Building Credit History as a Canadian in the United States

You’re moving to the United States for work, congratulations! Want to rent an apartment, get a phone plan, or set up internet? You’ll need a U.S. credit score for that.  

 Misconceptions

First, let’s tackle the misconceptions. No, your Canadian credit history doesn’t transfer over. You basically have no credit and are starting from scratch. Printing out your amazing Canadian credit scores won’t help.

Given this, building credit becomes one of your top priorities as you start your new job (or school) and get accustomed to the new city you call home.

Finding a Place to Live

Finding an apartment is one of the most stressful things you’ll have to deal with. Many landlords or property managers will reject you — despite your awesome paying tech / finance / consulting job — because of your lack of credit. For them, you’re basically a giant unknown.

Worse, in cities like San Francisco and New York, you’re in a seller’s market. It’s like college applications all over again — you’re competing with people who all have competitive stats. I’ve walked by places with giant crowds, to find out that the 30–40 people were there to apply for a single apartment — all with documents and papers in hand. If you’ve house searched in San Francisco, you know what I mean.

My advice would be to find a sublease. For San Francisco, there are two good Facebook Groups (here and here) for this and it’s an easy way to vet your roommates as well. The alternative is to find a landlord who doesn’t care (most likely homeowners rather than property management companies) or be willing to put up a large deposit. I’ve even heard of landlords asking for 6 months rent, even though that’s not permitted per California Civil Code.

Getting a Phone

Let’s assume that you already have a phone and that you’ve unlocked it from the Canadian carrier (otherwise you’ll need to buy a new phone), now you need a phone plan. This is a lot easier now (in 2017) than it was before since carriers have moved towards the “no contracts” model.

You won’t be eligible for post-paid plans due to your (non-existent) credit. The only real benefits of these is additional savings (sometimes) and the ability to lease a phone (if you needed to). Prepaid plans effectively do the same job with the difference that you have to pay for the month upfront.

With most carriers, once you have about 12 months of on-time payments, they’ll allow you to move to a post-paid plan.

Alternatively, you can jump into a friend or co-workers family plan. This usually means more savings for them and you, and you won’t have to deal with carriers (your “on-time payment history” doesn’t really matter in the long-run once you have real credit history).

Internet

You can buy a modem and router from Amazon and sign up for service. You’ll need to put a deposit down — annoying but relatively straightforward. 

Planting the Credit Seed

Now that you’ve experienced the “fun” of not having credit, I’m going to give you a few quick tips on how to build credit quickly.

If you have a TD or RBC account, you can apply for a U.S. credit card using your Canadian credit history. From my research, there seems to be uncertainty in whether TD and RBC report these cards to the U.S. credit bureaus so I would get at least another card from a U.S. issuer.

Your goal at this point is to get a secured credit card.

This means that you’re putting down a deposit of $100–500 for them to give you a credit line of $500. Your banking relationship — whether you have a bank account and how much money you have in the account — seems to strongly affect the deposit required.

The financial institutions I would recommend are Bank of America, Capital One, or Discover. My pick would be the Discover, given the great perks. Check out our post comparing secured cards here.

Wells Fargo offers a secured card as well but I would avoid them like the plague. Not only do they have issues with fraud, they won’t “graduate” your card — Most other issuers will graduate your card from secured to unsecured after a year.

Watching Your Credit Plant Sprout

Sign up for Credit Karma. It’s an easy (and free!) way to track your credit as it grows. Make sure you understand the things that impact your credit and that you don’t fall for any myths.

Your credit is impacted by 6 things:

  • Credit card utilization (high impact)

  • Payment history (high impact)

  • Derogatory marks (high impact)

  • Age of credit history (medium impact)

  • Total accounts (low impact)

  • Credit inquiries (low impact)

By paying your credit cards on time, you take care of payment history and derogatory marks.

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Watering Your Credit Plant

Credit card utilization

If you want to increase your credit history quickly, I would pay off your card every fee days. The goal here is to keep your utilization between 0–9% of your limit.

Here’s how credit card utilization is graded:

  • 0–9% = excellent

  • 10–29% = good

  • 30–49% = fair

  • 50–74% = poor

  • 75%+ = very poor

By paying off your card early and often, you’re keeping your utilization in the excellent range. You effectively have “very poor” for every other category so you need to make sure this category is an excellent. If you take one thing away from this, make it this one.

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Fertilizing Your Credit Plant

Of the remaining factors, we have age of credit history (medium impact), total accounts (low impact), and credit inquiries (low impact).

Age of credit history is basically the average age of your open credit accounts:

  • >9 years = excellent

  • 7–8 years = good

  • 5–6 years = fair

  • 2–4 years = poor

  • <2 years = very poor

Total accounts is basically number of opened accounts + number of closed accounts:

  • >21 = excellent

  • 11–20 = good

  • 6–10 = poor

  • 0–5 = very poor

Credit inquiries are the number of hard credit pulls you do, this happens when you apply for credit or applied for a post-paid phone plan (don’t eat inquiries for no reason!):

  • 0 = excellent

  • 1–2 = good

  • 3–4 = fair

  • 5–8 = poor

  • 9+ = very poor

This is where the pick your own adventure starts.

Long Lenny

If you’re thinking long-term, you can make the argument that the optimal strategy is to apply for multiple secured cards as soon as possible. You’ll take a hit on inquiries in the short-term (not like they’ll be able to help you get anything right now anyways) and you’ll improve your total accounts.

More importantly, you’ll improve your average age of credit in the long-run. Assuming you got 4 cards in 2017. By 2020, your average age of credit (medium impact!) would be 3 years. If you did a card a year (so 2017, 2018, 2019, and 2020), your average age would be 1.5 years (6 years total / 4 cards).

Rewards Richard

On the other hand, if you’re looking to get travel card like the Chase Sapphire Reserve or a hotel card (where you could get >$1,600 in value in the first year alone) in the next two years, it might make sense to stick to a single secured card. The main reason for this is Chase’s 5/24 rule.

In short, you’ll be unable to get certain cards regardless of your credit or income if you have more than 5 new accounts in the last 24 months. You can always get cards from other issuers, but you might be leaving a lot of value on the table, especially if you travel a lot for work.

If you do want to get these high rewards cards from Chase, you’ll likely need to get a basic card like the Slate, Freedom, or Freedom Unlimited to build a relationship. I would recommend opening a bank account with them as well.

Whatever Wally

If Long Lenny and Rewards Richard seem like too much work, just focus on your utilization. Keep your utilization low and you can pretty much do whatever you want with your credit.

 



Editorial Note: Opinions expressed here are the author's alone, not those of any bank, credit card issuer, airlines or hotel chain, vendors or companies, and have not been reviewed, approved, or otherwise endorsed by any of these entities. 

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