Welcome to America! Now learn to be in debt
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Lianne Milton for NPR
Yazmin Lopez, here at home in Madison, Wis., first learned about credit scores from a personal finance book she picked up at Goodwill a few years after coming to the U.S. as a teenager.
Every time you swipe your credit card for a coffee or a carton of eggs, you take out a tiny loan from your bank.
In many ways, the U.S. runs on borrowed money: a mortgage for a home, financial aid for college, a loan for a car, credit cards for nearly everything else. Over just two years, Americans went from pandemic-fueled, near-record savings to today's highest-ever levels of personal debt.
But what if you were taught to never owe anybody anything?
What may seem like an immigrant clich actually happens every day: Foreigners arrive in the U.S. with big dreams and a few dollar bills in their wallet. That was true for both of us reporting this story. Tirzah zipped some emergency funds into a hidden compartment of her suitcase; Alina wrapped her college tuition payment into a handkerchief pinned inside her jean pocket.
/ Zayrha Rodriguez/NPR
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Zayrha Rodriguez/NPR
NPR's Alina Selyukh shows how she wrapped tuition money in this handkerchief before safety-pinning it inside her pocket when she traveled to the U.S. for college in the late 2000s.
Cash felt like our proverbial bootstrap, promising the comfort of certainty. But before long, this comfort gave way to a jarring realization:
The U.S. economy counts on you to borrow money and stay in debt.
Almost in a matter of a single generation, America has developed an extensive, even casual reliance on debt. Its epitome is the credit score, which often snares newcomers into a financial Catch-22 penalizing a lack of debt history and pushing many to take confusing, sometimes costly measures.
When some debt is better than no debt
New data this month showed U.S. household debt now surpasses a record $17 trillion. For comparison, the European Union has more households and less than half that amount of debt.
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Being financially responsible in the U.S. has come to mean "borrow and repay," says Barbara Kiviat, an economic sociologist at Stanford University.
"It sort of crowds out the idea that maybe not borrowing in the first place is also a good idea," she says. "But we're now living in a world where so much hangs on that credit."
That's because the credit score has become shorthand for how financially trustworthy people think you are landlords, car dealers, insurance companies, even some employers. The three-digit score is produced by a formula that crunches your
debt payment track record
; by its standards, being on top of your debt is rewarded, while not having debt at all is a flaw.
To square this idea in her head, Yazmin Lopez had to reconsider what she'd been taught at home.
"Like, my dad he has all his money under the mattress," says Lopez, who moved to the U.S. from Mexico as a teenager. Her father came up distrusting banks. "He did everything in cash," she says. "He never wanted us to have a credit card."
The two of us remember this dilemma well.
Alina's parents in Russia, in the 1990s and 2000s bought apartments and cars with cash in a plastic bag. Tirzah's relatives in India and the United Arab Emirates cautioned against borrowing anything, let alone money.
"It's such a cultural shift," says Adina Appelbaum, who works with immigrants as a financial counselor and lawyer, "because in many countries they don't have this culture of debt ... and there can actually be shame around having debt or a credit card."
Trapped in a loop without a strong credit history
Without a strong credit history, big things start to get more expensive: car insurance policies, home mortgages, even rent. Landlords might demand extra security deposits or, in Yazmin Lopez's case, simply reject the application, costing her money in lost fees.
Lopez first learned about credit scores from a personal finance book she picked up at Goodwill a few years after coming to the United States. The text described parents building children's credit histories by adding them to credit cards at a young age. Lopez remembers thinking, "Well, that's not going to work."
/ Lianne Milton for NPR
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Lianne Milton for NPR
Aspiring to start a business and own a home, Yazmin Lopez ended up turning to a financial adviser for help figuring out how to do that as an immigrant.
Even to people born in the U.S., how credit scores work can seem mystifying. Now add to that maybe a language barrier or a cultural one of generations teaching to avoid debt at any cost. Foreign-born residents almost 14% of the U.S. population usually arrive as "
credit-invisible
," however exceptional their financial history might have been back home.
"I don't know how the credit score is like, scoring," says My Nguyen, a neuroscience student at the University of Illinois Chicago who's from Vietnam. At 20, she's the first in her family to have to sort it out. She wants to qualify for a student loan to attend medical school.
Last July, Nguyen says, her credit card application was rejected by Bank of America. In September, by PNC Bank.
"I was like, I have access to money. I will be able to pay you back everything," Nguyen says. "But I guess I didn't have enough history."
Hearing her story, we both nod. Our banks, too, denied us credit cards at first, despite steady paychecks deposited into savings accounts.
Federal law has long banned discrimination based on national origin, with the Justice Department saying "people cannot be denied equal opportunity because they or their family are from another country." What the banks' credit card rejections often cite is a lack of "revolving trades." Translation: no credit history.
And there it is, the Catch-22: Building a history hinges on getting credit, which in turn seems to hinge on having history.
The scale of the problem
Last year, the Consumer Financial Protection Bureau a federal watchdog agency turned its lens on immigrants' financial barriers.
Across the country, the team heard stories of frustration: foreign passports getting rejected as a form of ID, long-term residents struggling to fund small businesses, families squirreling away large sums of money to buy homes, not realizing they couldn't secure mortgages.
/ Zayrha Rodriguez/NPR
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Zayrha Rodriguez/NPR
NPR's Tirzah Christopher received this paperwork with her first credit card in April a "secured" card that required a $200 deposit as a guarantee.
"Many financial institutions have policies and practices in place that effectively exclude some immigrants from access to banking services and to credit due to immigration status, even among those with prime or near-prime credit scores," the CFPB's Sonia Lin later wrote in a post.
One of the few federal laws that addresses lending to immigrants the Community Reinvestment Act encourages banks to meet the credit needs of people from all income brackets. The effect on foreign-born borrowers is hard to track.
U.S. financial watchdogs are working on more financial advice i
Wednesday, May 24, 2023 at 9:00 am