How DACA recipients can build credit
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The future of the Deferred Action for Childhood Arrivals (DACA) program may be uncertain, but if you’re a current DACA recipient, you can take steps now to help support your financial future. That includes working toward financial independence by building credit.
Building credit as a DACA recipient is one way to invest in yourself. An established, good credit history opens many doors, including:
- Access to higher education. Your credit history can help you qualify for student loans.
- Home ownership. You need a credit score to help you get a mortgage.
- Job prospects. Potential employers may check your credit if you’re pursuing a role in finance or a job that requires security clearance.
Beyond helping you secure your financial independence, you may find that building your credit is empowering. It may even affect your mental health. Although personal experiences vary, some DACA recipients start out their young adult lives with limited financial guidance and may not be aware that credit cards and personal loans are within reach. If you’re a DACA recipient, here’s what you need to know about building credit.
Terms to know as you start building credit
Before you begin your credit-building journey, it’s important to learn how building credit works and how it’s possible for you as a DACA recipient. For starters, here are some key terms to remember.
A credit score is a number calculated by the three credit bureaus — TransUnion, Equifax and Experian — that measures how likely you are to meet your credit payment obligations. Lenders use it to determine whether they want to approve you for a credit card, loan or mortgage. When you build credit responsibly, it’s reflected in a higher credit score.
Social Security number
DACA recipients are eligible to receive a Social Security number (SSN) and employment authorization. You can apply for both using the same application, USCIS Form I-765, according to United States Citizenship and Immigration Services (USCIS). Once you’re approved for a SSN, you can use it on credit card applications.
If, for whatever reason, you or a family member can’t get a SSN, applying for an individual taxpayer identification number (ITIN) is your next best option. An ITIN can also be used to apply for a credit card at some banks.
Take some time to familiarize yourself with credit unions, since they offer products and services that could be a good fit for you. Credit unions are not-for-profit organizations owned by members. They return any profits generated to their members, compared to banks that operate to generate profit for shareholders.
Credit unions often serve specific communities, and they’re known to take a personalized approach. For example, Hispanic-owned credit unions may accept alternative forms of identification, such as a passport or Matricula Consular, which is an identity card issued by the Mexican government to citizens living outside of the country. Juntos Avanzamos credit unions are tailored to Hispanic and immigrant communities, and they accept alternate forms of identification.
How to access and build credit as a DACA recipient
There are several different avenues for building credit, so take time to consider the approach that will work best for you. Here are the best credit-building options to consider as a DACA recipient.
Just as the name suggests, these loans are intended to help an individual build their credit history. With a credit-builder loan, you borrow money from a bank or credit union, but you don’t get access to that money up front. Instead, you make monthly payments until you’ve paid off the loan amount. At that point, you get access to the money in full. Some credit-builder loans build interest, which means your funds may have increased once you have access to them.
Credit-builder loans encourage you to save and make payments on time. These loans help build your credit because your lender reports your payments to the three major credit bureaus in the U.S. Not all financial institutions offer these types of loans, and they are more commonly available at community banks or credit unions, including Juntos Avanzamos credit unions. For DACA recipients, these loans are a credit building alternative that doesn’t require credit history or a good credit score.
As a DACA recipient, you might be the first in your family to get a credit card and navigate the U.S. financial system. If you’re interested in using a credit card to build your credit history, you should consider cards that are intended for people with low or no credit, including student and secured credit cards.
Student credit cards are for college students who want to build credit, and with some cards, start earning rewards. Rewards are typically tailored toward this demographic and their interests, such as deals on ordering out or streaming services.
You typically need to be enrolled in a two-year or four-year college or university program to qualify, but some student cards have no credit history requirement. For example, Discover student cards, such as the Discover it® Student Cash Back or the Discover it® Student chrome, offer solid rewards and don’t require any credit history. The Deserve® EDU Mastercard is another reward-earning option, and it’s available to people who have no credit history and no SSN.
Secured credit cards are an option for people who aren’t students, and they’re geared toward people with little to no credit. With a secured card, you pay a set amount as a deposit, and you have a cap on the amount you can spend with your card in any given month (usually matching the deposit amount). With good spending and payment habits, you can build your credit up over time.
