Ibrahim Gardner
As an international student in the US, it is important to build your credit score as it can impact your financial life. A credit score is a three-digit number that indicates to lenders how responsible you are with financial products, especially loans. The higher your score, the more likely your loan application will be approved. To build a credit score, you can become an authorized user on someone else's credit card, get a cosigner, or apply for a credit card designed for international students. You can monitor your credit score by requesting free weekly or annual reports from the three credit bureaus: Equifax, Experian, and TransUnion.
| Characteristics | Values |
|---|---|
| Credit score definition | A three-digit number that gives lenders an indication of how responsible an individual is with financial products, specifically loans. |
| Credit score range | 300-850 |
| Importance of credit score | Credit scores are used for almost everything. Companies use them to determine whether to lend to an individual, and at what rate. They are also used for car insurance, renting an apartment, and even getting a job. |
| How to build credit score | Become an authorized user on someone else's credit card, get a secured credit card, take out a credit builder loan, or report rent payments to Experian's RentBureau. |
| Credit score providers | FICO scores are the most common, but VantageScore and other competitors exist. |
| Credit score frequency | All three major US credit bureaus provide a free annual report. |
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What You'll Learn
Understanding credit scores
Credit scores are an important aspect of financial life, especially when it comes to borrowing money or applying for loans, mortgages, or credit cards. A credit score is a three-digit number, typically ranging from 300 to 850, that helps lenders assess an individual's creditworthiness and the likelihood of repaying loans on time. The higher the credit score, the more favourable the terms for borrowing, such as lower interest rates.
In the United States, the Fair Isaac Corporation, now known as FICO, created the most commonly used credit score model. The FICO Score predicts the reliability of borrowers in repaying funds. Lenders use this score to automate credit decisions and assess the risk of lending to an individual. A higher credit score indicates a lower risk, making it more likely for lenders to approve loan applications.
Several factors influence a credit score:
- Credit history: This includes active accounts, total debt levels, and repayment history.
- Available credit and utilisation: Lenders consider how much credit an individual has available and their utilisation ratio.
- Spending and saving habits: Different spending and saving habits can lead to different credit scores.
- Payment history: Late or skipped payments can negatively impact a credit score.
International students in the US may face challenges in building a credit score due to their limited credit history. However, they can take several steps to build their credit:
- Open a US bank account: While a bank account itself doesn't improve a credit score, it helps international students manage finances effectively and make timely payments.
- Report rent payments: Experian's RentBureau allows individuals to include off-campus housing costs in their credit score calculations.
- Use store credit cards: Store credit cards are typically easier to obtain than general credit cards and can help build credit when used responsibly.
- Become an authorised user: International students can become authorised users on a sibling's credit card, sharing responsibility for positive or negative credit impacts.
It's important to note that credit scores can vary depending on the scoring model and credit bureau. Individuals can obtain a free annual credit report from the three major US credit bureaus (Equifax, Experian, and TransUnion) to check their credit score and ensure its accuracy.
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Building credit history
One of the easiest ways to build credit as an international student in the US is with a credit card. Using a credit card responsibly is a simple way to build and maintain a good credit score. Credit cards are widely used in the US, and not having one can make it difficult to do certain things like buying things online or renting a car. The best way to build credit with a credit card is to use it for daily purchases and pay off your charges each month or week.
There are credit cards specifically for international students that only require passport information when applying. Credit card issuers will also look at other factors, including income. If you can, consider getting a part-time job or working on campus to show that you have enough money to pay your bills. If your credit card application is declined, you can consider signing up for a secured credit card, which requires a deposit that acts as collateral.
Another way to build credit is to become an authorized user on someone else's credit card. For example, if you have a sibling who is already studying in the US and is responsible with their credit card use, becoming an authorized user on their card can help your credit score. However, keep in mind that a joint card means joint responsibility, and any credit impact will be shared. Store credit cards are another option, but they typically do not provide a high credit limit, so your borrowed-to-available credit ratio could be hurt.
In the US, rent is not automatically reported on your credit report. However, Experian is now accepting rent reports, so registering with their RentBureau can make your off-campus housing costs count towards your credit score. You will need to set up electronic payments with your landlord, but this can boost your credit score if you are making payments on time every month.
Finally, while having a US bank account as an international student won't directly improve your credit score, it can help you manage your finances more effectively and make payments on time. Unpaid bank fees or penalties will be reported and can negatively affect your credit score, so be sure to understand all potential bank fees and penalties before opening an account.
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Credit cards for international students
International students in the US often face the challenge of getting a credit card without a Social Security Number (SSN). An SSN is usually issued by the Social Security Administration (SSA) for US citizens and those with the right to work in the country. It is commonly used as a form of ID when opening a bank account or getting a credit card. However, international students can still build their credit scores and get a US credit card by exploring the following options:
Specialist Credit Cards for International Students
Some credit card companies offer specialist cards for international students that do not require an SSN. Zolve, for instance, provides three credit cards tailored for international students: Zolve Classic, Zolve Signature, and Zolve Black. These cards offer benefits such as cashback rewards, an easy application process, and comprehensive features to manage finances while studying in the US. Another option is the Deserve Edu Mastercard, which also does not require an SSN.
