How international students can build and maintain a strong credit score in the U.S.
Building and maintaining a strong credit score for international students is crucial for accessing financial opportunities during and after your studies in the United States. Unlike many countries, the U.S. has a credit score system that plays a significant role in lending decisions for housing, cars, credit cards and other money matters.
Unfortunately, your financial history from your home country doesn’t usually transfer to the U.S. – making it essential to establish a credit history as soon as possible. Keep reading to learn how to build and maintain a strong credit score for international students.
What’s a credit score and why does it matter for international students?
Your credit score is a numerical representation of your financial health. It helps lenders evaluate how likely you are to repay the money you borrow. The higher the credit score, the more confident lenders are that you’ll make timely payments on loans, credit cards and other financial obligations.
The most widely used credit scoring model in the U.S. is the FICO score. FICO scores range from 300 to 850, with higher scores indicating better creditworthiness. Several factors from your credit history reports are used to determine your overall credit score, including:
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- Payment history (35%). This is the most important factor as it shows whether you’ve made timely payments on your credit cards, international student loans and other debt.
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- Amount owed (30%). This factor looks at the total amount of debt you have compared to your available credit. So, it’s important to keep your credit account balances low to maintain a healthy score.
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- Credit history length (15%). Lenders prefer borrowers with a longer credit history as it shows you have experience managing debt. This is why you’ll want to start building your credit history early in your study abroad journey.
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- Types of credit (10%). Having a diverse mix of credit – such as student loans, retail accounts and credit cards – is ideal for showing you can manage different kinds of debt responsibly.
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- New credit (10%). This factor evaluates whether you’ve opened multiple new lines of credit in a short period. Too many credit applications are generally viewed as risky behavior.
Having a good credit score for international students means greater financial freedom. It can help secure rental housing and car loans. In addition, it can also open the door to better terms for financial products like credit cards and personal loans. Ultimately, a strong credit score can help give you the ability to build long-term financial security in the U.S.
How can an international student build credit in the U.S.?
Building credit in the U.S. can be challenging for international students. The key is to start early and take intentional steps to not only establish but maintain a good credit score. Here are some smart ways to build a good credit score for international students:
- Open a credit card. Start by applying for a secured credit card, which requires a refundable deposit (e.g., US$500) as collateral in exchange for an equivalent line of credit. Alternatively, consider opening a student credit card, which is designed for new credit users. Note secured cards often have low credit limits and high interest rates.
- Become an authorized user on a family card. As an authorized user, you can benefit from the cardholder’s positive payment history. However, any negative payment behavior on their part can also impact your credit score.
- Pay bills on time. This is one of the most effective ways to improve your credit score. Setting up automatic payments for recurring bills like rent, utilities and phone services is a great way to ensure you don’t miss a payment.
- Monitor credit reports. Regularly review your credit reports from Equifax, Experian and TransUnion to stay on top of your credit progress and to catch errors or fraud early.
- Consider making in-school payments on student loans. Making interest-only payments while you’re in school can help to build a positive credit history and show other lenders that you’re responsible with managing debt.
- It’s important to always use credit responsibly. Ideally, you want to keep your credit utilization low (e.g., only use under 30% of your available credit) and avoid applying for too many credit accounts in a short time. Above all, never treat credit as free cash to prevent any debt from spiraling out of control.
Building a financial foundation for your future in the U.S.
We understand building a credit score for international students comes with many hurdles. That’s why MPOWER Financing offers features like automatic payments (includes a 0.25% interest rate discount) to help you stay on top of your student loan payments, in addition to our free career support training and tools for internship and job search.
