Building U.S. credit from zero: a guide for newcomers

Step 1 — Understand credit reports, scores, and why you may start at zero

A credit report is a statement about your credit activity, such as your loan payment history and the status of your credit accounts (CFPB — What is a credit report?). Three nationwide credit bureaus collect this information: Equifax, Experian and TransUnion (FTC).

A credit score predicts how likely you are to pay a loan back on time, based on your credit reports; most scores range from 300 to 850, and you don’t have just one score (CFPB — What is a credit score?). Scores weigh things like your payment history, what you owe and how long you’ve had credit (USA.gov).

Why it matters: lenders use your reports to decide whether to lend to you and at what interest rate, and landlords, insurers and phone, internet or utility companies may use them too (CFPB). For the housing side, see our guide to renting your first apartment.

Why newcomers often start with nothing. If the credit reporting companies have no information about how you use credit, they can’t build a history, so you end up with a “thin” credit file or no file at all (CFPB, 2016). The CFPB notes this may be common among new immigrants who have not yet used credit products in the United States (CFPB, 2016).

Step 2 — Put the basics in place

• Your SSN or ITIN. Our guides explain how to get a Social Security number and, if you can’t get one, what an ITIN is (Individual Taxpayer Identification Number).
• A bank or credit union account. Credit builder loans, for example, come from a bank or credit union (CFPB). See our guide to opening a bank account.
• Know what does not build credit. Paying with a debit card, cash or a prepaid card, or taking a payday loan, typically isn’t reported to the nationwide credit reporting companies (CFPB). Most utility companies don’t report whether you pay on time either (CFPB). But an unpaid bill that goes to a collection agency could show up on your credit reports (CFPB).

Step 3 — Start with one product made for building credit

If you’re new to credit, the CFPB suggests a product designed to help you establish credit, such as a secured credit card or a credit builder loan (CFPB). It describes three common options (CFPB — Ways to start or rebuild credit):

• Secured credit card. You put in an amount of cash (the CFPB’s example is $500) and can spend up to that amount; paying the bill restores your spending amount (CFPB).
• Credit builder loan. The money is held for you as savings while you repay the loan in small payments, usually over 6 to 24 months; at the end, you receive the full amount you paid (CFPB).
• Retail or store credit card. Offered by stores, gas stations and other businesses, usually with a relatively low credit limit (CFPB).

The CFPB suggests asking your bank, credit union or a local nonprofit credit counseling agency about these options (CFPB). Creditors aren’t required to report to every credit reporting company (CFPB), so before you sign up, ask which companies the lender reports to, and what fees apply.

Apply only for credit you need. If you apply for a lot of credit in a short time, lenders may think you’re dealing with financial setbacks (CFPB).

Step 4 — Use credit in a way that builds a good record

From the CFPB’s tips:

• Pay on time, every time. Most credit scores treat repayment history as the number one factor, and automatic payments or electronic reminders can help (CFPB). Accurate late payments can stay on your report for seven years in most cases (FTC).
• Stay well below your limit. Experts advise using no more than 30 percent of your total credit limit (CFPB).
• You don’t need to carry a balance. Paying the full balance each month helps get you the best scores and keeps interest costs as low as possible (CFPB).

Rent can count. Positive rent payments can help build your credit, so if you’d like your rent reported, ask your landlord whether they take part in a rental reporting program (often through a rent payment app), and check the fees (CFPB). Late rent can hurt: the three bureaus use rental payment and related debt collection information (CFPB).

Step 5 — Check your credit reports for free

• Use the one official site. Only AnnualCreditReport.com is authorized to fill orders for the free credit reports you’re entitled to by law (FTC).
• Every week, for free. The three bureaus have permanently extended a program that lets you check your report from each one once a week for free (FTC; CFPB). You can also call 1-877-322-8228, or mail the request form to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281 (FTC). TTY: 1-800-821-7232 (USA.gov).
• What you’ll be asked. Your name, address, SSN and date of birth, plus questions only you would know (FTC). If you don’t have an SSN, AnnualCreditReport.com says you can use your ITIN; each credit reporting agency then checks your identity with its own procedures (AnnualCreditReport.com — FAQs).
• Look at all three. Each bureau may get information from different sources, so the reports may not match (FTC).
• It won’t hurt your score. Checking your own report is not an inquiry about new credit (CFPB).
• The score is separate. In most cases, your credit report won’t include your score (USA.gov). Many credit card companies and lenders show their customers a score (CFPB).

Step 6 — Fix mistakes, for free

Under the federal Fair Credit Reporting Act (FCRA), you have the right to know what’s in your file, to dispute incomplete or inaccurate information, and to be told if information in your file has been used against you (CFPB — Summary of your FCRA rights).

1. Write to the credit reporting company. Explain what’s wrong and why, and include copies (not originals) of documents that support you (CFPB — Dispute an error). The CFPB has instructions and a template letter (CFPB).
2. Also write to the company that supplied the information, such as your bank, landlord or card company (CFPB).
3. Know the timing. The credit bureau has 30 days to investigate (FTC). The company that supplied the information generally must investigate and respond within 30 days of getting your dispute (CFPB).

If you think an error is the result of identity theft, visit IdentityTheft.gov (CFPB). If you’re turned down for credit, insurance, a job or housing because of your report, you can get a free report from the credit bureau named in the notice, if you ask within 60 days (FTC).