How to Build Credit History When You Have Insufficient Credit History

Moving to the US after living my entire life overseas presented certain unexpected challenges.

One of them was credit issues – I had specifically opened a credit card over a year earlier to start building credit, and my credit score was actually excellent.

However, when I actually landed and started applying for credit, I kept getting rejected on the grounds of “insufficient credit history”. Basically, one credit card is not enough, nor is one year really enough. Banks want to see lots of lines of credit running for a long time.

So I became kind of an expert on working to build my credit, while getting screwed over with bad interest rates along the way. In this post, I hope to transfer some of this experience on to you to help you avoid some of the mistakes and heartache I experienced along the way.

Start ASAP

Try to do as many of these tips as soon as possible, because your total credit history represents the average of all your accounts together. So if you have an account open for a year and then open another one, you’ll have two accounts – open for half a year. You don’t want that, so the more balls you get rolling at once the faster you’ll have time working on your behalf.

For the same reason, don’t close your older accounts because this will erase a big chunk of your history.

I hope you can apply as many of these tips as possible in advance, while still overseas or before you actually need the credit. I dread to think what would have happened if I hadn’t opened my two credit cards before landing in the country.

  1. Open Multiple Secured Credit Cards

Secured credit cards usually mean you pay money in advance to the credit card company and basically draw upon the money you already paid when you spend. This means there is no risk to the credit card company, and they have no reason not to let you open a card.

I opened a USAA card that didn’t require a down payment, but instead charges me a yearly fee, which isn’t great, but it’s served its purpose.

Most people will tell you to open one secured credit card, but I don’t see any reason not to open multiple ones at once to add diversity to your account.

You can use one as your primary card, but put a few small charges on all your cards and pay them off in full to create movement in your accounts. For example, you could fill up gas with a different credit card each time, put a Spotify or Netflix subscription on them.

2. Open an account with Self Lender

When looking at your credit history, the bureaus want to see multiple types of credit – not just credit cards, but also loans and such. Self Lender is a cool platform I use for this.

Basically, they take out a CD on your behalf, effectively lending you the money to buy this investment but holding on to it, so there’s no risk to them. Then, for the next 12 months, you make monthly payments to pay back your loan, at which point they release the money back to you.

It’s basically a fancy way of lending money to yourself via a third party, but it gets the job done of having a loan on your credit report. Self lender charges some fees for this service, so you end up losing some money in the process, but spending money to build credit (and save a lot more money in the long run because you have a better score) is kind of the name of the game.

3. Open unsecured credit cards

After 3-6 months of having your secured credit cards and self lender account, you should start building some credit history. Of course, you should always pay your credit card bills in full every month.

You can now start applying for unsecured credit cards. Which card should you apply for? Ultimately, you’d want to apply for a card with the best rewards for your needs, such as the Capital One business 2% cash back or a Chase card with travel rewards.

But starting out, beggars can’t be choosers, and you should apply to any card that you think has the greatest chance of approving you. Getting rejected after a credit application is a sucky feeling, and the credit inquiry will have a (small) negative impact on your credit score without the reward of an additional line of credit.

 

Go for easy wins

Start with your bank, or the company that issued your original secured credit card. They already have a relationship with you, and are more likely to approve you.

In fact, if you’ve been banking with them for a while, your bank may trust you enough to issue you an unsecured credit card outright. This will allow you to skip step one’s secured credit cards and go straight to unsecured ones.

Your banker is your best friend in this scenario, and having him apply on your behalf (which they can usually do every 6 months) greatly increases your chances of approval.

Pick up the phone

Another strategy to increase your approval odds is calling the credit cards and talking to a human. Even if you get rejected, there are actually reconsideration lines where you can call and state your case.

Case in point:

When I was trying to finance the purchase of my first car, the dealer sent out an automatic request to about a dozen financing companies. This was a pretty sucky move to begin with, because all the inqueries look terrible on my report.

Then, they all rejected me. For weeks after I got rejection letters in the mail (a legal requirement, I believe) harping on my lack of credit history.

They all rejected me, except for one. Wells Fargo had me get on the phone with them. After demonstrating my credit aptitude they agreed to finance my car – at a ridiculous interest rate. But it was that phone call that made the difference.

Present yourself in the best positive light. Be respectful, friendly, and show them you know what you’re talking about. You might just get approved.

4. Increase your credit limits

This tip is not just about credit history, it’s a general best-practice.

After opening a few credit cards, stop for a while. The inquiries will be taking a toll on your score, and each new card will be weakening the total amount of credit history, at least at first.

Now, your strategy should be to increase your credit limits on all your unsecured cards. (Unsecured cards won’t let you do this)

 

This will have more of an impact on your credit utilization ratio than your credit history, but it’s still important. Essentially, you are showing the bureaus that although you’ve been entrusted with large sums of money, you are handling yourself responsibly and only using a fraction of it.

How do you do this? Every six months, call up your credit card companies and ask them to increase your spending limit. The script goes something like this:

Hi, this is Shalom. I’ve been a loyal customer of your credit card for six months now. As you can see, I’ve been making all my payments in full and on time. I just did [random excuse] and am expecting to possibly make a few larger purchases in the next few weeks. I was wondering if you could raise my spending limit on my card?

That’s it. Just ask. If you get the raise, it’ll be added permanently to your card, at the expense of a credit inquiry.

I did this when I moved to the US, and raised my limit on my one unsecured card from $5,000 to $15,000. Now all my ongoing expenses represent a much smaller percentage of my total available credit.

There you have it. It will still take time, and god knows I hate waiting. But knowing you’ve done everything you can and that each day that passes is advancing your goal, is definitely helpful.

One final word of financial savvy advice:

Never open an interest-charging account just to build credit.

Credit cards and a self lender account have minimal yearly fees that you’re paying to build credit. So be it. If you’re paying all your credit card bills in full every month, those yearly fees will be your only expense.

But never go finance a car, or take out a mortgage just to build credit history. Similarly, don’t carry over any expenses to the next month on your credit card in order to deliberately pay interest.

I’ve been advised both those things by un-savvy people (one of them was a credit advisor!), and it’s terrible advice. Never get yourself into debt, or pay any interest that you don’t absolutely have to, just to build credit.

 

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