If you have been living in the US for a while, chances are you have seen hundreds of commercials talking about the importance of having and building good credit. But, what is credit and how do you build it? And, as an international student, why does credit matter?
Your credit score basically measures your financial trustworthiness. When you want to get a credit card, rent an apartment or get a loan, these companies check your credit score to determine the level of risk that they incur when they provide you with a good or service. Your credit score can determine your credit card limit, the interest rate on a loan, whether you are eligible to rent an apartment, and even whether cellphone carriers will let you get a phone on a plan.
Building credit as an international student will make your life so much easier in the long run and having a low credit score to no credit at all can make you spend thousands of dollars in security deposits. In fact, Alessandra had to pay a $500 deposit when she got her first AT&T phone. She also had to pay a $2000 security deposit on her current apartment due to her non existent credit. Yes, you always get your deposit back but it’s cash that you can’t have access to for a certain period of time.
So, what is the best way for international students to build credit?
1. Start early and get a secured credit card. Banks will give a credit card to any student. As soon as you arrive in the Unites States and have a social security number, you should apply for a credit card. As a foreigner, we recommend going to a bank to apply for your first credit card since you may get rejected from online applications. We recommend getting your first credit card from a bank where you have a checking/savings account because it’s easier to pay off your credit card balance online. Chances are, you will only be eligible for a secured credit card which means that you will put down a security deposit and that amount will become your credit limit. After about a year, based on the timeliness of your payments, you may be eligible to move to a “real” credit card. When applying for a credit card, the bank will need all of your information including your income. Your income doesn’t have to mean your actual salary, since you probably don’t even have a job. If your parents send you money for survival and pay for college, all of that is part of your income.
2. Pay your credit card off immediately. Don’t treat your credit card as free money. Treat it as a vehicle to building credit. As soon as you have a balance on your account, pay it off. Don’t wait until you get your statement at the end of the month. Also, maxing out your credit card may hurt your credit so by paying it off instantly, you go back to the full credit card limit balance.
3. Get another credit card. Once you start paying off your credit card, you will show up in “the system.” This means credit card companies have your information and will start sending you credit cards in the mail. I am not recommending getting multiple credit cards since closing a credit card may hurt your credit and so may opening several credit cards in a short period of time. But, once you have a secured credit card, chances are you will be eligble for a higher credit limit when you apply for another credit card through a different bank/company. You may be lucky an get pre-approved or approved online. Make sure you get one with no annual fee since you’re still building credit and won’t be eligible for one of those super awesome credit cards with cool benefits like rewards and miles. When you’re ready to upgrade, you can always check with your bank/credit card company.
4. Get a cellphone plan and put your utilities in your name. If you didn’t have a social security number when you got your first cellphone, chances are you had to buy your phone and go prepaid. If you are ready for a new phone and finally have a social, you might want to sign up for a regular plan. If you’ve had a credit card for a while now, you might not have to pay a security deposit. When it comes to getting utilities for your apartment, you should also try to get those under your name. You might have to pay a security deposit but in the long run, having “accounts” linked to your social and name may help build credit.
4. Check your credit. Companies like Credit Karma let you check your credit score as well as the different variables that are affecting your score. The “official” way to check your credit, however, is yearly only through AnnualCreditReportcom.
Remember to always pay your bills on time (AutoPay is the best for that) in order to avoid hurting your credit. You can learn more about what affects your credit score and how to build better credit here.