Getting Started With Credit Cards For International Students Moving to USA
To those of us moving to the United States from developing countries, credit cards might be a bit of a mystery. Like outdoor barbecue and Fourth of July fireworks, this is another American thing most newcomers have heard of but never experienced. It is natural to have a lot of questions. How do they work? Do you need one? What is the point of them? You may have also come across certain horror stories involving credit cards, which is usually some version of a person struggling to pay their credit card bills.
Here is a boring and concise description that is all you need to know: a credit card is an instrument that allows you to borrow money from a bank and you don’t have to pay any interest if you pay it back within the due date, which is usually between 30 and 60 days after the purchase. What you get out of it is discounts and bonuses (either as cash back or rewards points) and certain other perks. What banks and card companies get out of it are the fat processing fees that businesses have to pay for every credit card transaction.
This is a mutually beneficial arrangement as long as you maintain proper financial discipline and planning. The first and most important thing to understand here is that it is your money that you are spending. The bank is giving you a short-term loan. At the end of the month, you will get a bill that you will have to pay out of your own funds.
Why Do You Need Credit Cards?
Technically, you don’t. To the best of my knowledge, there are not situations where credit cards are absolutely essential. Paying with cash, checks, or debit cards is always an option. However, there are good reasons that you should consider using credit cards instead of the alternatives. There are three that I can think of.
Firstly, the rewards and perks. Since credit cards yield higher processing fees (and interest payments from undisciplined consumers), the issuers can afford to attract consumers by giving them something back, which incentivizes even more spending. The most common and straightforward reward is cash back, where you get back 1-5% of the purchases, either as dollars or points that can be redeemed for dollars. Most cards offer 1% cash back on all purchases, while reserving higher rates for specific categories such as dining and travel. Some cards also offer promotional bonuses in addition to percent cash back, on the condition that you spend a minimum amount on the card within 3-6 months of opening it. Credit cards also provide some other perks that don’t have a fixed monetary value but could come in handy in certain situations. Examples of this are rental car collision coverage (covers expenses caused by rental car accidents), cellphone insurance (pays for lost or damaged phones), and purchase protection (gets your money back for issues with goods and services).
Purchase protection has become a relatively rare perk these days, being transferred largely to online selling platforms such as Amazon and eBay. But it is a nice segue to the second advantage of credit cards: it offers a layer of protection for your money. Debit cards and checks take money directly out of a bank account, so if you fall victim to deception or fraud, you may be forced to write off your losses. Credit cards allow you a month or more before the bill comes due, during which time you will be able to argue your case and potentially avoid paying. Banks are usually much more cooperative in addressing fraud when you use a credit card.
Last but not least, the use of credit cards improves credit history, which is a big deal for anyone living in the United States for any length of time. A good credit history raises the odds of getting approved for loans, without which it is difficult to buy a car and virtually impossible to buy a house. Moreover, credit history is used by employers and leasing companies for background checks, so it could impact your prospects of getting a job or an apartment. At the very least, it gives you access to credit cards with attractive rewards and perks. Having no credit history is often effectively the same as having a bad one. Credit cards help you build a good credit history by simply paying off your balance on time while taking advantage of rewards and perks.
Best Starter Cards
Unfortunately, for those with no credit history (such international students moving to the states), applying for credit cards can be a dispiriting experience. You can apply for all those cards with the sweet bonuses and rewards, but chances are that nearly all of the applications will be rejected. The cards that you can realistically expect to get approved for are usually not very attractive. Many of these are secured cards that require a security deposit and usually don’t have a rewards program. Even worse, predatory companies such as Credit One and First Premier Bank exploit people with bad or nonexistent credit histories by charging extra fees without providing rewards.
Before giving up and getting a secured credit card, here are three cards that you should apply for:
- Discover It Cash Back: This is easily the best starter credit card by far and isn’t hard to get approved for. It give 5% back on specific categories (such as groceries, restaurant, and gas stations) each quarter and 1% back on all other purchases. If that is not enough, in the second year Discover will match all the rewards earned in the previous year, effectively doubling your cash back for the first year.
- American Express Blue Cash Everyday: American Express is another company known to be tolerant of limited credit history. The Blue Cash Everyday is an excellent all around card, giving 3% back on groceries (at supermarkets), online retail purchases and gas stations, on top of the default 1%. It also offers a $200 bonus after you spend $2000 within the first six months of opening the card.
- Capital One Platinum: This is an option that I’m not too keen on and should only be tried if the first two are unsuccessful. It is easy to get, which is the only positive thing I have to say about it. There are no rewards or bonuses, which is not surprising. The Quicksilver is a much better card, but Capital One is much more stringent about approvals and, even if they do give it to a newbie, the promotional $200 cash bonus.
I have included my referral links for these cards, which brings me to yet another benefit of credit cards. Referral programs are often mutually beneficial; the Discover It referral, for example, gives a $100 bonus to both the referrer and referee. After you get approved for a card, feel free to give out referral links and spread the joy!
Since these are unsecured credit cards, they may be hard to get if you don’t have an income source. If you have a job, it is a good idea to wait for the first couple of paychecks to arrive before applying for your first card. Aside from the large national banks, it is also a good idea to look at offerings from your local credit unions, which may not provide great rewards but would allow your to build credit history without putting down a deposit.
Do’s and Don’ts
The first and most important rule for credit cards is to never miss payments. Always pay the bill on time and, if you have no interest in paying interest (why would you?), pay the full statement balance every month. Nowadays most websites have an AutoPay feature that will automatically pay your bill on time even if you forget to do it. The second most important rule, which follows from the first, is not to spend more money than you have. Treat it like a debit card that is tied to bank account with limited funds. Every time you make a purchase, remember that you will have to pay for it out of your own pocket within a month or two, so plan accordingly.
Cards that offer high rewards often charge an annual fee, which offsets some of the value but may still be worth it if the returns are high enough. This is not a highly relevant topic for beginners, since most cards that charge annual fees (except products from predatory lenders such as Credit One and First Premier Bank) will not be available to them. Even if approved, it is difficult to take advantage of these cards without a high income and well-planned expenditure. For beginners, it is good general rule to not apply for any cards that have annual fees.
Additional Resources
There is no shortage of online content related to credit cards, but there are two I would like to recommend for beginners. The wiki articles in the CreditCards and PersonalFinance subreddits are great starting points that drill down to the basics and should answer most of your questions. These forums have valuable resources put together by volunteers and are generally much more reliable than commercial websites and influencers who are paid to promote certain products. Once you have gotten a handle on the credit card game, these are great places to look for your next card.