U.S. Credit System: Everything Immigrants Need to Know

By September 29, 2022 April 12th, 2023 uLink Blog
Woman holding credit card

Credit is a powerful financial tool.

It’s what helps you get the things you need now (like an auto loan or a credit card), with the contractual obligation that you’ll pay for it later.  

The U.S. credit system is founded on that agreement.

And yet, while credit plays a critical role in our financial lives, many Americans don’t fully understand the U.S. credit system, how it works, and more importantly, how they can successfully build and improve their credit standing. 

If you recently immigrated to America, it’s especially important to understand the ins and outs of credit so you can use it to strengthen your financial future. 

Here’s everything you need to know about credit:

Credit Reports & Credit Scores: Explained

There are two essential credit-related terms to grasp: credit reports and credit scores

Your credit report is basically a list of your documented payment history, any loans or mortgages you might have, etc. It’s compiled by the three major credit reporting bureaus: Experian, TransUnion, and Equifax.

For example, if you have auto loans, student loans, and a mortgage, each of those credit products (and your associated payment history) will be listed on your credit report. 

Then, there’s your credit score, which is a simplified version of your credit report. 

In most cases, credit scores come in the form of a three-digit number from 300 to 850 that lenders use to assess your credit-worthiness.  

Generally speaking, scores under 580 receive a “Poor” rating that “demonstrates to lenders that the borrower may be a risk,” while scores over 670 are considered to be “Good,” and therefore “demonstrate to lenders that the borrower is very dependable.” 

Your credit score is determined by five defining factors:

  • Your payment history, or how consistently you make payments on time. This accounts for 35% of your total score.  
  • Your credit utilization ratio, or how much money you borrow against your total credit limit(s). This accounts for 30% of your total score.  
  • Your length of credit history, or the average age of all your individual accounts. This accounts for 15% of your total score. 
  • Your credit mix, or how many individual credit products you currently have. This accounts for 10% of your total score.  
  • Your use of new credit, or how many lines of credit you’ve recently opened. This accounts for 10% of your total score.

If you recently immigrated to the United States, you will likely be starting your credit journey from scratch.

While some companies can help translate international credit data to a U.S.-equivalent score, your overseas credit history will most likely remain in its country of origin. 

According to Experian, matters of legal precedent, differences in reporting, and technological limitations are the three main reasons why “credit histories do not follow you when you move to the U.S. [from other countries].”

Accessing Your Credit Report

Remember that Experian, TransUnion, and Equifax are different companies, and as such, their credit reports may vary. According to federal law, you are entitled to one free credit report from each bureau every year. 

When you request your credit reports, take the time to compare each iteration and highlight any discrepancies or errors.

To dispute potentially incorrect information, contact the credit reporting companies directly here

The Benefits of “Good” Credit 

Why is it so important to have strong credit? 

For one thing, having “good” credit means you’ll be more attractive to lenders. 

On a practical level, that means you’ll be more likely to get the loans you need to live your life the way you imagined. 

The higher your credit score, the broader your access to financial products.  

Generally speaking, consumers with scores in the mid-to-upper 600s are typically recognized as “prime” borrowers and qualify for higher credit limits, higher loan amounts, and lower down payments. 

And while “good” credit often translates to greater access to loans, the benefits don’t end there. 

Having good credit also means you could pay less on insurance premiums. After all, many insurance companies use credit scores to determine their rates.

According to recent auto insurance studies, “poor” credit raised rates over 61% compared to consumers who had “average” credit.

Other findings affirm that drivers with poor” credit will pay over $2,500 more per year than drivers with “good” credit. 

Conversely, those with “very good” credit saw rate reductions by almost 25%. 

The facts are in: better credit can help you save significant money.

One More Thing

If you’re looking to rent an apartment, having “good” credit can be a tremendous help in two ways.

First, it can help you gain the competitive edge when you apply for a unit — especially in major metropolitan areas with byzantine application requirements. 

Secondly, having better credit can also help you get utility services without needing to put down a big deposit or find a guarantor.

As the Federal Trade Commission confirms, “Getting utility services — gas, electricity, water — has a lot to do with your credit history. The better your credit history, the easier it will be for you to get services.”

Whether you’re renting or buying a home, having good credit goes a long way. 

How to Build Credit 

Credit is important, and having “good” credit is really important. 

But how do you actually build credit — especially if you recently arrived in America?

There are plenty of avenues to pursue as you look to build credit in the U.S, including:

  • Applying for a credit card 
  • Getting a secured card 
  • Becoming an authorized user
  • Obtaining a credit builder loan 
  • Requesting a cosigner 

To learn more about these (and other) great options, be sure to check out our in-depth blog,
7 Great Ways to Build Credit in the U.S.

Note: Concerned about documentation? Don’t be! In most cases, all you will need to provide to get a credit card (or a secured card) is a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN).

How to Routinely Protect & Improve Your Credit 

Establishing and growing your credit history is a lifelong endeavor. 

Once you build a strong credit foundation, be sure to consistently practice these three tips along the way:

  • Pay your bills on time: This is the #1 way to protect your credit score.

    Never miss a payment due date. After all, payment history accounts for 35% of your credit score!  
  • Keep your old accounts open: It’s a good thing to have multiple credit accounts open at once.

    Why? Because it shows you can handle the financial obligations.

    (Note: While it’s important to keep old accounts open, refrain from opening multiple new accounts at once! Doing so will lower your average account age and your credit score.) 
  • Don’t get overextended: Financial experts advise consumers to only borrow 30% of their total available credit limit.

    For example, if you have multiple credit cards with a credit limit of $5,000, try not to use more than $1,500 each month.

    If you borrow more than that, you’ll get overextended, and your credit score will likely drop. 

Ultimately, when it comes to credit, patience is paramount. Adhere to the process, and the results will come.

Sending Money Home

While credit takes time to build, you can support your loved ones in a matter of minutes. 

With the uLink app, you can send money home in just a few quick clicks. 

And thanks to our great exchange rates and fees starting as low as $0, you can send more money than ever before.

Want to learn more? Click below to get started.

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