How DACA recipients can build credit

The future of the Deferred Action for Childhood Arrivals (DACA) program may be uncertain, but current DACA recipients can still take action now to help support their financial futures. That includes working toward financial independence by building good credit. By taking deliberate steps to strengthen your credit, you could ensure that you’re in a better position to reach whatever financial milestone you have your eye set on next.

This guide will break down the benefits you could get with a strong credit profile, as well as the credit-building basics you’ll have to know if you want to improve your credit as a DACA recipient.

Benefits of building credit as a DACA recipient

Building credit as a DACA recipient is a smart 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 — and 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:

Credit score

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 and how much risk you pose as a borrower. There are several scoring models out there, but the widely used ones are the FICO credit score and VantageScore models, with FICO typically being more popular. Lenders use it to determine whether they want to approve you for financial products like a credit card, loan or mortgage.

But lenders aren’t the only ones who can view your credit score. Potential landlords, employers and others might also assess your credit before making a decision like offering you a lease or a job.

When you build credit responsibly, it’s reflected in a higher credit score. The higher your credit score, the better your financial opportunities will be.

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.

Credit unions

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 Matrícula 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:

Open a credit-builder loan

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.

Not all financial institutions offer these types of loans, however, but they are more commonly available at community banks or credit unions, including Juntos Avanzamos credit unions. For DACA recipients, these loans are good credit building alternatives that don’t require credit history or good credit scores.

Get a credit card

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

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:

• Restaurant and takeout purchases
• Streaming services
• Travel-related purchases
• Gas station purchases

You typically need to be enrolled in a two-year or four-year college or university program to qualify, but aside from that, there aren’t many other qualifications you’d need. Most student cards are designed to be starter credit cards, so they have little to no credit history requirements.

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

Secured credit cards are good options for people with little to no credit, especially those who don’t qualify for a student card. With a secured card, you pay a set amount as a deposit, which acts as your collateral for the issuer. Because you’re backing the card with your own money, the issuer won’t weigh your credit score as heavily (or at all in some cases) when deciding to approve you for the card.

The secured card will have a credit limit on it, same as other traditional credit cards, but it’s typically the same amount as your deposit. So, if you deposit $200, that will likely become your credit limit.

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 Credit Card* offers:

• 3 percent cash back in a category that you choose, such as gas or travel
• 2 percent cash back on groceries and wholesale clubs
• 1 percent cash back on all other purchases

The 3 percent and 2 percent cash back categories have a combined spending limit of $2,500 per quarter, then they drop to 1 percent.

Another option is the Capital One Platinum Secured Credit Card, which doesn’t offer rewards, but can provide you with $200 in credit for a deposit of only $99 or $49 if you qualify.

Most credit card issuers have options for people to convert a secured card to an unsecured card as their credit score improves. If you demonstrate good spending habits and a positive payment history, your issuer might even do this to your card automatically after a certain amount of time. This allows you to get your deposit back, as well as be able to access a higher spending limit and more rewards.

Become 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 or can’t yet have your own credit card, and you know someone who is willing to add you to their account. If you’re interested in becoming an authorized user on someone’s account, it’s important that you trust the primary cardholder and that they have a history of responsible credit card usage — otherwise, their credit mistakes will become your own.

Sign up for credit-monitoring services

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.

4 tips for DACA recipients to continue building credit

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.

1. 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. In fact, payment history makes up an entire 35 percent of your FICO score.

That’s why keeping track of your payments, whether that’s by enrolling in automatic payments or setting reminders to pay your bill on time, is so important. Doing 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.

2. Check your credit report

You can check your credit report through the government-run website AnnualCreditReport.com, which lets you pull a free credit report from each of the bureaus every week. 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.

Checking your report every so often will help you maintain a healthy understanding of your credit score and allow you to catch and dispute errors that might be on your report.

3. Start small

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.

4. 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 you have two credit cards with a credit limit of $1,000 each, that means your available credit is $2,000. Let’s say you’re charging $200 a month to each card. That means you’re using 20 percent of your available credit.

This number affects your credit score, so you should keep an eye on it. Bankrate’s credit utilization calculator can help you figure out your ratio each month. Experts recommend keeping it 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.

To begin establishing your credit history, you can take out a credit-builder loan, sign up for a credit monitoring service or apply for a student credit card or a secured credit card. Strengthening your financial status by building credit may be an opportunity to continue building the life you want in the U.S.

*The information about the the Bank of America® Customized Cash Rewards Secured Credit Card and the Deserve EDU Mastercard for Students has been collected independently by Bankrate. Card details have not been reviewed or approved by the issuer.

The Bank of America content in this post was last updated on May 3, 2024.