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CREDIT
This is a major
area where newcomers feel the of immigration.
Your
Credit History – an Open Book
While Americans
guard their privacy dearly, their credit histories
become an open book immediately they apply for
credit.
How does it
work?
There are three
major credit-reporting companies in the USA.
They know how much you owe, to whom you owe, how
you pay, if you pay, and a lot more. They even
know the times you requested credit and were denied!
How is this
possible?
Any time you want
credit from lenders, you are required to provide
them with your social security number and permission
to access your credit records. In five minutes
they can get your entire credit history and evaluate
the risk of lending you money. You can drive
a $50,000 car off a car lot in an hour with good
credit or be refused a pair of jeans if you have
no or bad credit.
You can’t
get credit unless you have credit!
For this reason,
it is important to develop credit as soon as possible.
APPLYING
FOR CREDIT
The
scene is something like this. You have just opened
your checking account and have picked up an application
form for a Visa or MasterCard. You complete the
form. You answer some of the questions. Question:
Present Address. Answer: You give it. Question:
How long at your present address? Answer: Two
weeks. Question: Previous Address: Answer: Timbuktu.
Question: Present Employer? Answer: ABC Corporation.
Question: Length of Employment? Answer: One week.
Question: Citizenship? U.S. or other? Answer:
Other. Question: Name, address and phone number
of nearest relative not living with you. Answer:
Joe Bloggs, Timbuktu. Question: Other credit references?
Answer: None. You mail in the application and
soon you receive the denial of credit. How do
you get a credit card?
TIP:
Finance
any purchase. Even if you are willing and able
to pay cash for a car (new or used), finance
it. Negotiate a loan from a bank:-
Offer
to pay a large deposit. Offer to make a fixed
time deposit (certificate of deposit “CD”),
with the bank as security (collateral) if you
default on the balance. Now the bank has your
car and CD, which is under their control as
security for the loan.
If
you have a friend or family member with good
credit, they can guarantee the loan. This will
avoid using a CD as collateral.
Pay
your monthly installments on time and you will
have a credit history after a few months! You
will also accumulate interest on your CD.
Financing
a Car
(usually the first major purchase)
When shopping for
a loan to buy a car, one is faced with alternatives.
A Bank Loan
Different banks
will offer different interest rates for a car
loan. If you are new to the country without an
established credit record, a bank loan may be
a problem. You may be able to obtain credit by
reducing the lender’s risk. Invest in a
Certificate of Deposit (“CD”) with the
bank and pledge that as security together with
the motor vehicle – See the above “Tip”.
Credit Union
If you are a member
of a credit union (possible through your job or
profession), the credit union may be able to provide
you with a loan at a better rate than a bank. Remember,
credit unions can be excellent sources for other
types of financing too.
Car Manufacturer
Loans
This is where a loan
is arranged through a car manufacturer like Ford
or General Motors. Sometimes manufacturers offer
special rates or other incentives to promote sales.
You will need someone to co-sign if you do not have
a credit record.
Dealership Contract
The local car dealer
where you purchased the vehicle might write a
credit contract with you that will have a higher
interest rate than you would pay through a bank
or credit union loan. The dealer will then sign
over the contract to the bank, which assumes the
obligation of collecting the monthly payment from
you. The interest is usually much higher than
bank loans. You may need someone to co-sign.
Even if you do
not have a credit history and the purchase of
a motor vehicle is your first attempt at credit,
shop around. Banks want to lend money. If there
is any way that you can provide them with sufficient
security, they will do a deal with you. On the
other hand, if banks are not prepared to loan
you money, the auto dealer who is looking at the
benefits of a sale in his business and is not
regulated by banking rules of credit worthiness,
may well sign you up and you will be on your way
to establishing a credit record.
Financing a House
(Also
see EasywayUSA “Housing”
for a more comprehensive discussion).s
Choose
a real estate broker who has experience working
with newcomers. They understand the problems of
finding financing for a buyer who does not have
an existing credit record and can refer you to
appropriate lenders. There are many lending institutions
that are willing to lend money to people who do
not have an existing credit track record in the
United States and will do so on competitive terms.
An inexperienced broker, after securing the sale,
may merely turn you over to a mortgage broker
who does not have experience in securing loans
for newcomers.
Mortgage
Brokers
Mortgage
brokers shop for loans for you. As a newcomer,
without a credit history, you may have to pay
more for your loan. Shop around for a loan.
Consider approaching a lender directly with documentation
and give reasons why you are a good credit risk.
Preparing a Loan
Application
Bring
income and credit records from your old country;
also balance sheets from your foreign business.
If you have projections for your U.S. business,
include them. If you are on a job, get a letter
of employment from your employer. Obviously,
you will be in a far better position to qualify
for a loan if you have already filed U.S. tax
returns and have established a credit history
in the U.S.A. Lenders will tell you what they
are prepared to lend, and what amount they require
for a deposit when you seek approval of a loan.
Lenders may require a larger down payment and/or
charge more points if you do not have proof of
income and existing credit rating. Remember,
everything is negotiable in the United States.
Financing
a Business
(Also see EasywayUSA
“Business”)
Who
are you and why should you be trusted?
This
obviously takes time, but here are some pointers:
a)
People need to know that you are serious. If
you are “just looking” to buy a business
while on vacation, you will not have the same
credibility as someone who has arrived. A short
lease on an apartment/condo with your own telephone
number tells sellers that you are serious in your
intention to buy a business. Business brokers,
friends and associates identify you as a real
and immediate prospect.
b)
Joining a Chamber of Commerce, trade or professional
association and attending meetings show that your
long-term plans are directed to the U.S.A.
c)
Finance the purchase of a car (new or used) even
if you can afford to pay cash. If you have a
friend or relative who will co-sign the purchase,
that will make it easier. Otherwise, you should
invest in a certificate of deposit with a bank
and get a loan, using both the car and the certificate
as collateral. Ownership of a car shows greater
commitment to the U.S.A. while financing it develops
your credit.
d)
Start your credit history as soon as possible.
e)
Ownership of a house can help you get a Small
Business Administration (SBA) Loan to buy an existing
business. However, check out our “Housing”
section for some thoughts on whether to buy or
lease a home when you first arrive in the U.S.A.
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