How To Build And Improve Your Credit With Limited Credit History
This week, Maggie is chatting with Snigdha Kumar, Head of Product Operations at Digit. In this episode, they talk about how to build and improve your credit history and get started on the path to financial wellness.
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Snigdha Kumar is the head of product operations at Digit. Snigdha has spent a majority of her professional life working on increasing financial health for the underserved communities. Her research on better alternatives to high cost lending has been published by Wall Street Journal and Harvard Business Review. She got her Master’s from Harvard University and her thesis focused on driving adoption of savings strategies among low income wage workers.
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To learn more about Maggie and her coaching and speaking services, visit www.maggiegermano.com.
The theme music is called Escaping Light by Aaron Sprinkle. The podcast artwork design is by Maggie’s dear husband, Dan Rader.
TRANSCRIPTION
Maggie Germano 0:05
Hi, and thanks for listening to the money circle podcast. I’m your host, Maggie Germano, and I’m a feminist and a financial writer, speaker, educator and coach for women. I’m passionate about making personal finance less scary and more approachable so that women can improve their relationship with money and take control of their finances. Every other week, I will interview an amazing, inspiring woman to talk about the issues that impact our money, our health, our independence, and more. We will touch on the societal and structural issues that we need to work together to change and the actions that we each have the power to take in our own lives. If you’d like to learn more about me and the work that I do, visit my website at Maggiegermano.com or follow me on Instagram @MaggieGermano. Thanks again for listening and I hope you enjoy.
Maggie Germano 0:54
Hey there, and thanks for listening. I’m your host Maggie Germano. And this week, I’m chatting with Snigdha Kumar, Head of Product operations at Digit. In this episode, we talk about how to build and improve your credit history and get started on the path to financial wellness. Enjoy.
Maggie Germano 1:20
Okay, welcome. Thank you for being here today.
Snigdha Kumar 1:24
Thank you for having me excited to get this conversation started.
Maggie Germano 1:27
Me too. So just as we get started, why don’t you tell us a little bit about who you are and what you do?
Snigdha Kumar 1:34
Yeah, my name is Snigdha. I am Head of Product operations at Digit, which is a FinTech that’s focused on making financial health effortless for everyone. I’ve been at digital four years and have been in the industry of extending financial health and leading to financial inclusion for almost all of my career.
Maggie Germano 1:56
That’s great. And I’m sure that a lot of my listeners have heard of Digit as well, I’ve I’ve had several clients who use it, I think it’s a really interesting tool for helping people save and, you know, reach their goals. And so how did you you said, You’ve been kind of in this field for a really long time, most of your your career, how did you kind of find yourself in this?
Snigdha Kumar 2:17
Yeah, so you can almost say that financial services is in my DNA. My, like, I grew up in India, and my parents, both work in government financial services. So in India, all of the big financial services are offered by government, your banks and your insurance. And most of the focus is on helping people get financially included, give loans to the vulnerable population, and like, you know, kind of push industry towards development. So growing up, like all my dinner table conversations used to be about oh, government policies to expand loans to small businesses, and how like an insurance save the family when they had an unexpected accident. And I kind of grew up listening to that, and believing in the power of finance, and especially borrow finance, when done right has the ability to unlock a lot of human potential. So I just got tuned into that. And then I kind of started exploring, my first job was in kind of like management consulting, but we focused a lot on FinTech and financial inclusion. So then I got interested in the space, did a lot of like, you know, research and lending help like clients expanded to Asia, in Indonesia, and like Myanmar, all these places, which have like lower financial inclusion, and then from there, kind of like went to grad school.
Snigdha Kumar 3:35
And then when I was at school, like that was in India, that was in the US, I came to Harvard to do my grad school. And one of the things that surprised me the most was, the credit system in the US was so complicated and so difficult to navigate. And as an immigrant, I kind of faced a lot of that. And then that kind of motivated me into researching, Hey, what are the alternatives to better lending. So most of the research that I did at Harvard was focused on FinTech alternatives to high cost lending.
Snigdha Kumar 4:07
And then that kind of caught me to digit because one of the one of the ways in which you can be reliant on like, you know, less credit if you have savings, and if you can kind of like be resilient, because otherwise, if you are anyone who has less than 680, in your FICO score, you have to kind of like rely on informal lenders like payday lenders, and auto lenders, and they tend to charge you interest rates up of like 350% APR, which is just ridiculous if you think about it, because those are the vulnerable population and you’re charging them the highest amount of interest rate. So that kind of like got me into the space, did a bunch of research and then Digit was one of the alternatives which will just building resilience and therefore your aim.
