Credit as an Asset. August 17, CFED, Washington DC

Transcription

1 Credit as an Asset CFED, Washington DC August 17, Credit Builders Alliance, Inc. Some rights reserved. CREDIT BUILDERS ALLIANCE and the accompanying Logo are trademarks of Credit Builders Alliance, Inc. This document is licensed under a Creative Commons Attribution-Noncommercial-Share Alike License (US/v.3.0). Noncommercial uses are permitted on the condition that you include an attribution to Credit Builders Alliance. If you alter, transform, or build upon this work, you may distribute the resulting work only under the same or similar license to this one. More information regarding the license is at: Requests for permissions beyond the scope of the license should be directed to Credit Builders Alliance, Inc., at Credit Builders Alliance ("CBA"), a not-for-profit organization, makes this information available for informational purposes only. This information is not intended as legal, financial, or other advice, and you and your clients should consult qualified info@creditbuildersalliance.org advisors before making any decisions. CBA does not represent that any 2016 of Credit the information Builders Alliance, will Inc. produce Some rights results. reserved.

2 Training Agenda 9:00 9:30 Welcome and Introductions 9:30 10:00 Why and What is Credit Building CBA s Credit Builder 5-Step 10:00 11:00 Step 1: Consider the Goal 11:00 11:15 Break 11:15 12:00 Step 2: Know the Score 12:00 1:00 Lunch 1:00 1:30 Step 2: Know the Score (cont.) 1:30 3:00 Step 3: Get the Good Stuff Going 3:00 3:15 Break 3:15 3:45 Step 4: Deal with Debt 3:45 4:15 Step 5: Leverage Success 4:15 4:30 Recap, Commitments & Follow Up

3 Introduction: First Impressions Icebreaker! Tell us about yourself. What do you hope to take away from this training? 1A2

4 Training Expectations Does Offer An introduction to CBA s Credit Building philosophy and the importance of credit building as an asset building strategy. An overview of key credit building concepts as distinct from strategies solely focused on debt management for achieving financial stability. An exploration of tools to develop/ enhance credit building programs. An opportunity to share with and learn from others. Does Not Offer Extensive training on credit coaching or credit counseling with individuals Extensive training on credit remediation including disputing errors, debt management, collections accounts or identity theft Check out the additional resources on CBA s training webpage: training-materials And become a CBA Member for more helpful resources that we may not cover in detail in this training!

5 CBA Support CBA Tools & Resources Visit our website at creditbuildersalliance.org for great resources to help enhance client and organizational outcomes through the power of credit building! Members Only! Everyone!

6 CBA Support CBA Tools & Resources Member Login information for CFED Staff: Username: Field Engagement Password: fe2016

7 Introduction: Who is Credit Builders Alliance? To help organizations move people from poverty to prosperity through Credit Building. Good Credit is an Asset Mission driven nonprofits and other entities are uniquely positioned to help the households they serve build credit as an asset often the FOUNDATIONAL asset.

8 Introduction: CBA Credit Builder Community

9 Introduction: CBA s Platform Supports Credit Building Practices by enabling nonprofit and governmental entities to report loans and pull credit reports for underwriting & counseling/coaching Practitioners through technical assistance, training, networking & professional development Products that offer innovative, replicable and scalable solutions for consumers (including renters) and micro-/small business owners Policies that promote consumer, micro-/small business and nonprofit-friendly growth, innovation and development of the field CBA Credit Building Community

10 What is

11 Introduction: Definitions Credo: (kreed o) v. trust Credit: (kred it) n. value; worth Dette: (Det) n. A sum of money that is owed or due Debitum: n. Something owed

12 Introduction: Key Terms CREDIT SCORE: Three digit number summarizing your credit risk based on a snapshot of your credit report at a particular point in time CREDIT REPORT: Record of a consumer s credit history CREDIT HISTORY/FILE: Record of transactions involving the use of credit and other products/services

13 Source: FICO Poor 579 and below Introduction: Context: What is a good score? Fair Good Very Good Excellent Viewed by lenders as a risky borrower No access to loans all, or access with high interest rates Some lenders will approve loans with this score May have high interest rates Most lenders consider this a good score Eligible for reasonable or good rates and terms Viewed by Viewed by lenders as a lenders as an very exceptional dependable borrower borrower Best rates and Very good or terms best rates and terms About 22% of consumers have scores below 600 About 23% of consumers have scores between About 35% of consumers have scores between About 20% of consumers have scores above 800

