Do you need to borrow money? Credit and loans are both ways to borrow money. Some kinds of borrowing are safer than others. Learn about credit cards, payday loans and the best ways to borrow money.
You can use credit cards to pay for things instead of using cash. To pay in a store, you put a small plastic card in a machine. Over the phone or online, you can enter or say the card number and password.
Credit cards are easy and safe to use for shopping and paying bills. But they have risks. If you do not pay back the credit card every month, you will pay interest. Interest is the amount you pay on top of what you borrowed. The longer you do not pay, the more interest you owe. A lot of people in America have big debts because of credit cards.
You may not want to use a credit card because of the risk of getting into debt. But it can be useful for another reason: to start your credit history. Your credit history is a record of what you have borrowed and how well you paid it back. A good credit history helps to build credit. If you build credit, you can borrow money when you need it for big things, such as buying a car or a home.
So you need a credit card to build your credit history. But credit card companies will not give you a credit card unless you already have good credit!
But how can I build a credit history without credit cards?
You can start with a secured credit card. Stilt offers secured credit cards to immigrants and other people who struggle to build credit. Secured credit cards are not really credit because you have already given the money, or someone has promised to pay for you. But they do allow you to build good credit. Banks and credit card companies have secured credit cards, too. Stilt has lower interest rates and an easier process to apply than other companies. So do credit unions.
Join a credit union
Credit unions are like banks, but they try to help people succeed. The account holders all own the credit union together. Credit unions help by lending money or giving credit cards to people with low incomes and people with no credit history. They will help you save money, too. You can find a credit union near you.
There are several different kinds of loans you can get. Some are for short-term emergencies, while others are for long for long-term situations, like buying a house.
Payday loans are for people who need cash quickly. People borrow money from a lender to pay back on the day they get paid. But payday loans often lead to more serious money problems than you start with. Getting a payday loan means you already have less money to get through until your next paycheck. Also, payday lenders charge a lot of interest. So you pay back a lot more than you borrow. And if you don’t pay back on time, you will have to pay even more interest.
Payday alternative loans (PAL)
Credit unions may give you a better choice for emergencies than a payday loan: a payday alternative loan (PAL). A PAL is a short-term loan so you don’t have to get a payday loan. You can borrow up to $1,000 and they will not charge so much interest. You have to be a member of the credit union for a month before you can take out a PAL.
Mortgages are loans people get to buy a house. There is a large payment to make every month. But sometimes it is no more than paying rent, and at the end, you will own your home! It can be hard to get mortgages. But your credit union may help you. Read about mortgages for non US-citizens. The Federal Housing Administration teaches you about different loans and can teach you how to save money on your new home.
Several programs across the United States help refugees and immigrants start their own businesses. They give loans and other support, such as business advice and money workshops. Here are some of them:
- In Sacramento, CA – Opening Doors
- In New Hampshire – NH New Americans Loan Fund
- In New York City – Business Center for New Americans
- In Washington DC, and Baltimore – Latino Economic Development Center
- In Atlanta, Georgia – On the Rise Financial Center
Community development financial institutions (CDFIs) are like credit unions. They do not want to make a profit from their services. Instead, they want to help people succeed. CDFIs lend money to small businesses, new business, and to build affordable homes. You can find a CDFI near you.