The Advantages of Building Credit in the U.S.

Posted by Terrabank on Apr 11, 2023 3:03:55 PM

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Building credit in the U.S. is an important way to begin to build a stable financial life within the country. Having good credit helps in many facets of life, like getting loans from the bank, securing an apartment lease from a landlord, and the rates your insurance company will charge you, and it can even be a factor in the hiring process for a new job. Overall, having good credit is very important for your financial stability and overall interactions with the world around you. But what exactly is credit?

What Is Credit?

Credit is the ability to borrow money or access goods or services with the understanding that you'll pay later. The amount of money you can access is based on how trustworthy different lenders, such as banks, deem you. This trustworthiness often refers to you being seen as "creditworthy" and then translates to you having "good credit." This level of trust established between you and lenders will determine if you can open new lines of credit or lower the interest rates you pay. You can build this trust between yourself and lenders in a couple of ways to raise your credit score to reach that "good credit" score everyone seems to be discussing.


How Do I Start Building Credit From Scratch or as a Newcomer to the U.S?

So how are you supposed to build credit with no repayment history to show lenders you are trustworthy? Many tools in place can help you begin to establish a credit history and build trust with lenders:

  • Because you may need a credit score to get a credit card, start with a secured card. For this type of card, the cardholder makes a cash deposit in order to take out the card, which acts as collateral. The amount placed on your cash deposit will become your credit limit for your secured card. 
  • Another option to start building credit would be to take out a co-signed card. A co-signed card essentially allows you to “borrow” someone else’s good credit score who has an income that guarantees that they will pay your credit card balance if you cannot pay it yourself. 

You could also become an authorized user on someone else’s credit card. This strategy helps build credit quickly. The primary card user should have a history of making on-time payments and a high credit limit.


How To Build Credit With a Credit Card

While it may seem like a daunting task to try to build your credit score from the ground up or rebuild it after having it take a couple of hits from some financial curveballs, there are a few steps that you can take that would drastically improve your credit score and help you establish, or reestablish, trust with lenders. 

  • Tip #1: On-Time Payments
    • Paying your bills on time is one of the most significant factors that affect your credit score. Your payment history accounts for about 35% of your score, according to a Forbes Advisor article, “Focus On Payment History—It’s The Most Important Credit Factor” An easy way to assure you won’t miss your due dates is to schedule automatic payments from your bank account when your statements are posted. Paying on time will help you avoid late charges and the fees and negative points that come with them.
  • Tip #2: Manage Your Credit Utilization 
    • Credit Utilization rate refers to the amount of credit you use in relation to your allotted credit availability/limit. Lenders allow you a certain amount of credit, and knowing where you should maintain your spending to this limit is vital. It is recommended that you keep your credit utilization below 30 percent. For example, if your credit limit is $10,000 and you use $2,500, your credit utilization ratio is 25 percent.
  • Tip #3: Pay Your Balance in Full
    • When paying your credit card bills every month, you can either pay the amount in full or the minimum amount due. The best way to avoid long-term debt from accumulating is to pay for your account in full every month (or at least pay the most you can that exceeds the minimum amount due). Interest charges accumulate on the unpaid dues, but paying your account in full allows you to avoid these charges.
  • Tip #4: Monitor Your Account
    • It is essential to be vigilant of your account to ensure you are up to date with all payments and avoid fraud and other important updates. Checking your account regularly will help build the habit of staying in the loop of your finances and knowing where you stand.


Credit Builder Loans 

Credit builder loans can be taken out in order to raise your credit score and differ from traditional loans. In contrast, traditional loans may provide you with money upfront, allowing you to pay it back later on, with a credit builder loan you make fixed payments to the lender and get access to the money from the loan at the end of the loan’s term. These terms are usually six-24 months long. These monthly payments are then reported to credit bureaus which generate credit reports (which are used as a basis for your credit scores) and if you pay them on time your credit score will increase. 


What To Know About Credit if You Live Outside of the U.S.

As the world increasingly becomes more globalized, staying connected between countries is easier than ever! In order to keep a positive relationship with US lenders and your finances while living somewhere outside the US, it is important to maintain and keep improving your credit in the US. These are a few tips to keep your U.S credit right where you want it:

  • Tip #1: You need a U.S mailing address
    • To establish credit in the U.S. you must have a bank account and, therefore, a U.S. mailing address. Your American bank will send your credit card statements and other related documents to this address. If you do not have a residential address within the States, you can redirect your mail to another address such as a family member or a friend’s address. 
  • Tip #2:  Choose and managing your American credit cards
    • Some credit cards have foreign transaction fees and it is important to monitor these when using these American cards abroad. Choosing the correct credit card and tracking the transactions made from your bank accounts are very important when maintaining or trying to build credit in the U.S. Make sure to make at least a couple of purchases with your credit cards yearly to allow them to stay open and operational.  
  • Tip #3: Stay on top of your credit
    • It is important to stay on top of your bills, such as recurring payments like student loan debts, from the U.S while abroad in order to not have late charges that will negatively impact your credit score. Fraud is also a threat when managing accounts outside of your country of residence. Make a habit of checking your accounts and credit score in order to avoid fraud or negative points on your score. 

The material provided on this website is for informational use only and is not intended for financial, tax, or investment advice. Terrabank and/or its affiliates, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional and tax advisor when making decisions regarding your financial situation.


About Terrabank

Terrabank, N.A. is a federally insured national banking institution established in 1985 to provide financial services to South Florida's business community, the small-business owner and the professional. Our staff of seasoned banking professionals take great pride in Terrabank’s entrepreneurial spirit and we are committed to understanding our customers, their businesses and our City to ensure that we are providing the support they need to grow their businesses and achieve their goals.

We understand small businesses because we are a small business. Unlike the larger regional and national banks, we know we must work harder and smarter in order to succeed and that means always looking to provide our customers with the support and services they need, how they need them and when they need them.

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