Credit Builder Loans for Non-US Citizens

Key Takeaways

  1. A person's credit score indicates their lending risk, influencing loan approval and interest rates.
  2. Non-US Citizens' often struggle with building credit due to language barriers and no US credit history.
  3. Credit builder loans offer a way to demonstrate creditworthiness and improve future loan terms.
  4. Secured credit cards and being an authorized user on another's card are alternatives for establishing credit.
Credit Builder Loans for Non-US Citizens

I. Introduction

Many non-US citizens or recent immigrants have trouble building credit in the United States. Even if you have a history of paying loans on time in another country, your financial record typically doesn’t transfer to the US. This can be frustrating, since it’s very difficult to get a loan without a good credit history, and it’s simultaneously difficult to build a good credit history if you can’t get a loan.

One option for non-US citizens in this situation is a credit builder loan. This is a unique type of loan typically used by people who do not have a lengthy credit history and wish to build one.


II. Understanding Credit in the United States

For non-US citizens, the credit system in the United States may be complicated. However, the general concept is that a person’s credit score represents their level of risk to lenders. Those who have good credit are less risky and, therefore, more likely to be approved for loans and receive favorable interest rates. Those with bad credit will have a tougher time getting a loan and are subject to high interest rates.

It is also possible to have no credit, a situation in which many non-US citizens find themselves, especially if they are new to the country.

When you use credit (such as a credit card, personal loan, line of credit, etc.), the information associated with the loan is reported to the major credit bureaus: Experian, Equifax, and Transunion. These bureaus keep track of how many credit accounts you have, when you opened these accounts, the amount of credit you have available, whether you have kept up on payments, and more.

The information in your credit report is used to generate a credit score. A credit score is a three-digit number between 300 and 850, with higher being better. Typically, a score over 700 is considered good.

Your credit score is important for many reasons. As mentioned, if you have a good credit score, it is easier to get credit. However, a poor credit score won’t just make it tougher to get credit, it may also make it more difficult for you to rent a home or even get a job. Therefore, if you have poor credit or no credit, it is important to build and improve your credit score.

III. Challenges for Non-US Citizens

While establishing credit is important for everyone, non-US citizens encounter unique challenges. One potential issue is the language barrier. If you have limited English proficiency, it may sometimes be difficult to access banking and credit services and to read information that may help improve your financial situation. This leaves many people vulnerable to predatory or even fraudulent service providers.

However, perhaps the most significant issue is the lack of credit history. Before lenders are willing to trust you, you need to show that you have a lengthy history of borrowing money and paying it back on time. Unfortunately, banking and financial activity from other countries typically doesn’t count in the United States. A strong financial history in another country won’t help you in the US.

It takes time to build a credit history, so non-US citizens who are relatively new to the country need to spend time building their credit. This means that, in the meantime, it can be difficult to get loans. If it is difficult to get a loan, it’s also difficult to show that you can pay it back. As a result, many non-US citizens feel stuck. They can’t get a loan until they build a credit history, but they can’t build a credit history because they can’t get a loan.

However, there are options available for people in these situations. One of them comes in the form of credit builder loans.


IV. Role of Credit Builder Loans

A credit builder loan differs from a traditional loan. Unlike a typical loan that gives you immediate access to the money you’re borrowing, you instead make regular payments until the amount of the loan (plus interest) has been paid. You then get access to the loan amount.

This gives you the opportunity to show you can make regular loan payments at very little risk to the lender. In many cases, there is a strong benefit to credit builder loans for non-US citizens. Since more traditional loans may not be available to you, a credit builder loan can be a great way to build a credit history.

V. Benefits of Credit Builder Loans for Non-US Citizens

A credit builder loan gives you the opportunity to demonstrate that you can make regular payments on time. As you do this, your credit score improves as long as the lender reports these payments to the credit bureaus.

Lenders are more likely to give someone with no credit history a credit builder loan, since they incur very little risk because you only receive the money after you have made all the required payments.

As you improve your credit, not only will it become easier to get future loans, but you should be able to get more favorable interest rates, too.


VI. How to Apply for a Credit Builder Loan

A credit builder loan is typically easier to get than many other types of loans. Many lenders do not check your credit score when you apply for credit builder loans. However, you will be required to provide identification, proof of employment, and proof of income. You may also be asked for information about your bank account, such as your balance. If you are eligible for a Social Security number (SSN), you may be asked for this information as well.

