As I’ve mentioned a few times, my husband M. recently became a permanent resident in the US. As we’ve found out over the last 12 months, gaining a solid financial footing in a new place is not always easy, and it takes time.
In our case, M. already had a social security number, as he spent 3 summers on a student work and travel program during college, as well as a bank account. Although we’ve been married almost 4 years, we just made the switch to a joint account last year. The next big hurdle was figuring out how to build credit from scratch, since he had no credit history here in the US.
Secured Credit Cards
When we merged our accounts and created a joint one, the bank offered M. a secured credit card. He didn’t accept right away, as we wanted to do a little more research. He applied for a very basic card from Capitol One, but was declined due to lack of history. So, the secured card from our bank seemed like the best way to start building credit.
Cons of the Secured Card
The downside to a secured card is that we had to hand over $300 of our own to fund the account. What this means is that you are basically giving yourself a line of credit, the bank issues the card, and they report on your spending habits to the credit bureaus.
All of the secured cards that we looked into came with an annual fee, too. This is frustrating, because you’re trying to build credit and improve your finances, and you’ve already had to hand over your own money in the process. The annual fee for M.’s card was $25.
The $300 for the credit line will be returned once the bank deems M. worthy of an unsecured account. This could take up to a year, but he will likely give them a call soon and see about having it changed now.
Since it’s best to keep your spending at or below 30% of your limit, M. went ahead and set up our cell phone payments on his card. That was the only thing that went on it, and we paid it off in full every month. M. used Credit Karma to check his report, and sure enough after just one month he had a credit history starting to build.
Obtaining a Regular Credit Card
After only a few months of using the secured card, offers started arriving for other regular credit cards. M. took a chance and applied for the Discover card, as it offers a cash back bonus He was approved instantly, and extended a higher line of credit. We were very pleased- after just a few months of using the secured card and making payments in full, M.’s credit worthiness was increasing.
Building on a Limited Credit History
If you have limited or no credit history, don’t wait to start building it. Check in with your credit report using a free service- there are many available today. I have used Quizzle, Credit Karma, and Credit Sesame. Everyone should be checking their report throughout the year to ensure that there are no mistakes or fraudulent accounts in their name.
Once you do get that secured credit card, watch your spending very closely. Don’t max it out, and always make the payments in full on time. If you can’t afford to pay it off every month, you could be headed down a dangerous road to dependency on credit. Use the card as a tool to establish history, and not as an invitation to buy stuff that you can’t afford.
It takes time and effort to establish finances. I know, because I’ve been experiencing it firsthand with my husband. The most important thing to remember is that you want to show that you’re responsible, so use credit cards carefully and strategically. If you do this, you should be well on your way to building a strong credit history.