14 Good Credit : Passport to the New Economy

15 Why Credit Building? Increases Access, Affordability, and Options for Financial products Rental Housing Utilities Cell phone plans Insurance products Asset Building

16 Why Credit Building? Smooths Income & Buffers Shocks Without access to affordable credit it is difficult if not impossible to achieve or maintain financial stability or security Paid in Full each month = 30 day 0% loan 400%+ APR = cycle of debt

17 Why Credit Building? Increases Cash Flow & Savings Score Potential Savings each month = $67 over 5 years = $4,020 $10,000 auto loan 5 year term Interest Rate Monthly Payment % $ % $ % $ Score Potential Savings each month = $192 over 30 years = $69,280 $100,000 mortgage 30 year fixed Interest Rate Monthly Payment <620 N/A N/A % $1, % $960 Source:

18 Why Credit Building? Decreases Costs Your credit score and other non-driving related information may affect what you pay for car insurance On average drivers with good credit scores pay $214 more per year for car insurance than those with the best scores In some states, drivers with poor credit scores can pay as much as $2,000 more than drivers with excellent credit scores Lower-income drivers (with perfect driving records) have been found to pay an average of 59% more than drivers with higher incomes.

19 Why Credit Building? Improves Asset Building Potential Federal Reserve s 2014 Joint Small Business Credit Survey found that the top reason for denial of credit to micro and small businesses was Low credit score

20 Why Credit Building? Good Credit = Opportunity In many states, credit history can still affect employment opportunities 1 in 4 say that a potential employer has requested to check credit 1 in 10 have been informed that they would not be hired for a job because of credit 47% of all employers conduct credit checks on job applicants.

21 What is Credit Building? How Does it Work? CREDIT BUILDING: Establishing and maintaining ACTIVE (paying on-time) trade lines (like installment loans or revolving credit cards) that is reported by the creditor to the major credit bureaus. STRONG CREDIT HISTORY

22 What is Credit Building? What is an Active Trade Line? An Active Installment (loan): Has a Balance Has a monthly payment Is not closed

23 What is Credit Building? What is an Active Trade Line? An Active Revolving (credit card): Doesn t need to have balance or payment At least one payment has been made in the past 6 months (date of last activity)

24 What is Credit Building? More on Active lines An open line of credit an active trade line. If it is dormant, it is not active. Only time will heal the negative impact of a late payment on an active trade line A student loan in deferment is not active, but has the potential to be active A loan paid off is no longer active A collection/charge-off can never be an active line of credit

25 What is Credit Building? Best Practice 3 ACTIVE trade lines always paid ON- TIME! MIX of installment and revolving Installment: assess affordability of monthly payment Revolving: maintain debt balance below 30% & don t use for general consumption 6 months of history and activity PAIR with credit education & support

26 What is Credit Building? The Key Opening and successfully managing financial products is key to building and maintaining a good credit history BUT Individuals, families and communities with no, thin or poor traditional credit histories have few opportunities to build good credit

27 Why Credit Building? Credit Realities among US Consumers

28 Why Credit Building? Credit Realities among US Consumers 64 million U.S. consumers have no or thin credit history (Experian) 26 million are credit invisible: About one in 10 Americans do not have any credit record. 19 million have unscored credit records: About 8 percent of the adult population has credit records that are considered unscorable 9.9 million have an insufficient credit history 9.6 million lack a recent credit history (CFPB)

29 Why Credit Building? Credit Realities among US Consumers Less than half of Americans have what is considered to be a prime credit score (CFED) Consumers in low-income neighborhoods are more likely to be credit invisible or to have an unscored record Black and Hispanic consumers are more likely to have limited credit records (CFPB)

30 Who are Credit Invisible and Thin File Consumers? New to Credit: Consumers who are actively seeking credit, but haven t yet established any or enough credit history. Elaine, a college junior, moving out of the dorms and trying to rent an apartment and open a credit card account. Marcel, a recent immigrant with a steady job. Trying to establish credit in order to obtain better housing and eventually start a small-business.

31 Who are Credit Invisible and Thin File Consumers? Credit Retired: Consumers who have not actively used credit in the past two years. Credit file only contains old information. Ruth and Tom, a retired couple whose mortgage has been paid off for five years and don t use credit cards. When attempting to get a cell phone contract, they were asked to pay a deposit due to lack of recent credit history.