Many different lenders offer credit builder loans, including banks, credit unions, online lenders, and others. When looking for a loan, it’s important to understand the details, as not all loans are created equal. Different loans have different fees, payment schedules, and more. Read our credit builder loan review for more information.

VII. Tips for Using a Credit Builder Loan Responsibly

One of the most important aspects of any loan is making timely payments. While establishing a strong credit history typically takes quite a while, it only takes one or two missed payments to damage your credit score.

On-time payment is especially important with a credit builder loan, since the purpose of this type of loan is to improve your credit score. Making payments late goes against this goal and hurts the entire process. Don’t work against yourself. Make payments on time and use this to build your credit score.

Another factor used to calculate your credit score is credit utilization. This refers to the percentage of your credit limit you are using. Lenders want to see that you are only using a portion of your available credit. Using almost all the credit available to you indicates you may be having financial difficulties. Therefore, the preferred credit utilization is less than 30%. This means that if you have $10,000 in available credit, you should aim to use less than $3,000 of that available credit.

It’s also important to regularly monitor your credit score. This helps you know how you are progressing and will motivate you to keep going. If you see your credit score improving due to your actions, you’re likely to want to keep going to build an even better score.

shutterstock 1978169000

VIII. Other Ways Non-US Citizens Can Build Credit

A credit builder loan is not the only way that non-US citizens can build credit. Another option is called a secured credit card. Similar to credit builder loans, secured credit cards allow you to build credit by making regular payments. However, the actual process is quite different.

With a secured credit card, you pay a deposit which the lender holds as collateral. You then receive a credit card. In most cases, the limit on the credit card will be the same as the amount of the deposit. Therefore, if you put down $500, you receive a credit card with a $500 limit. Once you have the card, you can then use it like a regular credit card. You can make purchases and you will receive a monthly bill. By making payments on time, you can build a credit history. However, if you default on your payments, the lender keeps your deposit.

Since a secured credit card is backed by your deposit, it is easier to get than a traditional credit card. Therefore, it may be an option for those who are unable to get a regular credit card. However, secured credit cards often come with various fees attached to them, so this may be an expensive way to build credit. Also, like a traditional credit card, interest rates are often very high. Therefore, if you’re not able to pay off your balance in full each month, you may be hit with high interest charges.

Another way to build credit is to become an authorized user on someone else’s credit card. In this situation, another person allows you to make purchases on his or her credit account. This situation is common for spouses or parents helping their children build credit histories, but the same process can be used by anyone who has no credit and wishes to build their score.

Once you become an authorized user, you receive a credit card connected to the primary user’s account. You may use this card to make purchases, but the primary account holder is responsible for making the payments. If both you and the primary account holder use the card responsibly, it will help you build credit. However, you need to make sure that the card provider reports activity from authorized users to the credit bureaus.

If you’re not able to get a loan (and are therefore unable to build a credit history), then you may want to consider having someone cosign your credit application. In this situation, someone who has good credit signs an agreement with you. You can then leverage that person’s credit to get a loan. However, the cosigner must promise to pay off the loan if you do not. Therefore, you want to make sure that you both understand the situation and that you have a plan to pay off the loan.

IX. Conclusion

Your credit score is important. If you want to buy a home or car or start a business, you need to be able to get a loan at the lowest possible interest rate. That means you need to have good credit. Good credit is also often necessary to rent a home or even get a job. Credit builder loans are a good option for those who do not have an established credit history in the United States.

However, it’s important you act responsibly to manage any debt you incur. While credit builder loans differ slightly from more traditional loans, they are still loans. You still need to make payments regularly and take care to avoid overextending yourself financially. However, if you’re able to do this, you can improve your credit situation and make it easier to get loans in the future.

To a non-US citizen or anyone else new to the country, the US credit system may not only seem complicated, but it may also feel difficult to establish yourself within it. The reality is that those who have built up credit in the United States for a long time are more likely to have a good credit rating. However, that does not mean that you cannot build your credit on your own. If you learn the system, monitor your credit score, and make payments on time, you can establish good credit. A credit builder loan can help. If you’re interested in getting a credit builder loan to build your credit score, click here to view our credit builder loan review or go directly to a credit builder loan provider.

About The Author

Author Avatar

Bryan Huynh

Product Tester & Writer

Bryan Huynh, a committed Product Tester and Writer, ensures that you are well-informed, guiding you in discovering and comparing top-rated financial services, including personal loans, business loans, credit repair, and tax relief.

Articles Related to Credit Builder Loans