This seemingly complicated topic needs to be addressed, I think. I'm a newbie to all of this myself so I just went in search for some more information which should hopefully make it easier to understand how to get a credit rating score in the US if you have been previously living in another country.
First of all a credit score in the US is extremely important. It seems to be far more important than in most other Western countries and your financial future depends on this one three-digit number.
Your credit rating is related to your social security number. Which means if you've never had one before, then you don't have a credit rating in the eyes of the USA. So if you had a credit rating in your previous country of residence (and I'm sure most people over the age of 18 do) then it doesn't count for anything which could be good or bad.
Apparently, having no credit rating is actually worse than having a bad one.
Now, the dilemma is most people won't lend you money without a good credit rating but you can't get a good credit rating without having some sort of credit! No credit = no credit score, no credit score = no credit.
So what should you do?
1. Get a social security number.
Social Security card FAQ
Social Security card application form
Office contact details in San Diego:
- Link
Phone Numbers:
Toll-Free 1-800-772-1213
TTY 1-800-325-0778
Office Hours:
MONDAY - FRIDAY:09:00 AM - 04:00 PM
Except Federal Holidays - Addresses:
SOCIAL SECURITY
1333 FRONT STREET
SAN DIEGO, CA 92101
Directions to Our Office:
THE OFFICE IS IN A TWO STORY BLDG LOCATED ON THE CORNER OF FRONT AND ASH STREET, JUST TO THE NORTH OF THE "COMMONWEALTH" HIGH RISE. THERE IS NO FREE PARKING. PARKING METERS LOCATED IN THE SURROUNDING AREA AND PAY PARKING LOTS LOCATED ON ASH ST AND FRONT ST. THE TROLLEY IS 3-4 BLOCKS TO THE SOUTH. BUS STOPS LOCATED ON: FRONT ST, ASH ST,"A" ST, & FIRST ST. - 8505 AERO DR
SAN DIEGO, CA 92123
Directions to Our Office:
CORNER OF AERO DRIVE AND AFTON ROAD, WEST OF HIGHWAY 15. - 367 VIA VERA CRUZ
SAN MARCOS, CA 92078
Directions to Our Office:
HWY 78 TO SAN MARCOS BLVD. GO WEST TO VIA VERA CRUZ. TURN RIGHT. OFFICE IS TWO BLDGS DOWN ON RIGHT AT THE CORNER OF BOARDWALK - 2160 S EL CAMINO REAL
OCEANSIDE, CA 92054
Directions to Our Office:
LOCATED OFF HWY 78 & EL CAMINO REAL, NORTH OF THE TARGET SHOPPING CENTER & SOUTH OF FIRE MOUNTAIN RD ON THE EAST SIDE OF THE STREET.THE BUILDING IS SET BACK OFF THE STREET,PARTIALLY BLOCKED FROM VIEW. - GROUND FLOOR
2530 E PLAZA BOULEVARD
NATIONAL CITY, CA 91950
Directions to Our Office:
LOCATED AT THE CORNER OF PLAZA AND EUCLID 2 BLOCKS EAST OF I-805 PLAZA OFF RAMP-BEHIND AUTO ZONE AND ALL AMERICAN CAR WASH. - 846 ARNELE AVE
EL CAJON, CA 92020
Directions to Our Office:
I-8 EAST: JOHNSON AV EXIT, NORTH UNDER FREEWAY; LEFT ON ARNELE I-8 WEST: EXIT MAIN ST, GO EAST. LEFT ON MARSHALL, RIGHT ON ARNELE - 626 L STREET
CHULA VISTA, CA 91911
Directions to Our Office:
TO GET TO THE NEW OFFICE TAKE I 5 AND EXIT L ST AND HEAD EAST. FROM I 8 05 EXIT L ST/TELEGRAPH CANYON AND HEAD WEST.L ST & BROADWAY
Allow yourself plenty of time and go into one of the offices armed with all your paperwork. Photocopy everything prior to your visit – this will assist the counter assistant and maybe cut your waiting time down, a little. This office is notorious for keeping you waiting.