32 Who are Credit Invisible and Thin File Consumers? Lost Access To Credit: Consumers who have suffered economic difficulty and have a credit history that only contains negative, non-active accounts. Grant, who suffered a job loss and ended up filing for bankruptcy 4 years ago. Has since found new employment but has had difficulty re-establishing positive credit history. Regina, who is recently divorced and jointly liable for several collection accounts with her ex-husband. Hoping to achieve financial stability and develop a positive credit history in her own name.

33 Who are Credit Invisible and Thin File Consumers? No Credit Bureau Record: Consumers who have no record of any credit history. Jose, who immigrated to the US 10 years ago, but who is unbanked and pays all bills in cash and with money orders. Avery, a 25 year-old millennial employed in the sharing economy, primarily using pre-paid cards and living with his parents.

34 Good Credit is an Asset Getting the message across The CBA Credit Builder 5-Step For Practitioners An Action Plan Framework for working with clients to build credit

35 CBA Credit-Builder 5-Step Step 1: Consider the Goal Know the Score Consider the Goal Get the Good Stuff Going Deal with Debt Make Credit Building Count

36 Consider the Goal Setting SMART Goals Help clients identify SMART shortterm and long-term financial goals Specific Measurable Actionable Realistic Time-based

37 Consider the Goal Connect goals with credit building Help clients understand the link between good credit and their financial goals.

38 Consider the Goal Shifting the paradigm I have bad credit and there isn t anything I can do about it. I haven t looked at my credit report in years. I am scared to open credit accounts because I have been in trouble with debt before. I am afraid that I will never be able to qualify for a mortgage.

39 Consider the Goal Shifting the paradigm Credit is a deficit Credit is an ASSET!

40 Consider the Goal Shifting the paradigm Now that we know what is on our credit report, we can start working on our plan to improve our credit scores. Our credit is far from perfect, but with time and dedication we will be able to achieve our financial goals. We are in control of our credit and know what steps we need to take to build the credit score that we need in order to achieve our dream of homeownership

41 Consider the Goal Examples of Success March 2007 October Score of Score of No Score mid-600 high-700 $500 Credit Enhancement Loan $2,000 small business loan Qualifies for 2 credit cards Successful Small Business 2015 Home Ownership Enrolls in BCNA s IDA Program $2,000 savings & $2,000 match grant

42 CBA RECOMMENDATIONS: Identify sample client goals Make them SMART Discuss how credit building is important to achieving them Identify client goals. Discuss these goals, how credit building is important to achieving them, and what steps your clients can take to achieve these goals. Identify client goals. Discuss these goals, how credit building is important to achieving them, and what steps your clients can take to achieve these goals. Make them SMART (Specific, Measurable, Achievable, Realistic, and Time-Bound) Make them SMART (Specific, Measurable, Achievable, Realistic, and Time-Bound)

43 Peer Sharing Share your sample clients goals How do you connect good credit to those goals?

44 BREAK!

45 CBA Credit-Builder 5-Step Step 2: Know the Score Know the Score Consider the Goal Get the Good Stuff Going Deal with Debt Make Credit Building Count

46 Know the Score Report vs. Score Credit Report: summary of credit history Credit Score: risk model used by lenders/other businesses to provide a snapshot assessment of credit information at a moment in time Both are important!

47 CBA Credit-Builder 5-Step Step 2: Know the Score Information is Key: Reviewing credit reports & scores with clients at intake helps you understand their financial circumstances, shows them what creditors/businesses will see (or not), and helps them make the best credit building decisions in the moment and also plan for future goals. Timing is Key: Pulling reports & scores at least 6 months before seeking to achieve their goal provides time to build credit and correct and update information.

