5 years ago, I wrote on this topic on another blog of mine (fond memories). It was helpful for my friends back then, and I imagine it’s going to be helpful for our international friends who are building credit from scratch. 5 years has changed a lot of things; many credit cards I recommended back then have changed terms. The target audience has changed too, so I have modified my recommendations. Here’s the updated version:
I have written this guide as a balanced approach to building credit if you are starting out. It is not intended to give you the maximum credit score, since that would require that you know perfectly how to manage credit from the beginning, an unrealistic expectation. If you follow this guide, at the end of the first year you should have a solid credit history that would allow you to get approved for most credit cards and obtain reasonable interest rates on auto loans.
Day 1: get your very first credit card. You likely do not have a Social Security Number, and as such have limited options. The Deserve EDU Credit Card is your best bet. At the same time, go to a Bank of America location to open an Advantage Plus checking account. As long as you maintain a $1.5k balance you will not be paying a maintenance fee. Having a BofA checking account is crucial for month 4.
For the next 3 months, learn how to manage credit. Figure out the statement balance date and the due date. Link your credit card to an online account and set up automatic payment so that you will never miss a payment; remember to select the option to pay the full statement balance to avoid paying interests. Also go to your online banking account, and set up your credit card as a payee to gain better control over payments.
Pay your credit card balance a few days before the statement closes to minimize the reported balance. If you wish to pay more than the current balance, you’ll need to go to your online banking account; otherwise, you can pay from either your credit card online account or your online banking account. Switch all your purchases from your debit card to this credit card. The more you use your credit card, the more likely you will get a credit limit increase later.
Month 4: get your second credit card. By this point you should be rather familiar with how to manage a credit card. But two credit cards will seriously accelerate the credit building process. The BankAmericard Credit Card for Students is the perfect choice for this stage; from what I’ve heard, Bank of America is the only major bank that allows international students without an SSN to open a credit card with them. In order to get a BofA credit card, you may need to have a banking relationship with them first. This is why I advised you to open a BofA checking account from Day 1. If the BofA representative doesn’t let you open a credit card quite yet, inquire about a secured credit card where you put down a deposit to be your credit limit.
Learn the habit of letting only one credit card report a non-zero balance: pay off the balance on the Deserve card a few days before the statement closing date and don’t buy anything with it until then. For the BofA card, if the balance seems too high relative to the credit limit a few days before the statement closing date, pay it down, but not all the way down. If all of your credit cards report zero balances, your credit score will be penalized.
Month 7: request a credit limit increase. Bank of America can give you a very generous credit limit increase if you have demonstrated a good payment history. In addition, the Deserve card may have given you an automatic credit limit increase, but the increase will be small. With a higher credit limit, you don’t need to micro-manage your credit cards anymore since your credit limit can cover most of your purchases. Simply set up an automatic payment so that your bank will automatically pay off your balance before it is due. But still have only one card report a positive balance; the easiest way to do this is to alternate card usage: use one card in one month and use the other card in the next. If your Bank of America card is a secured card, you cannot request a credit limit increase on this card quite yet.
Month 10: get your SSN. By this time I assume you will have started your summer internship and got an SSN. The first thing to do is to report your SSN to Bank of America and Deserve so they can link your SSN with the credit history you have with them. You want to wait a month or two for the linkage to happen.
Month 12: get your first Chase or American Express card. By now you will have had a solid credit history with 2 credit cards. You want to get a “premium” credit card to make it easier to get other premium cards in the future. For Amex, I’m a fan of the Amex Everyday Credit Card. For Chase, I recommend the Chase Freedom Unlimited.
Again, repeat the process you used for the first 2 credit cards, and let only one of your cards report a non-zero balance.
If you opened a BofA secured credit card at Month 4, the card should have “graduated” by now and become a regular credit card, returning your deposit. If not, call BofA to request an early graduation (see what I did there?).
At the end of the first year, you now have 3 open credit cards with no annual fees and a FICO credit score in the low 700’s which would allow you to get just about any credit card on the market. At least one of your open cards should have $3,000 or more in credit limit. Your credit history is better than most with 1 year of experience.
This guide was built based on my personal experience and the knowledge I gathered in the 2 years of research I did back then and some additional research I did recently. If you have ways to get an SSN earlier, such as taking a low-commitment job at school or doing a part-time internship during the first, you can ditch the Deserve card and go with the Discover Student instead. The end result is the same: 3 open cards without annual fees at the end of year 1.
5 years ago the ideal route was to start with a secured credit card, but banks have relaxed their lending requirements over time, making it easier to get regular cards even with a very short or non-existent credit history. I started out with a Bank of America secured credit card, and it took me almost 3 years to get a FICO credit score near 800. I have the solid foundation I built in my first year to thank. Be patient and disciplined, and you’ll get there too.
Let me know if you have any questions or comments.
-Richard
Richard Anderson 