Tips for Building a Credit Score in the USA for South African Immigrants

Tips for Building a Credit Score in the USA for South African Immigrants

February 15, 2023

What Is a Credit Score?

A credit score is a number from 300 to 850 that depicts a consumer’s creditworthiness. The higher the score, the better a borrower looks to potential lenders.

A credit score is based on credit history: number of open accounts, total levels of debt, repayment history, and other factors. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner. 

Access to lending (credit) in the United States can be a challenge for immigrants who have no credit history. Without a credit history, it can be difficult to secure loans or credit cards, rent an apartment, or even get a job. However, establishing credit is an important step in financial stability and a tool to building wealth.

Here are some steps that immigrants can follow to build their credit history in the US. 

  1. Get a Social Security Number: To build credit, you need a Social Security Number (SSN). If you are an immigrant and legally working in the US, you are eligible to apply for an SSN. Once you have an SSN, you can start the process of building your credit.
  2. Open a Secured Credit Card: A secured credit card is a good option for those who have no credit history. With a secured credit card, you provide a deposit to the credit card company, which becomes your credit limit. This type of card helps you build a credit history as you access credit and make timely repayments
  3. Make Payments on Time: To build a good credit history, it's important to make payments on time. Late payments can have a negative impact on your credit score and may make it harder to secure loans or credit cards in the future.
  4. Use Credit Responsibly: Using credit responsibly is key to building a good credit history. This means not maxing out your credit limits. Keep your credit utilization low- as a guide it is advisable to only access up to 30% of your credit limit.
  5. Consider a Co-Signer: If you are having trouble getting approved for a loan or credit card, consider getting a co-signer. A co-signer is someone who is willing to vouch for you and help you get approved. This can be a great option if you have no credit history, but be sure to choose someone who has a good credit history and is financially stable.
  6. Monitor Your Credit Report: Checking your credit report regularly can help you track your progress and ensure that there are no errors that could be negatively affecting your credit score. You can get a free credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once per year. Most banking apps also provide a real time dashboard which gives updates on your credit score
  7. Consider taking more than 1 line of credit as this will accelerate the process

While there can be differences in the information collected by the three credit bureaus, five main factors are evaluated when calculating a credit score:

  • Payment history counts for between 35-40% of a credit score and shows whether a person pays their obligations on time.
  • Total amount owed counts for 20-30% and takes into account the percentage of credit available to a person that is being used, which is known as credit utilization. Your utilization should not exceed 30% of available credit.
  • Length of credit history counts for 15-21%, with longer credit histories being considered less risky, as there is more data to determine payment history.
  • The type of credit used counts for 10% of a credit score and shows if a person has a mix of installment credit, such as car loans or mortgage loans, and revolving credit, such as credit cards.
  • New credit also counts for 10%, and it factors in how many new accounts a person has; how many new accounts they have applied for recently, which result in credit inquiries; and when the most recent account was opened.

Building credit can take time. In most instances banks would want to see a credit journey dating back at least 6 months but the longer the better.

Caleo Capital USA (Caleo Capital NA LLC) are an integrated wealth advisory and asset management firm that serves high-net-worth South African families who have relocated or are planning relocation to the United States. Emigration and relocation is complex both administratively and emotionally, with so many aspects to consider. Financial planning for the average high-net-worth individual is no simple task, but tax, retirement, trusts and estate planning is even more complicated when your financial life spans international borders.