48 Credit Quiz MYTH OR FACT? Myth Fact There is nothing you can do once a collection agency begins to call you other than pay back your debt. Myth If you pay all your monthly bills on time, you will have a high credit score. Myth Fact If you only have Collection Accounts on your credit report, you may not have a score. Myth Fact You can ruin your credit by applying for a few new lines of credit (making inquiries). Myth Fact It is possible to go from unscored to a prime score in 6 months if you have one reported loan you pay on time each month. Myth A single delinquency can reduce a credit score by over 100 points. Myth Fact Credit cards can be excellent vehicles for building credit. Myth Fact Fact Fact

49 Know the Score The Players Rulemaking & enforcement authority historically fractured, CFPB now a game changer Voluntarily submit data; may or may not report to all 3 (still regional inconsistencies) The Government Models designed differently based on consumer files (FICO, VantageScore, etc.) Lenders & Other Businesses (incl. public records) Consumers Risk Score Modelers Credit Reporting Agencies Big Three: Experian, Equifax, TransUnion Also CoreLogic Credco, subprime CRAs for payday loans and alt. data; specialized CRAs with medical, employment, checking account history (e.g. FIS/Chex Systems) SOURCE: Experian

50 Know the Score There are Thousands of Scores What Score? Q: A: Lenders use different scores designed to measure risk for different types of lending -- including mortgage, auto, and personal finance loans and different types of consumers like those considered more or less risky

51 Know the Score Why so Many Scores? Businesses may also use credit scores calculated for other purposes: A: Insurance companies may use credit scores not only to predict the likelihood of payment, but also to assess a consumer s risk of being in an accident and/or filing a complaint; Telecoms companies may review scores to determine whether or not to require a consumer to make a down payment in order to establish an account; Landlords may use scores to determine whether or not a consumer qualifies for rental housing; and Banks may use scores to determine an applicant s eligibility for a checking or savings account.

52 Know the Score All Scores are Educational but Two Stand Out FICO (Fair Isaac) Major lenders, including mortgage lenders backed by Fannie Mae and Freddie Mac Equifax a FICO model Major lenders VantageScore Experian and TransUnion VS 3.0 FICO website FICO Score Open Access for Credit and Financial Counseling* Examples only and not meant to be an all-inclusive list * See FICO Open Access for CFC in your packet of materials Credit Bureau websites Third party credit report/score services sites like: Credit Karma, Credit Sesame, Credit.com SOURCE: Experian

53 Know the Score Fair Isaac FICO Scores Generic Mortgage Personal Finance Bankcard Installment Score Auto MANY GENERATIONS (latest: FICO9 & FICO XD) Experian Equifax TransUnion Different bureau, different algorithm FICO is a registered trademark of Fair Isaac Corporation in the United States and other countries.

54 Know the Score VantageScore VantageScore 3 GENERATIONS (latest: VS3.0) Experian Equifax TransUnion Same algorithm across bureaus VantageScore is a registered trademark of VantageScore Solutions, LLC.

55 Know the Score Fair Isaac Traditional FICO: SOURCE: FICO

56 Know the Score VantageScore VantageScore 3.0: SOURCE: VantageScore

57 Know the Score Scoring Factors Payment History (35%) Red Flags Consumer Delinquencies within most recent 6 months Previous serious delinquency (90 days) Numerous late pays (30 or 60 days) Savvy Consumer All payments on time No serious delinquencies in history Consistently uses existing credit accounts

58 Know the Score Score Impact Missed payments and defaults have a significant negative impact Scenario Missed payments Starting Score Score DROP Ranges Bankcard 30 days days Auto 30 days days Mortgage 30 days days Charge-off or foreclosure Unpaid Charge-off, placed at collections agency Filing bankruptcy Source: VantageScore Solutions, LLC 2014

59 Know the Score Examples: A Tale of Two People Client 1 establishes prime Fico Score Client 2 misses one payment Client #1 Credit Report: Last open account /13 No FICO 10/13 Enrolls in TA 3/14 Low 700 FICO 11/14 Opened Secured Credit Card Why it matters: Client #2 Credit Report: Blank 11/12 No FICO 12/12 Enrolls in TA 2/13 Opens Credit Card 6/13 High 600 FICO 10/13 Credit Card Delinquent 1X 3/14 Under 600 FICO Gets Car 28%

60 Know the Score Scores are Important But focus on the trend upwards, the range, and the underlying behavior detailed in the credit report

61 Know the Score Scoring Factors Outstanding Debt (30%) Red Flags Consumer Maxing out multiple revolving credit crisis mode Very high overall debt level may have difficulty paying Single account maxed out Savvy Consumer Uses under 10% of revolving credit Pays off balance before statement date or before data is sent to bureaus All revolving accounts keep balances very low

62 Know the Score Scoring Factors Length of History (15%) Red Flags Consumer Very little or very short length of credit history Savvy Consumer Long history on file experience credit user