Maggie Germano 4:52
That’s great. And that’s so interesting. I mean, I know some people they can kind of go in either direction when they kind of see what their parents do for work or their parents experience with money, like run as far away from that as possible or kind of lean into it and find your own way into that kind of field. And it sounds like you’ve made it your own and really found, you know, your niche there of your interests and also wanting to help people.
Snigdha Kumar 5:20
Yeah. Yeah.
Maggie Germano 5:21
And what you were saying about, you know, how the most vulnerable populations are also the ones who are charged the most, that’s been something that’s been coming up with overdraft fees, especially recently, because a lot of banks are starting to think, oh, yeah, maybe this is not something that’s fair, maybe this is not something we should be instituting and some, some banks are getting rid of those overdraft fees is that something that I’ve thought about too, is like, if you don’t have enough money to pay for some things for your overdrafting, how are you then going to pay a penalty, it’s just gonna get you deeper and deeper into the hole. And I’m sure those kinds of penalties and things with you know, high interest rates, it really, it just keeps people in this cycle of debt. And of that, you know, difficult financial situation.
Snigdha Kumar 6:07
Ya know, one of them one of my explosive experiences was that I, I did overdraft, like very early on when I was in the US, but I didn’t know the system kind of existed, I was navigating through it. I was like, when you when you do put things in context, how bad it can be, when you buy a $5 of coffee, you can get charged $35 Just for overdraft. And a lot of like, it’s still it’s a reality, a lot of like, you know, people who are subprime, they end up using overdraft as a line of credit potentially, because they don’t get lines of credit from the credit card companies at a cheaper rate. And for them even paying $35 Or like maybe $100 per Jane is still cheaper than like them going to a like informal financial institution. So it’s a very, like, very complicated system. And all of it is exists because the payment system and the settling system in the US is not real time, which is another big topic that we can talk about some other time. But yeah, we are lagging behind and having a payment systems be more modern and then preventing these overdrafts. But a lot of the banks now are kind of mostly are encouraged by what fintechs have done, right? Because most of the fintechs are like the biggest value prop that they have is we don’t have any hidden fees. We don’t have any like overdraft you come use us we are not going to screw you over. Right. So that’s been basically like one of the biggest embarrass of users coming to FinTech and big banks are seeing it and they’re like, Okay, maybe like, you know, it’s not worth it. So then they’ve started now kind of removing a bunch of overdraft fee, which is great, I think. I mean, that’s the direction the industry should move in.
Maggie Germano 7:46
I agree. And I think that that’s a really wonderful example of just showing how pry other private industry can make can influence the industry as a whole. Like, it doesn’t have to be the government coming in and, you know, passing different legislation, because I know that can be it can take forever, it can be really difficult. It can feel like it’s never going to happen. And so having, you know, certain companies and industries kind of lead the way in that way and show that like no, actually the consumers prefer this. They want this it’s showing and it really encourages other companies to do the same. I love to see that.
Snigdha Kumar 8:26
Yeah, private sector innovations.
Maggie Germano 8:29
Yeah, that’s great. And you mentioned that like with digit and you know, building up savings as a way to improve financial circumstances, is one kind of solution. And that’s, you know, where you’re at with, you know, how you’re focusing in your career. When you were at Harvard doing this research? What were some of those other solutions? You were seeing, aside from having to rely on payday lenders? Are those really high interest? Credit cards or other loans?