Student Credit Cards
Certain credit cards are specifically designed for students and can help international students build their credit scores. Discover, for example, offers the Student Cash Back card and the Chrome for Students card. The Student Cash Back card provides up to 5% cashback on spending, while the Chrome card offers 2% cashback on fuel and dining expenses. These cards require a credit check, but other factors are considered for applicants with no credit history. Similarly, Citi allows applicants to use an Individual Taxpayer Identification Number (ITIN) instead of an SSN, making it possible for international students to obtain a credit card.
Become an Authorised User
International students can build their credit scores by becoming an authorised user on a trusted person's credit card. This could be a family member or friend who is a US citizen and has a credit card. Responsible use of the card by both the primary cardholder and the authorised user can help build good credit for both individuals.
Report Rent Payments
In the US, rent payments are not automatically included in credit reports. However, Experian's RentBureau now accepts rent reports. By setting up electronic rent payments with your landlord, you can boost your credit score by ensuring that your payments are made on time every month.
Store Credit Cards
Store credit cards are typically easier to obtain than general credit cards and can help build your credit score. They are offered by many national retailers and often come with rewards and discounts. However, it is important to make timely payments to avoid penalties and maintain a good credit score.
While building credit as an international student in the US can be challenging, these options provide a pathway to obtaining a credit card and improving your financial standing. It is important to carefully consider the requirements and potential fees associated with each option before making a decision.
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Credit impact of bank accounts
As an international student in the US, you will need to familiarize yourself with the term "credit score". A credit score is a rating of your financial background when assessed by a lender. When you apply for a loan or credit card, the lender will look at your credit score to determine whether you are eligible. Your credit score sums up how much of a financial risk you pose.
While it is advisable to have a US bank account as an international student, this will not directly impact your credit score. Bank transactions and balances are not reported to credit reference agencies. However, having a bank account will help you manage your finances and make payments on time. Unpaid bank fees or penalties will be reported and will negatively affect your credit score.
When trying to build your credit score, there are five key factors to keep in mind:
- How much credit you have available
- How much credit you are using
- How long you have had each reporting account
- How many new creditors you have approached recently
- Your payment history, including any skipped or late payments
It is important to note that while your bank account information may not be included in your credit report, lenders will still consider your financial resources when deciding whether to lend to you. They will assess your capacity to take on more debt by looking at your checking and savings accounts, as well as your assets.
Additionally, while closing bank accounts may not directly impact your credit score, it is important to do so gradually to avoid negative consequences. Keeping a mix of credit types and older accounts open can positively impact your score.
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Improving credit scores
As an international student in the US, you will likely encounter the term "credit score" and the challenges of building one without a credit history. A credit score is a rating that lenders use to assess your financial background and determine whether you are eligible to borrow money. It sums up how much of a financial risk you would be if you were loaned money.
- Make timely payments: Payment history accounts for 35% of your FICO® Score, which is the most common credit rating system in the US. Set up autopay and create calendar reminders to ensure you never miss a payment.
- Keep credit balances low: Credit utilisation, or how much credit you have available, makes up 30% of your FICO® Score. Keep your balances as far below your credit limit as possible to maximise your score.
- Diversify your credit mix: Your credit mix will likely improve naturally over time as you apply for different types of credit. Avoid taking on unnecessary debt just for the sake of building credit.
- Build a credit history: If you're starting from scratch, consider asking a loved one to add you as an authorised user on their credit card or applying for a starter credit card or credit-builder loan.
- Report your rent: In the US, rent is not automatically reported on your credit report. However, Experian now accepts rent reports through its RentBureau. Set up electronic payments with your landlord to boost your credit score if you're making timely rent payments.
- Be mindful of store credit cards: Store credit cards are typically easier to obtain than general credit cards, and they often offer rewards. However, they usually have lower credit limits, so minor purchases can hurt your credit if you don't have a very high limit.
Improving your credit score requires perseverance, but it's worth the effort. A higher score can give you more options and better rates when applying for loans, renting apartments, or even getting a job, as some employers run credit checks on applicants.
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Frequently asked questions
A credit score 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 are in the eyes of lenders. The FICO score is the most common measurement used to identify your credit rating in the US.
International students can build their credit score by becoming an authorised user on someone else's credit card account. They can also apply for a secured credit card or a credit builder loan. Additionally, making consistent, timely payments on rent and utilities can help build credit.
A good credit score can help international students secure loans, credit cards, off-campus housing, car insurance, and even jobs.
Missed payments, especially chronic or consecutive missed payments, can significantly affect your credit score. Unpaid bank fees or penalties will also negatively impact your credit score.
