Creating a Credit Building Product for your Target Market

Transcription

1 Creating a Credit Building Product for your Target Market October 12, 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 advisors before making any decisions. CBA does not represent that any of the information will produce results.

2 Housekeeping Please TYPE any QUESTIONS into the CHAT box during the webinar! This webinar is being recorded. All participants are on mute. 1A2

3 Credit Builders Alliance

4 Creating a Credit Building Product for your Target Market This webinar was made possible through the generous support of

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6 CBA/TFC Strategic Partnership New!: Credit Builders Forum for all practitioners

7 Disclaimer The information presented in this webinar is not intended to be legal advice and may not be used as legal advice. Legal advice must be tailored to the specific circumstances of each case. Every effort has been made to assure this information is upto-date. It is not intended to be a full and exhaustive explanation of the law in any area, nor should it be used to replace the advice of your own legal counsel. Any opinions expressed are the opinions of the speaker and not their organization.

8 What is Credit Building? CREDIT BUILDING: The act of making on-time monthly payments on a financial product such as an installment loan or a credit card that is reported by the creditor to the major credit bureaus. CREDIT BUILDING Credit repair STRONG CREDIT CREDIT BUILDING Credit remediation/debt management alone

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

10 Client-Centered Approach Develop appropriate products. Consider each and the intersection of: Needs, Goals, Realities, Circumstances and Impact Understand the credit profile Know the Score Assess product readiness and support holistic financial stability Celebrate and leverage Credit Building success

11 Best Practices Determine Mission Fit Define Target Market & Need Establish Financial Education Requirements/ Support Identify Loan Capital & Risk Tolerance Sign up to Report through CBA!!! Create Product Understand Regulatory Environment Assess Organizational Capacity Track Outcomes Identify a Graduation Product

12 Best Practices Determine Mission Fit

13 Determine Mission Fit Mission: To help low-income people build their long-term financial health. Products: Opportunity Loan / Credit Builder Loan $100-$1,000 / $150/$300/$600 15% held as security / Entire amount placed in locked savings account Why: Responsible alternative / Pure credit building to payday loans APR & Fees: 18% interest + 5% fee / $25 at origination & $25 when pull credit report at 6 month mark

14 Determine Mission Fit Mission: mobilizes and supports member programs and allies to end intimate partner violence. Secured microloan program to assist with credit building using IDA match as collateral Unsecured microloan program in 2013 (on average $300 - $500 loans at 0% interest over 12 months). Payments reported by KCADV to credit bureaus Tracking credit score increases for participants up to points in conjunction with another open active trade line in good standing and/or settlement of collections

15 Best Practices Determine Mission Fit Define Target Market & Need

16 Get the Good Stuff Going Sample Credit Builder Products Step Up Loan Loan Amount: up to $ Interest Rate: 12% Loan Term: 6 months Success BCNA (formerly NYANA) offers $500 loans to clients who have no score. After 6 months, they can see scores go up to 660, enabling them to make a larger business capitalization loan and/or help clients access other business credit.

17 Define Target Market & Need Chatauqua Opportunities for Development, Inc. Home Appliance Loans Loan Amount: $500-$1,400 Loan Type: Secured Interest Rate: Prime +3 (around 8%) Term: 1-3 years Target Market: very low-income clients

18 Best Practices Determine Mission Fit Define Target Market & Need Establish Financial Education Requirements/ Support

19 Determine Fin. Ed. Requirements/Support

20 Best Practices Determine Mission Fit Define Target Market & Need Establish Financial Education Requirements/ Support Identify Loan Capital & Risk Tolerance

21 Identify Loan Capital & Risk Tolerance % members who responded to 2012 CBA survey concerned about Cover Loan Losses Cost of Loan

22 Best Practices Determine Mission Fit Define Target Market & Need Establish Financial Education Requirements/ Support Identify Loan Capital & Risk Tolerance Assess Organizational Capacity

23 Assess Organizational Capacity STAFF CAPACITY ISSUES AS PERCEIVED BARRIERS TO SDL PROGRAMS 53% 53% 58% 42% 33% 33% [ON LOAN ORIGINATION/CREDIT APPLICATION FACILITATION] [ON SERVICING LOANS/CREDIT] [ON COLLECTIONS] Prospective Providers Current Providers

