Following Guide on how to build credit history fast in USA is written by Vishal.
I am writing from my experience of building credit history in USA and I was probably lucky to have been well guided by one of my friend who was already in the US when I entered the dreamland.
Everyone understands or atleast has heard some rumors about how painful it is to get anything done in the United States with NO credit history, be it a Credit Card, Apartment, Wireless (Cell) Phone, Internet Connection, Auto loan or anything.
When I entered, I had also heard of all these. What I figured was:
- Everyone is more scared because there is no proper information available.
- We are fatigued after all the visa stress and every small NO we hear freaks us out.
- We go in wrong directions and increase stress as we have no proper guidance.
Anyway, my friend helped me go in right directions and not screw up money while building up history.
Cutting the crap, here are the steps to how to build credit history fast in USA, month by month that worked for me and a few other friends I advised in person over last 2 years. Please also read the section, credit Dos and Dont’s.
How to build credit history fast in USA
Count these steps from the day you get your Social Security Card in your hands.
- Find out if your school or employer has a tie up with a bank to give credit cards to all students. If NO, skip to step 4
- Find out if there is an annual fee or a joining fee. If yes, skip to step 4
- Apply and get the card. Skip all other steps for this month.
- Find out all the credit unions in your vicinity and call them to ask if they have a NO annual fee credit card for people with NO credit history. You may need to tell them that you are OK with a secured card.
- If you find a credit union with a NO fee card, take that card (even if it’s secured)
- If you don’t find a credit union which has a NO fee secured card, then take the lowest AF (annual fee) one. (Whether it’s from the bank or credit union)
By any means, do not apply for credit cards with any other bank except the bank your school/employer is affiliated with.
Do not apply for credit cards just because your bank cashier tells you to.
(HSB – Don not apply for card, since you get free t-shirt or $100 in cash after first care swipe).
No new activity.
Apply for and get a store card card of your choice. My most preferred are the cards issued by GEMB (GE Money Bank) as they are easy to get approved for and the CL (credit limit) on their cards go to about 1.5 – 2k very quickly (in 7-8 months).
The most common retailers for them are Walmart and JC Penney. This will help you at about 12 month junction when you will be ready for prime cards that will help you build credit history and credit score.
It will help you in 2 ways, 1 you will have 2 cards on your credit file (1 is too less) and it will help you keep your utility %age low (total due/total available limit) which is a major factor in fico scoring.
HSB – I’m not a fan store credits cards. Will it help build credit history? Yes, it certainly does.
But, the problem is you must have enough discipline to use it and pay it off. If not, you are in big trouble.
I have seen where, students get into getting store credit card, and run out of money in the bank, use the card, then pay very high interest rates (20% or above usually).
First two credit cards that I got – American Express (student) and Bank of America. I applied for the card right after receiving my SSN, without any jobs to show income.
Use both your cards normally but keep paying as soon as your transactions show up online. Let your Bank/Credit union card have a monthly statement of <10% of your credit line and ensure that your store card never has a due. Keep this as a rule atleast until you have got some good cards (towards the end of this so-called step by step guide).
If you get cards from Walmart and do shopping frequently for home groceries, then when you run out of cash in checking account, then you will start using walmart card.
You might be like, I’m not going to ask my parents for money. If you don’t have source of income (part time jobs, RA/TA,..) then you are going to pay high interest rate till you pay off the due.
Ask your store card of CLI. If they say NO because it’s too early, ask next month (GE cards allow you a limit increase after 4 months)
At this point (or around 6-7 month point, you will start getting a tons of invites from sub prime lenders like orchard bank, hsbc, credit one, first premier etc). IGNORE THEM ALL.
You aim should be to build good credit score and credit history fast, so you can get low interest rates on loans.
Keep following the rules I mentioned in month 5-8.
You should start getting invites from top lenders like chase now. If you don’t go ahead and apply for a Chase Freedom yourself (trust me on this, Chase freedom is the best prime card for beginners with great rewards and a good sign up bonus most of the time).
If you wish to add additional cards to your portfolio, do it NOW. Find out which cards pull which CB and choose a card that pulls a different CB than what chase pulled for you. You can get your free credit reports once every year.
Whogavemecredit can also help you find what a particular card issuer pulls in your area. If you crave for a AmEx, zync is your card.
That’s it for the step by step guide… This is not a hypothetical guide, this is what worked for me and my friends and has been optimized with the help from members of fico forums (I also blog there and have seen 100s of people who got stuck into credit mess before they got good advise).
Do’s – Credit History Building
- Keep your balance at any time below 10% of the credit limit that you have. If this means paying your card company every 2-3 days, do it. If you need to make a large purchase on your card which will use a huge part of your credit limit, pay it off as soon as it appears as a charge on your account (you can check online)
- When you apply for more cards, do them all quickly (over 1-2 days) and try to choose cards that distribute your inquiries over different bureaus. For example Barclays is known to always pull Transunion while AmEx/Chase/BofA is known to generally pull Experian while most credit unions, citibank and utilities generally pull Equifax
- You get 1 free credit report from every credit bureau every year. Get them. Distribute them evenly over the year instead of getting all at once. In most cases information on all of them will be similar. By getting 1 report every 4 months, you can get a better view of your credit growth for free.
Dont’s – Credit History Building
- Never pay late for any utility. I try to pay as soon as I get the utility bills. You may also want to consider Auto pay. Paying on time doesn’t help your credit but not paying on time hurts.
- Always keep your balances under control. If you have <4 cards make sure only 1 of them report a balance which should be less than 10% of that card CL. If you have more than 4 cards, you can let 2 report a balance, but again less than 10% of their CL. This will get you optimal fico credit score.
- This may look odd, but unless you must, don’t get yourself added as an AU (authorized user) to someone’s credit card. You get good score by this, but may disqualify you from getting the signup bonus on that particular card at a later stage.
- There are a tons of sites selling you your credit scores and monitoring for a cheap monthly fee, please note that the scores they provide is not fico score and is not what lenders see.
If you have doubts or additional questions, post them as comments here and I will try to answer them for you.
Thanks to Vishal for taking time to write this lengthy guide. Only place where I differ from Vishal is about store credit card. I’m completely against applying for store credit cards.
I built my history (excellent) with regular cards. Apply for store cards only if (again only if ) you are disciplined enough to pay it off every month.
Friends of mine has Macys card. He uses the card to pay for the purchases. Then pays the balance right there in the counter. His card is linked to Bank checking account, so he don’t have to worry about paying the statement later.
But there is a difference between my friend and you guys. He’s earns a handful. You will students and cash strapped.