building your credit - creating assets
TRANSCRIPT
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 creditHelp your client “own” their credit history
• Step 2 : Know the ScoreKnow the credit profile of your clientsPull a credit report at every client intake
What is Credit Building?
• X Credit 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 StrategiesTips 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