63 Know the Score Scoring Factors Inquiries (10%) Red Flags Consumer Many inquiries throughout the past year Possibly taking on too much debt Savvy Consumer Only apply for credit as needed Shopping around for the best rates for auto loan or mortgage, within a 2 week period Desperate need for cash crisis mode unlikely to pay back

64 Know the Score Scoring Factors Inquiries (10%) 45 day window: multiple inquiries count as one. Credit score only counts inquiries from past 12 months FICO ignores Auto and Mortgage inquiries in past 30 Earlier: all similar inquiries within any 45 day period are treated as 1 inquiry VantageScore: everything within 14 days is 1 hit

65 Know the Score Scoring Factors Credit Mix (10%) Red Flags Consumer Only one type of account on record Savvy Consumer Different types of accounts can manage payments consistently in different ways

66 Know the Score External Factors Which creditors have reported to the bureau creating the score, which haven t Risk levels in the national economy Change in the cohort pool for scoring

67 Know the Score FICO 9 Latest Score: Fall 2014 FICO 9 will no longer weigh unpaid medical debts as heavily. FICO 9 scoring will not consider paid collections FICO 9 considers any reported rental tradelines What this means: Some consumers can expect to see credit scores rise up to 25 points. Consumers who experience a score increase may qualify for better interest rates on credit products. Source: NY Times

68 Know the Score Score Impact Best Practice Maintain ACTIVE trade lines (pay on-time and regularly) Keep balances low (=<30%) Don t close old inactive accounts in good standing if you don t need to Maintain mix of active credit trade lines Don t open more accounts than you need to

69 Know the Score And Report! Know the Report! A credit report typically contains: Personal Identifying Information Name Address Social Security Number Date of Birth Credit History Open trade lines Active trade lines Derogatory items such as late payments & accounts in collections Public Records Bankruptcies Foreclosures Judgments Liens Inquiries List of creditors and other authorized parties that have requested and received a copy of the credit report in the last 24 months

70 Know the Score What a Credit Report May Tell You Financial patterns that may reflect stability/ability to make ends meet On-time payments Delinquencies Collections accounts Inquiries Debt obligations that may reflect ability to manage emergencies and save Total outstanding current debt & debt-to-credit ratio Total debt outstanding in collections Access to asset building credit that may reflect potential for financial security # & type of trade lines (note: can t see equity on a credit report!)

71 Know the Score When does info. fall off? Open Accounts in Good Standing Closed Accounts in Good Standing Late or missed payments Charge Off/Collections Bankruptcy Civil Judgment Foreclosure Tax Liens Inquiries Indefinitely 10yrs from date of closure 7yrs from date of 1 st delinquency 7yrs from date of 1 st delinquency 10 (Ch. 7) or 7 (Ch. 13) yrs from date of entry for relief 7yrs from date of entry 7yrs 7 yrs from paid date or no limit if unpaid 2yrs

72 Know the Score About Reports Did you know There is not just one! Like scores, credit reports are customized by different data sellers for the needs of different businesses and for consumers.

73 Know the Score Different Reports Consumer Disclosure Reports One free copy annually from each of the main credit bureaus through (No free score yet ) Adverse Action: Consumer can request report within 60 days if denied a loan or employment due to information derived from a credit report (Mandatory FREE Credit Score Disclosure Notice) Online credit education & lender lead generation sites like: Credit Karma (TransUnion & Equifax reports) Quizzle (Equifax report) Business Division Reports Lenders and other Businesses: Access to credit reports directly from credit bureaus or through data resellers for underwriting and soft inquiries Nonprofits: CBA Access: Discounted access to credit reports directly from TransUnion & Experian for underwriting, financial counseling, and outcome tracking. CoreLogic Credco, etc.: HUD Certified Homeownership programs, lending nonprofits (tri-merge option for scores) Other Data resellers: Kroll

74 Know the Score Free Credit Monitoring Credit Monitoring that is truly free: Request a credit report from each bureau every 4 months to keep an eye on credit through out the year

75 LUNCH!

76 Know the Score Who are the ideal candidates? Credit Reports or the lack of one -- can help you determine if Credit Building is the best next step

