Posted by Owen Dodd
A few weeks ago, I was hit with an ice cream craving like none other, and I raced to my local corner store grocer. This store has become a crucial go-to in times of need and I always find myself in a pleasant conversation with one of the owners.
Like most acquaintances, our small talk revolves around the weather, business and maybe the latest fùtbol match. We often discuss fùtbol (aka soccer) because he’s from Ghana and I’m familiar with the Black Stars (the Ghanaian soccer club) and the region.
He immigrated to the U.S. nine years ago and in that time has established himself as a co-owner of this quaint and necessary corner store for our neighborhood. This time, I decided to branch out and ask him how he was able to establish credit here in the U.S. and to move up the economic ladder to be a part-owner of the store in so little time. His answer was quick, and matter of fact. “A friend allowed me to be a co-signer of a car loan when I first arrived.”
There are thousands upon thousands of these types of stories happening at this very moment in America. Immigrants coming to the United States and participating in the economy by establishing credit in the simplest means possible. Gradually, he was able to build his own credit file with the co-signed car loan, get a credit card and a cell phone and ultimately acquire a small business loan with a partner to establish our beloved neighborhood market.
In some ways my friend is lucky – he had a friend he could work with to co-sign a loan and build a credit profile. Millions of other people don’t have that opportunity, which is one reason why the credit bureaus continue to innovate to try to bring more people into the system, sometimes by using new and different kinds of data.
My friend at the store was able to use one non-traditional way to build his credit profile. But there are other ways a person can build their credit profile. Immigrants and others pay rent and utility bills, such as cell phones. CDIA recently released a study on the credit reporting industry’s value proposition. As the study notes (page 12),
“The Federal Reserve’s report thus also suggests supplying the credit bureaus with information regarding rent, other recurring bill payments, and foreign credit histories to provide a broader picture of the credit experiences of recent immigrants, observing that disciplined, innovative scoring expands access to sustainable credit.”
With additional data, we could bring more and more people into the system. If immigrants were to incorporate their credit histories from their home countries into their U.S. credit reports, they would have even more opportunities immediately upon reaching America.
Another immigrant, Jelena McWilliams, who now leads the FDIC, said in a powerful 2019 speech at the National Diversity Coalition that:
“With my newly established credit history, I was able to obtain an unsecured credit card, and it seemed a world of opportunities opened up. From there, I could get an auto loan and buy a car, apply for student loans, and, eventually, secure a mortgage loan to buy my first home…This came in handy over the ensuing years. Because I could not afford to live in the San Francisco Bay Area, I drove 160 miles round-trip to go to college every day. Along the way, I had to get gas, and every time I pulled up at a gas station I was grateful for that secured credit because I did not have to worry if I had enough cash in my wallet to pay for gas.”
Expanding credit opportunities to new immigrants makes real differences in their lives.
According to the study we mentioned earlier (page 24), “most recent data from the FDIC indicate that more than 70 percent of immigrants who have obtained U.S. citizenship have at least one credit card, and over half of immigrants who are not citizens also have at least one credit card.”
Expanding credit opportunities to those who don’t have robust U.S. credit profiles is an important goal for credit bureaus and the larger economy. New and different kinds of data are some ways we can help marginalized communities come into the traditional financial system.