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The Student Immigrant Journey

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Student Money Matters with Stilt.co

By Sandhya Ramachandran

Stilt.co explains basic terms to aid international students in understanding how credit works in the U.S.

As an international student, everything about the mighty dollar made me nervous. A month in, I made note of the differences in financial handling if I may between here and India:

  • Very few transactions are done in cash. One rarely pays with coins and notes. Except when it comes to laundry (only quarters/25 cent coins. Go figure).
  • Credit more commonly used than a debit card for all purchases. While it isn't uncommon to use a credit card back home, I wasn't familiar with the concept at all. 
  • Check books (not spelt cheque anymore) were not complimentary.
  • ATM scouting isn't necessary thanks to the cash back option at supermarkets (score!)

The more pressing questions of how to choose a bank or why it matters to have a credit score - questions I pushed away - are a little harder to understand (and explain). And so, let me introduce you to Stilt: a company that specializes in loans for international students. 

In this interview Rohit Mittal, co founder of Stilt, addresses some of the top queries related to everyday banking and finance that are bound to boggle the minds of prospective or lazy international students:

Pls. explain as simply as possible the concept of a credit history/credit score and why it is important to consider accumulating one in America.

Credit History is simply a list of all your credit obligations in a country. The various types of credit products include credit cards, auto loans, mortgages, apartment rentals, postpaid phone plans etc. In all of these services, the service provider extends you money/credit with an expectation of constant payments in the future. There is a risk that you will not pay your dues. So a company that gives you a loan wants to see all the other loans/credit products you have and have you been paying them back on time. A credit score is a representation of your credit history into a numerical score using an algorithm. This credit score is used by almost all the institutions that provide credit to determine an individual's level of risk. There are 2 major credit scores used in the U.S. - FICO and Vantage. FICO is the oldest credit scoring system while Vantage was developed by credit reporting bureaus more recently.

 

Credit History and Credit Score are both important anytime you are looking for a new credit card or any type of loan. In some cases, employers use credit history to determine the quality of the job applicant. This practice is not common amongst white-collar jobs but still widely used. Credit scores range from 300 - 850 (with 300 being the highest risk). 

If you don't have a credit history, it'd be almost impossible to get any banking services except a deposit account. You will have to live on cash/debit card and you won't be able to buy a car at lower interest rates.

How long does it take to get a good credit score and how can one do this?

A credit score or credit history starts building as soon as you get your first credit card. It may take a few weeks for the card to be reported to the credit bureau. It is still not clear if you can build a credit history without SSN (Social Security Number) or ITIN (Individual Taxpayer Identification Number). Some banks start reporting to credit bureaus even if the borrower doesn't have an SSN.

To be sure that you are building a credit history, get an SSN as soon as possible (everyone who's working in the U.S. needs to have an SSN for reporting taxes). After you get your SSN, get a secured credit card (if you aren't able to get an unsecured card). This will help you get started. It will take a while for your credit score to improve and that's ok. The length of credit history is a part of the formula for calculation of credit score and you can't make your credit history move faster.

The most important thing in building a credit score is making payments on time. A single missed payment can significantly reduce your credit score. Even if you make a payment later, it will take a while for the credit score to go up.

Make sure that you don't open a lot of new credit cards if you don't need them. 3-5 cards should be enough over a few years to help you build strong credit. Further reading.

What are the limitations to not being part of the credit system?

  • If you don't have a credit history - then you are what banks call a "credit invisible" and it limits you from living a 'normal life' in the U.S. Some services in the U.S. only accept credit cards and don't even allow other forms of payment (example - car rental services).
  • Some employers may not want to offer you a job because they can't verify your identity on the credit bureau. 
     
  • The major limitations revolve around getting access to any type of credit and the cost of credit. A small change in your credit score can have a significant impact on your interest rates for credit cards and loans. A small interest rate change in a mortgage can lead to tens of thousands in extra payments over the course of the loan.

What are some things to keep in mind while choosing a bank as an international student in America? 

The most important thing for an international student is to make sure they have access to services they need during school. These services may be different from a normal bank account. A good idea is to choose a bank that caters to students, have low minimum balance requirements, gives you an unsecured credit card, and helps you build a credit history.

It's also important to check if they have online banking services and if they charge fees for those things. In the U.S. many banks have a no-frills account for students, but they are limited in functionality. For e.g. you may not be able to use your ATM more than twice a month, you may not be able to send money more than 5 times a month, you may need to have a direct deposit or bill pay set up to avoid any fees, they may charge you for checks, monthly statements etc.

Most banks understand a student's needs but these offers are valid only for a limited time. They may start charging fees after the promotional period (it happened to me). When you graduate and move to a new city, it's good if you can keep the same bank as you integrate a bank in your daily life during school.

The Story of Stilt:

"Stilt was founded by me (Rohit) and Priyank. We were roommates during our Masters at Columbia University in New York. Priyank was an MS in Computer Science (started in 2009) and I was an MS in Operations Research (started in 2010). When I moved to New York, I was having a hard time renting an apartment because every landlord wanted to pull my credit history and I didn't have an SSN at that time. Luckily, one of Priyank's roommates left and I got in touch with him. We were roommates for a couple of semesters. 

I graduated in Jan 2012 and went to work for a credit risk analytics consulting firm based in New York where I worked on credit risk models for large credit card issuers and banks. I personally worked on Bank of America, Citibank, American Express, Cap One, and Fifth Third. In 2013, I moved to San Francisco to be the founding team member of data science at Popsugar. Priyank moved to Amazon's A9 machine learning division in the Bay Area.

Soon after, we started working on side projects. This one was closest to our hearts as both of us had faced problems with the credit system in the U.S. We decided to participate in a Startup Weekend Competition in early 2015 just for fun, which we won and a few months after, we registered the company. Initially, we decided to start lending with our own money to students who had graduated but needed financial help to relocate. Then we borrowed from friends and slowly started growing. A few months after, we got into Y Combinator and left our jobs to work full-time on the company."

As of now, Stilt doesn't offer any consultations for international students, but you can email them with questions about loans or anything related to credit in the U.S. They are also very active on Quora where they have taken on many more questions regarding credit scores!