Janice Lozano
International students in the United States are often unfamiliar with the concept of a credit score, a three-digit number that indicates to lenders how responsible an individual is with financial products, especially loans. Building a credit score is important for international students who plan to stay in the US long-term, as it can help them secure loans, credit cards, and housing rentals. While it is difficult to obtain a credit card as an international student, it is not impossible, and there are other ways to build credit, such as paying rent through Experian's RentBureau or getting a credit-builder loan.
| Characteristics | Values |
|---|---|
| Credit score range | 300-850 |
| Credit score purpose | To assess the financial risk of lending to an individual |
| FICO score | The most common credit score measurement in the US |
| VantageScore | Requires less history than FICO Score |
| Credit score impact | Renting an apartment, buying a car, getting a job, insurance premiums |
| Credit-building activities | Using a credit card, paying rent, store cards, credit-builder loans, secured credit cards |
| Credit card options for international students | Zolve, Capital One, Chase Freedom, Discover, Bank of America |
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What You'll Learn
Credit cards for international students
International students can build credit in the US by using a credit card responsibly. Credit card usage is now more common than cash usage in the US, making it almost obligatory to own one.
Building Credit as an International Student
The first step to building credit is to understand what a credit score is. A credit score is a rating given to your financial background when assessed by a lender. The most common measurement used to identify your credit rating in the US is the FICO score, created by the Fair Isaac Corporation. This score is used to predict how reliable you will be in paying back borrowed funds.
Applying for a Credit Card
When applying for a credit card, lenders will look at your credit score to see whether you are eligible. If you are an international student without a credit history, it may be difficult to get approved for a credit card. However, there are a few ways to get around this:
- Apply for a credit-builder loan or a secured credit card.
- Increase your income by working a part-time job to give credit card issuers assurance that you can pay your bills.
- Become an authorized user on a trusted friend or family member's credit card.
- Apply for a student credit card that does not require a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). Cards like these include Zolve and Deserve Edu Mastercard.
Best Practices for Building Credit
Once you have obtained a credit card, there are a few best practices to follow to ensure that you are building credit responsibly:
- Use the card for daily purchases and pay off charges each month or week.
- Set up automatic payments for at least the minimum amount due each month to avoid missing payments and harming your credit score.
- If you are able, pay more than the minimum amount due each month to reduce your balance.
Building credit as an international student in the US may be challenging at first, but by following the steps outlined above, you will be able to establish and build your credit history over time.
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The importance of a credit score
Credit scores are a numerical representation of an individual's financial reputation. They are a critical factor in a person's financial life, impacting their ability to secure loans, rent an apartment, buy a car, and even get a job. A good credit score is key to unlocking financial opportunities and achieving long-term goals.
A credit score is a rating given to an individual's financial background when assessed by a lender. It sums up how much of a financial risk the individual would be if loaned money. The most common measurement used to identify one's credit rating in the US is the FICO score, created by the Fair Isaac Corporation. This score is used to predict how reliable an individual will be in paying back borrowed funds. A high FICO score indicates that a person is likely to be a responsible borrower, increasing their chances of loan approval.
The importance of a good credit score lies in the opportunities it provides and the financial benefits it brings. Here are some reasons why maintaining a good credit score is essential:
- Lower Interest Rates: A high credit score often leads to lower interest rates on loans and credit cards. This can result in substantial savings, especially on large loans like mortgages or car loans.
- Improved Loan Approval Chances: Lenders are more inclined to approve loan applications from individuals with good credit scores. A strong credit score indicates financial responsibility and a lower risk of defaulting on loan payments.
- Higher Credit Limits: Credit card issuers are more likely to offer higher credit limits to individuals with good credit scores. This can be beneficial for managing expenses and maintaining a healthy credit utilization ratio.
- Favorable Insurance Premiums: Many insurance companies use credit scores to determine insurance premiums. A good credit score can lead to lower costs on auto, home, and life insurance policies.
- Enhanced Employment Opportunities: Some employers check credit scores during the hiring process, particularly for roles that require financial responsibility. A good credit score can improve an individual's job prospects and demonstrate their ability to handle financial tasks.
- Financial Discipline: Maintaining a good credit score requires financial discipline and responsible money management. Paying bills on time, keeping credit card balances low, and demonstrating consistent financial behavior are all critical factors in achieving a strong credit score.
In summary, a good credit score is essential for accessing financial products, reducing borrowing costs, and improving an individual's overall financial health. It is a key factor in major life decisions, such as purchasing a home or car, and can even impact employment opportunities. Building and maintaining a strong credit score requires diligence and a solid understanding of personal finances.
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Building credit history
Building a credit history as an international student in the US can be challenging, but it is possible and highly beneficial. A good credit score can help you secure a loan, get a credit card, rent an apartment, or even get a job. Here are some steps to build a solid credit history:
Open a US Bank Account:
Opening a US bank account is an essential first step in establishing your credit profile. While this alone won't impact your credit score, it demonstrates a financial history with the bank, making it more likely to offer you credit in the future. Look for student accounts that waive monthly fees.
Get a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN):
These identifiers help credit bureaus track your creditworthiness accurately. You can apply for an SSN if you have authorization to work in the US, even if it's temporary. An ITIN can also be obtained, and while it may not be as widely accepted as an SSN, it can still help in building credit.