77 No File (Credit Invisible) Know the Score Who may be ideal candidates? Ability to make on-time payments!!! Thin File Thick(er) File No Credit Report Credit Report Credit Report No Credit Score No positive or negative information No Credit Score/Low Credit Score Fewer than 3 ACTIVE trade lines. May also include: Small, paid or older collections only No MIX of trade lines Credit Score Generally 3-5 ACTIVE trade lines. Other features: No current delinquencies Small, paid or older collections only No MIX of trade lines Low revolving credit utilization Not a lot of recent inquiries Long history

78 Know the Score Ready for Credit Coaching but not necessarily Credit Building yet? In crisis mode Strong tendency to miss payments Struggling with paying basic bills Revolving credit with utilization rate of 30% or more Large accounts in collections At risk of garnishment Contemplating foreclosure or bankruptcy

79 CBA RECOMMENDATIONS: Identify and catalogue what is on the credit report Discuss these with clients and identify areas/issues to address Evaluate next best step

80 Peer Sharing Is your sample client a good candidate for credit building? Why or why not? How does what you ve learned relate to credit as an asset?

81 CBA Credit-Builder 5-Step Know the Score Consider the Goal Get the Good Stuff Going Deal with Debt Make Credit Building Count

82 Get the Good Stuff Going Remember HOW DO YOU BUILD CREDIT? ON-TIME payments REPORTED to a credit bureau EVERY month BUILDS credit

83 Get the Good Stuff Going: Asset Based Approach to Credit Building What needs to be on the Credit Report? No Credit Open Credit Active Credit

84 CBA Credit-Builder 5-Step Step 3: Get the Good Stuff Going What credit-building product (s) would be most helpful? What is the client ready and eligible for? Is there potential for ongoing credit building?

85 Get the Good Stuff Going Financial Capability Every monthly payment reinforces positive financial habits!

86 Get the Good Stuff Going Product Models of Success Credit Builder Products can serve many different people and purposes.

87 Get the Good Stuff Going How CBA Members Do It Create referral relationships with financial institutions Partner with responsible lenders to offer new products Offer & report their own products!

88 Going A Good Product What to look for Get the Good Stuff Going Try to find products that are: Flexible & Affordable Relevant and accessible to your clients BUILD CREDIT! Potential for graduation

89 Get the Good Stuff Going Assessing Active Lines Help your clients consider their active credit lines in order to ensure credit building success: Monthly payments are affordable? What credit bureaus are being reported to? Client understands terms and conditions of the account? No hidden fees or unexpected charges? Client knows who to contact if there is a problem with the account?

90 Alternative Strategies for Credit Building Starter products: Credit Builder Loans Secured Credit Cards Special purpose consumer loans Social Loans Rent Reporting Alternative Credit Scoring for credit invisible and thin file consumers

91 Credit Builder Loan Characteristics Installment loan with 0% interest 100% secured, loan disbursed after 12 monthly payments Choose your loan amount $150 loan with 12 monthly payments of $12.50 (individuals only, no couples) $300 loan with $25 payments for 12 months $600 loan with 12 monthly payments of $50 Automatic enrollment in autopay from your bank account Payment due dates 5 th or 20 th

92 Credit Builder Loan Characteristics, cont. We report your on-time monthly payments to the three credit bureaus Non-refundable $25 application processing fee due with application ($35 for dual applicants) $25 loan processing fee ($35 for dual applicants) Average score improvement: 677 if you start with no score Gain 42 points if you start with a score

93 Get the Good Stuff Going Where to look Clients with no credit, or challenged credit may have difficulty finding responsible credit products that they are eligible for. Consider the following options: Banks/Credit Unions, particularly those that are CDFIs may offer smalldollar secured and unsecured products. If your client already has a relationship with a financial institution, this may be a good place to start. Non-profit/community lenders (including CBA members and CDFIs) in your area may have programs specifically designed for underserved communities or those with challenged credit. Licensed & reputable online lenders are becoming more prolific and may offer options at reasonable rates and with more responsible policies and procedures than online payday lenders.

94 Get the Good Stuff Going CB products in local communities

95 Get the Good Stuff Going CB products in local communities

96 Get the Good Stuff Going CB products in local communities

97 Get the Good Stuff Going Small Business Lending

98 RRCB: Definitions What is rent reporting? Regular monthly reporting of tenant rent payments to at least one of the major consumer credit bureaus for inclusion on consumer credit reports What is rent reporting for credit building? The pairing of rent reporting with credit/financial coaching and/or education and asset building programs for the purpose of supporting residents to build credit as a foundational asset and leverage improved credit to achieve financial goals

99 Residents gain the opportunity to build credit without assuming additional debt through the establishment of a new, positive, active trade line on their traditional consumer credit report Resident Service Providers gain access to a credit building product/tool which they can wrap coaching and education around and directly provide residents with means to measurably improve their credit profile Property Managers gain the opportunity to a positive incentive for on-time rent payment and a competitive advantage in recruiting new residents.

