A Guide to Credit for Hispanics & Latinos

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By Vianessa Castaños

Updated: October 31, 2024

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Credit is usually associated with financial transactions, such as getting a bank loan. But the reach and impact of credit extend much further. Having good credit can give you access to better interest rates, improve your chances of being approved for a rental property and offer you peace of mind.

For Latinos and Hispanics in the U.S., establishing a positive credit history through means, such as using credit cards, can help families build multigenerational wealth and a stronger financial future.

A Glance at Credit for Hispanics and Latinos

 

According to a recent survey of unbanked households by the Federal Deposit Insurance Corp., an estimated 12.2% percent of Hispanic households were unbanked in 2019, compared to 2.5% for White households.

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In 2019, the median debt-to-asset ratio for Hispanic heads of family was 50% higher than families with White, non-Hispanic heads of family.

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One in 10 adults in the U.S., or about 26 million people, are credit invisible.

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More than 27% of Hispanic consumers are credit invisible compared to 9% of White consumers.

Sources:

Consumer Financial Protection Bureau, Employee Benefit Research Institute, Federal Deposit Insurance Corporation

Challenges to Access Credit, Banking and Financial Services

The financial wealth gap in the U.S. has its roots in many issues, including redlining practices, discriminatory and predatory lending policies and a lack of access to resources for Hispanics and Latinos, other communities of color and immigrants. Limited credit histories also create economic barriers by making it harder for individuals to get an education, start a business or buy a house. Establishing good credit can overturn negative cycles of debt and make it easier to become financially solvent and gain access to financial resources that can help build generational wealth.

An illustration of a young family working on building their credit through credit cards.

Obtaining a Credit Card to Build Credit

Your credit score is based on your past credit history — but what happens if your credit is non-existent? Or, what if your history isn’t as pristine as you need it to be? More than a quarter of the Latino and Hispanic community in the U.S. is "credit invisible," meaning credit history is so limited there is no credit score. Obtaining a credit card is one of the best ways to start building credit. Finding a card that is best suited to your current financial situation can help you establish credit responsibly.

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    Unsecured Credit Cards

    Unsecured cards are the most common forms of credit. While this is the most straightforward option, however, you should review your options and look for a card with low fees and cash-back rewards on qualifying purchases.

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    Credit Cards for Those With Poor Credit

    A variety of credit card companies offer cards for people with poor credit. Keep in mind interest rates will be higher and you may be charged an annual fee, but if you’re trying to rebuild your credit, these charges may be worthwhile on a short-term basis. To minimize costs, keep your balance low and pay your bill as soon as possible.

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    Secured Credit Cards

    If you’re trying to rebuild your credit or have no credit history at all, you may want to consider a secured credit card. With a secured card, your credit line will be secured by money you keep in a savings account, so the creditor is assured they’ll be paid back what you borrow. As you begin making payments, your credit score will gradually improve, and you’ll have a better chance of getting approved for an unsecured card.

Building Credit Using Alternative Means

Credit reports have traditionally been used to assess the likelihood that someone will pay back a loan on time and thus serve as reassurance that a borrower can safely take on risk. While opening up a line of credit offers the opportunity to show lenders that you are trustworthy, credit cards aren’t the only way to build a better credit history. Other credit reporting alternatives can include paying monthly bills, such as rent or a mortgage. A number of other non-credit card strategies can also help you establish credit.

  1. 1

    Show reliable employment

    Holding on to pay stubs and using them as proof of a steady paycheck can show lenders you have a steady income and the means to make payments. W-2 forms are frequently used, but if you’re self-employed, 1099s, tax returns and bank statements work as well.

  2. 2

    Pay bills on time

    Some programs such as Experian Boost allow for rent and other monthly bills such as utility and streaming services to be reflected in your credit report. The service is particularly good for people with little to no credit history as well as established borrowers looking to increase their credit scores. In general, recurring payment receipts of any kind can show you’re a trustworthy borrower.

