Immigrating to the United States takes a lot of work.
You need to meet a number of requirements, fill out stacks of paperwork, and deal with all of the red tape involved.
Recently, the Department of Homeland Security (DHS) has proposed additional rules for immigrants to the United States who want to extend the length of their stay in the country or change their status, for example, by becoming a permanent resident.
One of the proposed changes includes the Department of Homeland Security requesting a copy of your credit report.
This means that people with poor credit scores might have more difficulty qualifying for an extension of their visa or a green card.
What Does This Mean for Immigrants?
Currently, immigrants who apply for an extension or a change in status have their financial status and other aspects of their life assessed by the Department of Homeland Security.
When you applying to become a permanent resident, the DHS might look at:
- financial resources available
The idea is that you should be able to show that you’ll have a way to support yourself during your stay in the United States
Adding credit scores to the mix is an extension of this.
Those with poor or no credit won’t be automatically disqualified from getting a green card or an extension on their stay in the U.S., they will find it more difficult than in the past.
The new rules will cause the use of programs like food stamps and housing vouchers to be considered during the application.
The Department of Homeland Security estimates that these new rules could cause 2.5% of immigrants who are eligible for programs like food stamps to avoid applying for those programs due to fear that it could affect their application for a green card.
It also makes the process of applying for a green card longer and more difficult.
Current government estimates state that filling out the form that demonstrates financial self-sufficiency would take about four and a half hours.
Immigrants who don’t have a credit score might be required to show “evidence of regular and timely payment of bills.” This could make the application process even more difficult.
What is a Credit Score?
Given the importance of your credit score, both in your financial life and in your green card application, you should take some time to learn about how credit scores work.
The FICO score is the industry standard credit score used by the vast majority of lenders. It’s what people are talking about when they say “credit score.”
The best way to have a good credit score is to always pay your bills on time and to keep your debt balances as low as possible.
Those two factors alone account for nearly two-thirds of your credit score.
You should also try to avoid closing old accounts or credit cards unless they charge an annual fee.
Avoid applying for new loans or credit cards unless you really need them, as that can also drop your score.
How to Improve Your Credit Score if You Have Bad or No Credit
If you don’t have a credit score and want to start building one, there are a few steps that you should take.
The good news for immigrants is that these steps are no different than the steps that anyone else should take to start building credit.
Secured credit cards
Credit cards are one of the easiest ways to start building your credit score.
They’re simple tools that you can use to make everyday purchases. So long as you pay your bill in full every month, you’ll never pay any interest and your credit report will fill up with good information. Some cards even offer cash back or travel rewards.
The problem is that many lenders are hesitant to give a credit card to people with no credit history. Some lenders offer student cards, but unless you’re a student, you might have trouble finding a card that you’re eligible for.
That’s where secured credit cards come in. These are offered by many banks and some other lenders as a way to help people build credit.
When you open a secured credit card, the lender will ask you to provide a security deposit. Then, you’ll receive a credit limit that is equal to the amount of your deposit. The lender will hold the deposit for you and you can use the card as normal.
In this way, the lender isn’t taking on any risk, but you get access to a credit card and start building a credit history.
Most lenders will give you your deposit back after a few months of on-time payments.
Others will only give your deposit back when you change the secured card to another product or close it.
Credit builder loans
Credit builder loans are personal loans designed to help you build a credit history. Typically, credit builder loans are for small amounts at relatively low interest rates.
All you have to do is take the money, put it in your checking account, and set up automatic payments. The loan will be paid down every month and your credit score will improve.
You’ll pay interest.
There are ways to build credit without ever paying interest, such as secured credit cards. You should look into those options first.
Become an authorized user
If someone who trusts you has a good credit score, you might be able to become an authorized user on their credit card. You’ll get a copy of the card and the ability to spend using the card.
The key part:
Most card issuers will also report information about the account you are an authorized user on to your credit report.
This means that you can start building credit without ever having to apply for a credit card or loan.
Just make sure that the person who makes you an authorized user has good credit themselves.
How to Improve Your Credit Score if You Already Have Credit
If you already have access to credit, there are a few strategies for improving your current score.
Ask for credit limit increases
One component of your credit score is the amount of money you owe. One aspect of this is what is called your credit utilization ratio.
Your credit utilization ratio is calculated by dividing your total debt from your total credit limits across all your accounts.
So, if you have three credit cards with a combined balance of $500 and combined a credit limit of $5,000, your utilization ratio is 10%.
If you go on a spending spree and increase the balance to $3,000, your ratio will be 60%.
The less you owe, the better your credit score will be.
Similarly, the lower your credit utilization ratio is, the better your credit score will be.
One way to improve your utilization ratio is to increase your credit limits. You can ask your card issuers to give you a credit limit increase.
Many will be willing to do so if you have shown that you’ll pay your bills on time.
Remove derogatory marks from credit reports
Whenever you’re working on improving your credit score, you should request a free copy of your credit report from AnnualCreditReport.com.
This site gives you a free copy of your credit report from each credit bureau once per year.
Go over your report to see if there are any derogatory marks, such as late or missed payments.
If they’re there by mistake, take steps to get them removed.
If the accounts truly belong to you, contact the lender and ask what you can do to get the marks taken off your report.
Address Past Delinquencies
One thing that can really drop a credit score is delinquent accounts. If you have a credit card you haven’t paid in a few months or a year, your score will drop by a large amount.
You can improve your credit by getting these accounts out of delinquency.
Contact the lender and ask to set up a payment plan so you can start paying the balance down.
You can also try asking for a "pay for delete" option where you can try to pay off an old debt and have it removed from your credit report.
While your credit won’t be perfect after you deal with delinquent accounts, it will certainly improve.
With credit reports possibly becoming part of immigration applications, making sure you have a good credit score has never been more important.
Use these tips to start taking steps to build good credit.
The sooner you get started, the better, as the best way to build your credit is to build a long history of making timely payments on your bills.