Snigdha Kumar 8:57
Yeah, so specifically in lending, there are alternatives right now where you can actually get interest like you can get lower interest rate loans, that credit builder products, which even if you don’t have finished, like, if you don’t have any FICO score, you can you can, like you know, use those credit builder products to build credit and then like, you know, start getting lower interest rates. So there are companies that are trying to do like few different things. So there is this concept in credit called 10 files, which is you don’t have enough data to give you loan and that is usually students or immigrants and not that they’re like, you know, people who won’t repay your loan, it just set the tone of data. And the FICO score doesn’t take into account a lot of your payment history or rent payments unless you do like an extra step. But like these credit builders essentially help you get to that point where your your tin file becomes like a normal file and 10 file literally means like file of paper that exist in your in your like, you know, portfolio. So, at the end of the day, like you know, you have to credit lenders, so that helps you kind of build credit, then you have other products that even if you are thin file or even bad file, which is like, you know, you don’t have enough FICO score to get a loan at, like low interest rates, even like there are like some lenders that are trying to target that. Like, you know, we recently got acquired by Oportun to like, they also kind of like, they are another company that target particularly like, you know, tin file and they can have bad file users. Like one example, there are other examples that help you kind of get the transport that data from like if your immigrant from another country into into the US. So that’s something called lower credit. Now, that’s a lot about credit, right? So I think your question was more about, like, you know, what are the other solutions if you don’t go to like informal lenders, so one is, I usually give this example of like, this whole, like starving man analogy, which is, when a man is starving, which is then when they need food, you don’t want to tell them that hey, like, you know, get her on diet, so that in the future, you’re gonna be healthy, you’re gonna give them food, right? So lending products end up being at that point of like this, this like ladder. So when a person needs money, you give them loans, so that they can get back to the life. So you I talked about a lot of credit products that kind of target this section. Now, once the man is not starving, they you have to give them like tools, so they never get back to that steady state. Right? Now, those tools are usually budgeting, like how do you get to the point you’re not starving again, and budgeting, you could use tools like maned and like monarch to kind of like just take stock of where you’re at, what your financial goals are. And then how do you get there by tracking them religiously. So once you get to like that place of okay, now I have ways to like, not ever start again. Then you give them diet books in that journey, like okay, now you can eat healthy, and when you when you like, give them diet books that you give them alternatives to, hey, don’t like you know, spend so much money on this particular categories, like you know, try to like shop a little bit more for your credit, or like try to kind of like have savings and like retirement and investing and things like that. So that’s how you kind of move like the analogy of starving person from like being starving to like a healthy diet book. And then these are the kinds of solutions that target each of these stages.
Maggie Germano 12:17
Yeah, that’s really interesting, because like you were saying, if someone is in a dire financial circumstance where they like can’t cover their basic needs, teaching them how to budget isn’t actually going to solve the problem in that moment, you have to help solve the actual issue so that they can, like you said, get back to their life and get back on their feet. Because yeah, budgeting is all well and great. And obviously, it’s super important. But if you can barely put food on the table or pay your rent, there’s a different issue at hand, there’s a cash flow issue. So yeah, I really like that approach of like, helping the stop the starvation or stop the bleeding even. And then from there provide some of those tools and that budgeting approach, I think that’s really important.
Snigdha Kumar 13:08
Yeah.
Maggie Germano 13:09
And so, when it comes to, you know, say someone who’s listening is in that situation where they’re, maybe their credit is lower than they would like it to be, or maybe they don’t like you were saying don’t really have a whole lot of credit to really speak or credit history to speak of, and they want to get in a better place where they have better financial options where they are able to qualify for different loans, or you know, maybe they want to mortgage someday, maybe they want to buy a home, maybe they want to go back to school, what would you recommend, some are some of the first steps to kind of get them on track and in the right direction to having better financial wellness to get to where they want to be.
Snigdha Kumar 13:54
Yeah, so I think there are two parts to getting to that financial goal, right? One is kind of improving your credit history. So improving your credit history can come by, like you can do a few things, there is this whole concept of like, you know, giving up your payment data, and rent data to the Bureau’s so that you can build more credit, it is an extra step, it requires you to do a little bit more than just like your lenders reporting your score. So that’s, that’s one way of like, you know, you contact the bureau and be like, what else can I give you to kind of increase my score? And, and then like, you know, then there are these credit builder fintechs. One of them is time. And like, you know, they basically like you know, give you loans and then help you build that credit. I think the product is also It’s doing pretty well. So I think that’s another way in which you can kind of like build credit. By starting small at a lender. You don’t have to take a big loan, you can take like a $500 loan, which most of the credit builders have like lower loan amounts. You start paying off that little amount of money and then you start building the credit history. So this is one way in which like you start with Literally history by taking small dollar amounts of loan, which most of the lenders are comfortable doing, and then paying that that back gives you a payment history. And therefore you can get like a higher up on the FICO score. So you can get better rates when you want to buy that house, or when you buy want to buy that car. So that’s one way. The second way is like also figuring out what are your alternatives to that credit, right? One of the alternative, as I mentioned earlier, is savings. So how do you start saving small for that mortgage, because you’d have to pay that down payment, and even for your car, you would have to pay the downpayment, right. And the easiest way to do this is like, you know, if you’re someone who struggles with financial, financial health, and you kind of like feel scared about it, it feels very overwhelming to you, you can automate your finance. So like you can use apps like digit where you can just have a goal and like, you don’t even have to think about it, we will start saving for you every day small dollar amounts. And one day you open the app and you’ll be like, Aha, I have $500 in it, like I didn’t even know that happened. So that’s one way you can automate your finances. The other way is that, you know, if you are a little bit more likely in control of your finances, you can set aside X percentage of your income every month, to like this hidden savings account where you don’t look at it. So it could be like, like a savings account, it could be like even even like sending money to like someone in your family who you trust more, so that they don’t give you access to that money. But the important thing is that that money you should never touch, it shouldn’t be a hidden kind of for money. So like building a credit history, having alternative form of like saving, so you can actually pay off that downpayment, those two things definitely get you closer to the goals. And then I would also say that, you know, some amount of budgeting and tracking is also important. Because you can get all the all the credit score that you want, you can also have some amount of savings, but you also have like four different goals to kind of manage against, you might have a student loan that you need to pay, you might have to buy a car and a house and maybe your wedding planning. Now budgeting will help you kind of figure out how much money you need to allocate towards each of these goals. Versus like, you know, just be like focused on one goal and like forget about the other. So like, putting all of these three things together, you’d put yourself towards like this really amazing path of like achieving all the financial goals without, like, you know, starving yourself in that in that hole of like no space.
