Hola amigos! If you’re new to the United States or working hard to make a better life for yourself and your family, understanding credit is essential.
Some of us arrive with the belief that taking out a loan is a step in the wrong direction because it means going into debt, and since interest rates are so confusing, we prefer not to risk it. Others, on the contrary, come with the idea that credit is a bottomless pool of money that “will be paid off eventually,” but that can become an expensive mess without the discipline to regularly pay credit card bills.
It is no coincidence that, according to the report Financial literacy among U.S. Hispanics, Latinos born in the United States have greater financial understanding compared to those who migrated to the country as adults. They have grown up in this culture and understand the system more intuitively. However, whether born here or not, understanding different forms of credit and how to tap into them is more than a responsibility, it is an opportunity: to create generational wealth.
So, what exactly is credit, and why is it important here?
In simple terms, credit is like a financial reputation. It shows how trustworthy you are when it comes to borrowing money or using credit cards. In the U.S., having good credit is crucial for many important things:
- Renting an Apartment: Landlords often check your credit history to see if you’re reliable when it comes to paying bills on time. Having good credit can make it easier to find a place to live.
- Buying a Car: If you want to buy a car, you might need to take out a loan. Lenders look at your credit score to decide if they’ll lend you money and at what interest rate.
- Getting a Credit Card: Having a credit card can be helpful for emergencies and building credit. But to qualify for one, you usually need to have good credit.
- Starting a Business: If you dream of starting your own business, having good credit can make it easier to get a loan to finance your venture.
Now that you know why credit matters, let’s talk about how you can start building your credit history:
- Get a Secured Credit Card: A secured credit card works like a regular credit card, but you need to make a deposit as collateral. It’s a good option if you’re new to credit or trying to rebuild it.
- Become an Authorized User: Ask a family member or friend with good credit if you can be added as an authorized user on their credit card. This can help you build credit without the responsibility of owning the card.
- Pay Bills on Time: Paying your bills, like rent and utilities, on time every month shows that you’re responsible. Late payments can hurt your credit score.
- Keep Balances Low: Try not to use too much of your available credit. Keeping your credit card balances low can help improve your credit score.
- Apply for a Credit Builder Loan: Some banks offer credit builder loans to help you establish credit. With these loans, you make small payments, and once it’s paid off, you get the money.
- Check Your Credit Report: You can get a free copy of your credit report once a year from each of the three major credit bureaus. Make sure to review it for any errors or signs of identity theft.
- Be Patient and Persistent: Building credit takes time, so don’t get discouraged. Keep following these tips, and you’ll see your credit score improve over time.
Avoiding credit entirely may seem wise, but lacking a credit history can be as challenging as having bad credit. Be cautious when choosing lenders and credit card issuers. Understand the terms, conditions, and payment schedule to avoid unexpected costs. Some lenders offer low introductory rates that skyrocket later. Choose reputable banks or companies with transparent information to avoid scams.
Beware of shady lenders offering expensive fee credit cards and loans. If it sounds too good to be true, it’s likely a scam. Stay vigilant.
Remember, building credit is an important step toward achieving your financial goals in the United States. With patience and determination, you can pave the way to achieve the American Dream for yourself and your loved ones.
Image: ©DNY59 from Getty Images Signature.
