Build Credit. Build Assets Missouri Association for Social Welfare October 23, 2008
Mission Our mission is to connect low- and moderate-income families with institutional resources in order to build financial assets and develop enduring change
Core Products • Credit Building and Financial Education • Homeownership preparation and retention • Micro-enterprise Lending and Training • Individual Development Accounts Our delivery model: most of our work is done through one-on-one counseling
Credit Building Premise “Credit building may be the most cost-effective and efficient asset building tool.” The single most important factor in developing and increasing long term assets is attaining and maintaining a high credit score.
Credit Building Premise People with a good credit rating will save approximately $250,000 in interest throughout their working lives • A homeowner will save more than $250,000 on a 30-year fixed $300,000 mortgage. • A car buyer will save up to $50 a month on a 36-month car loan.
Why Credit? Access to prime, safe financial services is increasingly determined by an individual’s credit score. Credit score helps families build wealth -- a home, a business, education. Credit scores provide: • access to mainstream financing • lower interest rates • safer products • less vulnerability to predatory lenders • access to rental housing, employment, insurance, etc.
Catch 22 Families with low or poor traditional credit have few opportunities to build credit Low credit scores = “underbanked” • 15 percent of the U.S. population - between 35-50 million people – have no credit files or thin files and are “unscoreable.” • 25 percent of the population have poor scores (lower than 650 FICO)
Credit Building Strategies • Step 1 : Rethink: Credit as an Asset • “many people are creditworthy, but not credit educated” • Impart importance of good credit • Help your client “own” their credit history • Step 2 : Know the Score • Know the credit profile of your clients • Pull a credit report at every client intake
What is Credit Building? • XCredit Repair - help individuals remove information on the credit report they know to be true • ? Credit Counseling - counsel clients and be able to offer them “debt management plans” • ! Credit Education - provide general educational information around credit through websites, workshops, etc. • ! Credit Coaching - provide individual support and strategies for people to create or improve their credit profile • ! Credit Building - provide asset building products and services to help people create or improve their credit profile
Credit Building Strategies Tips for Managing Active Accounts • Make at least the minimum payments on-time for every active account. • Negotiate payment dates that works with your income schedule. • Don’t consume more than you can afford. Know how much you can afford by creating a monthly budget and following it. • Building high credit does not require building high debt -- $50 or $5,000 loan will provide the same credit boost.
Credit Building Strategies Tips for Managing Active Accounts • Manage at least one revolving loan such as a credit card. • Don’t max out credit cards. Keep debt below 50% of the credit limit at all times. Keeping debt at less than 30% of the credit limit is even better! • Ensure that creditors reports the credit limit. When a credit limit is not reported it may look like the card is maxed out when it is not. • Do not apply for new credit cards to replace old cards. Keep revolving accounts open – to lengthen a credit history and keep total credit limit higher than outstanding debt.
Credit Building Strategies Tips for Managing Active Accounts • Buy on credit only from those that report positive data to the credit bureaus. • Avoid Buy Here, Pay Here, Pay Day Loan/ Title Loan Companies by establishing relationships with traditional lenders such as credit unions
Credit Building Strategies Step 3: Get (or keep) the good stuff going • Build NEW good credit versus dwelling on old bad credit. New on-time payments improve your credit more quickly than paying off old debt • Offer a Credit Builder Loan • Partner with a financial institution to open a Secured Credit Card;
Credit Building Strategies Step 4: Create a Credit Action Plan • Credit plan to meet asset building goal • Review the Credit Report once a year Step 5: Delve out of Debt • Dispute inaccuracies • Save to negotiate and pay old debt • Encourage EITC planning • Consolidate debt into business or mortgage loans
Robert F. Boyle Chief Executive Officer Justine Petersen email@example.com