Building Your Credit History in the US: A Practical Guide for International Students

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As you embark on your journey in the US, packed with new experiences and opportunities, there’s one very important aspect you’ll need to manage effectively — your credit history. That three-digit credit score is key to unlocking numerous financial possibilities in the US, from renting apartments to buying a car.

If you’d like to understand the US credit system before we learn how to build credit, check out this article. If you’re feeling confident, let’s dive into understanding and mastering the five key categories of a good credit score, with practical, actionable advice.

1. Payment History: The Foundation of Your Credit Score

Managing your payment history effectively is very important because it’s the most significant factor influencing your credit score. Here are specific, actionable steps to ensure you stay on top of this:

• Automate Your Payments: Using apps like Mint or YNAB (You Need A Budget) can streamline your bill payments. These tools can automatically pay your recurring bills such as phone, internet, and utilities, ensuring you never miss a payment. Both platforms connect directly to your bank account and can send payments on your behalf, aligned with your billing cycles.
• Set Up Reminders: For expenses that can’t be automated or if you prefer to have more manual control, setting up reminders is a good way to go. Use Google Calendar to set up monthly alerts a few days before each bill’s due date. This gives you a buffer to ensure funds are available and you can handle any discrepancies before the payment is due.
• Budget Smartly: Integrating a budgeting tool like Mint into your daily financial management helps you keep an eye on your spending patterns. Mint provides real-time tracking of your transactions, categorizes your spending, and visually displays how your spending aligns with your budget. This helps you adjust in real-time, ensuring you always have enough funds to cover your bills and aren’t overspending in categories that could lead to high credit utilization.

Each of these tools help in ensuring timely payments and also provides a platform for managing your overall financial health, which is critical for maintaining and improving your credit score.

2. Credit Utilization: Managing Your Credit Balance Effectively

Credit utilization refers to how much of your available credit you are using at any given time and is a key factor in your credit score. Maintaining a low credit utilization ratio is crucial as it demonstrates to lenders that you are not overly reliant on credit and can manage your finances responsibly.

• Pay Off Balances Monthly: Aim to pay off your credit card balances in full each month to avoid interest charges. Interest charges are additional costs applied when you carry a balance past your payment due date. By paying your balance in full, you avoid these charges, which can be costly, and keep your utilization low. This practice shows lenders that you are a low-risk borrower.
• Request Higher Credit Limits: If you have a history of making payments on time and managing your accounts well, consider requesting a credit limit increase from your credit card issuer. An increased credit limit can instantly lower your utilization ratio because you have more available credit, assuming your spending doesn’t increase. To request an increase, you can usually call customer service or apply through your online account. Sites like NerdWallet provide guides on how to request credit limit increases effectively.
• Spread Your Spending: Distributing your expenditures across multiple credit cards can help manage and balance your utilization ratio on each card. For example, use one card for groceries and another for monthly subscriptions. This approach prevents any single card’s balance from getting too high relative to its credit limit, which can help maintain a lower overall credit utilization.

Implementing these strategies can help you maintain a healthier credit score, make you more attractive to lenders, and save money on interest in the long run. Remember, a good credit utilization ratio reflects responsible credit management, which is crucial for building and maintaining strong credit in the U.S.

3. Length of Credit History: Building a Solid Foundation

The length of your credit history plays a significant role in your credit score, reflecting your long-term financial behavior to lenders. Here’s how to strategically build and maintain it:

• Start Building Early: Don’t wait to start your credit journey. As soon as you’re eligible, apply for a credit card. A secured credit card is a great option if you’re just starting out. It requires a cash deposit that typically serves as your credit limit, minimizing the risk to the issuer while allowing you to build credit.
• Keep Old Accounts Open: The age of your oldest accounts is crucial, so keep your old credit cards open, even if you don’t use them frequently. Closing these accounts can shorten your average credit history and potentially lower your score. Visit Experian’s website to understand more about how your credit age affects your score.
• Maintain Active Accounts: To ensure your old credit lines positively impact your credit score, use them occasionally for small purchases. This activity shows lenders that you can manage credit over long periods. Set a reminder to use these cards for small transactions, like a coffee or snack, and then pay off the balance immediately.
• Regularly Review Your Credit Report: Keep track of your accounts and their statuses by checking your credit reports regularly. You can access your free credit report annually from each of the three major bureaus at AnnualCreditReport.com. This will help you ensure all your accounts are reported correctly and remain in good standing. You can only pull your credit reports once you have an SSN.