24 Best Practices Determine Mission Fit Define Target Market & Need Establish Financial Education Requirements/ Support Identify Loan Capital & Risk Tolerance Understand Regulatory Environment Assess Organizational Capacity

25 Understand Regulatory Environment Our state has embraced our desire to compete with predatory lenders. They have bent over backwards to accommodate our questions and work with us on our license application. --Montana Community Loan Fund, Missoula, MT Regulators have been a significant impediment to expanding operations. It has been difficult to get them to grant us a consumer finance lending license and they have even been extremely strict on the wording of educational materials, marketing materials, and signage, often causing long delays in material distribution. --Community Development Finance, San Francisco, CA creditbuildersalliance.org info@creditbuildersalliance.org 2012 Credit Builders Alliance, Inc. Some rights reserved.

26 Best Practices Determine Mission Fit Define Target Market & Need Establish Financial Education Requirements/ Support Identify Loan Capital & Risk Tolerance Create Product Understand Regulatory Environment Assess Organizational Capacity

27 Create Product People & Purpose Build credit Combat payday lenders Start microenterprise Purchase a specific need Pay off expensive debt, etc. Terms & Conditions Application requirements Underwriting requirements Loan term Interest Rate and/or fees Financial education requirements, etc.

28 Create Product LISC Twin Account: Enhanced IDA Credit Builder Account Purpose: IDA and Credit Builder Loan Amount: $300 Loan Type: Secured by loan proceeds Interest Rate: 6-12% depending on state Payment: $26/month Term: 12 months Target Market: low-income Financial Opportunity Center clients Education: paired with financial coaching Offered in: 11 states where there is a LISC footprint (IL, WI, OH, TX, MI, MN, RI, MA, MO, KY, and IN)

29 Create Product Twin Accounts Success Over 500 Accounts opened through the FOCs 85% on track to complete the program successfully Approximately 20% pay late, but course correct Average Scores of Twin Accounts participants of 630 Individuals achieving scores of 700+ within a year

30 Create Product FOC Clients Can Build Credit Financial Opportunity Center clients tend to be job seekers in underserved communities (90% minority, and very low income) 39% of FOC participants unscored due to insufficient credit history Only way to generate a score open and active accounts that report to the credit bureaus More than half of participants are good money managers (Project Match Cluster Analysis,

31 Create Product Negotiating compassionate loan terms Goal: build credit through reporting on-time payments Reality: life happens Good news: credit reporting can be very flexible Consider timing of due dates only reporting at the end of the month Start working with a borrower early 30 day window Setting new terms Reducing payment amounts or suspend temporarily Report as current on new agreement!

32 Best Practices Determine Mission Fit Define Target Market & Need Establish Financial Education Requirements/ Support Identify Loan Capital & Risk Tolerance Sign up to Report through CBA!!! Create Product Understand Regulatory Environment Assess Organizational Capacity

33 Report through CBA!!!

34 Assess Organizational Capacity CBA Rapid Response Team Credit Builders Alliance is now offering free loan reporter training sessions to emerging reporters to discuss the detailed process of reporting borrowers loans to the credit bureaus and how CBA assists in that process Trainings focus on requirements to set up loan reporting, review of Fair Credit Reporting Act regulations, and best practices in loan reporting

35 Best Practices Determine Mission Fit Define Target Market & Need Establish Financial Education Requirements/ Support Identify Loan Capital & Risk Tolerance Sign up to Report through CBA!!! Create Product Understand Regulatory Environment Assess Organizational Capacity Track Outcomes

36 Track Outcomes 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..

37 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 38

38 Best Practices Determine Mission Fit Define Target Market & Need Establish Financial Education Requirements/ Support Identify Loan Capital & Risk Tolerance Sign up to Report through CBA!!! Create Product Understand Regulatory Environment Assess Organizational Capacity Track Outcomes Identify a Graduation Product

39 Identify Graduation Product(s) Central Vermont Community Action Council Applicants referred to local Credit Union by CVCAC for secured credit card Credit Union waives annual fee and has lowered $500 required deposit to $150 for CVCAC clients. Increased credit scores allow clients to access a wider array of products through Credit Union. Success Stories: A client who disputed medical debts and used a secured card raised her score from 513 to 740 over 5 months. A client who previously had no tradelines used the secured credit card and saw her score rise to 812 FICO by the end of the year.

40 Questions Contact us at