Join a Lending Circle. Mission Asset Funda San Francisco-based nonprofit with 52 affiliates in cities across the United States, helps people understand their financial options, get credit, and start building their credit history.
To do this, he uses “tandas” or lending circles. Those who join agree to pay a certain amount of money each month – say, $50 or $100 – and this money is then used to provide interest-free loans of up to $2,500 to circle members. The loans are guaranteed by the MAF through charitable contributions and support from foundations.
To participate, you must agree to take a financial planning course and sign a promissory note. This way, your payments will be reported to the credit bureaus, helping people in the circle establish credit.
“We don’t necessarily want to become the lender of choice,” says Jose Quiñonez, founder and CEO of Mission Asset Fund. “We try to help low-income people, immigrants, people in financial shadow, people with bad credit or no credit, so they can access credit.”
Take out an installment loan. Timely is a lender that markets installment loans for people with poor credit records. Although the interest rates on its loans are high – 30% to 50% – they can be a better alternative than a payday loan.
Ask for a secured credit card. It offers a line of credit secured by money deposited in an account. You will still need to make monthly payments and the money in your account will be your credit limit. Payments are reported to the credit bureaus. After a period of good credit use, your credit score should rise, opening up other more traditional credit options.
Open an account with a credit union or community bank. They tend to be small deposit-taking institutions and serve as traditional banks, granting loans and providing a wide range of other financial services.
Even if you don’t have a credit history, these banks will consider factors other than your FICO score, including the relationship you have with the bank, which could help you get approved for a loan.
Consider online lenders carefully. These institutions, known as fintechs, claim to have expanded the credit market to a wider segment of society, especially to “underbanked” people and those with thin credit records. To do this, they created technology that uses alternative credit data, such as rental and utility payments, to determine a potential borrower’s creditworthiness.
But consumers should exercise caution. These financial institutions operate in a regulatory gray area where the laws governing what they do are still evolving. Regulators are concerned that in some cases the data and algorithms used to predict creditworthiness may be unintentionally discriminatory.