When it comes to choosing a secured card, there are many options available, and some even offer rewards with no annual fee. For example, the Bank of America® Customized Cash Rewards Secured offers 3 percent cash back in a category that you choose, such as gas or travel, and 2 percent cash back on groceries and wholesale clubs, on up to $2,500 in spending per quarter. It also offers 1 percent cash back on all other purchases. Another option is the Capital One Platinum Secured Credit Card, which doesn’t offer rewards, but provides you with $200 in credit for a deposit of only $49.
Most credit card issuers have options for people to convert a secured card to an unsecured card as their credit score improves. This allows you to get your deposit back. You may also be able to access a higher spending limit and more rewards.
Most banks and credit unions, including Juntos Avanzamos credit unions, offer secured credit cards.
Becoming an authorized user
Becoming an authorized user means that you’re added to someone else’s credit card account and given your own card to use. Your and your primary cardholder’s card usage becomes a part of your credit history. With responsible spending and payments from both parties, you’re on your way to having your own credit card. This is an option if you don’t want to have your own credit card, and you know and trust someone who is willing to add you to their account. If you’re interested in this approach, it’s important that you trust the primary cardholder and they have a history of responsible credit card usage, or else their credit mistakes become your own.
If you don’t want to commit to a credit card or credit-builder loan, you still have more options to help you build credit. Alternative credit-monitoring services like Experian Boost, Experian Go, UltraFICO and eCredable Lift offer a different path to building your credit score. For example, Experian Boost adds services you already pay for, such as utilities and streaming services, to your credit report for the purpose of building your credit score.
With Experian Go, no existing credit score is needed to use the service. Experian Boost, Experian Go, and UltraFICO are all free, but eCredable Lift charges a fee.
Credit-building tips for DACA recipients
Once you get a credit-builder loan, apply for a credit card, or sign up for a credit monitoring service, it’s essential that you stay on top of your credit score. Below are a few tips to keep in mind on your financial journey.
Make on-time payments
On-time payments are important for maintaining and growing your credit score, no matter what type of credit you’re using. Make sure to keep track of your payments, whether that’s by enrolling in automatic payments or setting reminders to pay your bill on time. This will help you avoid late payment fees and credit score reductions. When it comes to credit cards, paying your full balance on time will also help you avoid interest fees.
Check your credit report
You can check your credit report through AnnualCreditReport.com, which lets you pull a free credit report from each of the bureaus every 12 months. Checking your credit score helps you keep track of your credit-building progress. You’ll also get a better understanding of what lenders and card issuers see when they run credit checks on you for loan or credit card approvals. It’s important to check your report every so often to maintain a healthy understanding of your credit score.
When you start out building credit, you shouldn’t overdo it. If you’re able, try to stick to one type of credit, such as a loan or credit card, rather than stretch yourself too thin with multiple lines of credit. This way, you can keep better track of your payments and focus on building and maintaining a good credit score. Once you feel confident in your credit score, you can start looking into expanding your credit usage.
Watch your credit utilization ratio
Your credit utilization ratio is a measure of how much of your available credit you’re using. In other words, it looks at how much debt you have compared to how much credit you have available. For example, if your credit utilization is 20 percent, it means you’re using 20 percent of your available credit.
This number affects your credit score, so you should keep an eye on it. If you only have one credit card, and no other debt, you can calculate the ratio by dividing your card’s outstanding balance by your total credit limit. Using $100 of a $1,000 credit limit translates to a 10 percent credit utilization ratio. Standard practice suggests that you keep your credit utilization under 30 percent.
The bottom line
If you’re a DACA recipient, you may have faced many of the same barriers as immigrants who are new to the U.S., even though you grew up here. It can be stressful to live in the U.S. without citizenship or the ability to qualify for federal scholarships or loans. That’s why it’s important to take the steps you can to support your financial future, including by building your credit. You can take out a credit-builder loan, apply for a student or secured credit card or sign up for a credit monitoring service to begin establishing your credit history. Strengthening your financial status by building credit may be an opportunity to continue building the life you want in the U.S.