When you require money, an option is to borrow it, sometimes expensive purchases need you to pay with a credit card, and for more significant expenses or big purchases like a car or house, most people take a loan.
Credit cards are common because they allow you to buy or pay for something without using cash. Sometimes a bank or financial institution will offer you to apply for a credit card. Once approved, you’ll have to make payments of your monthly charges on time, or you can defer payments which will cause interest charges.
A loan means you are asking to borrow money from a bank or a financial institution, and you agree to pay it back under certain conditions, interests, and at an established time. There are personal loans and business loans.
You can use a credit card 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 expiration date.
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 enormous debts because of credit cards.
Some people use their debit cards (a card to get money directly from their bank account) as credit cards too. Before you do that, please ask your bank for the conditions because there could be extra charges.
Credit cards are commonly used and welcomed by most businesses, but cash is accepted everywhere too.
You may not want to use a credit card because of the risk of getting into debt. But it can be helpful 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. Secured credit cards are not credit cards because you have already given the money, or someone has promised to pay for you. But they allow you to build good credit. Banks and credit card companies have secured credit cards, too.
Paying your utility bill (electricity, cable) and cell phone bills on time will also help you build your credit score. A credit score is a number based on the analysis of your payment history, amounts you owe, length of credit, and other information. The credit score is usually three numbers that go from 300 to 850, 300 being bad and 850 being very good. A good credit score will help you obtain better credit interest when you will need to buy a car, get a mortgage, or even in your credit cards.
Learn more about building your credit history.
Join a credit union
Credit unions are like banks. 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 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-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 what you started 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 taking 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 you will own your home in the end! It can be hard to get mortgages. But your credit union may help you. 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 – California Capital
- 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 businesses and to build affordable homes.
You can find a CDFI near you.