Maggie Germano 17:23
Yeah, I totally agree with that. I mean, I think that when people think about financial wellness, or they think about budgeting, they automatically think that it means starving yourself restricting not allowing yourself to do anything that you enjoy, and that, you know brings you happiness and that that then I’ve seen people it’s very unmotivated to think about it that way. Like you’re not actually going to stick to any of that if you feel like you’re just being punished, basically.
Snigdha Kumar 17:53
I mean, I feel I feel like that’s like the approach that many people take, but I personally hate that approach. And and the reason I hate that approach is that, as you mentioned, you will end up starving yourself and you’ll have no motivation to, to kind of keep on that journey. Right. So I personally tell whoever I speak to about budgeting is that have your cheat days and have like a reward system setup. So when you hit say, like 50% of your goal in like, one month sooner than when you thought you would take like 2% of that goal and do something fun for yourself, go get that nice haircut or like, you know, go go go for that fancy dinner, or like buy that, like, you know, technology product that you’ve been craving for a while. So if you give yourself those small, like, small like incentives, it will also motivate you and kind of create this positive feedback loop where you’ll get a dopamine rush anytime you hit a goal because you know that you’re also going to reward yourself and that will keep you in that in that like cycle of trying to trying to always be on the path of of like budgeting.
Maggie Germano 18:58
Right? So you’re getting two benefits at once you’re meeting those goals, those financial goals, you’re doing those responsible things. But you’re also allowing yourself to have something more exciting having more of that initial instant gratification piece as well. Because you can you can afford it You deserve it because you’re also working towards these more longer term goals as well. I’m a big fan of that.
Snigdha Kumar 19:24
Yep.
Maggie Germano 19:25
And so if people are, you know, following these steps that you mentioned, and they’re they’re trying to be more structured with their budget, and they are doing some of those rewards, but they’re still feeling kind of discouraged or they’re finding themselves losing motivation along the way. What what kind of tips do you have for folks to kind of re maintain that motivation or kind of re up some of that motivation?
Snigdha Kumar 19:50
Yeah, you know, financial anxiety is a very normal thing. A lot of people deal with it when they first start taking stock of their finances and that financial anxiety can sometimes lead to disappointment that, oh, I’m like not doing what I’m supposed to be doing. It’s just too hard for me. And when people feel that way, they should just acknowledge that this is they’re not alone. And this, almost everyone feels this with the way the system is set up right now, finances can be scary, we don’t learn about it in school. Nobody teaches us if our parents don’t teach us, and we have to, like figure all of these complex things out ourselves. So we have to first give ourselves credit that we have made it so far without having like any big event, which would be like negative towards right. So like giving yourself credit for Hey, like I’ve actually made it this far, this is incredibly hard to manage finances, that pat on your back also helps you kind of like, get a little bit more encouragement to move forward. And then when you’re getting discouraged, I would just say like, you know, figure it out why you’re getting discouraged, is it the work, like it is too much work, managing everything, if it is too much work, managing everything, then automate your finances, like automate as much as you can put your bills on auto pay, put your 401 K on like on eBay, put like your savings in like auto mode, use digital, like apps technology to like automate those things. And if the discouragement is coming from my goals feel very, like, you know, long stretched out and right now I don’t feel motivated that in 10 years, I’ll have this great thing, then set goals that are more short term in nature, that like gives you that instant gratification of like, pool, like, I probably won’t reach that, like big house to house like, you know, buying goal in 10 years, but I have this, like, you know, 10% of that mortgage, I am able to save in like three years have started, right, so so like having those more short term goals will also help you kind of like feel that your goals are tangible and holding on to it. And again, when you’re getting discouraged, I think it’s a lot about how do you get yourself that positive loop, create like a buddy system, like I go to gym every day, the only reason I go to gym every day is because I have a friend who goes with me. So create that buddy system. And if you’re doing it together with people who are like minded, who can also like, bring you up when you’re feeling down, that community element also helps you kind of stay on track. So if you’re getting discouraged, like figure out what you do causes of getting discouraged, like you know, then try to attack the root cause by either automating your finances or like getting a buddy or even like having more short term tangible goals that makes you feel that you can achieve the goals more.
