Please be sure to read the disclaimer notice below! Last update: Monday, May 28, 2007

Credit Card and Mortgage FAQ for new arrivals

Many things in the USA require a credit card. How can I get one?

There are several ways of getting a credit card. The best and most desirable one is to get an unsecured credit card. An unsecured credit card is essentially a loan. But the credit card companies do not like to give loans to people they know nothing about - people who have just arrived in the USA from another country. After all, they want to be sure that you will be paying them back!

You can also get a secured credit card. A secured credit card is just like an unsecured credit card, but the credit card company will require you to open an account, often a CD (Certificate of Deposit) at the same time. If you don't pay the credit card as you are supposed to, they will help themselves to the CD, so there is no risk for them. You often have to ask the credit card company about such offers, as they are often not advertised. If your application for an unsecured credit card is declined, try calling them and ask about a secured card!

The third kind of credit card you can get is not really a credit card at all because it is not linked to a loan. It's called a prepaid credit card. With a prepaid credit card, you pay a certain amount of money up front. When you use the credit card, the bank will reduce your balance. Once the balance reaches $0, you have to either refill, or you have to stop using the credit card.

Prepaid cards may not work everywhere! In particular, car rental companies will typically insist on seeing a regular unsecured or secured credit card (you can still use a prepaid credit card to actually pay).

Also be aware that, if you lose a prepaid credit card, it's just like losing the money on it! Regular credit cards provide far more protection.

The fourth kind of credit card is also not really a credit card. It is a debit card. Debit cards are similar to ATM cards in that they access your checking account directly, so there again is no loan involved. Unlike ATM cards, you can use a debit card in most stores that accept any of the big credit card names (some stores also accept regular ATM cards). Many banks nowadays automatically give you a debit card when you open a bank account. Hint: ask them to give you a regular ATM card instead, and do not accept the debit card.

Debit cards may not work everywhere! In particular, car rental companies will typically insist on seeing a regular unsecured or secured credit card (you can still use a prepaid credit card to actually pay).

Also be aware that if your debit card is stolen, the thief can use it to empty your bank account before you even know it's gone. For this reason, I consider debit cards the riskiest type of payment card.

When opening a checking account, ask your bank to give you a regular ATM card without debit card feature instead!

I want to buy a car, and have been asked if I have "good credit". What does that mean?

Simply said, good credit means that you have a track record of paying your bills on time.

To track this, there are three companies (Trans Union, Experian and Equifax) called credit bureaus. Virtually anybody in the USA who loans you money, rents you a home or gives you a job will check with them about your debts, and conversely also will report back to them about how much you owe and whether you paid everything on time.

Unfortunately, when you just arrive in the USA, the credit bureaus do not know anything about you at all. This is actually considered the worst of all credits, often considered worse than having been late!

How do I get good credit?

Good credit means, getting positive information about yourself into the credit bureau's files. You do that by paying all your bills on time, and by taking out loans (carefully, you don't want to go bankrupt if you can't pay the loans!)

There is a catch-22, of course: it is difficult to get a loan if you don't already have good credit!

Fortunately, there are some lenders who will give you a loan even with bad or no credit. Be careful. There are many fraudulent or predatory lenders out there! Three good ways of starting a good credit report are:

Buy a car. Even if you can afford to pay cash, buy the car on credit. Be prepared to pay a very high interest rate - think of it as the price for getting a good credit record. Do check around with banks and other places before you start shopping so you know what interest rate you should be getting.
Get a secured credit card. After you have made your payments regularly on time for a while (maybe a year or two), the credit card company may offer you an unsecured card, and that will go a long way towards establishing good credit.
Make sure you pay all your bills on time! If you don't, any other effort is in vain.

I saw an offer for "credit repair" that claimed they could get me good credit for a fee. Should I do that?

NO! This is a well known scam. Stay away from such credit repair companies as far as you can.

Often, they say that they will remove bad items from your credit report "no matter how long it takes." That's an easy promise to make. It usually takes seven or ten years. After that time, anything disappears from your credit report anyway, without the "credit repair" company doing anything. They will basically charge you for waiting seven to ten years. You can do that by yourself!

There are other types of credit repair scam that go even further into the area of fraud or crime. Don't do it!

I would like to buy a house. How can I get a mortgage before I established good credit?

There are several ways. Of course, if you have the money, you can always pay cash for the house. But that's rarely an option.

You can ask your real estate agent to specifically find you a house where the seller is willing to give you a mortgage. Sometimes, this is called "seller will carry." In this case, you don't get the mortgage for the house from a bank, but rather you pay the seller some amount every month. Sellers are often individuals and may not always check your credit as carefully.

You can also get a mortgage specifically for people with bad credit. The interest rate may be higher, and you may also have to pay more fees up-front.

This web site is provided as a public service and not intended to establish an attorney client relationship. Any reliance on information contained herein is taken at your own risk. I made an attempt to provide somewhat accurate information as of the time of this writing, but the situation may well have changed by the time you read this. I am not a lawyer. I have no legal training. Please, if in doubt, be sure to use the services of a professional lawyer whom you trust. Keep in mind that there are no guarantees in immigration law. Most decisions are discretionary in nature, and even a competent immigration lawyer cannot guarantee success.