Once you get to the counter, DO NOT allow them to keep your original passport, they should take the copies and they should suffice. Providing that everything is in order, the forms are completed correctly; you will be told that your social security number will be sent in the post. This can take anything from 7 to 14 business days, depending on the State in which you reside.
Once you receive this in the mail, you are now in the system and legally allowed to apply for credit.
2. Open up a bank account
Do your research and make sure the bank you choose meets all of your needs (especially transfers to/from your home country) and that their fees and charges are low. (I'll be doing some more research later into which banks are good for Australians moving to the US so hopefully blog about that soon).
Some say to choose one of the big boys such as Bank of America or Bank One, not the 'mom & pop' ones or the credit unions. For the first 90 days your account will be 'red-flagged' -- there's nothing you can do about this but wait it through. The bank is waiting to see whether you're just trying to cash a forged cheque [US: check] and run. This means that everything will take a lot longer to clear. The banks run a 'bad boy/girl' list called ChexSystems. At all costs make sure you keep yourself off this little horror, otherwise you'll find it almost impossible to open an account anywhere.
Open a savings or cheque/check account.
Also ask to open a Visa or Mastercard 'secured card' with a credit limit of anywhere between $300 and $1000. When the 90 days is up, don't delay any longer than necessary as the most difficult factor you are facing in building up your credit is termed 'insufficient credit history'. The bank will require a deposit into a savings account of an amount equal to your credit limit. This money and the account are locked for a period of one year. The card should be free or at minimal cost, but you may need to pay a small service fee on the savings account.
Do not view this card as a credit card because it isn't! Rather, consider it as your first step on that road to credit bliss. You should aim to use around one-third of your credit monthly but never use more than 50% of your limit. The reason for this is that the credit scoring system will flag you as 'over extended' if you use any more than half your limit. Use the card at the supermarket (US: grocery store), pharmacy (US: drug store), drycleaners, etc. Do not use it to rent a car or book a hotel room as these purchases will often place a hold on funds in excess of the amount you are charged, which could put you in default on the card agreement. In addition, avoid using it on the Internet or anything else that could produce reoccurring charges, e.g. newspaper subscription or gym membership. (One of the classic rip-offs over here is for a company with your credit card details to keep signing you up for new products and services and charging them to your credit card). Be retentive about it! Keep a running total in your wallet, then pay the bill fully immediately after it's posted online.
This method should cost you less than $20 in fees, no interest charges and is proven to work.
3. Other things to do:
- Apply for a department store card (JC Penny, Sears, etc) or gas card (Mobil, Shamrock, etc) and make sure you pay it on time and in full every time
- Apply for a car loan.
Six months later: You've got your single secured credit card with a reputable institution that posts its data to the credit bureaus in a timely manner, you've run the account perfectly, you've wisely ignored all other solicitations for cards as you don't want to be flagged as 'desperate for credit'. You will now have a Fico score. It's a pathetic and miserable one, but one nevertheless.
We need a nice spread of credit accounts on our report and the next one to head for is the car (US: auto) loan. Hopefully, you've been saving your money. Get something around the $10k to $15k mark. This is going to require some homework. First of all, get yourself over to the best advice possible at www.carbuyingtips.com and learn how it all works over here. Read it all and follow its advice before you go anywhere near a dealer.
We need to find a 'first-time buyers auto loan with no pre-payment penalty'. You'll probably have to stick with a main dealer for this one, although there's no harm in trying the Internet lenders (ELoan, Capital One, etc). Do remember that each loan application on your credit report will ding your score by around 5 points. Multiple applications within a two-week period for the same type of loan should, in theory, only produce a single 5-point fall. Therefore, choose your dealer and purchase before allowing anybody to run your credit. If you've given any of them your social security number it's too late, they'll have run your credit faster than an Italian government stays in power. Some may require at least one-year's work history, with others you will get away with as little as 6 months.