100 CBA s Power of Rent Reporting Pilot Results: 100% of residents who initially were unscorable became SCOREABLE by VantageScore % of residents experienced an increase in their credit score by an average of 23 points 90% of residents with a subprime initial score experienced an increase by an average of 32 points

101 CBA RECOMMENDATIONS: Consider what product your client could most benefit based both on his/her goals and credit profile (or lack of one)? Do relevant products exist in your area? Are your clients eligible for these products? Are there any risks or challenges that your client needs to be aware of?

102 BREAK!

103 CBA Credit-Builder 5-Step Know the Score Consider the Goal Get the Good Stuff Going Deal with Debt Make Credit Building Count

104 CBA Credit-Builder 5-Step Step 4: Deal with Debt Debt management ALONE is not a Credit Building strategy Debt management is important and often essential to financial stability However, paying debts alone does not build credit. Debt management may need to happen before, or in conjunction with Credit Building

105 Deal with Debt Debt and Credit Building Help your clients make decisions about debt from a credit building perspective: Tackle low-hanging fruit Prioritize debt payments based on credit and financial stability Weigh the costs & benefits of paying debt/collections Navigate Competing Priorities

106 Deal with Debt Low-hanging fruit Dispute errors and inaccuracies. (1 in 4 reports contain errors!) Get 30 or 60 day delinquent accounts back on track. Pay off small debts and pay down revolving debts.

107 Deal with Debt Prioritize Prioritize debts with credit building and financial stability in mind: Keep current account current and prevent active delinquent accounts from turning into collections or judgments Consider the original delinquency date for derogatory accounts, and when it will come off of the report. Take into account the size of debts what types of interest rates are being charged.

108 Deal with Debt Cost/Benefit Analysis Factor in the potential consequences of addressing debt and how it will affect the credit report/score Weigh the difference between settling collections accounts (saving $$) and paying them in full (better for the credit score) New activity on old debts can alert dormant creditors that consumer is paying debts. Benefit: paying down revolving debt will positively impact credit utilization ratios!

109 Deal with Debt Navigate Competing Priorities Do not open new credit accounts, if you can bring older accounts current instead Do not close older open revolving accounts if possible Do not ignore collection accounts to focus only on credit building. If the statute of limitations has not expired, they can still attempt to collect from you.

110 Deal with Debt Collections and Credit Building Collections have most significant negative impact on a score when first reported then they age. If there are inaccurate collection accounts on a report, dispute them. Removing them will improve the credit score. Paying or settling a collection account may still leave negative account info on report until it ages off (do not confuse with state debt collection statute of limitations) (VS3.0 & FICO 9 do not weigh paid-in-full collections & medical debt counts less) Collection activity and collection agents cannot update the Date of First Delinquency!

111 Deal with Debt New Developments Under the National Consumer Assistance Plan, Credit Bureaus now have more stringent requirements regarding how they must investigate and handle disputes. Must use trained employees to review consumer disputes Even if the creditor claims the reported information is accurate, a credit bureau employee must investigate further and resolve the dispute. If a consumer receives a free report at AnnualCreditReport.com and discovers and successfully disputes an error in that report, they will be entitled to a second report at no charge.

112 Deal with Debt New Developments Starting June 2016 Debt collectors must report the name of the original creditor and creditor classification code Debt collectors cannot report debt that did not arise from a contract or agreement to pay & must institute a process to remove such data from consumer credit reports (example: Traffic tickets)

113 Deal with Debt New Developments Medical Debt Starting Sept 2017 Creditors cannot report medical collection accounts less than 180 days old Creditors must delete accounts that are or will be paid in full through insurance

114 CBA RECOMMENDATIONS: What are your client s goals? What type of debt does he/she have? How much can he/she afford to pay towards their debt payments? Where should he/she start in dealing with the debt? What s the best way to negotiate his/her debt?