  3. 3

    Link insurance payments directly to your bank account

    Whether it’s your car coverage, health policy or homeowners insurance, coverage is often a must. Most consumers are required to purchase a policy, so having payment automatically linked to your checking account can be a strong way to build your credit score and show you are financially solvent and capable of paying bills.

An illustration of a young family of four on a plank trying to balance their debt and income.

Making Debt Repayment a Priority

Whether you are paying down student loans or buying a property, accruing debt is often unavoidable. Problems usually only arise when ‘good’ investments begin to accumulate and turn into risky ventures. If you’re feeling overwhelmed by the idea of tackling your debts, there are a few steps you can take to get a better handle on your finances.

  1. 1

    Get organized

    When it comes to paying off debt, knowledge is power. Contact the three credit bureaus — Equifax, Experian and TransUnion — to get a copy of your full credit report, which is offered free annually. Once you learn your current score, you will be able to set future financial objectives. Generally, a credit score of 700 or above is considered good, and a score of 800 or above is considered excellent.

  2. 2

    Make a financial plan

    Whether you decide to prioritize repayment of debt based on interest rates, outstanding balances or some other criteria, it’s important to make a financial plan. Part of this plan should include setting deadlines for when you would like to have certain debts paid off. To start, make a budget to account for your monthly expenses and determine what you can realistically spend on debt repayment.

  3. 3

    Pay off tuition

    Proof that you have paid down your school tuition, or the tuition of your children, can reassure lenders. If you haven’t paid tuition in full, start by consolidating student loans or enrolling in an income-based repayment plan so that your payments correspond to your current income level. Steady payment can make it clear that you are making a sustained effort at repayment.

  4. 4

    Control your spending

    Once you’ve made a budget, stick to it. One way to do so is to limit how many credit cards you carry around, so you’re not tempted by impulse shopping. Instead, use cash or debit cards for purchases to better manage your day-to-day spending. Reserve using credit cards for emergency situations only.

  5. 5

    Consult a financial planner

    A variety of financial resources and educational tools can help you better understand how to manage your debt. But talking to a financial planner is one of the surest ways to hold yourself accountable and set realistic money management goals.

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Resources for Building Credit

Learning how to build your credit can feel overwhelming. From sites that help you obtain your credit score to financial literacy programs that teach you how to get out of debt, there are a variety of resources that can help.

  • Consolidated credit: Consolidated Credit has been providing effective advice for debt management for years and has helped thousands to get a handle on their debt. The organization offers free consultations about your personal credit card debt and overall financial health.
  • Juntos Avanzamos: Juntos Avanzamos is an umbrella program that works with credit unions to focus on the financial needs of Hispanic Americans and immigrants. It currently boasts the participation of 108 credit unions in 26 states.
  • MyMoney.gov: This site, backed by the Financial Literacy and Education Commission, offers free budgeting and money management resources. The Commission aims to better help all Americans make informed financial decisions.
  • FDIC Money Smart: Money Smart offers a Spanish-language financial education program to help individuals improve their financial health. The program is offered throughout the year through various web seminars.
  • Hispanic Heritage Foundation: The Hispanic Heritage Foundation, founded in 1987, offers a series of free podcasts and videos focused on money management, debt management and wealth, along with programs to promote leadership and education within the Hispanic community.
  • Closing the Life Insurance Coverage Gap Among Hispanic Americans: This MoneyGeek's resource discusses the lack of life insurance among Hispanic Americans, providing guidance on affordable options and highlights how life insurance can help secure financial stability, cover funeral costs and support loved ones.

About Vianessa Castaños

Vianessa Castaños headshot

Vianessa Castaños formerly worked as a scriptwriter and producer for personal finance adviser, Ramit Sethi of "I Will Teach You to be Rich." She is a culture and lifestyle writer specializing in issues that pertain to the Latinx community in the U.S. and abroad. Her stories are published in Harper's Bazaar, The Miami New Times, Bare Magazine and others.

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