I remember my first credit card. It was a shiny new visa I applied for during my first week at college in the early 1990s. Back then, credit card companies would hand out their credit cards like candy. And to a student who never had the experience with one – and was always broke – I got deep into debt quickly.
I didn’t know how to use credit – in a positive way – to help me get through college. Consequently, I graduated from my University in debt – with school loans and consumer debt.
It was tough to climb out of both (but I eventually did).
Credit is one of the most powerful tools for building your financial future. Good credit can lead to more opportunities, better or lower interest rates, better loan opportunities, and greater financial security—and even open doors, such as renting an apartment, buying a phone, or opening a utility account.
Yet, many Latino families face unique challenges in building a strong credit history.
For instance, a Consumer Financial Protection Bureau report shows nearly 30% of Latino consumers have credit scores below 600, underscoring the need for smart, informed credit practices.
I can tell you right now that, as a community, this level of credit scores costs us billions of dollars yearly. Latinos are a powerful economic block, but it is hindered by several things, including the fact that many of us have poor credit.
Due to my poor credit out of college, when I rented one of my first apartments, they did a credit check and required a bigger deposit. I paid a higher interest rate when I bought my first vehicle (a used 1991 Toyota truck).
In this article (and the next), we’ll cover the basics of credit, practical steps to build credit responsibly, and tips for protecting your credit from common pitfalls and fraud.
My goal is to empower you to take control of your financial journey with smart credit moves.
Understanding Credit: The Basics
Credit is essentially a measure of trust. Lenders use a numerical score to determine how likely you are to pay back the borrowed money.
Our credit scores—yours and mine—are influenced by several factors, including our payment history, how much of our available credit we use, the length of our credit history, and other financial behaviors.
Typically, three major credit bureaus collect and analyze our credit, which gives a certain weight to financial behaviors.
For example, our payment history can account for up to 35% of your FICO score,
Understanding these basics is crucial because a high credit score can help you get a loan for major investments like a home or a car, while an average or low score can limit your options and increase your costs.
When I was in college, I sent in monthly payments. The problem is that sometimes I did not send the minimum balance during many of those months. So, for example, if my minimum payment was $25, let’s say I sent $15.
This wasn’t good – and my credit took a significant hit.
Building Credit: Smart Moves from the Start
Building good credit, slowly and over time, can really be beneficial.
Building up your credit and credit score is important. Here are some steps to help you build credit responsibly:
Starting Early:
Equifax, one of the three major credit bureaus, states that having a secured credit card “can be a helpful tool to improve your credit health over time.”
Key Strategies for New Credit Users:
Pay on Time:
Timely payments – and paying at least the minimum required to stay in good standing – are among the most significant factors in building good credit.
Keep Balances Low:
To maintain a healthy utilization rate, try to use less than 30% of your available credit. For example, if you’re maxed out on credit cards, banks don’t like this—it means that you are at the edge of your financial well-being.
Avoid Unnecessary Hard Inquiries:
Only open new credit accounts when necessary to avoid negative impacts on your credit score.
Cultural Considerations:
Debunking these myths is important because building credit responsibly is accessible to everyone.
Sure, using credit can be risky. But driving a car is risky, too. Becoming better managers of our credit can help us save money over time.
Maxing Out Your Credit:
Using too much of your available credit can negatively affect your score because it increases your “credit utilization ratio” – a fancy term that means your percentage of use of available credit.
When you consistently run near your credit limit, lenders may view you as a high-risk borrower, which could result in higher interest rates or even a denial for future credit.
Maintaining a lower balance relative to your limit shows responsible borrowing behavior and can steadily improve your credit profile.
Late or Missed Payments:
It’s no secret that missing payments can damage your credit, often staying on your credit report for up to seven years.
Read that again!
It’s not worth it to put off a payment.
Not only do these missed payments lower your score, but they also incur additional fees and higher interest rates, making it harder to catch up financially. Set up automatic payments with your bank or using calendar reminders can be effective ways to ensure you never miss a due date. This will keep your credit intact and demonstrate reliability to future lenders.
Predatory Lending Practices:
Using credit can be beneficial, but it comes with risks. Your risks and failures are someone else’s gain. Be cautious of lenders – often some pretty big and famous ones – who charge hidden fees or offer terms that seem too good to be true.
Predatory lending practices often target those with limited credit history, providing loans with extremely high interest rates and unfavorable repayment conditions, trapping borrowers in debt cycles.
Before taking out any loan, it’s essential to thoroughly research the offer, compare it with other options, and consider talking with a trusted community credit counselor to ensure you are making a safe financial decision.
Monitoring Your Credit:
You should regularly check your credit reports—free once a year at AnnualCreditReport.com—to ensure accuracy and spot any signs of fraud.
Be wary of phishing scams or unsolicited communications asking for personal information.
Use strong, unique passwords for your financial accounts and enable two-factor authentication where possible.
Help your family members. Some members of your family – your tia, abuela, or primo might need help with some of these topics.
Conclusion
Building and protecting your credit is not just about numbers—it’s about opening the door to a secure financial future. Getting your credit right is a part of the plan for a strong financial future.
By understanding how credit works, taking smart steps to build your credit, and protecting it from common pitfalls, you’re setting the stage for long-term success.
Remember, even minor improvements in your credit habits can lead to significant opportunities over time.