115 Peer Sharing How does debt management and credit building work together? How does what you ve learned relate to credit as an asset?

116 CBA Credit-Builder 5-Step Know the Score Consider the Goal Get the Good Stuff Going Deal with Debt Make Credit Building Count

117 CBA Credit-Builder 5-Step Leverage Success CBA Credit-Builder 5-Step Step 5: Make Credit Building Count Access to employment, safe and affordable financial and insurance products, rental housing, etc. Increased savings and financial stability Financial security Established & improved credit histories

118 Make Credit Building Count Selecting Indicators of Success The most impactful and simplest metric used by lenders & businesses to offer mainstream credit But Remember Score change alone doesn t equate to financial access or stability unless it is leveraged to: Obtain affordable financial products Reduce (refinance) interest & fees Lower insurance premiums Eliminate/reduce security deposits Obtain desired rental housing Get a job and more..

119 CBA Credit-Builder 5-Step Make Credit Building Count Leverage Success What can your Organization do? Leverage: Track: Monitor changes in credit history and score to measure progress and provide additional support if necessary (some clients will need extra support and guidance) Engage: Regularly connect with clients about their credit building progress and how it relates to their goals Celebrate: Recognize and celebrate credit building success. It is empowering and clients deserve credit for their hard work and can serve as models across generations Help clients translate credit improvements into increased financial stability and asset building opportunities

120 Credit Building for Credit Strength - A Framework for Program Design Knowledge: what you need to know and understand to build strong credit Access: what products and opportunities you need to have in place to build strong credit Credit Strength: Leveraging strong credit to achieve your goals. Actions: what you need to do to build and sustain strong credit 120

121 Credit Strength means different things to different people Credit Strength = Ability to achieve my goals I lowered my payments on insurance and loans I have credit that I can use in case of emergencies I have obtained a job of my choice I can qualify to buy a home or get a small business loan I went back to school because I was able to purchase a car with a low-interest loan I m living in housing of my choice I didn t have to pay a security deposit for my utilities or I got my security deposit returned I reduced my outstanding active debt 121

122 Recommended Knowledge Indicators Tracking tool: Surveys at Intake and Follow Up Intervals access Client Knows: How to pull free annual credit capability report from each of 3 credit major credit bureaus. How to dispute errors as needed. What financial actions drive credit scores generally. How to connect the right credit product(s) for them to their goals. 122

123 Recommended Access Indicators Client Has: At least one ACTIVE (paid on time) credit account listed on the credit report that is at least knowledge 6 months old. Over time: A mix of three types of ACTIVE credit accounts (revolving and installment). The option of opening a credit account with a mainstream financial institution. Been able to access additional opportunities (rental housing, employment) as applicable. Tracking tools: Surveys and Credit Reports at Intake and Follow Up Intervals 123

124 Recommended Actions Indicators Actions: knowledge Disputes any errors found on credit reports. Pays all bills on-time. Reduces all active debt &/or keeps revolving debt balances at 30% or less of total available credit. Only applies for credit as needed. Tracking tools: Surveys and Credit Reports at Intake and Follow Up Intervals 124

125 CBA RECOMMENDATIONS: Revisit Credit Report Record score change along with other indicators change What else needs to be addressed to sustain progress? What are the concrete next steps? How will your client leverage credit building progress?

126 Peer Sharing What have you learned about the importance of credit building in the work that you do?

127 RECAP CBA Credit is an Asset Training Credit is ubiquitous and can feel daunting: Think about it as an asset to build and not just a barrier. Focus on underlying consumer behavior (not just score) as reflected on credit reports and the rest will follow: Rule #1: Pay on-time At its most basic, Credit Building requires two things: 1) Access to safe, affordable financial products that are reported to the credit bureaus & 2) Intentional financial behavior through on-time payments and current debt reduction or elimination. Advise clients to take control of their credit, get their credit report and review it and access credit building products accordingly. Remember to offer them a pathway for building and leveraging good credit long-term. Stay positive! Credit is all about what you are doing now to build a better future! Scores can increase even when there are negative items from the past

128 CALL TO ACTION CBA Credit is an Asset Training What will you do now? Commit to one thing you will do differently: a) Personally b) In your work

129 WHAT S NEXT Continue to Build Your Skills Members Only!

130 CBA Support Strategic Partnership New!: Credit Builders Forum for all practitioners

131 Post-Training Survey