Here's the game plan but don't tell the lender or dealer (as they often make more profit on the loan than the car and will get upset): we want to pay the lowest amount in interest charges but rack our credit limit up the highest. Expect an interest rate of anywhere between 14% and 21%. Aim to put a minimum of 30% down; then pay the loan off as quickly as possible. The ideal situation is to have the money up front but still take the loan. Here's an example: Car costs $12k, down payment $4k (enough to make then feel very secure), so there's $8k out on the loan.
Expect the paperwork for paying the loan to come through around 6 weeks after taking out the loan. As soon as you've got the payment details, make you first payment as $7400, clearly marking your payment 'Extra payment to principal ONLY'. Then make 5 monthly payments of $100 each, finally closing the loan out on around the seventh month with the accrued interest. There shouldn't be any problem with this as you don't need to make the minimum payment every month if you're ahead of the payments.
The reason for keeping the loan going for more than six months is to balance receiving a good score against minimal interest payments. Any less length in the loan and it won't count towards your score. Total cost in terms of interest and those nasty little fees that they oh-so love (e.g. 'releasing the title') is probably less than a hundred or so dollars. But the future savings you'll look forward to on starting to have a good credit score are infinite.
4. Your credit score:
FICO is a mathematical model created by the Experian credit bureau as a tool for lenders to use in evaluating the risk associated with lending you money. FICO stands for Fair Isaac Company, the company that created the original scoring model. Similar models have been programmed by the other credit bureaus but they are all referred to as FICO scoring.
Credit scores are designed to measure the risk of default by taking into account various factors in a person's financial history. Although the exact formulas for calculating credit scores are closely guarded secrets, the Fair Isaac Corporation has disclosed the following components and the approximate weighted contribution of each:
35% — punctuality of payment in the past (only includes payments later than 30 days past due)
30% — the amount of debt, expressed as the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits)
15% — length of credit history
10% — types of credit used (installment, revolving, consumer finance)
10% — recent search for credit and/or amount of credit obtained recently
Current income and employment history do not influence the FICO score, but they are weighed when applying for credit. For instance, an unemployed individual with no sources of income will not usually be approved for a home mortgage, regardless of his or her FICO score.
A FICO score is between 300 and 850, exhibiting a left-skewed distribution with 60% of scores between 650 and 799. According to Fair Isaac the median score is 723 (half of scores above and below) whereas according to Experian (using the Fair Isaac risk model) the average credit score is 678 (lowest scores are farther from the median than the highest scores). The performance of the scores is monitored and the scores are periodically aligned so that a credit grantor normally does not need to be concerned about which score card was employed.
Each of the major credit unions may and probably will report your credit slightly differently, i.e. you’ll actually have 3 slightly different credit scores. To solve this little inconsistency, lenders will calculate a ‘tri-merged’ score when you’re taking out a major loan, i.e. the average score from all three major bureaux.
Only credit will build your credit score, i.e. you have to borrow money and pay it back to get a credit score. Paying the rent, utility bills can not and will not build you any credit. However, failing to pay these or paying them late can reduce your credit.
5. Other tips:
- Try not to give out your social security number wherever possible. Identity theft is common.
- Get a 'cross-cut' shredder for personal information. Identity theft is common.
- Check your credit report every year. A good additional check is to watch for the APR interest rate on your credit card statements unexpectedly jumping up. This can happen when there's a black mark on your credit record.
Register with all three credit bureaux to stop unsolicited offers. - Opt out of unsolicited 'convenience checks' being mailed when you open a credit card. Insist!
- Credit cards for Australians without a US credit history or score:
https://www.apply123.com/apply123/lowrates.php. Use the code AAATA (related to American Australian Association).
The terms seem excellent (ie 0% for balance transfers and purchases for first 9 billing cycles) and of course the biggest benefit is that you'll get approved without a US credit history and thereby start building one.
References.
Most of the wording in this article is paraphrased or quoted from:
Credit Essentials in the USA
Credit and finance in the USA
Metafilter: International Credit history
Social Security office locations
Social Security Administration (SSA)
Wikipedia: Credit score
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