cardholders can quickly build credit with a record of on-time payments.
Other methods of building credit that can be helpful to recent immigrants including applying for a credit card from a bank that operates in both their home country and in the United States, which may be able to consider their foreign payment history in their application. Immigrants can also consider applying for a secured loan from a bank or credit union, which is a personal loan backed by a security deposit. Finally, immigrants may be able to have their rental payment included in their credit reports, as there are some companies that offer to remit payments to landlords while reporting credit history to the major consumer credit bureaus.
By teaching new immigrants about the American consumer credit system and helping them improve their scores, you can help someone achieve their American dreams as soon as possible.