Starting a business in the U.S. can be exciting, but it also comes with its challenges—especially when it comes to navigating the credit system.
For many immigrants, this system can feel unfamiliar and overwhelming. Yet, understanding credit is crucial for accessing the capital you need to grow your business.
Since credit affects so many aspects of your financial life (and wellbeing), this article aims to help you gain a clearer understanding.
We’ll discuss the specific challenges immigrants deal with when establishing credit in the U.S. and provide information on where to access funding for starting or growing a business—even if you have a limited credit history.
Understanding U.S. Credit History
To begin, let’s first break down three important credit terms that are often used interchangeably in the U.S., but have distinct meanings:
- Your credit history is essentially a record of how you’ve managed your debts.
- A credit report is a detailed written summary of your credit history, showing any accounts you’ve had, as well as your payment patterns.
- Meanwhile, your credit score is a three-digit number between 300 and 850 that indicates how likely you are to repay borrowed money based on your past behaviors.
Next, let’s take a deeper dive into each term.
Credit History
Your credit history is all about how you handle money and repay debt.
When you apply for credit, lenders like mortgage companies or credit card providers look at your credit history to decide whether they will lend money to you.
There are two types of credit history:
- Personal credit history, which includes everything from mortgages and car loans to credit cards.
- Business credit history, which focuses solely on a company’s financial activities, like business loans or credit lines.
If you’re a first-time entrepreneur applying for a business loan, credit card or line of credit, potential lenders will typically check your personal credit history via a credit report and/or credit score.
Credit Reports
Your credit report gives potential lenders a written summary of your credit history, including details like:
- The number and types of credit accounts you have.
- How long each credit account has been in existence.
- Any amounts you owe.
- Whether you pay your bills on time.
- Any bankruptcies, liens, collections, or judgments against you.
If you haven’t done so yet, it’s a good idea to look at your credit report from time to time. This helps you better understand your current credit position—plus it gives you a good idea of how lenders might perceive you.
Regularly monitoring your credit is an important part of managing your finances. You can get a free weekly copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion).
Credit Scores
In addition to providing credit reports, Equifax, Experian, and TransUnion can also calculate your credit score, providing a quick three-digit snapshot to represent your overall credit risk.
This score is often referred to as your FICO score, as it’s created by the Fair Isaac Corporation (or simply FICO).
Just like with a credit report, your credit score is determined based on your credit history—such as the number of accounts you hold, how much you owe, your payment history, and whether you have a mix of credit types like loans and credit cards.
Potential lenders will look at your score to decide whether you are creditworthy. Your score could be anywhere between 300 and 850. The higher your score, the better your chances are to receive loan approvals and lower interest rates.
What If You Have Limited Credit History?
Maybe since coming to the U.S., you’ve only had a credit card, and you haven’t taken on a mortgage or any other loans.
Or maybe you have no credit history at all, as you’re not used to the credit and debt culture of American culture.
This creates a tricky situation, because without an established credit history in the United States, getting business funding can be tough.
Moreover, even if you are approved for a loan by a traditional bank despite having a limited credit history, you will likely receive a lower amount than you need—and at an excessively high interest rate. Instead, you must put credit to work in your favor.
The Immigrant Challenge of Building Credit History
For many immigrants, establishing a solid credit history poses a significant challenge—especially if you’re starting from scratch.
Unlike U.S.-born citizens, immigrants often lack the foundational elements that traditional lenders rely on.
One major hurdle is not having a Social Security Number (SSN). Until you receive your SSN from the government, you will likely have trouble opening a bank account, applying for a loan, or even securing a credit card. That’s because the SSN is another tool financial institutions use to assess your creditworthiness.
Language barriers can also make navigating financial terminology and documentation especially challenging, which leads to misunderstandings that hinder your ability to build credit history effectively.
On top of that, while some lenders might recognize alternative credit sources, such as timely rental or utility payments, many banks do not. Rather, they often create additional hurdles to funding.
As Mari Borrero, a Hispanic business owner shared, “First, they tell you that your credit score isn’t high enough. Then, when you finally [have a good score] and apply for a loan, they tell you that you haven’t been in business for enough years. The goal always gets further and further away… It’s a giant puzzle that you have to solve, all while managing a business.”
In other words, for immigrant entrepreneurs, building credit history to gain access to credit is no simple task.
It’s your classic chicken and egg situation. You need credit to build credit history. But to be seen by lenders as trustworthy, you also need to show you can handle credit.
The good news? Below, we share two ways you can rise above the challenge: building credit and looking for other means of funding.
How To Build Credit
Building a solid credit history doesn’t happen overnight, but with consistent effort, you can make significant progress.
For example, if you have a credit card, make sure you:
- Always pay your bills on time.
- Work on reducing any existing debt.
- Keep your credit utilization low.
Over time, these good habits will improve your credit score—and hopefully open up better financing options in the future to help your business grow.
Check out these other credit-building tips to set yourself up for a more successful journey as an immigrant entrepreneur.
