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When you don’t have a credit history, accessing even the most basic financial services is almost impossible.

Find out how Michael Broughton is providing a unique solution.

Michael grew up in Japan and Korea before returning to the United States, where he founded Altro, the free credit service helping people build credit through recurring payments and subscriptions

Nicole and Michael talk about the innate discrimination of the credit score system, especially for people of color and those in the LGBTQ+ community. You’ll also hear how Altro effectively functions as a not-for-profit to provide solutions for no credit.

Michael shares why building a community of investors who share in the mission is important and why financial education is built into the Altro platform.

And if you love listening to Humans of Fintech, please leave me a 5-star review on Rate My Podcast: https://ratethispodcast.com/humansoffintech

Thank you so much!

Follow Michael:

LinkedIn: linkedin.com/in/michael-j-broughton

Twitter: https://twitter.com/mjb4u2008

You can keep up-to-date with everything Humans of Fintech at https://workweek.com/brand/wtfintech/

And if you’ve enjoyed Humans of Fintech why not try: Chicks of FinTwit, Tech Unlocked, Breaking Banks or Fintech Insider

Nicole is a friend of Workweek, working in partnership to bring you great podcasts on the subjects you love. Find out more at: https://workweek.com/

Timestamps:

00:00 Introduction

02:55 Military Kid to Community Builder

07:04 Building Equity Into An Unfair System

11:53 Finding Your Way Through Fear

16:23 More To Overcome

19:00 The Education Formula For Success

22:37 The A-Ha Moment

25:06 Becoming The Change

29:00 Coming Up For Altro

31:08 My One Piece of Advice

How to Build Financial Credit

When you are just starting out, it can be challenging to build a credit history. This is especially the case if you are young and don’t have access to parental assistance or another adult who can add you as an authorized user on one of their accounts. 

If you cannot add yourself as an authorized user on someone else’s credit card or loan, how else can you establish financial credit? 

Unless you plan to live exclusively on cash for the rest of your life, building a credit history is essential for making future purchases easier and more affordable.

To do so, however, requires establishing what is known as “financial credit.” Financial credit usually comes in the form of a secured loan from a financial institution such as a bank, credit union or online lender.

What is a Secured Loan?

A secured loan is a type of loan in which the borrower pledges an asset as collateral. This means that, if you default on your loan repayments, the lender has the right to repossess and sell the asset in order to recoup their losses. 

For example, if you take out a $10,000 loan, but you only have $2,000 in savings or assets, the lender might ask you to secure the loan with one or more of your assets (e.g. your car, laptop, etc.). In the worst-case scenario, if you default on the loan, the lender can repossess the asset and sell it in order to recoup the loan amount, interest and fees.

How to Build Financial Credit with a Secured Loan

To build financial credit with a secured loan, first determine how much money you want to borrow. Ideally, you will want to borrow an amount that is affordable and represents a small percentage of your overall income. 

For example, if you earn $4,000 a month, a secured loan of $500 or less is a good start to building financial credit. Once you know how much money you want to borrow, shop around for the best secured loan. Be sure to shop around, as the interest and terms offered by lenders will vary. 

Whatever you do make sure that lender is fully regulated, do not approach payday lenders or any other lender who offers a crazy high interest rate.

Which Loans Help You Build Financial Credit?

Here are some of the most common loans that can help you build financial credit: Credit Cards. If you have a solid relationship with your existing credit card issuer, you might be able to have your credit card lender add you as an authorized user on one of their accounts. Otherwise, you might try to open a new credit card account (see below). Be sure to understand the terms of the credit card account, including the interest rate, minimum payment due dates, and any fees. 

Pay the account monthly, on time and in full, and you will soon have a solid credit history. Automatic Loan Payments. If you don’t have an asset to use as collateral, or if you want to build credit without incurring debt, you can ask a lender to set up an automatic loan payment plan. In this case, you will sign an agreement to pay back a small, specified amount of money each month.

 While this practice does not result in the same type of credit history as a secured loan, it can help you establish a positive payment history with lenders.

Where to Find a Secured Loan?

When you are ready to find a loan, you can start by asking your bank or credit union. If they don’t offer secured loans, you might want to look online for an alternative lender. 

You can also check out websites like LendEDU, which feature an extensive list of lenders where you can find a secured loan. Another option is to visit your local financial institution and inquire about a secured loan or small business loan. Finally, you might want to consider the SBA’s 7(a) Loan Program. This program offers low-interest or interest-free loans to businesses in all industries, including those owned by individuals under 25 years old.

How to Choose a Secured Loan?

The best way to select a lender and loan terms is to do your homework. Once you have identified a few potential lenders, be sure to check out each lender’s website, read reviews and/or reference their BBB rating. 

You can also call the lenders and ask questions. If you are applying for an SBA loan, you can apply online. Be sure to ask about the lender’s rates, interest payments, and any fees. Before signing a loan agreement, also make sure that you understand the terms of the loan, including the repayment schedule, payment amounts, and what will happen if you miss a payment.

Conclusion

When you are just starting out, it can be challenging to build a credit history. This is especially the case if you are young and don’t have access to parental assistance or another adult who can add you as an authorized user on one of their accounts. If you cannot add yourself as an authorized user on someone else’s credit card or loan, how else can you establish financial credit?

 To do so, you need to find a lender willing to make you a secured loan. You can begin the process by asking your bank or credit union, or you can look online for an alternative lender. Once you have found a lender, be sure to ask about their rates and loan terms, and do your homework before signing a loan agreement.