Building credit is the all-important first step to qualifying for financing options such as auto loans and mortgages. But for some immigrants, the concept of credit is synonymous with debt, says Silvana Delgado, an advisor at the Hispanic Center for Financial Excellence.
We asked Delgado to talk about this and other misconceptions immigrants might have about credit and debt, and to offer solutions to some of the obstacles they might face when establishing financial profiles.
What challenges might immigrants face when it comes to building credit and avoiding debt?
Many immigrants come from countries where taking on debt is viewed as a last resort after asking family and friends for money. Banks tend to lend low amounts and charge high interest rates. As a result, people try to avoid relying on credit. They buy goods or services with their savings, or they simply don’t make the purchase.
Because the American credit system is new and unfamiliar to them, immigrants are prone to making uninformed decisions that they may regret down the road. One example: financing vehicles through loan programs that don’t require a credit check. Although it may seem like a good deal at first, borrowers end up being stuck with outrageously high interest rates with lenders that don’t even report to the credit bureaus, which means they don’t help build credit.
Do you have any tips for first-time credit card users?
Most of the immigrants we meet with at the Hispanic Center for Financial Excellence have serious misconceptions about credit cards. They tend to associate building credit with high interest rates, fees and getting into debt, which, of course, can be avoided.
As long as they pay off their credit card bills in full by the due date, they won’t be charged interest or any additional fees. Another tip: Don’t use more than one-third of your credit limit. That strategy can help you bolster your credit score.
What other financial challenges might immigrants run into?
Qualifying for most loans, be it an auto loan or a mortgage, will be a challenge for immigrants who don’t have Social Security numbers. You might, however, be able to apply for and receive an individual taxpayer identification number, or ITIN, from the IRS. ITINs are issued to people who need a taxpayer identification number but who aren’t eligible to receive a SSN.
With an ITIN, you might be able to get a secured credit card. Use this type of plastic responsibly for about one year and you might qualify for a standard, unsecured card, which you can use to bolster your credit score.
For people without SSNs who want to buy a house, I would recommend the Neighborhood Assistance Corporation of America, or NACA. This nonprofit offers mortgage financing at competitive rates to immigrants (and U.S. citizens) who don’t have SSNs, but who meet lending criteria such as income verification or who can provide proof of savings.
Silvana Delgado is an advisor at the Hispanic Center for Financial Excellence.