Savanna Hoffman
Establishing a good credit score is essential for international students studying in the US as it can impact their ability to rent an apartment, buy a car, or even get a job. Credit scoring is bound to geography, so international students will need to build their credit score in the US from scratch. This can be challenging, especially without a social security number (SSN) or credit history. However, there are several ways for international students to build their credit, including getting a part-time job, opening a US bank account, becoming an authorized user on someone else's credit card, or applying for a secured credit card. Building credit takes time and consistent financial management, but it is crucial for international students to establish themselves financially in the US.
| Characteristics | Values |
|---|---|
| How to build credit as an international student | Get a credit card and use it responsibly |
| How to get a credit card as an international student | Get a part-time job, request an Individual Taxpayer Identification Number (ITIN), or become an authorized user on someone else's card |
| What is a good credit score | 700 and above is considered good, while above 770 is very strong |
| What is a credit score | A three-digit number determined by credit bureaus based on past payments, loans, and credit cards |
| Why is credit important | Credit scores play a role in renting an apartment, buying a car, and even getting a job |
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What You'll Learn
Getting a credit card
As an international student, you can get a credit card, but it can be challenging. Credit cards are now used as widely as, if not more than, cash in the US, making it almost obligatory to own one.
The first step to getting a credit card is to start building a financial profile. The best way to begin this process is by speaking with the international student affairs office at your educational institution. They can inform you of your eligibility to get an on- or off-campus job, which determines your eligibility to apply for a Social Security number (SSN).
If you are not eligible for an SSN, you can apply for an Individual Taxpayer Identification Number (ITIN). Some credit card issuers will accept this number for a credit card application if you do not have an SSN. You can request an ITIN through the Internal Revenue Service (IRS). However, as the IRS website notes, you'll need a "valid tax reason" for needing an ITIN, such as filing a U.S. federal tax return or being a dependent or spouse of a U.S. citizen.
Another option is to become an authorised user on someone else's credit card. If you know someone who is willing to add you as an authorised user on their card, you will then have access to credit. The primary cardholder should understand that they are chiefly responsible for any debts accrued.
Once you have an SSN or ITIN, you can formally apply for a credit card. You can apply for most online or via a mobile app in minutes and will get a decision within minutes. If your application is denied, call reconsideration lines and explain that you are a student new to the US credit system and are seeking to build a history.
If you are under 21, you'll need an adult co-signer or a way to prove you can repay your debts, such as a part-time job.
Some types of international student credit cards include student credit cards, secured credit cards, and prepaid credit cards. Student credit cards are designed for young college students and usually have benefits such as no annual fees and some cash-back rewards. Secured credit cards require a small deposit that becomes your initial credit limit, giving the lender some insurance and making approval easier for those with limited or no credit history.
Having a US bank account can assist with approval for a credit card. A checking account tells a credit card company that the applicant has monetary assets in the country. It may also be easier to apply for a credit card later with the same bank.
Credit-building tips:
- Make regular payments on all your utilities to prove to lenders that you are responsible for your payments and will be a suitable applicant for a loan or credit option.
- Set up autopay for the minimum due each month to ensure you never miss a credit card payment (and harm your credit score). You can then manually pay the difference.
- The age of your relationship with lenders can positively or negatively affect your credit score – longer is better.
- Unless you're paying unreasonable fees, don't cancel all your accounts at once.
- Using a credit card responsibly is a simple way to build and maintain a good credit score. Use it for your daily purchases and pay off your charges each month or week.
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Making regular payments
As an international student in the US, you will need to build your credit score from scratch. Credit scoring and history are bound to geography, so any credit history from your home country will not be carried over.
Having a bank account will allow you to manage your finances more effectively and make payments on time. However, unpaid bank fees or penalties will be reported and will negatively affect your credit score.
Credit cards are now used as widely as (if not more than) cash in the US, making it almost obligatory to own one. Using a credit card responsibly is a simple way to build and maintain a good credit score. The best way to build credit with a credit card is to use it for your daily purchases and pay off your charges each month or week. This will allow you to have regular use of the card and steady payments—both of which lenders like to see.
To get a credit card as an international student, you will likely need a Social Security number (SSN) or an Individual Taxpayer Identification Number (ITIN). If you have authorization to work in the US, you will be issued an SSN. You can request an ITIN through the Internal Revenue Service (IRS).
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Credit scores and history
Firstly, it is important to understand what a credit score is and how it is calculated. A credit score is a three-digit number determined by three major credit bureaus: Equifax, Experian, and TransUnion. The score is based on your past payments, loans, and credit cards, and it shows the potential risk of you repaying a loan. The lower the score, the higher the risk. Credit scores typically range from 300 to 850, with 850 being the perfect score. A score above 600 is considered average, while scores in the 700s are good, and those above 770 are very strong.
One of the easiest ways to build your credit score as an international student in the US is by using a credit card responsibly. Credit cards are widely used in the US, and not having one can make certain things difficult, such as buying things online or renting a car. You can build your credit score by using a credit card for daily purchases and paying off the charges each month. This demonstrates regular use of the card and steady payments, which lenders like to see. To ensure you never miss a payment, set up automatic payments for at least the minimum amount due each month, and then manually pay the remaining balance.
There are a few ways to get a credit card as an international student. Some options include:
- Getting a part-time job: This can qualify you for a Social Security Number (SSN) and provide proof of income, which is often required for credit card applications.
- Requesting an Individual Taxpayer Identification Number (ITIN): Some credit card issuers will accept this in place of an SSN.
