How to build credit as an Immigrant

How to build credit as an Immigrant

As an immigrant, building your life in a new country is an exciting yet daunting endeavor, often accompanied by numerous challenges. One such hurdle is establishing credit, which plays a crucial role in accessing financial resources and opportunities.

According to a study by the Consumer Financial Protection Bureau (CFPB), which was published in 2018, immigrants in the United States have an average credit score of 664, while native-born Americans have a higher average score of 714. It is worth noting that immigrants who have been residing in the country for less than five years tend to have a lower average credit score of 624. This information sheds light on the financial landscape for immigrants and highlights the potential challenges you may face when it comes to accessing credit and financial opportunities.

Limited Credit History:

One of the primary challenges faced by immigrants is the lack of a credit history in the United States. Creditors rely on credit scores and histories to assess an individual's financial responsibility. Without a local credit history, you find it challenging to gain access to loans, credit cards, and other financial services.

Language and Cultural Barriers:

Navigating the complex world of credit can be overwhelming for anyone, but it can be particularly challenging for immigrants who may face language barriers or cultural differences. Understanding complex financial terms and requirements can be confusing and may lead to unintentional mistakes that negatively impact your creditworthiness.

Limited Access to Banking Services:

Some immigrants may not have access to traditional banking services due to various reasons, such as lack of documentation or unfamiliarity with the local banking system. Without access to bank accounts, you may struggle to establish relationships with financial institutions, making it difficult to build credit.

Lack of Financial Education:

Many immigrants arrive in the United States without adequate knowledge of the American financial system and how credit works. Without proper financial education, you may make uninformed decisions or fall prey to predatory lending practices that can have long-lasting negative effects on their credit scores.

The significant setbacks experienced by immigrants greatly hinder their ability to access essential financial resources for establishing a life in the United States. Immigrants are more likely to have subprime auto loans than native-born Americans. In 2021, 26% of immigrants had subprime auto loans, compared to 16% of native-born Americans. According to a 2019 study by the National Consumer Law Center, the interest rates on auto loans for immigrants tend to be higher higher than for native-born Americans. In 2021, the average interest rate on an auto loan for immigrants was 10.2%, compared to 7.8% for native-born Americans. When it comes to mortgage, the homeownership rate for immigrants is lower than for native-born Americans. In 2021, the homeownership rate for immigrants was 52.9%, compared to 65.8% for native-born Americans.

Building credit in the US can be challenging, but it is not impossible. By following these tips, you can start building their credit and improve their financial opportunities.

1. Get an Extra Debit Card1. Extra helps you build credit without a credit card. At the end of every month Extra totals up all of your purchases and payments and reports them to credit bureaus to build your credit. There are no interest rates, no credit checks and no hidden fees, ever. Membership fees apply.

2. Make all of your payments on time. This is the most important thing you can do to build credit. Lenders want to see that you are responsible with your money and that you make your payments on time.

3. Keep your credit card balances low. Lenders also want to see that you are using your credit responsibly. The rule of thumb is to keep your credit card balances below 30% of your credit limit.

4. Check your credit reports regularly. This is important to make sure that there are no errors on your report. If you find any errors, you should dispute them immediately.

CFPB Study:

1 This is an advertisement paid for by Extra. The Extra Debit Card is issued by Evolve Bank & Trust or Patriot Bank N.A. (Member FDIC), pursuant to a license by Mastercard International. Loans provided by Lead Bank. Extra is responsible for credit reporting and reports on time and late payments, which may impact a credit bureau’s determination of your credit score. Rewards points only available with rewards plan.

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