The IRS began issuing Individual Tax Identification Number (ITIN’s) in 1996 for individuals who are not eligible for a social security number. Initially, they were issued solely for tax purposes. According to the IRS, “ITIN’s do not provide identity outside the Federal Tax System and should not be offered or accepted as identification for non-tax purposes.” Although the IRS still states this on their website, certain creditors have stepped away from this due to a clause in the Patriot Act of 2001 which allows ITIN’s to be used for additional purposes.
ITINs, like Social Security Numbers are nine digits long and they all start with a nine. Even though they are intended for tax purposes, individuals with ITIN’s are not eligible for the benefits associated with a Social Security Number. For instance, a person with an ITIN is not eligible for Social Security benefits for the Earned Income Tax Credit (EITC). Additionally, ITIN’s do not grant the right to work. An ITIN is valid for three years. If it is used at least once during that period, it will remain active and valid. If it is not used it will expire at the end of three years and the individual will have to apply for another one.
For years, an ITIN could not be used to apply for a credit card, get a driver’s license or purchase a home. However, due to the Patriot Act this has changed somewhat. While most states still do not allow you to get a driver’s license with an ITIN, seventeen states now do provided you have filed taxes in that state. Additionally, some credit card issuers and mortgage lenders now accept ITINs. These loans are typically not government-backed and have higher interest rates, and require larger down payments. They can also tend to have stricter lending requirements. While Government Sponsored Enterprises (GSEs) can purchase ITIN loans, they generally do not, primarily because the FHA does not insure mortgages for borrowers who cannot prove legal US Residency.
If a consumer with an ITIN opens a credit card to establish credit, they may need to start over once they obtain a Social Security Number. Some credit card issuers will agree to transfer the cardholder’s account from their ITIN to their new social security number, while others will not. In the latter case, the consumer would need to reapply for a new card with their Social Security Number. If the borrower has no credit history under the new number, they could be denied a new card, even if they already have a card with that creditor. The same situation can apply to loans with certain banks or credit unions, as it is at their discretion.
A consumer cannot use a Social Security Number and an ITIN simultaneously. Once the consumer obtains a Social Security Number, the ITIN becomes invalid. If a consumer previously had an ITIN and then acquires a social security number, it can wreak havoc on their credit report. This is because the credit bureaus will have records for both numbers, even though the consumer is only using one. One or two of the bureaus could have the credit opened with the ITIN, while the other might have it with the Social Security Number, and one bureau could have both. Unfortunately, there is no simple solution for this. Anyone moving from an ITIN to a social security number needs to contact all their creditors and all three credit bureaus to ensure that they have the correct information.
Mortgage brokers often use a product called “Rescore Express.” This service, offered by most third-party credit reporting agencies, allows loan officers to help borrowers quickly raise their credit scores to qualify for a mortgage. (This is a process approved by the bureaus and is NOT credit repair.) However, due to the discrepancies that can occur on a credit report when both an ITIN and a Social Security Number are involved, we are unable to provide this service to borrowers who have an ITIN.
Although more opportunities are becoming available for consumers with an ITIN, there are still many obstacles to overcome. Individuals with an ITIN need to be very diligent in monitoring their credit reports to ensure accuracy.