- Becoming an authorized user on someone else's credit card: You can gain access to credit if the primary cardholder allows you to become an authorized user.
- Secured credit cards: You can apply for a secured credit card, which requires you to put down a cash deposit. Your spending limit is usually the amount you have deposited. Ensure that the issuer of your secured card reports your payment history to at least one of the three major credit reporting companies.
- Student credit cards: These are designed specifically for students and may have lower requirements for application.
In addition to credit cards, there are other ways to build your credit history:
- Pay your utility bills on time: Set up monthly transfers from your bank account to ensure regular payments for your rent, expenses, and utilities. This demonstrates to lenders that you are responsible for your payments.
- Pay off student loans: Repaying student loans can help build your credit history, as loan repayments are reported to credit bureaus.
- Open a US bank account: Having a local bank account is critical to establishing your credit profile, even if your transactions are not reported to credit bureaus.
Remember that building credit takes time, and it is important to be mindful of your finances and make timely payments to improve your credit score.
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Applying for loans
As an international student, you may not have a credit score in the US, but building one can have enormous benefits in the long run. 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.
Now, let's discuss applying for loans as an international student in the US.
When applying for loans as an international student in the US, there are a few things to keep in mind. Firstly, international students generally have fewer student loan options than US borrowers. Unless you are an eligible non-citizen who can qualify for federal student loans, you may need to borrow from a private lender.
Cosigners
Most international students applying for loans must have a US cosigner. A cosigner is legally obligated to repay the loan if the borrower defaults. The cosigner must be a permanent US resident with good credit who has lived in the US for at least two years.
If you are unable to find a cosigner, there are some lenders that offer loans without a cosigner. For example, Juno offers refinancing and private international student loans without a cosigner.
Interest Rates
The interest rate on international student loans is usually calculated using a benchmark rate plus a margin, with the margin depending on the creditworthiness of the borrower or cosigner. The Prime Rate and Secured Overnight Financing Rate (SOFR) are two common benchmarks used for international student loans.
Repayment Plans
Repayment terms will depend on the lender and loan option chosen. It is important to consider the monthly payments, when payments will begin, and how long you can defer repayment. The repayment period typically ranges from 10 to 25 years. There are a few common repayment plan options:
- Full Deferral: Students can defer payment until 6 months after graduation, as long as full-time status is maintained. The maximum deferral period is usually four years, the typical length of a degree.
- Interest Only: Students pay only the interest while in school, up to four years, and can defer the principal until 45 days after graduation or when dropping to part-time.
- Immediate Repayment: Payments on both interest and principal are due immediately once the loan is disbursed.
Loan Amount
Students can usually borrow up to the total cost of attendance, minus any other financial aid received. The total cost of attendance includes tuition, room and board, books, supplies, personal expenses, and transportation.
Alternative Options
Before taking out a loan, it is worth exploring other financial aid options. Start by researching funding opportunities from your country's embassy or governmental educational office, as well as scholarships, fellowships, grants, and financial aid awards. Additionally, if you have a DACA (Deferred Action for Childhood Arrivals) status, you may be eligible for certain types of student financial aid, such as state, school, or private lender funding.
In summary, building a good credit score as an international student in the US can be beneficial, and there are various loan options available to finance your education. Remember to carefully consider your loan options, understand the repayment terms, and explore alternative sources of funding before making a decision.
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Using a co-signer
As an international student, you may not have a credit history in the country where you are seeking a loan. Since many lenders use credit scores to assess risk, the absence of a credit record makes loan approval less likely. This is where a co-signer comes in.
A co-signer is someone who agrees to share the legal responsibility of repaying a loan with another borrower. This individual, typically a family member or close relative, helps lower the lender’s risk by providing additional financial security for the loan. Co-signing a loan influences the co-signer’s credit score. The loan will appear on their credit report, and their credit score will be affected by their combined repayment behaviour. While timely payments can have a positive effect, missed or late payments can harm their credit standing.
When selecting a co-signer, their credit history and financial standing significantly influence the loan terms. A strong credit history can secure better terms, whereas a poor credit record may increase interest rates or limit loan options. The co-signer’s credit score should ideally be 650 or higher to secure favourable loan terms. A stable and consistent income reassures lenders that the co-signer can cover repayments if necessary. Choosing a parent, guardian, or another trusted family member ensures accountability and trust. The co-signer must fully understand the financial and legal implications before agreeing to the commitment.
For international students, co-signers play a crucial role in helping them secure funding, especially when they lack sufficient credit history in their host country. Co-signers can significantly enhance a student’s chances of securing a loan. A co-signer strengthens the application, increasing approval chances by reassuring the lender of repayment security. A co-signer can also help lower the interest rate on the loan. This results in a more affordable loan, which is crucial when taking on significant debt for studying abroad.
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Frequently asked questions
Building credit as an international student can be challenging, but there are several ways to get started. One of the easiest ways is to get a credit card and use it responsibly, making sure to pay off charges each month. You can also build credit by paying utility bills, such as gas, electric, phone, and internet. Another way to build credit is to get a part-time job, which will provide proof of income and help you qualify for a credit card.
A good credit score is generally considered to be above 600, with scores in the 700s being good and those above 770 considered very strong. A perfect credit score is 850. It's important to note that the definition of a good credit score may vary depending on the company or bank you are borrowing from.
Your credit score is determined by credit bureaus, such as Equifax, Experian, or TransUnion. You can contact these bureaus to request your credit score information. Additionally, you can use tools like Nova Credit's Credit Passport™ to help you use your international credit history to apply for credit cards, loans, and more.