Consider Alternative Funding Sources
As you build credit history, seek out alternative funding sources beyond traditional banks.
Below are some options available for immigrant entrepreneurs who are starting their businesses with limited credit history. Which you choose depends on your situation, and what you’re looking for.
Community Development Financial Institutions
Because community development financial institutions (CDFIs) are mission-driven lenders that offer financial services to underserved communities, they are a great option for immigrant business owners who have limited credit history.
Unlike traditional banks, CDFIs have fewer and less-stringent requirements. They often don’t require high credit scores or large down payments. Instead, they focus on character-based lending, where they prioritize your skills and potential over just your credit history.
CDFIs provide capital with interest rates typically between 5% and 6%. This is much more affordable compared to traditional lenders, where rates can exceed 60%. Even better? CDFIs generally have high approval rates.
In addition to financing, CDFIs offer valuable mentorship and guidance—providing workshops and personalized support to help entrepreneurs navigate business challenges.
Not all industries qualify for CDFI funding, so be sure to check their eligibility criteria. You can find a CDFI around with this tool.
Microloans
For immigrant-owned businesses, microloans can be a lifeline. They give access to capital that might be hard to find elsewhere, especially for entrepreneurs with a limited credit history.
Offered via the Small Business Administration (SBA), microloans typically go up to $50,000. These loans are flexible, too. You can use them for working capital, inventory, or equipment—whatever your business needs.
Nonprofits managing these loans also offer valuable training and mentorship to help immigrant entrepreneurs navigate the challenges of running a business in a new environment.
Each lender has specific eligibility requirements, including credit criteria and collateral. Many also require a personal guarantee, which means you could be personally liable if things don’t go well.
On the plus side, successfully paying back a microloan can boost your credit score—which may help you qualify for larger loans in the future.
Just be careful to review the loan terms, like interest rates and repayment schedules, before you sign anything. This will help you avoid any surprises later on.
Crowdfunding
Crowdfunding is a way to raise small amounts of money from many people, to fund a new business. This form of funding connects entrepreneurs with investors through platforms like GoFundMe, Kickstarter, and Indiegogo.
There are several types of crowdfunding to consider:
- Equity crowdfunding allows investors to buy a share of the company.
- Rewards crowdfunding lets people fund your business in exchange for a “free” product or service.
- Donation crowdfunding, meanwhile, allows you to raise money without having to pay it back.
Crowdfunding presents exciting opportunities for immigrants who want to start a small business in the U.S. For one, it can help you gain visibility while raising money.
But there are also some challenges.
Platform fees can cut into your raised funds. Moreover, if you don’t reach your funding goal, you may need to return pledges—leaving you with little to show for your efforts. Not handling this well could also negatively affect your personal and business reputation.
Peer-to-Peer Lending
Also called P2P lending or debt crowdfunding, this type of lending can be a valuable and accessible tool if you have a limited credit history.
Instead of turning to a bank, you borrow money from a group of private investors, and agree to pay back the loan with interest over a set period of time.
With P2P lending, individuals, businesses, and/or institutions provide funds for your business, usually through an online platform like Prosper or Kiva.
One of the advantages of P2P lending is its competitive interest rates, which are often lower than banks due to reduced overhead costs associated with these platforms.
Additionally, the application and approval process is generally faster, allowing you to access the funds you need more quickly. This can be crucial if you’re eager to launch your small business without the lengthy delays often associated with traditional lending methods.
Grants
Small business grants are usually offered by government agencies or nonprofit organizations. The best part? You typically don’t have to pay them back—making grants a fantastic opportunity if your business qualifies for one.
Since there’s no repayment required, applying for a grant doesn’t involve credit checks. So having a limited or no credit history should not be an issue for you.
That said, it’s important to know that there are specific rules on how to use grant funds. If you don’t follow these guidelines, you might have to return the money—sometimes even with interest.
In addition, the application process to get a grant can be lengthy and include multiple phases. It can take many months to get a decision, so it’s not the fastest way to secure funding for your business.
Be sure to be cautious when you’re researching grants. Some offers may seem too good to be true—a sign that they might be scams. Your best bet is to start with a verified grant database like Grants.gov.
Being Credit-Savvy is Key to Business Growth
uLink understands that starting and running a business is tough, especially for entrepreneurs who face unique challenges as immigrants.
But there’s also a lot of potential ahead. As you begin your business journey, it’s really important to learn about credit and focus on building your credit. Every little step you take will help your business grow.
After all, when you understand how credit works, you open yourself up to more funding opportunities, setting yourself up for future success. So keep moving forward—your hard work will lead to great achievements!
At uLink, we’re dedicated to helping immigrants live their best lives in the U.S. by providing the information and tools you need to feel confident about your finances.
In addition to providing educational articles like this one, we also help you send money abroad to your loved ones. Simple, quick, and secure, uLink SuperApp offers competitive exchange rates and low fees starting at $0.
Download the uLink SuperApp to get started!
Moreover, if you’re an entrepreneur with suppliers or operations abroad, we support you by facilitating your B2B payments with our platform, uLinkbusiness.
