Credit History Building Strategy

It's all quite simple. You only need a plan for the first year or two, after that, as long as you follow all the rules, you'll have an outstanding credit.

The countdown starts when you get you SSN. At that point, there is nothing in your credit history at all. No records. Means, there's no "score" that financial institutions can generate based on your credit history.


Day 0:

Get a secured credit card. The easiest way to do so is to go to a Credit Union of your choice (go through its reviews online to get a sense on what's the most friendly Credit Union in your area) and apply for a secured credit card with them.

You'll have to put a deposit down in a savings account, and generally the amount of money you deposit will be the CL (credit limit) on your card. For the purpose of building credit, a limit within $200-$500 is enough; although the more it is, the more convenient it is to utilize the card and more beneficial it is for acquiring any future cards. If you can put a $5000 down, that's perfect: the first unsecured card you'll get will likely have a very decent credit limit as well. Just note that you won't get your money back until this card becomes unsecured, and that'll generally happen after 11 statement cuts (rarely, after 5 statement cuts).

If you're planning to apply for mortgage in future, try to find a CU that's known for good mortgage terms. Having a relationship with a CU like that might help you get great rate when you buy a house.

Another option is to apply for a secured card with one of the big banks, such as Capital One or Discover.

Capital One is known for giving you a higher CL than your deposit: it might be $49, $99 or $200 as a deposit for a $200 CL. Chances are, you'll have to put all $200 as a deposit since you have no history, so there's really no advantage. You can find some details here.

The Secured Discover It offer is a lot more interesting because it's a rewards credit card! Means, you get some kind of rewards on using the card, in this case you get cash back for purchases: 1% cash back on every purchase, 2% cash back at restaurants or gas stations on up to $1,000 in combined purchases each quarter. They will also double your earned cash back after 1 year of owning the card! Practically it means you get 2% cash back on all purchases and 4% cash back on restaurants and gas stations. That's actually pretty incredible, even in the world of the "grown-up" cards that you'll be getting when you achieve a great credit score. I'd recommend putting a $1,000 in deposit if you plan to use the card often and collect the cash back; I personally put $1,500 in deposit which let me make purchases such as airline tickets and not exceed the credit limit.

You should stay away from any offers that you have to pay any kinds of fees for. You might get some sketchy offers in the mail for "Credit One" credit cards (their logo look suspiciously similar to Capital One logo, don't get them confused) – and you might even get approved, but it has a hefty annual fee and fees associated with many activities that other banks would never apply a fee to.

At this point, it makes absolutely no sense trying to get a real credit card, or even a store card, or a gas card. Or things like "Paypal Credit" program. With 99% chance they'll get declined and you'll get a hard pull on your credit history that will make it harder for you to get a great credit score in future.

Day 1:

If you need a vehicle, and even if you can buy it outright, I'd highly recommend you getting a loan. You can put 95% down and only get the auto loan on 5%.

You'll likely get approved for an auto loan since you will have the car as collateral or security for the loan (very similar to secured credit cards). So in the unlikely even of defaulting on your loan, the bank can put a lien on your car. Which makes it a lot easier for them to approve you an auto loan even if you have zero credit history. However, the APR will likely be pretty high, that's why I suggest making the downpayment as high as you can, so that the interest is very low.

What about the term of the auto loan? I'd suggest it being anywhere between 2 years and 5 years. The reason of it being at least 2 years if because mortgage underwriters like to see installment loans with length of at least 2 years in good standing to consider the borrower a responsible person.

Don't worry about car dealership putting many hard inquiries on your credit report: for the purpose of FICO they'll be considered one inquiry, as long as they happen within a short period (30 or 60 days period).

Day ~180:

When you have at least 5 statement cuts with you first secured credit card, you can try and get a real, unsecured card. If you also applied for the auto loan and made all payments in time, you're golden!