Establishing credit

For a foreign national such as myself, and a self-employed one at that, it is extremely difficult to establish credit in the U.S.

I feel like being 18 all over again: with 20+ years of professional background I have the same credit history as a college student, i.e. none. And as I soon learned, having no credit is even worse than having bad credit. Can I get a credit card? No. A store card? No. Sign the lease on that new apartment? No. Not even my own bank, the one I’ve been banking with here in the U.S., the one I have a savings account with, deposit checks into, have my name on the contract with. No. What about a secure credit card? No. Prepaid credit card? No. Some banks might be happy to help you out if you’re in full-time employment and can show a steady paycheck. But what about us, this ever-growing number of young entrepreneurs, writers, translators, Generation Flux?

Let’s talk about the whole idea of credit for a little bit. In order to establish and, ultimatively, build credit, you have to prove that a) you don’t really need it, and b) that you’re somewhat irresponsible. Let me explain. I’ve had all the utility bills in my name for a while (electricity, gas, water): not included in your credit history. I attend graduate school, but instead of taking out a student loan I work and save money until I can pay for the next semester. Not included in your credit history. I rent because I can’t afford to buy but always pay my rent in full and on time. Not included in your credit history. None of these things matter for your credit score. The only thing that matters are credit cards, personal loans, and mortgages. You’re a responsible adult who prefers to not take out loans and uses cash, checks, or debit cards? Doesn’t matter because the system is broken. If it were up to me, bills such as electricity would be a big part of your credit history (this should also be easy enough to monitor). Someone who pays their rent and bills on time and in full, is someone I would consider credit-worthy. Someone who does not take out loans but instead has a savings account, is someone I would consider credit-worthy.

But enough of that. We know the system is broken. How do we game it and make it work to our advantage? Before the financial crisis it was pretty easy to apply for a credit card and thus get started on establishing credit. No longer. Here’s what’s working for me right now:

  1. Apply for a credit card with Capital One. I had zero history with them, and still they offered me a credit card (not a prepaid, not a secured, but a proper credit card) with a $300 limit. That’ll do for starters, thank you! Once you’re spending and paying off, they will no doubt raise the limit.
  2. Apply for a prepaid credit card with American Express. This won’t help to establish credit, but it’ll build history with American Express. Once you’re spending and paying off they will likely offer you a proper charge card, which will then count toward your credit score.

I was approved for both cards with no trouble; no proof of income or financial commitments necessary. The important part to remember is this:

  1. Use the new credit card often: every time you buy groceries, every time you get gas, every time you shop on Amazon.com. The more transactions (even tiny ones), the better.
  2. If you do have a limit (like my Capital One $300), do not exhaust it. Ever. Try to spend 50-75% 30-50% of the limit, but no more. This shows that you’re responsible about your spending limits.
  3.  Pay off the card on time and in full every single month.

I have only just started on this route, and I will be reporting back. Based on my experience from living in other countries and establishing a history there, it should take about six months or so for these companies to start trusting you. I’m counting on having a full American Express credit card within 12-18 months.

Once you have all that working and established (at least six months), try other small things, such as applying for a store card with a big brand store such as Macy’s, and take out a small personal loan that you don’t need and pay it off regularly. Personal loans are great for credit building. Don’t forget: you’re doing all of this not because you need the money but because you’re building a credit history. Don’t even think about being late on a payment.

Finally, check your credit score once a year to make sure you’re on the right track. There is only one authorized platform, which is https://www.annualcreditreport.com/cra/index.jsp and covers all three bigwigs: Experian, Equifax, and TransUnion. Good luck!

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