In Australia you start with a neutral credit rating. From there you can ruin it or improve it. In the US however, you start with no credit rating and have to build it up. For Australian's moving to the US, establishing a decent credit rating is one of the regular BBQ conversation topics and a constant bug bear.

A credit rating is needed to have a decent credit card limit, to access car finance and to access home loan finance.

Some individuals have claimed success in using HSBC (the global bank) who will recognize their credit rating from Australia in the US. While this may give them a leg-up in terms of getting a credit card, it does not improve the credit rating.

One individual, Patrick Collins, has been living in the US for 4 years and still does not have a good credit rating. Mostly because he has not been using much credit and forgot to pay a single bill in 2009 which has permanently damaged his record for seven years. Never miss paying a credit card bill or a loan payment or you will damage your ability to establish an excellent credit rating.

Without a "good" credit rating, you will invariably have access only to VERY expensive loans. Therefore you are better off leasing cars or buying them for cash.

To improve your credit rating, establish many credit cards and set them for automatic pay-off on interest only for a while. Accept credit cards with whichever retailers will give them to you. If you can afford to pay for a car in cash, put down $3,000 on a loan and then pay that off after 5 months. Do not apply for credit cards immediately. You will be denied, and credit denials go on your file. Even if you are not denied, this behaviour is not guaranteed to increase your credit rating and might actually decrease it as it simulates bad spending habits. The only credit card that is safe to apply for is a "secure credit card" from your bank. You put a lump sum of money in a term account and get a credit card limited to that sum.

Also, there is not much need for a credit card in the US. There is a growing trend of using debit cards which do not carry debt. The only real need for a credit card is when renting a car or checking in to a hotel or other transactions where an authorisation is required - and even those can usually be settled with a debit card albeit with additional hassle. If that is why you need a good credit rating, think again.

In fact unless you want to buy a house, you can avoid the entire credit rating race and simply do without debt. Here is where it will get you:

  1. When trying to get a mortgage. Yep, you'll need a good credit rating. No two ways about it.
  2. When applying for a credit card. As mentioned before it is not a necessity.
  3. When renting a house, they will run a credit check. It's mostly formality if you're a recent arrival because they are used to new arrivals in Silicon Valley - and if you move you can simply provide the first landlord as reference for the next and so on.
  4. When financing a car. Pay for one in cash. They are far cheaper than in Australia. If you can't afford to pay cash for a very good used car ("pre-owned" in American) you should examine your situation again. At any rate, a car is absolutely essential for living in Silicon Valley so you will get one with no credit rating as a newcomer, you'll just pay a lot of interest (18.5% APR in my case, yes I made the mistake of taking a loan. Bad advice. Don't do what I did).
  5. When applying for phone service, for energy service, for internet service - anything that is post-paid. Most of these are required anyway so you will get them without credit anyway. Instead you will have to pay a deposit which will be credited to your account after a year or so. Reputation with the company will prevail afterwards. Just paying ALL of your bills on time with no exception will give you a great credit rating.

Just forget about the entire thing and one day you will know you have good credit because you will start getting pre-approved credit cards in the mail.