By taking these steps, you can develop a long-standing credit history, which will significantly benefit your credit score over time. Building credit is a marathon, not a sprint; patience and consistent good habits will pay off in the long run.

4. Types of Credit: Diversifying Your Credit Portfolio

Diversifying your credit types is like showing off a range of skills; it impresses potential lenders and can boost your credit score by demonstrating your ability to manage different types of credit responsibly. Here’s how to broaden your credit experience effectively:

Explore Different Credit Products: Start by incorporating a variety of credit instruments into your financial toolkit. This could include:

• Retail Store Cards: Often easier to qualify for than major credit cards, these can be a good starting point. Use them for small purchases and pay off the balances immediately (~ within the month, the sooner the better).
• Traditional Credit Cards: A regular credit card from a major issuer should be part of your mix. Look for cards with low fees and rates that also offer rewards programs that suit your lifestyle.

Become an Authorized User: If you’re just starting out and building your credit from scratch, ask a family member or a trusted friend if you can be added as an authorized user on one of their older, well-managed credit accounts. This arrangement lets you benefit from their positive credit history and can sometimes even be done without an SSN.

• How it Works: The account’s entire history appears on your credit report, which can be extremely beneficial if the card has a long history of on-time payments and a low credit utilization rate.
• Choose Wisely: Make sure the primary account holder has a strong payment record. Any negative information could also be reflected in your credit score.

Taking Action: Learn to stay on top of things.

• Monitor Your Impact: Once you diversify your credit types, monitor how each account affects your credit score. Use free tools offered by sites like Credit Karma or Experian to track your credit score and get tailored advice on further improving your credit health.
• Manage Responsibly: Regardless of the types of credit you hold, the key to boosting your score is managing them responsibly. This means making payments on time, keeping balances low, and not overextending yourself financially.

By carefully selecting and managing a mix of credit types, you can demonstrate to lenders your ability to handle various financial responsibilities, thereby enhancing your creditworthiness.

5. New Credit Inquiries: Choose Wisely

Each time you apply for new credit, it triggers a hard inquiry that can temporarily dip your score. Strategic application is key.

• Limit Applications: Only apply for new credit when necessary. For international students like us, this might mean getting a credit card to handle day-to-day expenses or setting up installment plans for technology like a laptop or tablet, which are essential for your studies.
• Space Out Applications: When applying for credit, such as student credit cards or personal loans for education-related expenses, try to make all your applications within a 14-day period. This strategy helps minimize the impact of multiple hard inquiries because most credit scoring models will treat them as a single inquiry. This can be particularly useful during back-to-school shopping or setting up your new life in the U.S.
• Check Credit Health First: Before applying, review your credit score and report to gauge your current financial standing. The higher your score, the better your chance of approval. Which is why checking your score can help you identify the best times to apply. Free services like those offered at AnnualCreditReport.com allow you to review your credit reports annually at no charge.

Wrapping Up: Proactively Building and Managing Your Credit

With these tips and strategies, you’re better equipped to build and manage your credit effectively in the U.S. Remember, good credit management is like maintaining a high GPA: it requires discipline, consistency, and smart strategies. Stay informed and proactive about your financial health, and you’ll be well on your way to achieving a strong financial profile. Need more insights or help? Don’t hesitate to reach out!

Here’s to your financial success — one smart decision at a time!

Hey, I’m Krish! A fellow international student and the founder and CEO of roam. roam is an ecosystem that simplifies international student migration by putting together all the resources students need to start their lives in a new country in one place. We do this by publishing informative articles (like this one), creating personalized tools on our website, and building digital and in-person communities for international students.

If you have any questions regarding starting a life in the U.S. as an international student, feel free to reach out! We’re here to help :)