A guide to credit building for international students

Mastering financial success through credit building

International students would confront numerous hurdles while studying in a foreign country. It can take time to navigate a new school system, adjust to a different culture, and manage funds in an unfamiliar environment. One crucial aspect of financial life in a foreign land is building credit, which may seem perplexing but is essential for long-term financial stability. This blog aims to provide international students with a comprehensive understanding of credit building and the steps to establish a strong credit history in the host country.

Understanding credit

Before diving into the intricacies of credit building, it’s essential to understand what credit is.  Credit is an indicator of your ability to repay borrowed money. It serves as a trust indicator for lenders. When you apply for a credit card, a loan, or any other form of credit, lenders assess your credit history to determine the level of risk associated with lending to you. Credit history is essentially a record of your financial behavior, and it influences your ability to access credit and the terms on which you can access it.

Why is credit building important for international students?

Building credit as an international student is essential for several reasons. A good credit history can help you secure loans for various purposes, such as buying a car, renting an apartment, or even qualifying for a credit card with favorable terms. Credit history can also impact your future employment opportunities. Some employers check the credit history of job applicants as part of their screening process, especially for positions involving financial responsibilities.

Steps to build credit

Obtain a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN)

In the United States, a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN) is necessary to build credit. An SSN is typically issued to citizens and permanent residents, while an ITIN is provided to individuals, including international students, who are not eligible for an SSN but have U.S. tax obligations. You will need either of these to open financial accounts and establish credit.

Open a bank account

You can start by opening a checking or savings account at a credit union or local bank. Maintaining an account shows financial stability and is often a requirement for obtaining other forms of credit, such as credit cards.

Apply for a secured credit card

International students can use secured credit cards, as they are an excellent entry point into the world of credit. With these cards, they can deposit a certain amount of money as collateral, and your credit limit is typically equal to or slightly higher than your deposit. By utilizing a secured credit card responsibly and making on-time payments, you can build a credit history gradually. Ensure that you choose a secured card with low fees and one that reports to all three major credit bureaus.

Pay bills on time

Your payment history deeply impacts your credit score. Make sure to pay your bills on time, whether it’s rent, utilities, or credit card payments. Payments that are late or get missed might influence your credit score negatively.

Maintain a low credit utilization rate

Credit utilization is the ratio of your credit card balance to your credit limit. To maintain a healthy credit score, it’s recommended to keep your credit utilization below 30%. High credit card balances could adversely affect your credit score.

Diversify your credit

Having different types of credit accounts, such as credit cards, installment loans, and retail accounts, can positively impact your credit score. However, avoid applying for multiple credit cards or loans in a short period, as this can trigger hard inquiries on your credit report, which may have a negative impact.

Monitor your credit report

Review your credit report on a regular basis for discrepancies or errors. Each major credit bureau provides a free credit report once a year, such as Equifax, Experian, and TransUnion. Correcting any errors promptly is essential to maintaining a strong credit history.

Use credit responsibly

While building credit, it’s crucial to use it responsibly. Avoid accumulating excessive debt, and be mindful of your spending habits. Responsible credit use will lead to a healthier credit profile.

Establish a credit history over time

Building credit is not a quick process, and it takes time to establish a strong credit history. Be patient and persistent in your efforts to build credit.

Key takeaways

• Credit is an indicator of your ability to repay borrowed money and serves as a trust indicator for lenders. Your credit history influences your access to credit and its terms.
• Building credit is essential for international students, as it not only opens doors to financial opportunities but also impacts future employment prospects.
• Timely payments, including rent, utilities, and credit card bills, significantly impact your credit score. Late or missed payments can harm your credit.
• Responsible credit use is crucial. Avoid accumulating excessive debt and maintain prudent spending habits.

If you found this blog informative and have any questions or need further assistance with your study abroad journey, don’t hesitate to reach out to us. Click here to contact our team for expert guidance and support.

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FAQs

Q1. What is a good credit score?

Ans- A good credit score typically falls within the range of 670 to 850 in the FICO scoring model. However, the exact definition of a ‘good’ score may vary depending on the lender and the specific type of credit.

Q2. What is a ‘soft’ credit inquiry, and how does it affect my credit?

Ans- A soft credit inquiry, just like those made for background checks, does not impact your credit score. It’s different from a ‘hard’ inquiry made by lenders during the credit application process.

Q3. What should I do if I find errors in my credit report?

Ans- If you discover errors or inaccuracies on your credit report, you should promptly contact the credit bureau reporting the mistake and correct the information.