Maggie Germano 22:25
So yeah, no, those are really great tips. And I think that depending on the personality that someone has, like you were saying, if it is about kind of feeling disorganized, or overwhelmed, by like actually managing the finances, that automation piece is huge. I’ve definitely met people who think that like they’re supposed to be hands on with their finances, but then that just makes them overwhelmed, frustrated, not actually following through. And I’m like, if you like automation is great. The fact that we’re able to automate savings to automate bill pay to do all of that, like, that’s a huge benefit. And so like, take advantage of that when you can, because why worry about things if you don’t actually need to?
Snigdha Kumar 23:07
Yep, yep, exactly.
Maggie Germano 23:09
Yeah. And so is there anything else you haven’t mentioned that you want to make sure listeners know, whether it’s about credit building or financial wellness in general?
Snigdha Kumar 23:21
I think the general advice I would give is that financial health and financial life planning is very, very hard. And you should treat it treat it as a marathon versus a sprint. So like how you would give nutrition to your body for marathon, you would not just like drawn, you would kind of like take breaks, go slowly. Learn from your mistake, don’t like feed that back into the loop. You also need to treat financial health like that. You’re not always be able to be on the right track, you’re gonna have slip ups, you’re gonna have like your challenges one month, you may overspend a lot. And then you’ll feel like, you know, discouraged and feel like how will you ever reach your goals, but all of these things are actually part of the journey. And it’s totally fine. If like, you slip up, if you miss a goal, you just have to learn that Hey, what happened there and be like, not harsh on yourself, because it is complicated. It is very difficult to be on track. Learn from a mistake, figure out where you could have gone like, you know, like differently or how you could have done it better. And then feed that back into your into your goals. Maybe your goals were too aggressive. Or maybe you didn’t anticipate this big event that was going to happen in your life. And then just adjust keep adjusting your goals because it is a marathon versus like a sprint.
Maggie Germano 24:36
Yeah, I love that. Because it’s just because you’ve set a goal or set a budget structure in the beginning doesn’t mean it’s always going to work. And so allowing yourself that flexibility. I think that that’s a really good that’s a really good point, like touching back and seeing what’s working what’s not and making changes as needed.
Snigdha Kumar 24:53
Yeah.
Maggie Germano 24:54
Great. And so how can folks learn more about you learn more about digit?
Snigdha Kumar 25:01
Well, learning more about me, you can connect with me on LinkedIn or Instagram. I’m not a very avid Twitter, Twitter person, I do have a Twitter profile, I just usually use it to like read news for digit.co look at our website. It’s digit.co. And we also have an Instagram presence. We have a LinkedIn presence, we have Facebook presence, learn more about what we’re doing. We’re launching some very exciting products, which again, is focused on automation, because we kind of like Adelgid, believe that not expecting a lot of behavior change, but helping the customer do the work by not having to think about it, like we’ll do all the work for you. We have been focused on that. And most of the products that we’re launching is on that, where if you feel overwhelmed with your finances, look at all the products we’re offering. And we will help you automate your finances.
Maggie Germano 25:50
That’s great. And I’ll be sharing, I’ll be sure to share all of that in the show notes as well. So people have easy access. Well, thank you so much for being here today. This is a really interesting conversation. I know that people probably don’t think or talk a ton about credit building. And that is obviously a really important piece for folks, especially who just don’t have a lot of that credit history, especially in the US. So I really appreciate you coming here to talk about that.
Snigdha Kumar 26:16
Yeah, thank you really enjoyed this conversation.
Maggie Germano 26:19
Great. Thanks so much.
Maggie Germano 26:25
Thanks again for listening to the money circle podcast. If you want to learn more about my financial coaching services, my speaking and workshop offerings, or just to read my blog visit Maggiegermano.com. To get in touch with me directly email me at [email protected]. You can also follow me on Instagram and Twitter @MaggieGermano. I look forward to hearing from you. Bye bye.