Apply for a Credit Card:
One of the easiest ways to build credit is by using a credit card responsibly. Credit cards are widely used in the US, and having one can help establish a credit history. However, not all financial institutions issue credit cards to international students, so you may need to shop around. Some options include:
- Secured Credit Cards: These cards require you to pay upfront, and the bank gives you a credit limit equal to that amount. This helps build credit history until you're eligible for a regular credit card.
- Student Credit Cards: Some banks offer credit cards specifically for international students, which may only require your passport information.
- Authorized User on an Existing Credit Account: If a trusted friend or family member adds you as an authorized user on their credit card, you can build your credit score with every on-time payment.
Use Your Credit Card Regularly and Responsibly:
Use your credit card for daily purchases and pay off the balance each month. This demonstrates regular use and timely payments, which lenders like to see. Set up automatic payments for at least the minimum amount due to avoid missing payments, and then manually pay off the remaining balance.
Explore Other Options:
In addition to credit cards, there are other ways to build credit:
- Report Your Rent: Experian's RentBureau allows you to register and make your off-campus housing payments count towards your credit score.
- Store Credit Cards: Many national retailers offer store credit cards, which are typically easier to obtain than general credit cards and can help build credit.
- Credit-Builder Loans: These are also known as starter loans and can help establish a credit history.
- Increase Your Income: Working a part-time job as a student can improve your chances for credit card approval by assuring issuers of your ability to pay.
Building a strong credit history takes time and strategic planning, but it is an essential step towards financial success during your time in the US as an international student.
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The role of credit scores in loan applications
Credit scores are an important factor in loan applications, as they provide lenders with a snapshot of an individual's financial background and behaviour. A credit score is a rating that predicts an individual's credit behaviour, such as their likelihood of repaying a loan on time. This prediction is based on information from credit reports and other factors, such as income and spending habits.
Lenders use credit scores to assess the risk of lending to an individual. A higher credit score generally indicates lower risk and makes it easier to obtain a loan with favourable terms and a lower interest rate. Conversely, a lower credit score may result in a higher interest rate or even loan rejection. The interest rate is crucial, as it determines the monthly payment amount and the total cost of the loan over its lifetime.
For international students, building a credit score in a new country can be challenging but essential. Without a credit history, simple tasks like renting an apartment or buying a car can become difficult. International students can build their credit scores by using credit cards responsibly, such as making regular purchases and paying off charges on time. Obtaining a credit card may be difficult without a Social Security Number (SSN) or credit history, but it is not impossible. Some options include becoming an authorised user on an existing credit account or applying for a secured credit card.
Additionally, international students can explore other strategies such as reporting rent payments to credit bureaus, taking out credit-builder loans, or increasing their income through part-time jobs. It is important to note that building a solid credit score takes time, and individuals may not see immediate results. However, by consistently demonstrating responsible financial behaviour, international students can improve their creditworthiness and access better loan opportunities.
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How to build credit without a credit card
Building credit is essential for international students in the US, as it can help them secure apartments, buy cars, and even get jobs. While credit cards are a common way to build credit, they are not the only option. Here are some ways international students can build credit without a credit card:
Become an Authorized User
An authorized user is someone who is added to a primary cardholder's credit card without being responsible for the balance. By becoming an authorized user on a trusted adult's credit card, you can benefit from their good credit and on-time payment history. Make sure to check with the credit card company to ensure they report authorized user accounts to the credit bureaus.
Enroll in Rent Reporting Services
In the US, rent payments are not automatically included in your credit report. However, Experian now accepts rent reports through its RentBureau service. By enrolling in this service and setting up electronic payments with your landlord, you can boost your credit score by making timely rent payments.
Take Out a Credit-Builder Loan
Credit-builder loans are specifically designed for individuals with little to no credit history or those with bad credit. With these loans, you make fixed monthly payments, and the lender reports your payments to the credit bureaus. After repaying the loan, you receive the borrowed amount minus any fees. This helps you build credit and savings simultaneously.
Open a Local Bank Account
Having a local bank account is crucial for establishing your credit profile in the US. While the transactions may not be reported to credit bureaus, maintaining an account demonstrates a financial history with the bank. This increases the likelihood of the bank offering you credit in the future.
Consistently Pay All Your Bills on Time
Making timely payments on all your financial obligations is critical to building a strong credit profile. This includes rent, utilities, and any loan payments. Payment history makes up a significant portion of your credit score, and even one or two missed payments can negatively impact it.
Remember that building credit takes time and consistency. By following these strategies and maintaining good financial habits, international students can establish and improve their credit scores without relying solely on credit cards.
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Frequently asked questions
A credit score is a rating given to your financial background when assessed by a lender. It is a three-digit number that gives lenders an indication of how responsible you are with financial products, specifically loans. The higher your score, the more responsible you appear to be in the eyes of lenders.
Building a credit score is important for international students in the US as it can help them take out loans, get a credit card, rent an apartment or buy a car. It can even impact whether they get a job or not.
International students can build credit by getting a credit card and using it responsibly. They can also report on their rent payments, take out credit-builder loans, or get added to a friend or family member's credit card as an authorized user.
